Memorandum of Decision Re: Fees

DO NOT PUBLISH This case disposition has no value as precedent and is not intended for publication. Any publication, either in print or electronically, is contrary to the intent and wishes of the court.
Decisions
IN THE UNITED STATES BANKRUPTCY COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA
In re MARIN ADVISORS INVESTORS VI,                                               No. 94-12270      Debtor. ___________________________/
Memorandum of Decision
     Debtor Marin Advisors Investors VI filed its Chapter 11 petition in the fall of 1994. It retained attorney Michael C. Fallon as its general counsel. His employment was approved by the court shortly thereafter. About a year after the petition was filed, a plan proposed by the principal secured creditor was confirmed by the court. Fallon has asked for allowance of $67,698.00 in fees and $2,158.67 in costs. Kit Cole, president of the general partner of the debtor, has objected.      The court begins its analysis by noting that the overall amount of Fallon's fees are very reasonable. The case was basically a single-asset real estate case with roughly $10 million in secured debt. Such cases are very difficult for debtor's counsel, with considerable expertise required to have a possibility of restructuring the debt and obtaining confirmation of a plan. In cases of a similar size where San Francisco attorneys are hired, fees are usually much higher. Fallon is one of perhaps a dozen Santa Rosa lawyers capable of handling such cases.      Unlike most objections to fee applications, Cole's objection is not that Fallon's hourly rate was too high or that too much time was spent on the case. Her objection raises much more difficult issues regarding the competency of Fallon's services.      Cole raises three principal objections. First, that Fallon filed the debtor's plan the day after the debtor's last exclusive day to file a plan, resulting in a competing plan filed by the principal secured creditor. Second, that Fallon failed to advise her of the need to accept a settlement offer which would have avoided a contested confirmation hearing. Third, that Fallon was unprepared for the confirmation hearing and as a result the case could not go forward.      Fallon admits that he miscalendared the last day of the 120-day exclusivity period, opening up the door for the principal creditor to file its own plan. However, this is a relatively minor fault for two reasons. First, even if Fallon had filed the plan a day earlier, it would have only delayed the competing plan by 60 days. No plan was actually confirmed until long after that, when any party was free to file a plan. Second, the court took it upon itself to delay proceedings related to the competing plan until after the debtor's plan had come on for hearing. Thus, while some reduction in fees may be in order due to the calendaring error, the actual damage to the estate only amounted to some extra time being spent dealing with the competing plan a few weeks earlier.      A few weeks before the debtor's plan was to come before the court for confirmation, Fallon entered into serious settlement discussions with the principal creditors and was able to negotiate a plan to which the creditors would consent, thereby avoiding an expensive and, in single-asset real estate cases, usually unsuccessful contested confirmation hearing. Fallon communicated the creditors' proposal to Cole, who rejected it. While Cole now sees the error of rejecting the consentaneous plan, she blames Fallon for not advising her of the great wisdom in accepting this plan and the considerable risk of failure if the confrontational route was taken.      A review of the correspondence between Fallon and Cole reveals that Fallon was forceful, clear, and accurate in advising Cole about the wisdom of accepting what the creditors were offering and the considerable risks of rejecting the settlement. It is clear to the court that by this time, however, Cole and Fallon were not communicating well with each other and did not trust each other. This breakdown in communications and trust resulted in Cole not grasping what Fallon was clearly telling her.      Fallon freely admits that he was unprepared to go forward with the contested confirmation hearing after Cole turned down the settlement. However, he blames Cole squarely for this failure by failing to give him any of the information and resources he needed to prepare, including detailed financial information about the debtor and qualified and available experts. He characterized Cole as being unrealistic, uncooperative and dilatory throughout the case.      Fallon's charges are somewhat substantiated not only by his correspondence at the time but also by the court's own observations about Cole. The hearing on Fallon's fees had to be continued twice because Cole was not ready to proceed. She filed her own objection in pro per, which is very rare in cases of this size and complexity and the sophistication of all parties. When the matter finally came to hearing, she had changed her posture considerably with no warning to Fallon or the court. All of this lends considerable credence to Fallon's argument that Cole was not the diligent and cooperative principal he needed to succeed in winning a contested confirmation hearing against a sophisticated, well represented and fully prepared senior lender. The court accordingly finds it more likely than not that Fallon's failure to be prepared for the confirmation hearing was caused by Cole.      Moreover, Fallon's lack of preparedness was in no way fatal to the debtor's plan. The court did not deny confirmation, but only continued the hearing on the debtor's plan to the same time as the hearing on the competing plan, contingent on the payment of certain expenses of the creditor. The court ultimately confirmed the competing plan on its merits, not because the debtor was unprepared.      The court feels after discussing the relations between Cole and Fallon to note that Cole was not Fallon's client. The client was the debtor itself, Marin Advisors Investor VI. Both Fallon and Cole had duties to this debtor alone. From the debtor's standpoint, the case has not been a disaster. While the competing creditor's plan was confirmed, it was modified considerably by the court as the result of Fallon's arguments. While the result was not as good as the debtor's plan might have been, the debtor was ultimately given considerable time to salvage something for its creditors and equity holders. The result was certainly better than the foreclosure the debtor faced otherwise.      This is not a case which should be a source of pride for Fallon. Faced with the challenge of a difficult client, he failed to achieve the level of trust and confidence necessary to fully succeed. However, such failings do not rise to the level of incompetence necessary to justify a reduction of fees. Fallon provided competent service of considerable value to the debtor and deserves to be fairly compensated for his efforts.      While it is difficult to quantify, it appears to the court that Fallon's failure to file the debtor's plan within the 120-day exclusivity period caused the debtor about $5,000.00 in extra expenses in dealing with the competing plan a few months earlier than it would have otherwise had to deal with it. Accordingly, the court will reduce Fallon's allowed fees to $62,698.00. His request for expenses in the amount of $2,158.67 is allowed. Since he has already received $45,000.00 in retainer and interim allowances, he shall be paid the balance of $19,856.67.      This memorandum constitutes the court's findings and conclusions pursuant to FRCP 52(a) and FRBP 7052. Fallon shall submit an appropriate form of order forthwith.
Dated: April 1, 1996                                                           _______________________                                                                                               Alan Jaroslovsky                                                                                               U.S. Bankruptcy