630 B.R. 32
Bankr. S.D. Tex.2020Background
- Three creditors (HouTex Builders, 2203 Looscan Lane, and 415 Shadywood) filed an involuntary bankruptcy petition against HL Builders (aka CD Homes); the amended petition was tried and dismissed for lack of standing and because the creditors’ claims were subject to a bona fide dispute.
- HL Builders filed an application under 11 U.S.C. § 303(i)(1) seeking $99,333.50 in attorney fees and $2,809.35 in costs (total $102,142.85) after the involuntary petition dismissal.
- Petitioning creditors objected, arguing the § 303(i) presumption should be rebutted under the four-factor “totality of the circumstances” test and identifying numerous specific defects in rates, block billing, duplicate entries, and litigation-related charges.
- The court concluded § 303(i) creates a rebuttable presumption in favor of fees, found the petitioning creditors failed to rebut it, applied the lodestar method, and parsed numerous time entries and expense items.
- The court awarded HL Builders $79,968.50 in attorney’s fees and $2,344.35 in expenses (total $82,312.85), held post-judgment interest accrues on the award, and ruled the award must be entered in favor of the debtor (HL Builders), not directly to counsel.
Issues
| Issue | Plaintiff's Argument (HL Builders) | Defendant's Argument (Petitioning Creditors) | Held |
|---|---|---|---|
| Whether fees should be awarded under § 303(i) after dismissal | § 303(i) permits an award; dismissal creates a presumption in favor of fees | The presumption is rebutted here under totality-of-circumstances (merits, reasonableness, motive) | Presumption applies; creditors failed to rebut; award appropriate |
| Whether claimed hourly rates and hours are reasonable | Proposed rates ($500, $350, $95) and ~238 total hours are market-rate and necessary | Many entries are vague, block-billed, duplicative, or unrelated and should be excluded or reduced | Court found rates reasonable; excluded/reduced specific entries and awarded lodestar-based $79,968.50 in fees |
| Whether claimed expenses (including research) are recoverable | Sought $2,809.35 for costs (including $1,550 for research) | Research and some other costs are vague and should be disallowed | Court partially sustained objection: awarded $2,344.35 in expenses, reducing research to $1,085.00 |
| Whether the fee award should be paid directly to counsel or to the debtor | Requested award to be paid to debtor’s counsel (Fuqua & Associates) | § 303(i) awards are “in favor of the debtor”; payment should be to the debtor, not counsel | Award must be entered in favor of the debtor (HL Builders); not directly to counsel |
Key Cases Cited
- Alyeska Pipeline Serv. Co. v. Wilderness Soc'y, 421 U.S. 240 (establishes federal "American Rule" and that Congress must authorize fee-shifting)
- Stern v. Marshall, 564 U.S. 462 (limits bankruptcy courts’ constitutional authority to enter final judgment in certain state-law counterclaims)
- Perdue v. Kenny A. ex rel. Winn, 559 U.S. 542 (recognizes strong presumption of lodestar reasonableness)
- Johnson v. Georgia Highway Exp., Inc., 488 F.2d 714 (enumerates factors for adjusting lodestar)
- In re Cahill, 428 F.3d 536 (5th Cir.) (applies lodestar method for statutory fee awards)
- McClain v. Lufkin Indus., Inc., 649 F.3d 374 (5th Cir.) (prevailing market-rate standard for hourly fees)
- Copper Liquor, Inc. v. Adolph Coors Co., 701 F.2d 542 (5th Cir.) (attorney-fee awards bear post-judgment interest from date of fee judgment)