The opinion of the court was delivered by: Honorable Richard J. Arcara Chief Judge United States District Court
Debtor-Appellant D.A. Elia Construction Corp. ("debtor") appeals from an order of Bankruptcy Judge Michael J. Kaplan entered on October 19, 2004, granting attorneys fees and expenses to Defendant-Appellee Damon and Morey, LLP ("Damon & Morey" or the "firm"), pursuant to § 330 of the Bankruptcy Code. Also before the Court is a motion by non-party L. Andrew Bernheim to intervene in the appeal. For the reasons stated, the bankruptcy court order is affirmed, and the motion to intervene is denied.
On March 30, 1994, the debtor filed a voluntary petition for bankruptcy under Chapter 11 of the United States Bankruptcy Code. On June 15, 1994, the bankruptcy court granted the debtor's motion to employ Damon & Morey as its counsel.
Damon & Morey's representation of the debtor during this Chapter 11 matter spanned almost 10 years. The firm's work on this proceeding was substantial. The firm also represented the debtor in numerous other federal and state court lawsuits, as set forth more specifically in the record on appeal. This included representation of the debtor in over eight federal court actions and a bench trial before the New York Court of Claims. Damon & Morey acted at the direction of the debtor and its principal, David A. Elia, who is also an attorney.
Damon & Morey obtained favorable results in many of the proceedings. The firm, working at times in conjunction with other counsel, obtained various judgments and settlements that benefitted the estate. The firm also successfully objected to numerous claims on the debtor's behalf, which led to expungement of almost $1 million in claims against the bankruptcy estate.
This massive bankruptcy was by all measures a great success. The total funds collected through the various litigation and settlement proceedings ultimately exceeded the total amount of creditor claims, thereby leaving a surplus in the estate. All creditors in this case have been paid in full, with the exception of the firm's claim to attorneys fees and expenses, which is the subject of this appeal.
I. Damon & Morey's Fee Applications
A total of six fee applications were made by Damon & Morey. Each fee application contained itemized time records reflecting: (1) the attorney or paraprofessional rendering services; (2) the person's position or title in the firm; (3) an explanation of the work being preformed; (4) the time spent on those services; and (5) the hourly billable rate for that attorney or paraprofessional.
A. Interim Fee Applications
Five of the applications were interim fee applications. The first interim fee application was filed on September 1, 1994. Following a hearing on the application, see Bkcy. Dkt. No. 85, Judge Kaplan awarded Damon & Morey $39,188.00 in fees and $2,438.97 in disbursements, for a total of $41,626.97, subject to a 25 percent hold back*fn1 in the amount of $9,797.00. See Bkcy. Dkt. No. 86; Damon & Morey Appendix ("D&M App.") at 3, ¶ 4.*fn2
These fees were offset against a $50,000 pre-petition retainer fee that had been paid by the debtor.
The second interim fee application was filed in July 1995. Following a hearing on that application, see Bkcy. Dkt. No. 177, Judge Kaplan awarded the firm $35,747.13 in fees and disbursements, subject to hold back in the amount of $12,577.10. See Bkcy. Dkt. No. 182; Appellee's Br. on Appeal, at 7.
The third interim fee application was filed on September 8, 1998. Objections to that application were made by the Trustee and by non-party L. Andrew Bernheim, but not the debtor. Following a hearing on the application, see Bkcy. Dkt. No. 423, Judge Kaplan awarded $150,000 in fees and $4,738.23 in disbursements, subject to a hold back in the amount of $109,072.00. See Bkcy. Dkt. No. 424. Judge Kaplan deferred ruling on $121,509.00, as well as $22,374.10 which had been previously been deferred, and ruled that the objections would be denied without prejudice to renewal when the distribution was made. Id.
The fourth interim fee application was filed on August 11, 1999. Following a hearing on the application, see Bkcy Dkt. No. 604, Judge Kaplan approved partial compensation in an amount to be agreed upon by the debtor and Damon & Morey, not to exceed $200,000. Ultimately, $125,000 in fees and $3,207.90 in disbursements were paid per agreement of the debtor and Damon & Morey. See Bkcy. Dkt. No. 607; D&M App. at 6, ¶ 12.
The fifth interim fee application was filed on August 17, 2000. Following a hearing on the application, see Bkcy. Dkt. No. 679, Judge Kaplan granted Damon & Morey partial compensation in the amount of $30,000 in fees and disbursments, and deferred ruling on the $123,994.42 balance. See D&M App. at 6-7, ¶ 14.
B. Sixth and Final Fee Application
In June 2004, Damon & Morey filed its sixth and final fee application ("final fee application"). That application sought legal fees and disbursements in the amount of $87,671.20, for the period from August 1, 2000 through September 30, 2003, as well as the outstanding balance of $271,085.42, as to which the bankruptcy court had previously held back compensation or deferred ruling upon. See Bkcy. Dkt. 713; D&M App. at 7, ¶ ¶ 15-16..
On September 1, 2004, the debtor filed objections to the final fee application. See Bkcy. Dkt. No. 728. The gravamen of its objections was that the firm had committed malpractice and had labored under various conflicts of interest, thereby making an award of attorneys fees improper. The debtor also sought disgorgement of fees previously awarded to the firm.
On September 7, 2004, Damon & Morey filed a detailed response to the objections wherein it strenuously denied the debtor's allegations of malpractice and misconduct. That response was supported by an affidavit of William F. Savino, Esq., who had acted as lead counsel for the debtor. See Bkcy. Dkt. No. 729.
On September 8, 2004, the parties appeared before Judge Kaplan for a hearing on the final fee application and the debtor's objections. Following the hearing, Judge Kaplan afforded the debtor an opportunity to provide further briefing and evidence in support of its objections. On October 18, 2004, the debtor filed a supplemental brief and an affidavit from David A. Elia. See Bkcy. Dkt. Nos. 733, 734. On October 19, 2004, Judge Kaplan issued an order granting Damon & Morey's final fee application in full, including payment of all fees previously withheld or deferred (the "October 19th Order"). See Bkcy. Dkt. No. 735. Judge Kaplan found that the debtor's allegations of malpractice lacked credibility and were belied by ...