CEDIC DEVELOPMENT v WARNICKE, 9915841
U.S. 9th Circuit Court of Appeals
CEDIC DEVELOPMENT v WARNICKE
9915841
In re: CEDIC DEVELOPMENT
COMPANY,
Debtor.
No. 99-15841
CEDIC DEVELOPMENT
D.C. No.
COMPANY,
CV-98-00636-EHC(PHX)
Appellee,
OPINION
v.
RONALD E. WARNICKE;
THOMAS LITTLER,
Appellants.
Appeal from the United States District Court
for the District of Arizona
Earl H. Carroll, District Judge, Presiding
Argued and Submitted
July 5, 2000--San Francisco, California
July 26, 2000
Before: John T. Noonan, Sidney R. Thomas, and
Marsha S. Berzon, Circuit Judges.
Opinion by Judge Noonan
_________________________________________________________________
COUNSEL
Thomas E. Littler, Mark J. Giunta, Warnicke & Littler, Phoe-
nix, Arizona, for appellant Warnicke & Littler.
Chester J. Peterson, Lerch, McDaniel & Deprima, Phoenix,
Arizona, for debtor-appellee Cedic Development Co.
_________________________________________________________________
OPINION
NOONAN, Circuit Judge:
Warnicke & Littler (the Firm) appeals the district court's
denial of $10,000 additional attorneys fees in its representa-
tion of the bankrupt debtor, Cedic Development Co. (Cedic).
We hold that the basic rates charged by the firm did not take
into account all relevant factors and that as adequate compen-
sation the Firm was entitled to the $10,000. We reverse the
judgment of the district court.
FACTS
The following facts were found after trial before the bank-
ruptcy court for the District of Arizona: On May 31, 1991,
Cedic filed a voluntary petition in bankruptcy. On September
6, 1991, Dillingham, Kelip & Cross was appointed as its
counsel. Five months later this law firm moved to withdraw
for failure by Cedic to pay its approved fees; the motion was
granted. On March 24, 1992, Ted A. Smith was approved as
counsel, but he, too, moved to withdraw; on August 12, 1992,
the motion was granted.
For nearly a month Cedic looked for a new lawyer. The
bankruptcy court informed Cedic that any new counsel would
not be permitted to withdraw. Cedic persuaded the Firm,
which was experienced in complex bankruptcy cases, to take
its case with a contract that provided Cedic would pay its
rates ranging from $125 per hour for an associate to $210 per
hour for the senior partner. The rates were below the market
rates for bankruptcy counsel with experience comparable to
that of the Firm. The contract further specified that the total
fee would be adjusted, upward or downward, at the discretion
of the Firm, depending on ten enumerated factors such as the
magnitude of the matter and the results achieved as well as on
other considerations that might arise in the course of the case.
The Firm was paid a retainer of $5,000, an amount substan-
tially less than other lawyers in the Phoenix area would have
asked for under the circumstances. On September 24, 1992,
the bankruptcy court approved the agreement.
Thereafter, the Firm successfully represented the bank-
ruptcy in complex litigation to recover property which had
been sold at a Trustee's Sale and further arranged financing
to save Cedic's interest, ultimately leading to a benefit of
$293,541.21. The Firm also successfully represented Cedic in
preventing foreclosure on property in which Cedic had an
equity of $100,000. The Firm also provided a variety of other
legal services to the debtor's benefit.
PROCEEDINGS
The Firm made two interim applications for fees, which
were approved by the bankruptcy court and paid by Cedic. On
February 3, 1994, it filed a third application, asking for what
it described as an amount based on a lodestar of $33,203 and
an enhancement of $29,354.12. The bankruptcy court
awarded the sum designated as the lodestar amount plus an
enhancement of $10,000.
Cedic appealed the award of the enhancement to the Bank-
ruptcy Appellate Panel (the BAP). The BAP remanded for a
hearing on whether the enhancement was justified.
On remand, the bankruptcy court conducted a trial and
made the findings of fact set out above. The bankruptcy court
concluded that the hourly rates charged by the Firm did not
take into account all the factors set out to determine the lode-
star according to Kerr v. Screen Extras Guild, Inc., 526 F.2d
67 (9th Cir. 1975), that the rates did "not take into account the
results obtained and/or the risk of nonpayment," and that an
enhancement of $10,000 was necessary to provide reasonable
compensation.
Cedic again appealed, this time to the district court. The
district court held that "the lodestar amount was properly cal-
culated as being $33,203." The court interpreted City of Bur-
lington v. Dague, 505 U.S. 557 (1992), to bar an enhancement
"based on the risk of nonpayment." The district court con-
cluded that the bankruptcy court had abused its discretion.
The award of $10,000 was vacated.
The Firm appeals.
ANALYSIS
As did the district court, we determine whether the bank-
ruptcy court abused its discretion in the award of the $10,000.
Kord Enterprises II v. California Commerce Bank (In re Kord
Enterprises II), 139 F.3d 684, 686 (9th Cir. 1998). It did not.
[1] City of Burlington is a case about contingent fees. It
holds that the risk created by a contingency fee does not jus-
tify an increase beyond the lodestar. 505 U.S. at 565. The case
is not controlling here, because the risk of nonpayment by
Cedic was not created by any contingency in the merits of the
litigation but by the conduct of Cedic that suggested that it
didn't like to pay its lawyers. Moreover, City of Burlington
was addressed to a federal "fee shifting statute. " Id. at 561-
562. This case does not involve fee-shifting but the payment
by a client of the fee charged it by its own lawyer. We have
recognized that the general principles applicable to fee-
shifting statutes "may require some accommodation to the
peculiarities of bankruptcy." Burgess v. Klenske (In re Manoa
Financing Co., Inc.), 853 F.2d 687, 691 (9th Cir. 1988).
Moreover, the district court's premise that the hourly rates set
by the Firm would indicate the lodestar amount was incorrect.
The rates were bargain rates not incorporating the Kerr fac-
tors. Not to allow the $10,000 enhancement would be to pay
below the lodestar.
For these reasons, the judgment of the district court is
REVERSED and the judgment of the Bankruptcy Court is
REINSTATED.