November 12, 2007
9th Circuit Rules on Award of Fees for Appealing an Award of Fees
North Sports, Inc. v. Knupfer (In re Wind n’ Wave), --- F.3d --- (9th Cir. November, 2007)
Issue: When the petitioning creditors of an involuntary petition successfully appeal the denial of their attorneys fees, should they also be awarded attorneys fees for the appeals? In other words, when the bankruptcy code provides for fees, may fees be awarded for litigating the fee award?
Appeal from BAP
Judge Cynthia Holcomb Hall
This case began with an involuntary petition. Ultimately an order for relief was entered and a trustee was appointed. The petitioning creditors then sought fees under Section 503(b)(4) of the Bankruptcy Code. The bankruptcy court denied the request. The BAP reversed. The BAP however did not award fees for bringing the appeal to the BAP. The petitioning creditors appealed to the 9th Circuit seeking the fees for the BAP appeal and for this 9th Circuit appeal.
The 9th Circuit reversed and remanded to the BAP. Section 503(b)(4) “is silent regarding expenses incurred by a creditor in appealing or defending a lower court’s award or denial of fees. However, we do not find, as respondents urge us to, that statutory silence forecloses a fee award here. Along with other circuits, we have granted compensation for litigation over a fee award under fee shifting statutes even when those statutes did not expressly allow for it.” The court said, “where a creditor receives attorney’s fees under Section 503(b)(4), the time and expenses devoted to securing the attorney’s fee award are also compensable if the Smith test is met.” The Smith test has two parts, “1) the services for which compensation is sought satisfy the requirements of 330(a), and 2) the case ‘exemplifies a ‘set of circumstances’ where the time and expense incurred by the litigation is ‘necessary.’ ” “’[T]he underlying purpose of [both Sections 330(a) and 503(b)(4)] would be subverted if the fee award could be diluted through the appeal process.’” The 9th Circuit said that the fees incurred in appealing were “necessary” because the bankruptcy court did not apply the proper rule in the first place forcing the appellate process to go forward. There is no question that the fees requested were reasonable.
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