586 B.R. 760
N.D. Cal.2018Background
- Havens filed an involuntary Chapter 11 petition (Aug. 24, 2016) naming the "Leong Partnership"; Leong (an individual) moved to dismiss and later obtained summary judgment on grounds the partnership's existence was disputed and the petition was impermissible.
- Bankruptcy Judge Novack allowed Leong to answer and move for summary judgment despite Leong's denial that any partnership existed, reasoning Leong was "as close to being the debtor as anyone."
- The Bankruptcy Court granted summary judgment to Leong and then awarded attorneys' fees and costs under 11 U.S.C. § 303(i), treating Leong as the "debtor" for purposes of that statute.
- Havens appealed, contending (1) § 303(i) awards are limited to the named debtor (so Leong — a non-debtor — could not recover) and (2) the fee award amount was unreasonable.
- The Bankruptcy Court awarded full fees for bankruptcy counsel and reduced fees for two litigation firms (which did not appear in bankruptcy court) by 20% for duplication and block billing; costs awarded were limited to taxable costs ($562.60).
- The district court affirmed: it held the Bankruptcy Court could treat Leong as the debtor under § 101(13) and Rule 9001 given the unusual facts, and that the 20% reduction for certain firms was a permissible exercise of discretion.
Issues
| Issue | Plaintiff's Argument (Havens) | Defendant's Argument (Leong) | Held |
|---|---|---|---|
| Whether a non-named individual (Leong) may recover fees under § 303(i) when the named debtor's existence is disputed | § 303(i) permits awards only to "the debtor"; Leong was not the named debtor so he cannot recover | Given the dispute over the partnership's existence, Leong was the party "as close to being the debtor" and may be treated as the debtor under § 101(13) and Rule 9001 to recover § 303(i) fees | Court affirmed: Bankruptcy Court could deem Leong the debtor for § 303(i) purposes in this unusual situation and award fees |
| Whether the Bankruptcy Court improperly used § 105 to override § 303(i) (Law v. Siegel concern) | Bankruptcy Court relied on § 105 to grant Leong standing to recover, which conflicts with Law v. Siegel (can't use § 105 to contravene statute) | Court framed decision on definitions (§ 101(13), Rule 9001) rather than using § 105 to override an express statutory limit | Held: Law does not bar the award because the court relied on statutory definitions, not § 105 to contravene § 303(i) |
| Reasonableness of attorneys' fees (three firms; duplication; block billing) | Fees were excessive, duplicative, block-billed; requested a larger reduction (up to 60%) and clearer findings per Gates | Bankruptcy counsel's fees were reasonable; litigation firms' fees were reduced 20% for duplication and block billing — a justified, explained exercise of discretion | Held: 20% reduction for litigation firms was reasonable and supported by authorities allowing 10–30% reductions for block-billing/duplication |
| Award of costs ($562.60) | Sought reversal of costs award as excessive | Leong did not contest the costs portion on appeal | District court reversed the costs award portion (not contested by Leong) |
Key Cases Cited
- Law v. Siegel, 571 U.S. 415 (2014) (bankruptcy court may not use § 105 to contravene an express statutory provision)
- In re Miles, 430 F.3d 1083 (9th Cir. 2005) (§ 303(i) recovery limited to debtors; third parties cannot recover damages under § 303(i))
- Gates v. Deukmejian, 987 F.2d 1392 (9th Cir. 1992) (trial court must provide concise, clear explanation for lodestar adjustments)
- Moreno v. City of Sacramento, 534 F.3d 1106 (9th Cir. 2008) (court may apply an across-the-board haircut of up to 10% without detailed line-item findings)
- Welch v. Metropolitan Life Ins. Co., 480 F.3d 942 (9th Cir. 2007) (block billing can inflate fees by 10–30%; reductions in that range are permissible)
- In re Ed Jansen's Patio, Inc., 183 B.R. 643 (Bankr. M.D. Fla. 1995) (in unusual situations a non-named representative may recover fees when estate assets were diminished defending an improper involuntary petition)
- In re Fox Island Square Partnership, 106 B.R. 962 (Bankr. N.D. Ill. 1989) (general partner who effectively represented the partnership in defending an involuntary petition could recover under § 303(i))