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March 11, 2026 Get Citation Alerts Download PDF Add Note

In re: Kaedeshia Jade Sanchez

United States Bankruptcy Court, D. Colorado

• Citations: None known
• Docket Number: 25-12163

• Precedential Status: Unknown Status

• Opinion

• Authorities (20)

• Cited By (0)

• Summaries (0)

• Similar Cases (0)

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Trial Court Document

IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF COLORADO

In re:
Case No. 25-12163 KHT
KAEDESHIA JADE SANCHEZ, Chapter 7
Debtor.

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

Firm, LLC as Attorney for the Chapter 7 Trustee (the “Application,” docket #13) filed by
the Chapter 7 Trustee, Simon E. Rodriguez (the “Trustee”). The Court held a preliminary
hearing on the matter (docket #19) and subsequently entered an Order to File Response
(docket #23), to which Trustee filed a timely response (the “Response,” docket #25). No
party filed an objection to the Application or the Response, 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 avoidable transfers and other recoverable assets.
Trustee desires to employ the Larson Law Firm, LLC (“the “Firm”) to investigate the
transfers and recover property for the estate, including litigation of any claims arising out
of the transfers 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
thirty-three and one-third percent (33’4%) of the gross amount recovered. In support of
its assertion that contingent fee compensation is appropriate, the Response represents
as follows:
e The estate has no assets with which to fund any litigation.
e The sums at issue in the meritorious claims of the bankruptcy estate are not the
type that are likely to generate an unconscionable windfall for the Larson Law Firm.
In such an unlikely event the Chapter 7 Trustee must review and approve a fee
application before it is filed.
e In such an unlikely event of an unconscionable windfall contingency, every fee
application is subject to review and approval by this Court.
e The Chapter 7 trustee’s business judgment considering the claims to be pursued,

ORDER DENYING APPLICATION WITHOUT PREJUDICE
CASE NO. 25-12163 KHT
the time such claims may require to resolve, and the subsequent collection should
be granted due deference by the court.
e Results are unpredictable in every cause of action, and unlike a personal injury
case identified by this Court, there may not be a well-funded party involved to
satisfy a judgment. The Chapter 7 trustee employs his or her experience to select
the appropriate retention of counsel, subject to court approval.
e Most bankruptcy Chapter 7 cases involve meritorious claims and an estate lacking
sufficient funds to pursue those claims on an hourly basis.
Response fff] 10-17. 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."
I. 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
A. Employment under § 327(a)
Section 327 provides for court review and approval of 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
persons, to represent or assist the trustee in carrying out the trustee’s duties
under this title. 11 U.S.C. § 327 (a).
B. Employment Terms and Conditions under § 328(a)
Section 328(a) provides for court review of the terms and conditions of the
employment 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
1 Additionally, the Court has no reason to doubt the truth of the matters stated. The Court is familiar with
Trustee and his counsel and their reputations of honesty and integrity.
* Further references to “section” are to those of the Bankruptcy Code, 11 U.S.C., unless otherwise indicated.

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).                                                       
C.    Compensation under § 330(a)                                    
Section 330(a) provides for court review of the payment of compensation to 

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.

D.    Reasonableness Standard                                        

Sections 328 and 330 provide for reasonableness determination at different points 

in time: reasonableness under § 328 is generally determined prospectively, before
substantial work on the matter has begun, while reasonableness under § 330 is generally
determined retrospectively, after substantial work on the matter has been concluded. But,
the different points in time do not require different analyses of what constitutes reasonable
compensation. The use of the term “reasonable” in both sections is “instructive” because
“[i]t is well established that identical words used in different parts of the same act are
intended to have the same meaning.” In re Federal Mogul-Global, Inc., 348 F.3d 390,
407-08 (3rd Cir. 2003) (quoting Barnhart v. Walton, 535 U.S. 212, 221 (2002)) (further
quotation omitted). The factors for reasonableness set forth in § 330 are therefore
appropriately considered in determining reasonableness of compensation terms and
conditions under § 328. Id.

Under § 328, a court must determine whether the proposed terms and conditions 

of employment are likely to yield compensation that is reasonable when judged by the
factors set forth in § 330. See, e.g., In re NBI, Inc., 129 B.R. 212, 219-20 (Bankr. D. Colo.
1991) (“The court must be persuaded that the terms and conditions of employment are in
the interest of the estate. The decision is a matter of discretion and is made against the
background of the statutory compensation scheme of sections 330 and 331 . . . .”)
(quoting In re C & P Auto Transport, Inc., 94 B.R. 682, at 686 (Bankr. E.D. Calif. 1988)).
The moving party bears the burden of showing reasonableness. Id. 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 for reasonableness, and the particulars of the
Application in this case, as set forth below.

A.    Contingent Fees Generally                                      

For  context,  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](https://www.courtlistener.com/opinion/1177204/people-v-nutt/#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](https://www.courtlistener.com/opinion/2640726/brody-v-hellman/#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](https://www.courtlistener.com/opinion/5323940/in-re-the-marriage-of-redmond/#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](https://www.courtlistener.com/opinion/1177204/people-v-nutt/#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). The lodestar analysis applied by the
Colorado courts is consistent with that required of this Court by § 330 and Johnson.

The  lodestar  and  Johnson  factors  are  applied  in  reasonableness  review  of 

contingent fee compensation in other contexts as well. In Chieftain Royalty Co. v.
EnerVest Energy Institutional Fund XII-A, L.P., 166 F.4th 34 (10th Cir. 2026) (applying
Oklahoma common fund class action law), the Tenth Circuit Court of Appeals described
the use of lodestar and Johnson factors as a “cross-check” of the reasonableness of the
contingent fee award at issue. Id. at 40-42.

B. Bankruptcy Court 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 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, given a weight appropriate to the facts of the case, 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 [the attorney] was to be calculated based on a contingency basis, 
namely that [the attorney] 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 
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 I, 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 In 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.                                     

ORDER DENYING APPLICATION WITHOUT PREJUDICE
CASE NO. 25-12163 KHT Id. at 1249-51.
Finally, Market Center East cited and quoted In re Commercial Financial Services,
Inc., 427 F.3d 804 (2005), in which a financial advisor requested approval of payment of
fees on a fixed, monthly basis. The bankruptcy court approved the financial advisor’s
employment but also required it to keep time records to facilitate the court's
reasonableness review. On appeal, the financial advisor argued the § 330 factors were
irrelevant because it had requested employment on a fixed monthly fee. The Court of
Appeals disagreed, finding the bankruptcy court properly considered the reasonableness
of the financial advisor’s compensation under the lodestar and other factors set forth in
§ 330 and Johnson. Id. at 810-11.
Thus, the Tenth Circuit Court of Appeals has not held compensation approved
“under § 328” is insulated from reasonableness review under § 330. Under Commercial
Financial Services and Market Center East, regardless of the type of compensation —
hourly, contingent, fixed, 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
Section 328 allows the Court to approve contingent fee compensation, if that form
of compensation is reasonable in the particular case. The determination of
reasonableness is a matter within this Court’s discretion. See, e.g., In re NBI, Inc., 129
B.R. at 222 (“Inclusion of the term ‘retainer’ in Section 328(a) of the Bankruptcy Code
does not by definition qualify all retainer arrangements as reasonable. The Court, in its
discretion, must make this determination.”). 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 under § 328 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 thirty-three and one-third percent (33’4%) of the total recovery by the estate in
connection with the claims. The Court must determine whether the Application and
Response have sufficiently shown grounds for awarding a contingent fee.
In support of its argument contingent fee compensation is appropriate, the
Response asserts the estate has no assets with which to fund litigation. But, as the
Response also acknowledges, in every no-asset case, no funds are available for payment
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to attorneys. A factor present in every case cannot, by itself, justify higher compensation
in any one case. The Response also asserts litigation results can be unpredictable. The
Court does not disagree, although the Court is not convinced avoidance actions are more
unpredictable than other types of bankruptcy court litigation. The Court is not without
concern for the Firm in particular, and bankruptcy counsel in general, who have performed
work that was not compensated because a case was not successful, on the merits of the
case and/or in collection efforts, but the Court is bound by § 330 to limit compensation to
reasonable amounts based on actual, necessary services benefiting the estate.

The Response asserts the Court should defer to Trustee’s business judgment. The 

Court appreciates Trustee’s efforts to collect estate assets in a way that maximizes return
to unsecured creditors. But, the Court has an independent duty to review compensation,
which duty cannot be delegated to the Trustee. And finally, the Response asserts the
Firm regularly maintains time records, and the Trustee and the Court are able to review
the reasonableness of compensation after the fact under § 330. The Court acknowledges
it could approve the contingent fee with an order clarifying any fee must be reasonable
when compared to the § 330 and Johnson factors, which was the approach adopted in
Commercial Financial Services, 427 F.3d at 810-13. But, given the uncertainty that may
result in that approach, and given the lack of sufficient justification for a contingent fee in
this case, the Court applies Occam’s razor to deny contingent fee compensation at the
outset.

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.3 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 an attorney 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. And, as the Supreme Court held, policy or fairness arguments cannot
outweigh the plain language of § 330:

[We]  lack  the  authority  to  rewrite  the  statute  even  if  we  believed  that 
uncompensated . . .  litigation would fall particularly hard on the bankruptcy 
bar. “Our unwillingness to soften the import of Congress’ chosen words 
even if we believe the words lead to a harsh outcome is longstanding,” and 

3 In the Court’s experience, when counsel have sought contingent fee compensation and the Court has
compared the contingent fee sought to the lodestar factors, the contingent fee compensation has been
higher. In one recent case in particular, the lodestar calculation supported an award of $10,440 in fees, but
the contingent fee calculation supported an award of $21,775.62 in fees. Certainly, each case is different,
and reasonableness of compensation must be determined on a case-by-case basis. But, that case and
others recently before the Court support the Court’s view contingent fee compensation can and does result
in a fee that substantially exceeds hourly-rate compensation.

ORDER DENYING APPLICATION WITHOUT PREJUDICE
CASE NO. 25-12163 KHT
that is no less true in bankruptcy than it is elsewhere. Lamie v. United States
Trustee, 540 U.S. 526, 538, 124 S.Ct. 1023, 157 L.Ed.2d 1024 (2004).
Whether or not the [justification for compensation] is desirable as a matter
of policy, Congress has not granted us “roving authority . . . to allow counsel
fees ... whenever [we] might deem them warranted.” Alyeska Pipeline,
supra, at 260, 95 S.Ct. 1612. Our job is to follow the text even if doing so
will supposedly “undercut a basic objective of the statute,” post, at 2170.
Id. at 134-35.
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 and Response have 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 and
Response have 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, which may seek
approval of employment as of the date the original Application was filed, nunc pro tunc.
Dated: March 11, 2026 BY THE COURT:
\/- | a
Vatunhivlen H Th —
Kimberley H. Tyson, Judge
United States Bankruptcy Court

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