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March 4, 2026 Get Citation Alerts Download PDF Add Note

In re: Gabriela Gonzalez-Arceo

United States Bankruptcy Court, D. Colorado

• Citations: None known
• Docket Number: 25-11697

• Precedential Status: Unknown Status

• Opinion

• Authorities (17)

• Cited By (0)

• Summaries (0)

• Similar Cases (0)

• PDF

Trial Court Document

IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF COLORADO

In re:
Case No. 25-11697 KHT
GABRIELA GONZALEZ-ARCEO,
Chapter 7
Debtor.

       ORDER DENYING APPLICATION WITHOUT PREJUDICE 
 THIS MATTER came before the Court on the Amended Application to Employ the 

Johnson Law Firm as Attorneys for Trustee (the “Application,” docket #33) filed by the
Chapter 7 Trustee, Jared Walters (the “Trustee”). No party filed an objection to the
Application, but the Court has an independent duty to review attorney employment and
compensation terms. See, e.g., Busy Beavers Bldg. Centers, Inc., 19 F.3d 833, 841 (3rd
Cir. 1994); 11 U.S.C. § 105 (a). The Court has reviewed the Application and the file, is
advised in the premises, and hereby finds and concludes as follows:
I. FACTUAL AND PROCEDURAL BACKGROUND.
As set forth in the Application, Trustee’s investigation into Debtor's financial affairs
revealed the existence of potential claims under the Colorado Uniform Debt Management
Services Act, Colo. Rev. Stat. § 5-19-201 et seq. (“CUDMSA’); transfers potentially
subject to avoidance pursuant to applicable provisions of the Bankruptcy Code; and/or
other related claims. Trustee desires to employ The Johnson Law Firm (“the “Firm”) to
investigate transfers, recover property for the estate, and if necessary, represent Trustee
in connection with the litigation of any claims arising out of the transfers and/or
recoverable assets.
The Firm requests employment pursuant to a Contingent Fee Agreement attached
to the Application as Exhibit A (the “Agreement”), which provides the Firm will receive the
greater of (i) thirty-three and one-third percent (33’4%) of the total recovery by the estate
in connection with the claims or (ii) attorney fees and costs provided for by applicable
statute or otherwise awarded and paid to Trustee as a result of law firm’s efforts. In
support of its assertion that contingent fee compensation is appropriate, the Application
represents as follows:
e Consumer-debtors and their bankruptcy estates with potential CUDMSA
claims typically have few if any non-exempt assets. Recoveries for
bankruptcy estates to pay attorneys, administrative expenses and
creditor dividends come primarily through CUDMSA or related claim
recoveries.

ORDER DENYING APPLICATION WITHOUT PREJUDICE
CASE NO. 25-11697-KHT
e Debt-management providers, on the other hand, are often very well-
funded and have strong incentives to discourage CUDMSA
enforcement. Providers’ tactics make the extent of attorney time
involved in litigation uncertain and open-ended. CUDMSA claims are
high risk and often aggressively defended by providers who are willing,
able and incentivized to outspend consumers and their bankruptcy
estates if they believe it will discourage CUDMSA private enforcement
actions.
e Although well-funded CUDMSA providers defending claims are
common, the reverse can also be true with respect to collection.
Sophisticated actors will form fagade or under-capitalized entities to
avoid regulation and evade liability for the true owners and beneficiaries.
The debt-management industry has a history of consumer abuse.
Tactics to avoid regulation and liability are constantly evolving.
e CUDMSA attorney fee recoveries incentivize enforcement by private
attorneys regardless of underlying claim amounts, deterring violations
(protecting future consumer debtors before this Court) and allowing for
potential recoveries by a greater number of bankruptcy estates.
e A CUDMSA or related-claim recovery often is not sufficient to fully
compensate attorneys on an hourly basis. The contingency fee
arrangement ensures that there will be moneys available net of attorney
fees for distribution to creditors in the event of a CUDMSA recovery.
e To the extent trustees are able to recover assets for bankruptcy estates
outside of the CUDMSA or related claim recoveries, those assets are
insulated from law firm attorney fee claims had law firm been employed
on an hourly basis.
Application {| 17. The Court does not find disputed issues of fact require a hearing. For
purposes of the Application, the Court will assume the truth of the matters stated therein."
ll. APPLICABLE LAW.
Consideration of the Application requires analysis of multiple provisions of the
Bankruptcy Code, including 11 U.S.C. §§ 327, 328, and 330.7
Section 327 provides for employment of counsel, as follows:
(a) Except as otherwise provided in this section, the trustee, with the
courts approval, may employ one or more attorneys, accountants,
appraisers, auctioneers, or other professional persons, that do not hold or
represent an interest adverse to the estate, and that are disinterested

1 Additionally, the Court has no reason to doubt the truth of the matters stated. The Court is familiar with
counsel and his reputation of honesty and integrity.
* Further references to “section” are to those of the Bankruptcy Code, 11 U.S.C., unless otherwise indicated.

persons, to represent or assist the trustee in carrying out the trustee’s duties 
under this title. 11 U.S.C. § 327 (a). Section 328(a) provides for compensation of counsel, as follows: 
The trustee, or a committee appointed under section 1102 of this title, with 
the  court’s  approval,  may  employ  or  authorize  the  employment  of  a 
professional person under section 327 or 1103 of this title, as the case may 
be, on any reasonable terms and conditions of employment, including on a 
retainer, on an hourly basis, on a fixed or percentage fee basis, or on a 
contingent fee basis. Notwithstanding such terms and conditions, the court 
may allow compensation different 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. 11 U.S.C. § 328 (a). Section 330(a) provides for compensation of counsel, as follows: 
(1)   After notice to the parties in interest and the United States Trustee 
and a hearing, and subject to sections 326, 328, and 329, the court may 
award  to  a  trustee,  a  consumer  privacy  ombudsman  appointed  under 
section 332, an examiner, an ombudsman appointed under section 333, or 
a professional person employed under section 327 or 1103—            
     (A)   reasonable  compensation  for  actual,  necessary  services 
     rendered  by  the  trustee,  examiner,  ombudsman,  professional 
     person, or attorney and by any paraprofessional person employed 
     by any such person; and                                         
     (B)   reimbursement for actual, necessary expenses.             
(2)   The court may, on its own motion or on the motion of the United 
States Trustee, the United States Trustee for the District or Region, the 
trustee for the estate, or any other party in interest, award compensation 
that is less than the amount of compensation that is requested.      
(3)   In  determining  the  amount  of  reasonable  compensation  to  be 
awarded to an examiner, trustee under chapter 11, or professional person, 
the court shall consider the nature, the extent, and the value of such 
services, taking into account all relevant factors, including—       
     (A)   the time spent on such services;                          
     (B)   the rates charged for such services;                      
     (C)   whether the services were necessary to the administration of, 
     or beneficial at the time at which the service was rendered toward 
     the completion of, a case under this title;                     
     (D)   whether the services were performed within a reasonable   
     amount of time commensurate with the complexity, importance, and 
     nature of the problem, issue, or task addressed;                
     (E)   with respect to a professional person, whether the person is 
     board certified or otherwise has demonstrated skill and experience 
     in the bankruptcy field; and                                    
     (F)   whether  the  compensation  is  reasonable  based  on  the 
     customary  compensation  charged  by  comparably  skilled       
     practitioners in cases other than cases under this title.       
(4)                                                                  
     (A)   Except as provided in subparagraph (B), the court shall not 
     allow compensation for—                                         
          (i)   unnecessary duplication of services; or              
          (ii)   services that were not—                             
               (I)   reasonably likely to benefit the debtor’s estate; 
               or                                                    
               (II)   necessary to the administration of the case.   
     (B)   In a chapter 12 or chapter 13 case in which the debtor is an 
     individual,  the  court  may  allow  reasonable  compensation  to  the 
     debtor’s  attorney  for  representing  the  interests  of  the  debtor  in 
     connection with the bankruptcy case based on a consideration of the 
     benefit and necessity of such services to the debtor and the other 
     factors set forth in this section. 11 U.S.C. § 330 (a)(1)-(4). Section 330 thus sets two limits on professional compensation: 

the fees must be reasonable, and the fees must be based on actual, necessary services
benefiting the estate.

Whether services are actual, necessary, and beneficial to the estate is a threshold
inquiry. In re Lederman Enters., Inc., 997 F.2d 1321, 1323 (10th Cir. 1993) (“[T]he
beneficial nature of legal services must be determined before a reasonableness inquiry
may even be conducted . . . .”). As the Supreme Court has made clear, “Section 330(a)(1)
does not authorize courts to award ‘reasonable compensation’ simpliciter, but ‘reasonable
compensation for actual, necessary services rendered by’ the § 327(a) professional.”
Baker Botts L.L.P. v. ASARCO LLC, 576 U.S. 121, 131 (2015) (emphasis in opinion). A
court cannot approve compensation “‘that is for the benefit of the professional and not the
estate.’” Id. at 132 (quoting U.S. Trustee Guidelines for Reviewing Applications for
Compensation and Reimbursement of Expenses, 78 Fed. Reg. 36250 (2013)).

Section 330 also requires a court to determine whether fees are reasonable. In re
Market Center East Retail Property, Inc., 730 F.3d 1239, 1246 (10th Cir. 2013). In Market
Center East, the Tenth Circuit Court of Appeals held bankruptcy courts must conduct a
§ 330 reasonableness review of all fee applications, and that reasonableness review must
include the lodestar factors set forth in § 330(a)(3) plus the “additional relevant factors”
set forth in Johnson v. Georgia Highway Express, Inc., 488 F.2d 714, 720 (5th Cir. 1974),
as follows:

(1) The time and labor required.

(2) The novelty and difficulty of the questions.

(3) The skill requisite to perform the legal service properly.

(4) The preclusion of other employment by the attorney due to
acceptance of the case.

(5) The customary fee.

(6) Whether the fee is fixed or contingent.

(7) Time limitations imposed by the client or the circumstances.

(8) The amount involved and the results obtained.

(9) The experience, reputation, and ability of the attorneys.

(10) The “undesirability” of the case.

(11) The nature and length of the professional relationship with the client.
(12) Awards in similar cases.

Market Center East, 730 F.3d at 1247. With those standards in mind, the Court turns to
the issues of contingent fee compensation in general, and the Application in particular.

III. DISCUSSION.

The  Court  considers  the  general  nature  of  contingent  fee  compensation,  the 

Court’s duty to review all compensation under § 330, and the particulars of the Application
in this case, as set forth below.

A.    Contingent Fees Generally                                      

The Court first considers the general nature of contingent fee compensation, as 

described by another court:

     The hourly fee is the standard price structure in the legal profession. 
(See Schwartz & Mitchell, An Economic Analysis of the Contingent Fee in 
Personal-Injury Litigation (1970) 22 Stan. L. Rev. 1125.) Where a lawyer 
normally charges for work on the basis of an hourly fee, it is a fairly simple 
matter to calculate the reasonable value of services rendered even in the 
absence of a negotiated fee. The lawyer’s customary hourly rate can be 
evaluated  by  comparison  to  the  rate  charged  by  others  in  the  legal 
community with similar experience. The number of hours expended by the 
lawyer can also be evaluated in light of how long it would have taken other 
attorneys to perform the same tasks. Properly evaluated and adjusted, the 
product of the hourly rate and the number of hours expended should yield 
the reasonable value of the work completed.                          

     Where a lawyer has contracted to provide services in exchange for 
a contingent percentage fee, calculation of the reasonable value of services 
rendered . . . becomes a more complicated task. It has been repeatedly 
recognized  that  a  contingent  fee  “‘may  properly  provide  for  a  larger 
compensation than would otherwise be reasonable.’” (Rader v. Thrasher 
(1962) [57 Cal.2d 244, 253](https://www.courtlistener.com/opinion/5607240/rader-v-thrasher/#253), [18 Cal. Rptr. 736](https://www.courtlistener.com/opinion/5607240/rader-v-thrasher/), [368 P.2d 360](https://www.courtlistener.com/opinion/5607240/rader-v-thrasher/), quoting Estate 
of Raphael (1951) [103 Cal.App.2d 792, 796](https://www.courtlistener.com/opinion/2618393/estate-of-raphael/#796), [230 P.2d 436](https://www.courtlistener.com/opinion/2618393/estate-of-raphael/); accord Sincock 
v. Obara (D. Del. 1970) [320 F.Supp. 1098, 1102, fn. 8](https://www.courtlistener.com/opinion/1467804/sincock-v-obara/#1102).) This is because a 
contingent fee involves economic considerations separate and apart from 
the attorney’s work on the case.                                     

     In addition to compensation for the legal services rendered, there is 
the raison d’etre for the contingent fee: the contingency. The lawyer on a 
contingent  fee  contract  receives  nothing  unless  the  plaintiff  obtains  a 
recovery. Thus, in theory, a contingent fee in a case with a 50 percent 
chance of success should be twice the amount of a non-contingent fee for 
the same case. Usually, the fee is contingent not only on the ultimate 
success of the case but also on the amount recovered; that is, the fee is 
measured as a percentage of the total recovery. Thus, the lawyer runs the 
risk that even if successful, the amount recovered will yield a percentage 
fee which does not provide adequate compensation. (See Schwartz &    
Mitchell, op. cit. supra, 22 Stan. L. Rev. at p. 1125.)              

Cazares v. Saenz, 208 Cal. App. 3d 279, 287-88 (1989).

Although it may be more complicated to review contingent fee compensation for 

reasonableness, especially in hindsight, courts are nevertheless obligated to conduct a
reasonableness review, even outside of bankruptcy. As the Colorado Court of Appeals
held:

     [The Law Firm] contends that the trial court erred in evaluating the 
enforceability of the fee agreement when it considered factors relating to 
risk and difficulty of work in retrospect, rather than as they appeared at the 
outset of the case. According to [The Law Firm], courts and commentators 
have taken two general approaches to determining the validity of contingent 
fee contracts, that is, (1) determining whether the contingent fee contract 
was  freely  and  fairly  made  in  accord  with  ordinary  contract  law;  or 
(2) determining whether a legitimate risk of nonrecovery existed at the 
outset to justify the contingent fee.                                
We  reject  the  first  approach  because,  under  Colorado  law, 

contingent fee agreements are not “ordinary” contracts. The Colorado
Supreme Court has noted that there are “special considerations inherent in
the attorney-client contractual relationship” that “distinguish[ ] the attorney-
client relationship from other business relationships.” Dudding, 11 P.3d at
445. Consequently, “[u]nder its general supervisory power over attorneys
as officers of the court, a court may and should scrutinize contingent fee
contracts and determine the reasonableness of their terms,” apart from
whether the contracts were fairly and freely entered into. People v. Nutt, 696
P.2d 242, 248 (Colo. 1984); see Restatement (Third) of the Law Governing
Lawyers § 34 cmt. b (2000) (Restatement of Lawyering) (“A client-lawyer
fee arrangement will be set aside when its provisions are unreasonable as
to the client. . . . Lawyers . . . owe their clients greater duties than are owed
under the general law of contracts.”); 23 Richard A. Lord, Williston on
Contracts § 62:4, at 295-97 (4th ed. 2002) (“Due to the special nature of a
contingent fee contract, which gives an attorney an interest in the outcome
of the litigation and is most susceptible to improper influence and duress,
the courts will closely review them. In particular, they will scrutinize the
agreement for reasonableness, paying special attention to the
reasonableness of the fee.”).

With respect to the second approach, [The Law Firm] asserts that 

“enforceability of a contingent fee agreement is not determined by a post-
hoc analysis of the value of the services rendered, but rather by reference
to whether the contract was fairly entered into and reflects the risk of
litigation as it appeared at the time the contract was made.” Such a position,
[The Law Firm] says, “accords with public policy” because it “encourages
contracts that permit a client without resources to seek redress” while
recognizing that “attorneys must be compensated for bearing the risk that
resources may be expended without any return.”

We readily acknowledge that “[t]he whole point of contingent fees is 

to remove from the client’s shoulders the risk of being out-of-pocket for
attorney’s fees upon a zero recovery. Instead, the lawyer assumes the risk,
and is compensated for it by charging what is (in retrospect) a premium
rate.” 1 Geoffrey C. Hazard, Jr. & W. William Hodes, The Law of Lawyering
§ 8.6, 8-15 (3d ed. 2010); see also Brody v. Hellman, 167 P.3d 192, 201 (Colo. App. 2007) (“The size of the contingent fee is designed to be greater
than the reasonable value of the services, or the hours worked multiplied by
the hourly rate, to reflect the fact that attorneys will realize no return for their
investment of time and expenses in cases they lose.”); Restatement of
Lawyering § 35 cmt. c (“[a] contingent fee may permissibly be greater than
what an hourly fee lawyer of similar qualifications would receive for the
same representation,” because “[a] contingent-fee lawyer bears the risk of
receiving no pay if the client loses and is entitled to compensation for
bearing that risk”).

However, that does not mean that the reasonableness of a
contingent fee agreement is assessed only in light of the circumstances
existing at the time the agreement was entered into. Our cases recognize
that, “[w]hen reviewing contingency fee agreements for reasonableness
under their inherent powers, [our courts] have tested the contracts against
the quantum meruit standard,” In re Marriage of Redmond, 131 P.3d 1167,
1170 (Colo. App. 2005), and determined whether the “services to be
performed were reasonably worth the amount stated in the agreement,” by
considering the “amount of time spent, the novelty of the questions of law,
and the risk of non-recovery to the client and attorney.” Nutt, 696 P.2d
at 248.

Berra v. Springer & Steinberg, P.C., 251 P.3d 567, 570-71 (Colo. Ct. App. 2010), as
modified on denial of reh’g (Sept. 23, 2010).

B. Duty to Conduct Reasonableness Review

While contingent fee compensation is appropriately subject to reasonableness 

review in any court, bankruptcy courts have a specific statutory duty to review
compensation of professionals for reasonableness, considering the factors set forth in
§ 330.

Some courts have held when contingent fee compensation is approved “under 

§ 328,” a court may not later review the fees for reasonableness under § 330. See, e.g.,
In re Airspect Air, Inc., 288 B.R. 464 (6th Cir. BAP 2003) (holding the bankruptcy court
could not review fees for reasonableness under § 330 because it had pre-approved
employment under § 328(a)), rev’d, 385 F.3d 915, 922 (6th Cir. 2004) (holding the
bankruptcy court had not pre-approved compensation under § 328(a), considering the
totality of the circumstances, including “whether the [application or motion] specifically
requested fee pre-approval, whether the court’s order assessed the reasonableness of
the fee, and whether either the order or the motion expressly invoked § 328.”). This Court
cannot agree, for two reasons: (1) the plain language of §§ 328 and 330, and (2) Tenth
Circuit precedent.

     1.     Plain language of §§ 328 and 330                         

First, the Court cannot find the plain language of the Bankruptcy Code supports a 

distinction between contingent fee employment or compensation “under § 328” and other
methods of employment or compensation, such as hourly rates. All employment is
approved under § 327. All compensation is approved under § 328. The first sentence of
§ 328(a) sets forth examples of different forms of compensation, including hourly rates,
contingent fees, and fixed fees. It does not set any one form of compensation apart for
separate treatment. Thus, there should be no special significance given to applications
that cite or reference § 328 or § 328(a). And, the plain language of § 330 requires a court
to review all fees for reasonableness, according to specific factors set forth, including the
lodestar factors (the number of hours reasonably spent, multiplied by a reasonable hourly
rate). Section 330 does not exempt a particular type of compensation from review. To be
sure, § 330(a) states a court’s reasonableness review is “subject to sections 326, 328,
and 329.” But, stating a court’s review is “subject to” § 328 is not the same as saying the
court’s review applies only to hourly fees approved under § 328. Because all
compensation is subject to § 328, finding § 330 inapplicable to compensation approved
under § 328 would mean § 330 analysis would never apply – the exception would swallow
the rule.

In the Court’s view, § 330’s incorporation by reference of § 328 is best interpreted 

as incorporating the provision of § 328 that “the court may allow compensation different
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.” § 328(a). Courts have found this language prohibits a court from changing a
manner of compensation from one type to another (such as from contingency fee to hourly
rate) after the fact, unless un-anticipatable developments occur between the approval of
the compensation type and the conclusion of the employment. See, e.g., In re Reimers, 972 F.2d 1127, 1128 (9th Cir. 1992).

The Court does not disagree with that general premise. But, the Court puts a finer
point on it: there is a distinction between changing a manner of compensation, which may
be limited by § 328, and reviewing compensation for reasonableness, which is required
by § 330. A bankruptcy court has the power and duty to conduct reasonableness review
using the factors set forth in § 330, which include a lodestar analysis. Using a lodestar
analysis as one of many factors in determining the reasonableness of contingent fee
compensation is not the same as converting compensation from a contingent fee basis
to an hourly fee basis. Declining to apply one or more factors set forth in § 330 to
contingent fee compensation results in an abdication of the Court’s responsibility to
review the reasonableness of all compensation. This abdication is not supported by the
plain language of §§ 328 and 330.

2. Tenth Circuit Precedent

Second, Tenth Circuit precedent requires this Court to review all compensation
under § 330, regardless of the method of compensation. See In re Market Center East
Retail Property, Inc., 730 F.3d 1239 (10th Cir. 2013). In Market Center East, the debtor
owned a shopping center. Pre-petition, home improvement retailer Lowe’s signed a
contract to purchase the shopping center property, but Lowe’s later declined to proceed
with the purchase. The debtor retained an attorney to sue Lowe’s for breach of contract.
The debtor and the attorney negotiated a hybrid agreement providing for compensation
of $200 per hour plus a contingency fee of 15% of any sums recovered in damages or
the purchase price of the shopping center. At the time, the parties expected the value of
the case to be $200,000. But, after the attorney filed the lawsuit, Lowe’s made a
settlement offer to purchase the shopping center for $7,500,000.

Shortly after Lowe’s made its settlement offer, the debtor filed a Chapter 11 

bankruptcy petition. During the bankruptcy case, the debtor and Lowe’s reached a
settlement pursuant to which Lowe’s purchased the property for $9,750,000. When the
attorney sought payment of his fee, including the contingency fee, the debtor and
creditors objected. The bankruptcy court found the attorney should be awarded a 15%
contingent fee based on the sale price increase of $2,250,000, not the full $9,750,000.
With the $200 hourly rate and 15% of $2,250,000, the bankruptcy court awarded the
attorney $350,752.06, which represented an approximate hourly rate of $8,632.25.

The debtor appealed to the Tenth Circuit Bankruptcy Appellate Panel, which 

affirmed the bankruptcy court’s decision, and then appealed to the Tenth Circuit Court of
Appeals, which reversed. See In re Market Center East Retail Property, Inc., 469 B.R. 44 (10th Cir. BAP 2012), rev’d, 730 F.3d 1239 (10th Cir. 2013).

The Market Center East debtor asked the Court of Appeals to hold the case of 

Perdue v. Kenny A. ex rel Winn, 559 U.S. 542 (2010), limited courts’ ability to consider
anything other than the lodestar factors when determining reasonable compensation.
Market Center East, 730 F.3d at 1247-49. The Court of Appeals distinguished Purdue
and held its limitations did not apply to fees awarded under § 330. Id. “Instead, we hold
that in determining reasonable attorney’s fees pursuant to § 330, the lodestar amount
may be enhanced or adjusted downward based on the § 330 factors and the Johnson
factors.” Id.

After confirming the applicability of the lodestar and Johnson factors to § 330 

analysis, the Court of Appeals reversed the bankruptcy court, which had held it was not
required to consider the lodestar factors when determining the reasonableness of
counsel’s compensation. As the Court of Appeals stated:

     Although  we  hold  that  the  bankruptcy  court  must  consider  the 
§ 330(a)(3) and Johnson factors in evaluating whether a proposed fee 
amount is reasonable, this question is distinct from what compensation 
structures are permitted. Section 330(a) does not mandate any particular 
fee arrangement. As we have previously noted, a bankruptcy court has 
“wide discretion” to authorize many types of fee arrangements – provided 
the total fee is reasonable when considered against the relevant factors. 

     The bankruptcy court determined that a portion of attorney's fee 
owed to Lurie was to be calculated based on a contingency basis, namely 
that Lurie is entitled to 15% of $2.25 million. The bankruptcy court reasoned 
that the allowance of contingency fees in § 328(a) “make it obvious that the 
lodestar methodology is not the only permitted compensation arrangement 
for attorneys.” In re Market Center I [the Bankruptcy Court decision], 448 
B.R. at 61. The bankruptcy court then concluded that “it is not clear . . . that 
the default position for compensation must be the lodestar in the absence 
of a specific agreement otherwise.” Id. The BAP affirmed the bankruptcy 
court’s holding and emphasized “the cumulative effect” of § 328 and § 330. 
In re Market Center II [the BAP decision], [469 B.R. at 54](https://www.courtlistener.com/opinion/2188735/market-center-east-retail-property-inc-v-lurie-in-re-market-center-east/#54).           

     We have recognized that “bankruptcy courts have wide discretion in 
awarding compensation to attorneys, trustees, and professionals so long as 

ORDER DENYING APPLICATION WITHOUT PREJUDICE
CASE NO. 25-11697-KHT
it is reasonable.” In re Commercial Fin. Servs., 427 F.3d at 810. The
bankruptcy court must nonetheless properly consider the § 330(a)(3) and
Johnson factors in evaluating whether the compensation is reasonable.
Thus, the bankruptcy court erred in holding that it had discretion to ignore
any of the § 330(a)(3) factors. In re Market Center |, 448 B.R. at 62. A
bankruptcy court has discretion in determining how much weight to assign
each factor and in determining the reasonableness of a fee, but this
discretion does not extend to disregarding factors prescribed by statute.
Section 330 and our case law instruct bankruptcy courts to consider the
§ 330(a)(3) factors as well as relevant Johnson factors.
Further, the bankruptcy court erred in holding that “Section 330(a)(3)
includes a nonexclusive list of factors that a court may (or may not)
consider.” Id. at 63-64 (emphasis added). We held in /n re Commercial Fin.
Servs. that bankruptcy courts must consider the § 330(a)(3) factors in
awarding reasonable attorney’s fees. 427 F.3d at 811 (“[U]nder 11 U.S.C.
§ 330 (a)(3), a bankruptcy court is directed to consider at least five factors,
among which four either explicitly or implicitly direct a bankruptcy court to
examine the amount of time spent on a project.”) (emphasis added).
Accordingly, we conclude that the bankruptcy court erred as a matter of law
in interpreting 11 U.S.C. § 330. Id. at 1249-51.
Thus, under Market Center East, regardless of the type of compensation — hourly,
contingent, or otherwise — this Court must determine the reasonableness of that
compensation under § 330, using the factors set forth in that section and in Johnson. The
Court may not exclude any of the § 330 factors from its reasonableness analysis.
Specifically, the Court must consider the lodestar factors when determining the
reasonableness of compensation that includes a contingent fee component. The Court’s
consideration of the lodestar factors as one element of its reasonableness review does
not convert the fee structure from contingent fee compensation to hourly fee
compensation. Contingent fee compensation is allowed, “provided the total fee is
reasonable when considered against the relevant factors.” /d. at 1249.
C. The Agreement in this Case
Given the Court’s obligation to review all compensation for reasonableness under
the factors set forth in § 330 and Johnson, the Court will approve contingent fee
compensation only if an applicant makes a_ sufficient showing contingent fee
compensation is justified in the particular case and is likely to produce reasonable
compensation for actual, necessary services rendered.
The Court thus turns to the Agreement in this case, which provides the Firm will
receive the greater of (i) thirty-three and one-third percent (33’4%) of the total recovery
by the estate in connection with the claims or (ii) attorney fees and costs provided for by
applicable statute or otherwise awarded and paid to Trustee as a result of the Firm’s
11

efforts. The Court must determine whether the Application has sufficiently shown grounds
for awarding a contingent fee, to the extent that fee would be higher than the amount
otherwise awarded (presumably on an hourly fee basis).

In support of its assertion that contingent fee compensation is appropriate, the 

Application argues consumer debtors whose estates have potential CUDMSA claims are
not likely to have substantial non-exempt assets from which attorney’s fees could be paid.
But, CUDMSA allows for recovery of attorney’s fees from the person that violated the
statute. See Colo. Rev. Stat. § 5-19-235 (c). With this additional recovery source,
attorneys pursuing CUDMSA cases are often better positioned than attorneys in other
bankruptcy cases who must look only to assets of the estate for payment of their fees. In
a no-asset case, no funds are available for payment to attorneys. This “downside
contingency” is present in every bankruptcy case. A factor present in every case cannot
justify higher compensation in any one case.

The  Court  further  finds  CUDMSA’s  fee-shifting  provision  already  incentivizes 

enforcement by private attorneys, and the Application has not shown additional
compensation is justified. To the extent a debt-management service provider aggressively
defends a CUDMSA case, that debt-management service provider will be required to
compensate the estate’s attorney for the additional time spent. And, to the extent debt-
management service providers are required to pay the estate’s attorney fees, more of the
estate’s funds are available to pay creditors.

The  Application  argues  CUDMSA  or  related-claim  recoveries  are  often  not 

sufficient to fully compensate attorneys on an hourly fee basis. By limiting the Law Firm’s
compensation to the funds recovered by its efforts, the Agreement insulates other estate
assets from the Law Firm’s compensation claims. That may be true (although undercut
by the Application’s first argument, that consumer debtors whose estates have potential
CUDMSA claims are not likely to have substantial non-exempt assets), but the Court
cannot find the benefit to an estate from limiting the Law Firm’s compensation to funds
recovered is likely to outweigh the harm to the estate from allowing the Law Firm’s
compensation in a higher amount than would otherwise be awarded on an hourly fee
basis.

The primary justification for contingent fee compensation, as recognized in the 

Cazares v. Saenz discussed above, is that an attorney is entitled to a higher fee in some
cases to compensate for other cases in which the attorney has been unsuccessful, either
on the merits of the case or in collection efforts. That view is well accepted outside of a
bankruptcy context. See, e.g., Cazares v. Saenz, 208 Cal. App. 3d at 287-88. But, in a
bankruptcy case, the Court is constrained by § 330 to award only reasonable
compensation for actual, necessary services that benefit the estate for which the work is
performed. Awarding a higher fee in “successful” cases to compensate for “unsuccessful”
cases does not provide a benefit to the estate of the successful cases. In fact, subsidizing
the unsuccessful cases penalizes the creditors (or debtors, if the estate is solvent) in the
successful cases. The Court cannot approve compensation that benefits only the
professional and not the estate. ASARCO, 576 U.S. at 131.

ORDER DENYING APPLICATION WITHOUT PREJUDICE
CASE NO. 25-11697-KHT
The Court is mindful it has “‘wide discretion in awarding compensation to attorneys
.. . SO long as it is reasonable.” Market Center East, 730 F.3d at 1250 (quoting /n re
Commercial Fin. Servs., 427 F.3d at 810). Here, on the undisputed facts before it, the
Court cannot find the Application has sufficiently shown contingent fee compensation is
justified in the particular case and is likely to produce reasonable compensation for actual,
necessary services rendered. The Court will therefore deny the Application, without
prejudice to the filing of an application providing for compensation on an hourly fee basis.
IV. CONCLUSION.
For the reasons discussed above, the Court cannot find the Application has
sufficiently shown contingent fee compensation is justified in the particular case and is
likely to produce reasonable compensation for actual, necessary services rendered.
Accordingly, it is
HEREBY ORDERED that the Application is DENIED, without prejudice to the filing
of an application providing for compensation on an hourly fee basis.

Dated: March 4, 2026 BY THE COURT:
\/ 7 |
Varyebeclen #1 Th —
Kimberley H. Tyson, Judge
United States Bankruptcy Court

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