In re ARCE RIVERSIDE, LLC, Chapter 11, Debtor.
In re KERA RIVERSIDE, LLC, Chapter 11, Debtor.
Case Nos. 13-32456DM, 13-32457DM.
United States Bankruptcy Court, N.D. California.
April 22, 2016.
MEMORANDUM DECISION REGARDING MOTIONS FOR AWARD OF ATTORNEYS’ FEES UNDER CALIFORNIA CIVIL CODE SECTION 1717
DENNIS MONTALI, Bankruptcy Judge.
Following a complicated trial and extensive briefing of multiple substantive and procedural issues, this court entered a judgment in favor of debtors Arce Riverside, LLC and Kera Riverside, LLC (collectively, “Debtors”) on their objection to the claim of Penn Equities, LLC (“Penn”) on January 11, 2016. The judgment awarded Debtors, jointly and severally, $1,208,929.92 (which included usurious interest in the amount of $1,375,847 plus attorneys’ fees in the amount of $51,043.84 previously paid by Debtors to Penn’s counsel, minus an offset of $217,960.92 for post-maturity interest due to Penn). The court reserved jurisdiction to hear and determine the attorneys’ fees and costs to be awarded to Debtors as the prevailing parties pursuant to California Civil Code section 1717 (“CC 1717”).
On January 26, 2016, Debtors filed their CC 1717 motion for recovery of costs and attorneys’ fees (Docket No. 272), as amended on January 28 (Docket No. 277) (the “Fee Motion”). Debtors sought to recover fees and costs in the amount of $298,904.54 incurred by Rentschler/Tursi LLP (“Rentschler”) (their special litigation counsel); Wendel, Rosen, Black & Dean LLP (“Wendel”) (their current general bankruptcy counsel); and Kornfield, Nyberg, Bendes & Kuhner, P.C. (“Kornfield”) (their former general bankruptcy counsel) in objecting to the claim of Penn as well as prosecuting their usury claim/defense against Penn. Fee Motion, Docket No. 277 at page 5, lines 20-23.
In addition, on January 26, 2016, the firm that represented the guarantors  of certain loans by Penn to Debtors filed a separate motion for attorneys’ fees under CC 1717 (“Guarantor Motion”). The Guarantors sought fees and costs in the amount of $99,390.60 incurred in defending two separate state court lawsuits filed by Penn while this bankruptcy case was pending. Previously, the parties (Debtors, Guarantors, and Penn) had stipulated to dismissal of the state court actions on the condition that the decisions of this court relating to the usury claim would be binding. Stipulation re Trial Issues and Scheduling, Docket No. 184 at page 2 lines 19-27. The parties agreed to submit to the jurisdiction of this court “to determine all such rights and claims.” Id. They also agreed that the relief available from this court to Debtors and Guarantors included “any attorneys’ fee and costs as a prevailing party, if awarded[.]” Id. at page 3, lines 7-10.
The court held a hearing on the Fee Motion and the Guarantor Motion on February 26, 2016, and took both matters under submission. For the reasons set forth below, the court concludes that $282,386.54 of the fees and costs sought in the Fee Motion are compensable under CC 1717, while $85,170.55 of the fees and costs sought in the Guarantor Motion are compensable.
II. GOVERNING LAW
As noted, Debtors and Guarantors base their claims for fees and costs on CC 1717, which provides:
In any action on a contract, where the contract specifically provides that attorney’s fees and costs, which are incurred to enforce that contract, shall be awarded either to one of the parties or to the prevailing party, then the party who is determined to be the party prevailing on the contract, whether he or she is the party specified in the contract or not, shall be entitled to reasonable attorney’s fees in addition to other costs.
Cal. Civ. Code § 1717(a).
In order for CC 1717 to apply, “three conditions must be met[:] the action generating the fees must have been an action `on a contract, [and] the contract must provide that attorney’s fees incurred to enforce it shall be awarded either to one of the parties or to the prevailing party, [and] the party seeking fees must have prevailed in the underlying action.” Bos v. Board of Trustees, ___ F.3d ___, 2016 WL 1161262 (9th Cir. Mar. 24, 2016). There is no dispute as to the applicability of the first two items here. And for the reasons stated by the court at the hearing on the Fee Motion and the Guarantor Motion, Debtors (and thus the Guarantors) are the prevailing parties, even if Debtors did not succeed in obtaining treble damages. Debtors did prevail on their usury claim generally and Guarantors avoided any liability to Penn, and thus received the greater relief in this action to determine what amount of interest was owed to Penn. Cal. Civ. Code § 1717(b)(3).
A prevailing party entitled to contractual attorneys’ fees may recover “reasonable” attorneys’ fees as determined by the court. Civ. C. § 1717; PLCM Group v. Drexler, 22 Cal. 4th 1084, 1094-1095 (2000) . A court has wide discretion in determining what constitutes reasonable attorneys’ fees, as it has its own expertise in the value of legal services performed in a case. PLCM Group, 22 Cal. 4th at 1096 ; Syers Properties III, Inc. v. Rankin, 226 Cal. App. 4th 691, 698 (2014) [an “experienced trial judge is the best judge of the value of professional services rendered in his court”]). The burden is on the party seeking attorneys’ fees to demonstrate that the fees it seeks are reasonable. Gorman v. Tassajara Development Corp. 178 Cal. App. 4th 44, 98 (2009) .
Because neither the Fee Motion nor the Guarantor Motion requests the payment of fees and costs by the bankruptcy estate, this court’s Guidelines for Compensation and Expense Reimbursement of Professionals and Trustees are inapplicable, notwithstanding Penn’s citation to them. That said, the precepts underlying the Guidelines also appertain to a fee award under CC 1717: are the requested fees and costs reasonable?
Here, the court has considered the Fee Motion, the Guarantor Motion, the objection by Penn, and the arguments made at the February hearing. It also has taken into account the work performed and the difficult issues addressed by all parties in this litigation. Based on its independent analysis of the foregoing and of each billing statement appended to both motions, the court is adjusting and awarding fees as set forth below.
With a few exceptions, Rentschler has satisfied its burden to demonstrate the reasonableness of its fees. Nonetheless, the time entries occasionally reflect unnecessary duplication of work, both within the firm and with the other firms representing Debtors and Guarantors. For example, on April 14 and 15, 2015, Ms. Rentschler and other attorneys and legal assistants in her firm participated in an “all hands” meeting to discuss strategy. The court finds that the fees (totalling $1,672.00) of Ms. Rentschler, who did almost all of the work in this litigation, to prepare for and attend the meeting were reasonable. The fees of the other participants (totaling $2,318.00), given their limited involvement in this matter, are not reasonable.
Similarly, on September 25, 2015, Ms. Rentschler billed .9 hours ($342.00) for multiple calls to her clients and general bankruptcy counsel regarding “R/T fee application.” The preparation of her firm’s fee application should not require multiple telephone conferences with those outside of the firm. On the same date, she also billed time (.1 hour at $38.00) incurred in responding to the objection of the United States Trustee to the employment application to Wendel. Again, this time entry is insufficiently related to the underlying dispute with Penn, and thus the fee is unreasonable.
Additionally, Rentschler professionals would occasionally bill time for tasks that would have (or should have) been performed by the Debtors’ general counsel or for educating themselves as to basic bankruptcy law. For example, on April 14, 2015, Mr. Audal billed 4.5 hours at $1,170.00 for “[l]egal research re bankruptcy procedures and proof of claim.” In light of the foregoing duplicative or unnecessary work, the court finds that $3,868.00 of the fees charged by Rentschler are not reasonable. The balance of its fees are reimbursable under CC 1717.
With the exception of an entry on September 28, 2015, for briefly reviewing this court’s decision and forwarding it to “counsel and client,” all of the time billed by Wendel to Kera is identical to that billed to Arce. That said, Ms. Berke-Dreyfuss explained in paragraph 3 of her declaration attached as Exhibit S to the Fee Application that the firm had set up a separate client code for Arce and Kera and the billed time was split equally between them until October 24, 2015. Nonetheless, some of Ms. Berke-Dreyfuss’s time for reviewing documents, preparing the judgment, and working on appellate matters are duplicative of that performed by the Rentschler firm and the court will reduce the fees by $1,500.00.
Kornfield seeks recovery of $53,997 for work on the usury objection and $20,982 for trial preparation and attendance. The Kera time entries are almost identical to those for Arce,  yet Kornfield offers no explanation for the duplication.  The court assumes that, like Wendel, Kornfield split time billed between the two entities and that this is not a case of double-billing. Nonetheless, assuming that Kornfield simply allocated the total of $74,979.00 in fees between the two estates, the court is reducing the fees because much of the work performed after the employment of Rentschler as special counsel was unnecessary or duplicative.
Upon Rentschler’s employment, Kornfield played a secondary role in the Penn litigation. Nonetheless, it charged significant fees in time entries lacking sufficient description to enable the court to determine that the fees were reasonable, particularly given that Rentschler was then primary litigation counsel. For example, on March 17, 2015, Mr. Kuhner charged Arce seven hours and $2,730.00 in fees for “Stipulation, calendaring trial issues; changes.” The same hours and fees were charged to Kera, resulting in an uninformative and unjustified charge of $5,460.00 and 14 hours. The vagueness of this entry is not singular; multiple entries are indefinite and vague, which brings into question the necessity of the work and the reasonableness of the fees, particularly when those fees were clumped into quarter hour increments. Given that the court is unable to conclude that the fee amount sought by Kornfield is reasonable, it will reduce the fees by $11,250.00 (or 15% of the total requested).
While the narrative of Guarantor Application apportions fees between tasks, the fee entries do not. Therefore, the court can only adjust the fees generally (and not by specific time entry) regarding the projects described in the narrative. The court acknowledges that because Penn filed two separate state court lawsuits due to its counsel’s conflicts, counsel for the Guarantors had to engage in some duplicative tasks for which it should be compensated.
Turning to the project categories, the court will reduce the fees sought for Project A by $2,200.00 as it included unnecessary research regarding the automatic stay. It will also reduce as unnecessary the fees sought for Project C by $2,500 because Dicker filed a defective answer which required a demurrer and response. The fees in Project D for staying apprised of the bankruptcy and communicating with bankruptcy counsel ($7,233.50) are also excessive and will be reduced by $3,600.00. Finally, the fees sought in Project H for communications with opposing counsel and clients ($15,850.00) are excessive, and will be reduced by $3,000. In total, Dicker’s reimburseable fees under CC 1717 will be reduced by $11,300, which results in compensable fees under CC 1717 in the amount of $85,170.55 and compensable costs of $2,920.05.
For the reasons set forth above, the court is granting both the Fee Motion and the Guarantor Motion, with the fees and costs adjusted accordingly. The fees sought in the Fee Motion are reduced by a total of $16,618.00 (with the Rentschler fees reduced by $3,868.00, the Wendel fees by $1,500.00, and the Kornfield fees by $11,250.00). The fees sought in the Guarantor Motion are reduced by $11,300.00. All other costs and fees are reimbursable.
Counsel for Debtors should prepare an order granting the Fee Motion “for the reasons set forth” in this memorandum decision and adjust the fees awarded in accordance with the foregoing. Counsel for Guarantors should prepare a similar order with respect to the Guarantor Motion. When submitting the orders, counsel should file (on the docket and not appended to the order) a proof of service reflecting compliance with B.L.R. 9021-1(c).
 The firm of Leonard, Dicker & Schreiber LLP (“Dicker”) represented the guarantors Neil Wachsberger, George A. Arce, Jr. and Antonette Arce, individually and as Trustees of the Arce Family Trust dated October 17, 2012 (the “Guarantors”).
 In the claim objection category, Kornfield charged Arce $26,284.00 (67.60 hours) and Kera $25,713.50 (66.25 hours) even though the Kera time entries are duplicative of most of the Arce entries. The sole exception is a charge to Kera dated February 5, 2015, for $190.00 for reviewing and revising the objection to claim. Similarly, in the trial category, Kornfield charged both Kera and Arce $10,491.00 (26.90 hours) with completely identical time entries.
 While the duplicative fees were included in Kornfield’s first interim fee applications (Docket Nos. 191 and 192), in its orders dated July 6, 2015 (Docket Nos. 198 and 199), those fees were not reviewed or allowed by the court in light of an agreement with Penn by Kornfield to defer consideration of them pending resolution of the claim objection. See Statement by Debtor re Deferment of Consideration of Fees Regarding Objection to Claim, Docket No. 194.
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