FOR THE NORTHERN DISTRICT OF CALIFORNIA
SONOMA VINTNER'S CLUB, INC., No. 1-89-01189
Memorandum of Decision
This small Chapter 7 case was filed in 1989. It appeared to be a no-asset case, in that most
assets were subject to secured claims. However, the trustee recognized a potential preference
and hired attorney Ray Olmstead, with court approval, to prosecute it. Olmstead commenced
an adversary proceeding, and after considerable litigation recovered $20,000.00 for the estate.
This recovery represents almost all of the $21,915.00 now available for distribution. The
excess is the result of a sale of one asset; Olmstead also did work to obtain approval of the sale.
For all his work, Olmstead seeks total fees of $3,727.50 and expenses of $182.20. Incredibly,
the U.S. Trustee objects.
The source of the objection is the wording of the retention application and order prepared
by Olmstead. The application, prepared in 1989, recites that Olmstead will "bill at the rate of
$125.00 per hour." The order recites that employment is approved on the terms set forth in the
application. Due to delay in closing the estate in no way attributable to Olmstead, he seeks
compensation at the rate at $150.00 an hour, which was a reasonable rate even in 1989
less than his hourly rate today.
The trustee has testified that Olmstead's hourly rate was not a subject of negotiation, but is
an artifact of the wording of Olmstead's boilerplate application. The trustee has no objection
to compensation at the $150.00 rate, which increases Olmstead's fees by all of $506.00.
However, the trustee cites In re Reimers
, 972 F.2d 1127 (9th Cir.1992) as standing for the
proposition that the court may not award Olmstead more than the hourly rate stated implied in
the retention order. This is the worst misreading of a case the court has ever seen.
The holding in Reimers
is that a court cannot reduce
a fee by changing a contingent fee to
an hourly rate absent clear justification. The U.S. Trustee turns the case on its head by arguing
that the court cannot increase
an hourly rate even where the circumstances justify it. This is
utter nonsense. The court may enhance a fee if the circumstances justify it. In re Manoa
Finance Co., Inc.
, 853 F.2d 687 (9th Cir.1988). The U.S. Trustee's argument that Olmstead
should have sought interim compensation in 1990 ignores the fact that such an application
would have cost the estate as much if not more than the $506.00 extra Olmstead now seeks.
While the court is generally appreciative of the efforts of the U.S. Trustee in this division,
it frankly thinks that everyone associated with this objection should be ashamed of themselves.
While there is considerable abuse in many fee applications, this is not an area of abuse.
Through Olmstead's efforts only, there will be $17,000.00 distributed to creditors even after his
fees are paid. Moreover, if Olmstead had not been successful, he would have received nothing
for his services. Representing Chapter 7 trustees is one of the least lucrative areas of
bankruptcy practice because if an attorney creates an estate he or she is usually paid at an
hourly rate, whereas if no estate is created there are no funds to pay any fee at all.
Abusive fee applications usually arise in bankruptcy when greedy professionals recognize
that there will be a large fund of cash in the estate and proceed to run up huge and unnecessary
fees which end up depleting the estate so that nothing is left over for creditors. The court needs
all the help it can get in combating such fee applications. However, the U.S. Trustee cannot
object to the fees of an honest, hard-working and reasonable attorney such as Olmstead and
expect to get credit from the court for addressing the problem of abusive fee applications. This
is not where the abuse lies.
For the foregoing reasons, the U.S. Trustee's objection is overruled. Olmstead's fees and
expenses will be allowed as filed.
Dated: May 8, 1993 _______________________