Dixon Corporation

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UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF NEW MEXICO
In re:
DIXON CORPORATION,
Debtor. 	No. 11-09-14915 SA
MEMORANDUM OPINION IN SUPPORT OF ORDER
APPROVING IN PART AND DENYING IN PART
DEBTOR’S MOTION TO EMPLOY ATTORNEYS
[LAW OFFICE OF GEORGE DAVE GIDDENS, P.C.]
The Debtor’s Motion to Employ Attorneys [Law Office of
George Dave Giddens, P.C.] – “Applicant” or “Firm” -- (doc 5;
Rule 2014 and 2016 statement doc 6) came before the Court for a
final hearing on January 13, 2010. 	Applicant has requested
approval of a range of rates for the attorneys and paralegals who
work at the Firm, including a rate of $275 per hour for the
services of the senior member of the Firm, George (Dave) Giddens,
who up to now has been approved by this Court for a rate not to
exceed $250 per hour. 	The Court finds that, in this case, the
requisite showing justifying the $275 per hour rate has not been
made, and therefore denies that part of the application, without
prejudice to Applicant raising the issue in a fee application.
To be clear, the Court is not ruling that the evidence
showed that Mr. Giddens should not be compensated at the higher
rate; rather, the Court is ruling that the proof in this
particular instance was inadequate. 	For that reason, the Court
is denying the application without prejudice to the issue being
raised in the context of one or more fee applications, a
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1 The Code, in § 330(a)(3)(F), places particular emphasis on
this factor, which is only one of the twelve factors set out in
Johnson v. Georgia Highway Express. Inc., 488 F.2d 714, 717-19
(5th Cir. 1974), adopted by the Tenth Circuit in First Nat’l Bank
of Lea County v. Niccum (In re Permian Anchor Services), 649 F.2d
763, 768 (10th Cir. 1981). 	This emphasis reflects the importance
that Congress attached to abandoning the policy of “conservation
of the estate and economy of administration” that characterized
pre-Code bankruptcy practice. 	See H.R. Rep. No. 595, 95 th Cong.,
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procedure which this case and other circumstances have led the
Court to now adopt. 	The Court will allow the Debtor in
Possession to compensate the Firm for Mr. Giddens’ time at the
higher rate for purposes of the standard 75% interim payment
provision; that is, the Court will allow the Debtor in Possession
to pay the Firm on an interim basis $206.25 per hour for Mr.
Giddens’ services.
At the hearing, Mr. Giddens testified extensively, and
supported his testimony with 14 exhibits. 	What the evidence
showed was, among other things, that Mr. Giddens has a long (27
years) and varied history of bankruptcy representations; that Mr.
Giddens delegates work in his firm such that his legal work is
more high-end strategizing and litigation; that the firm’s
overhead is continually going up; that the firm has a collection
rate of about 61% ranging perhaps to about 75% of what is billed;
and that Mr. Giddens has a steady stream of clients which he says
demonstrates that he provides good value to his clients.
Importantly, Mr. Giddens also provided evidence about rates
being charged by other attorneys. 1 	He cited hourly rates ranging
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1st Sess. 329 (1977). 	The specific language of section
330(a)(3)(F) was added to the Code by the 1994 amendments as
section 330(a)(3)(E). 	Bankruptcy Reform Act of 1994, Pub. L. No.
103-394, § 224, 108 Stat. 4106, 4130-31 (1994).
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from $230 to $350 in bankruptcy cases in the District of New
Mexico for creditor and debtor representation, and hourly rates
for non-bankruptcy work (all more or less similar to bankruptcy
litigation) for senior litigators from one large law firm ($310),
a domestic relations firm ($350), and a “Southwest Super Lawyer”
($250 out of court, $275 in court).
The Court does not dispute most of what Mr. Giddens
testified to, in particular Mr. Giddens’ employment history, his
delegation and reservation of duties, the increase in Applicant’s
overhead, the collection rate, and the steady stream of clients.
However, the bankruptcy attorney rates cited by Mr. Giddens were
in several instances rates which the Court has not approved, but
instead are being sought by the different practitioners. 	Thus,
citing those rates is somewhat like trying to prove up the value
of real estate by citing the prices at which various comparable
parcels are being offered for sale rather than what those other
parcels ultimately sell for. 	The Court does not find that
evidence especially persuasive.
Similarly, the non-bankruptcy attorney rates are for
attorneys who clearly are at the pinnacle of practice in their
respective areas. 	The evidence, with the exception of the
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2 The Court notes emphatically that this comment in not
applicable to Mr. Giddens or others in the Firm.
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affidavit for the large law firm, did not cover the range of
rates in those non-bankruptcy areas. 	And Counsel conceded in any
event that what he presented was not an “exhaustive study”.
The Court also notes the following with respect to this or
any application for employment, or for that matter for
compensation, by a professional:
1. 	Years in service is only a beginning measure of the worth of
services rendered by the professional. 	It is frequently assumed
that 20 years of experience justifies a higher rate than, say,
one year of experience. 	Often the assumption is reasonable,
since it is quite unlikely that a first-year lawyer has as much
skill and knowledge and wisdom to impart as an attorney who has
practiced for 20 years. 	Yet it is possible, and occasionally
true, that a twenty-year lawyer in effect repeats her or his
first year twenty times, effectively learning little more than a
competent first year attorney may know at the end of her or his
first year. 2
2. 	An applicant’s overhead is not necessarily relevant for
purposes of determining rates. 	Rates are determined by the
market and applicant’s qualifications. 	To permit a higher rate
to one applicant rather than another would be to permit a higher
rate based on a factor that has nothing whatever to do with the
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quality of services provided, and in fact might result in an
applicant being rewarded for spending more money on office
location, furniture and furnishings, salaries, etc.
3. 	Similarly, an applicant’s collection rate is only somewhat
relevant (if indeed it is relevant at all) to the rate charged in
a given bankruptcy case. 	While the Court is certainly
sympathetic to the problems of collecting for work done, for the
most part the work done in a given case should be proportionate
to what is required to get the job done and to what resources in
the estate are available to pay for that work.
4. 	The Court notes that supporting affidavits from other
attorneys who practice in this court, or even from those who do
not practice in this court, come tinged with some self interest
of the makers of those affidavits. 	First, in the (fortunately)
very collegial atmosphere that generally characterizes bankruptcy
practice in this district, it would be presumably quite difficult
to turn down a request for an affidavit attesting to a
colleague’s competence and entitlement to a certain rate. 	There
is simply little to be gained by refusing to go along with a
colleague’s request, so easily complied with, to sign such an
affidavit, especially when that refusal may well be taken as a
personal affront by the requesting attorney and make practicing
in this district and representing clients significantly more
difficult for years to come.
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In addition, an attorney supporting the request for a higher
rate may well be in effect providing support for a request by
that attorney for a higher rate for herself or himself at a later
(or even the same) time. 	To be clear, the Court is not accusing
anyone of dissembling, but merely pointing out at least two
incentives for supporting Applicant’s position that a number of
the affiants will ordinarily have. 	For this reason, it is
particularly important that the United States Trustee’s office
take an active role in examining and challenging employment and
fee applications on this issue, since presumably that office is
immune from the above-described financial incentives if not the
social ones. 	(That is, an attorney angered by a challenge to her
or his billing rate may as easily revile someone from the UST’s
office as easily as she or he can revile any other attorney.)
Therefore the Court finds that this specific part of the
employment application must be denied, but without prejudice to
asking for the higher rate in a fee application.
The Court conducted the final hearing on this issue because
it has been the Court’s practice to require, in connection with
the employment application, a justification from any attorney
representing a debtor for an hourly rate in excess of $200 per
hour, or for an increase in any rate above $200 per hour which
this Court had already approved. 	The Court has taken this
approach for a number of years for several reasons, among which
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are the following: 	First, the Court considered that everyone in
a case was entitled to know what the rates were that were being
charged by any professional, including attorneys, before or
shortly after the work began. 	Second, having the rate set by the
Court at the outset of the work allows a firm to more reliably
budget for itself. 	Third, formal rulings at the beginning of
every applicable case would allow other practitioners to more
readily determine what is the market for the services at issue.
However, the Court is also well aware that the other
bankruptcy judge in this district has adopted a policy of not
ruling on rates except in the context of a fee application (and
only then as may be required). 	Having conferred with Judge
Jacobvitz about this at some length, this judge has decided to
pursue that approach, at least on an interim basis, for several
reasons.
First, the difficulty for counsel in obtaining the data on
comparable rates for comparable types of work is one reason that
justifies looking at rates from a somewhat retrospective
perspective in the context of a fee application. 	That is not to
say that the standard set out in the § 330(a)(3)(F) – “whether
the compensation is reasonable based on the customary
compensation charged by comparably skilled practitioners in cases
other cases under this title” – is not applicable, but merely
that looking back on the work done to date will allow the Court
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3 That section provides in part as follows:
Notwithstanding such terms and conditions [of
employment], the court may allow compensation different
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to also assess more accurately the complexity of the work done
and therefore what the comparable complexity of work might be in
other contexts. See, for example, In re Romero, 2010 WL 964209
(Bankr. D. N.M. 2010).
Of course, putting off a decision about rates of
compensation until the fee application stage does not eliminate
the difficulties of proof, some of which are identified in this
decision. 	Mr. Giddens in this case and other counsel have
pointed out that law firms do not universally publish their
billing rates or at least routinely make them available to just
any practitioner who asks. 	So to a real extent that problem will
remain.
Second, noticing out the decision on rates later in the case
in the context of a fee application will be likely to generate
more attention, as opposed to the beginning of the case when such
an issue may be obscured in the rush of organizing, starry-eyed
optimism, and lack of information that frequently characterizes
the beginning of a case.
Third, ruling on rates later in the case rather than at the
outset may avoid the potential problem of permitting a certain
rate that in retrospect turns out to be too high or too low but
cannot be changed by virtue of section 328(a). 3
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from the compensation provided under such terms and
conditions after the conclusion of such employment if
such terms and conditions prove to have been
improvident in light of developments not capable of
being anticipated at the time of the fixing of such
terms and conditions.
4 	Of course the Court retains the right, if not the duty,
to examine the reasonableness of any fees, on its own motion.
Compare In re Albrecht, 233 F.3d 1258, 1260 (10th Cir. 2000)
(trial court may examine reasonableness of fees in the absence of
an objection) with 	In re Albrecht, 245 B.R. 666, 672 (10th Cir.
B.A.P.), aff’d., 233 F.3d 1258 (10th Cir. 2000)(trial court has
obligation to review fee applications even in the absence of an
objection)(citing In re Busy Beaver Bldg. Ctrs., Inc., 19 F.3d
833, 841 (3d Cir. 1994) and In re Cascade Oil Co., 126 B.R. 99
(D. Kan. 1991)).
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Fourth, it may be that the issue of rates will resolve
itself without the need for an adjudication. 	For example, if no
other party objects to a certain rate being charged, and the
charge to the estate overall for the work done and the result
accomplished is quite reasonable, then the Court could enter an
order approving the overall compensation requested without having
to rule on the specific rate requested. 4
For the foregoing reasons, the Debtor’s Motion to Employ
Attorneys will be granted, except that it will be denied, without
prejudice, on the issue of a rate of $275 per hour for the
services of Mr. Giddens, for whom Applicant may nevertheless bill
and be compensated on an interim basis bill at that rate.
Honorable James S. Starzynski
United States Bankruptcy Judge
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Date Entered on Docket: 	April 15, 2010
Copies to:
George D Giddens, Jr
10400 Academy Rd NE Ste 350
Albuquerque, NM 87111-1229
Christopher M Gatton
Law Office of George Dave Giddens, PC
10400 Academy Rd., #350
Albuquerque, NM 87111
United States Trustee
PO Box 608
Albuquerque, NM 87103-0608
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