State of Montana Department of Revenue v. Gregory B. Duncan; Laurie L. Duncan

This disposition is not appropriate for publication and is not precedent*
except as provided by 9th Cir. R. 36-3.
NOT FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
STATE OF MONTANA DEPARTMENT
OF REVENUE,
Appellant,
v.
GREGORY B. DUNCAN; LAURIE L.
DUNCAN,
Debtors-in-Possession -
Appellees,
DARCY M. CRUM,
Trustee - Appellee.
No. 09-36062
D.C. No. 9:09-cv-00094-DWM
MEMORANDUM*
Appeal from the United States District Court
for the District of Montana
Donald W. Molloy, District Judge, Presiding
Argued and Submitted November 4, 2010
Portland, Oregon
FILED
DEC 02 2010
MOLLY C. DWYER, CLERK
U .S. C OU R T OF APPE ALS

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The Honorable James P. Jones, United States District Judge for the**
Western District of Virginia, sitting by designation.
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Before: W. FLETCHER and FISHER, Circuit Judges, and JONES,
District Judge.**
The Montana Department of Revenue (MDOR) appeals the district court’s
order affirming the bankruptcy court’s denial of MDOR’s application for
$13,447.50 in attorneys’ fees. The fees were sought by Lynn Butler, a private
attorney hired by MDOR. We will not “disturb a bankruptcy court’s award of
attorneys’ fees unless the bankruptcy court abused its discretion or erroneously
applied the law.” In re Kord Enterprises II, 139 F.3d 684, 686 (9th Cir. 1998).
We affirm.
MDOR’s primary argument is that the bankruptcy court erroneously applied
the law by creating a per se rule that oversecured creditors with unchallenged
claims are never entitled to attorneys’ fees under 11 U.S.C. § 506(b) because such
fees are inherently unreasonable. We, like the district court, do not read the
bankruptcy court’s decision to create such a per se rule. Although the bankruptcy
court relied in part on the fact that MDOR’s claims were unsecured and
unchallenged, it also relied on the facts that MDOR had three salaried attorneys
working on the case, including a bankruptcy specialist, and that Butler’s work did
not change the outcome of the case.

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Although the bankruptcy court did describe Butler’s fees as “inherently
unreasonable,” the bankruptcy court’s reference to Hungerford for the “inherently
unreasonable” language implies that its conclusion was that Butler’s fees were
inherently unreasonable because MDOR had three attorneys already working on
the case and there was thus little prospect that any additional benefit would result
from Butler’s work, not that all attorneys’ fees accrued in collecting an
oversecured and unchallenged claim are inherently unreasonable. See In re
Hungerford, 19 Mont. B.R. 103, 136-138 (Bankr. Mont. 2001) (“it is inherently
unreasonable to ask a debtor to reimburse attorneys’ fees incurred by a creditor that
are not cost-justified” (quoting In re Huhn, 145 B.R. 872, 876 (Bankr. W.D. Mich.
1992) (quoting In re Nicfur-Cruz Realty Corp., 50 B.R. 162, 169 (Bankr. S.D.N.Y.
1985)))). We therefore conclude that the bankruptcy court conducted a
reasonableness analysis based on the facts of this case.
In conducting its reasonableness analysis and denying MDOR’s application
for Butler’s attorneys’ fees, the bankruptcy court did not abuse its discretion. The
burden is on MDOR to establish the reasonableness of its requested attorneys’ fees.
MDOR failed to carry that burden. MDOR had three attorneys working on this
case, including a bankruptcy specialist. Butler never appeared at a hearing without
one of these attorneys present. MDOR never explained why Butler’s work was

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necessary, or what value it added to the litigation. The bankruptcy court thus did
not abuse its discretion in denying MDOR’s fee application.
AFFIRMED.

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