                        United States Court of Appeals
                                 FOR THE EIGHTH CIRCUIT
                                       ___________

                                       No. 01-3128
                                       ___________

In re Apex Oil Company,                     *
                                            *
               Debtor                       *
                                            *
------------------------------              *
                                            *
Apex Oil Company,                           * On Appeal from the United
                                            * States Bankruptcy Appellate
               Appellant,                   * Panel of the Eighth Circuit.
                                            *
       v.                                   *
                                            *
Artoc Bank & Trust Limited,                 *
                                            *
               Appellee.                    *
                                       ___________

                                  Submitted: June 13, 2001
                                     Filed: July 22, 2002
                                      ___________

Before WOLLMAN, RICHARD S. ARNOLD, and LOKEN, Circuit Judges.
                         ___________

RICHARD S. ARNOLD, Circuit Judge.


      Apex Oil Company appeals the Bankruptcy Appellate Panel’s decision to
affirm the Bankruptcy Court’s order allowing a claim of Artoc Bank & Trust in
Apex’s bankruptcy for $4,651,850. This amount represents about $1.7 million for
wrongful setoffs by Apex, $1.19 million in prejudgment interest on that claim, and
$1.76 million in attorneys’ fees to Artoc as the prevailing party. Apex argues that the
Court erred in rejecting its argument that Artoc was estopped to file its claim. It also
contends that the attorneys’ fees awarded were unreasonable. We affirm the decision
to allow Artoc’s claim for the amount of the setoffs, including the award of
prejudgment interest. However, we reduce the allowed attorneys’ fees from
$1,761,850 to $1,302,860. The attorneys’ fees awarded by the Bankruptcy Court
were excessive and not supported by sufficient evidence.

                                           I.

       This dispute between Apex Oil and Artoc Bank began over 20 years ago.
Artoc was a secured lender to Uni Refining (Uni). As collateral for the financing, Uni
assigned Artoc its accounts receivable. In 1980, Uni sold petroleum products to
Apex. The invoices for these sales were stamped with a notice stating that Artoc had
been granted a security interest in the amount of the invoice and directing payment
to a “lockbox” account controlled by Artoc. In December 1980, Apex offset the
invoice amounts it owed to Uni against amounts Uni owed Apex under different
contracts. In February 1981, Uni filed for bankruptcy. In December 1981, Artoc
filed suit in Texas against Apex and ten other companies to recover the amount of
setoffs and direct payments made by those defendants.

      Apex then filed for bankruptcy. The Texas lawsuit was therefore stayed as to
Apex in 1987. Artoc filed a proof of claim in Apex’s bankruptcy based on the same
grounds as the Texas lawsuit, that Apex engaged in wrongful setoffs. The
Bankruptcy Court rejected this contention and held that the setoffs were permissible
because Apex lacked sufficient notice of Artoc’s security interest in Uni’s accounts
receivable. The District Court affirmed.




                                          -2-
       This Court reversed. Artoc Bank &Trust, Ltd.v. Apex Oil Co., 975 F.2d 1365,
1366 (8th Cir. 1992). We held that Apex received sufficient notice of Artoc’s interest
as an assignee of Uni’s accounts receivable, so that Apex acted wrongfully in
offsetting the invoices against amounts Uni owed it. Id. at 1370 (applying Tex. Bus.
& Comm. Code Ann. § 9.318(a)). We noted that Apex made an estoppel argument,
but that because neither the Bankruptcy Court nor the District Court had reached this
issue, we would “leave it for development on remand to the Bankruptcy Court.” Id.
We also stated that “[i]f judgment is entered against Apex, the Bankruptcy Court
should first consider . . . attorneys’ fees” but we expressed no view on the merits of
this issue. Id.

        On remand, the case stalled for several years. During this period, both parties
filed motions for summary judgment, and Apex conducted discovery related to its
estoppel defense. In 1996, the Bankruptcy Judge held a status conference. At this
meeting, Apex’s pending motion for leave to supplement the record was discussed.
The Court stated that it would rule in writing on that motion after Artoc responded.
Artoc did respond. However, no order was ever entered on that motion. Three years
later, in 1999, the Court filed an order granting Artoc’s motion for summary judgment
and allowing its claim for $1.7 million. Apex moved for reconsideration. The Court
denied that motion, rejected Apex’s argument that it was entitled to a 28 per cent.
credit against Artoc’s claim as a result of an order in the Uni bankruptcy case, and
allowed Artoc to add to its claim pre-petition attorneys’ fees of $1,761,850. The
Court also allowed $1.19 million in prejudgment interest.

       Apex appealed these orders to the Bankruptcy Appellate Panel (BAP), which
affirmed the Bankruptcy Court in all respects. Apex then filed the instant appeal,
alleging error both on the merits of its estoppel defense and on the award of
attorneys’ fees.




                                         -3-
                                         II.

      Apex makes several arguments to support its position that Artoc should be
estopped to recover the amount of the setoffs. None of them persuades us.

      Apex’s first complaint is that it was prejudiced because it was not allowed to
supplement the summary-judgment record. As explained above, Apex’s motion to
supplement was apparently never ruled upon, except that it was denied by necessary
implication when the Bankruptcy Court granted Artoc’s motion for summary
judgment. Nevertheless, we see no reversible error in this situation because Apex
does not convince us that its inability to submit further evidence caused it any
meaningful prejudice. First, Apex has previously stated that no material facts were
in dispute on the issue of estoppel. It made this representation both in its 1990
motion for summary judgment and in its 1992 brief to this Court. Apex has not
demonstrated to this Court that the alleged “new” evidence it obtained in 1993
depositions and document productions would materially alter a court’s analysis of its
estoppel defense. Indeed, Apex has not specified the content of this evidence at all,
beyond a general statement that it would support its arguments. This is insufficient
to show prejudice. We affirm the BAP on this issue.

       Next, Apex urges this Court to reverse, on the merits, the Bankruptcy Court’s
determination that Artoc is not barred from its claim by estoppel. We decline to do
so. The Bankruptcy Court correctly applied the facts at hand in deciding that Apex
could not satisfy the five elements of estoppel under Texas law. Traylor v. Gray, 547
S.W.2d 644, 652 (Tex. Civ. App. 1977, writ ref’d n.r.e.). For one thing, Apex
behaved unreasonably in not making inquiry of Artoc after receiving notice of
Artoc’s security interest. Further, we agree with the Bankruptcy Court that Apex’s
other estoppel-related theories must fail. Apex simply has not shown any court in this
lengthy litigation that Artoc engaged in any action required to support an estoppel
defense.

                                         -4-
       The parties also disagree over the applicability of an order entered in 1983 by
the court that confirmed Uni’s plan of reorganization under Chapter 11 of the
Bankruptcy Code. That order stated that any creditor “against whom money damage
judgments in favor of Artoc Bank and Trust, Ltd. are awarded in the District Court
Action shall receive” a 28 per cent. credit against such judgments. Appellant’s App.
295. We decline to enforce this order. We agree with the BAP that the
administration of Uni’s plan, which is the subject matter of the order, is not properly
before us. Apex cites no excuse for its neglect, from 1983 until 1999, in not bringing
this order to the Bankruptcy Court’s attention so that any claim based upon such a
credit could be appropriately considered on a timely basis. As with the rest of the
estoppel arguments, the Bankruptcy Court and the BAP properly resolved this issue
in Artoc’s favor.

                                         III.

       The Bankruptcy Court awarded Artoc a total of $1,761,850 in attorneys’ fees.
This amount reflects the charges of two law firms. Breed, Abbot & Morgan was
awarded $316,850 in pre-petition hourly fees. Fehrenbacher, Sale & Quinn was
awarded $1,445,000 for pre-petition work, originally contracted for on a 50 per cent.
contingency basis. We hold that Artoc did not satisfy its burden of showing that the
total amount of fees awarded was reasonable and necessary. Specifically, we find
abuse of discretion in the size of the fee award for work done by Fehrenbacher, Sale
& Quinn and reduce this award from $1,445,000 to $986,010. However, we affirm
the award for fees submitted by Breed, Abbot & Morgan.

       Under Texas law, an assignee who recovers against an account debtor is
entitled to recover the attorneys’ fees that accrued from the pursuit of its claim. See
Taubenhaus v. Jung Factors, Inc., 478 S.W.2d 149, 151-52 (Tex. Civ. App. 1972, no
writ history). The party requesting the attorneys’ fees must prove that the amount
requested is “reasonable and necessary.” Stewart Title Guaranty Co. v. Sterling, 822

                                         -5-
S.W.2d 1, 10 (Tex. 1991). The Texas Supreme Court has delineated eight factors that
should be considered in determining the reasonableness of a fee.

      (1)    the time and labor required, the novelty and difficulty of the
             questions involved, and the skill required to perform the legal
             service properly;

      (2)    the likelihood . . . that the acceptance of the particular
             employment will preclude other employment by the lawyer;

      (3)    the fee customarily charged in the locality for similar legal
             services;

      (4)    the amount involved and the results obtained;

      (5)    the time limitations imposed by the client or by the circumstances;

      (6)    the nature and length of the professional relationship with the
             client;

      (7)    the experience, reputation, and ability of the lawyer or lawyers
             performing the services; and

      (8)    whether the fee is fixed or contingent on results obtained or
             uncertainty of collection before the legal services have been
             rendered.

Arthur Andersen & Co. v. Perry Equip. Corp., 945 S.W.2d 812, 818 (Tex. 1997).
While these factors guide a court in setting a fee, trial courts possess “broad power
and discretion” in determining fees. Walton v. LaBarge (In re Clark), 223 F.3d 859,
863 (8th Cir. 2000). Therefore, our review of an attorneys’ fee award is for abuse of
discretion. See Vela v. City of Houston, 276 F.3d 659, 679 (5th Cir. 2001).




                                         -6-
       Applying this standard, we affirm the attorneys’ fees allowed for work
performed by Breed, Abbot & Morgan (Breed, Abbot). Artoc supported its request
for $316,850 in hourly fees paid to this firm with specific and credible hourly time
records. Breed, Abbot represented Artoc in its suit for six years and conducted much
of the discovery. Further, because it discontinued its representation of Artoc before
Apex entered bankruptcy in 1987, it is certain that any fees paid to it were for pre-
petition legal services. Therefore, we uphold the Bankruptcy Court’s determination
that Artoc should be allowed as part of its claim $316,850 for attorneys’ fees paid to
Breed, Abbot.

       However, we reduce the fees awarded for the work of Fehrenbacher, Sale &
Quinn (Fehrenbacher). Our review of the evidence on the these fees firmly convinces
us that the amount allowed for this firm’s work was too large. It was an abuse of
discretion to allow $1,445,000 on the facts at hand. We reduce the award to
$986,010, which, although still a significant amount for one year of legal work, is a
reasonable figure based on the evidence Artoc submitted.

       The Arthur Andersen factors again guide our analysis of the reasonableness of
a fee award. As to the first factor, the time and labor spent, our review is hindered by
Fehrenbacher’s decision not to keep contemporaneous time records for its work for
Artoc. This lack of records is important, notwithstanding that Fehrenbacher had a
contingency fee arrangement with Artoc. The record does contain “reconstructed”
time records for Fehrenbacher’s pre-petition work. These records are, at best,
oversimplified. For example, an entire month’s legal work for three principals is
presented in blocks of 150 hours with identical descriptions for all three attorneys.
Appellee’s App. 457-58. While we recognize the difficulty, if not impossibility, of
recalling legal work performed 15 years ago, it is wrong to make Apex responsible
for Fehrenbacher’s lack of diligence in keeping time records. We do not question the
integrity of Fehrenbacher’s attorneys in doing their best to reconstruct time records.
However, the fact remains that with evidence of this conclusory nature, it is difficult

                                          -7-
to review adequately whether the time and labor Fehrenbacher spent on this case was
justified.

        We will not attempt this daunting task. Even assuming that the 4,883 hours
allegedly worked on this matter in one year is the correct figure, we hold that a fee
award of $1,445,000 is too large to compensate Fehrenbacher for working these
hours. The Bankruptcy Court did not mention an hourly rate or a lodestar multiplier
in its opinion. Instead, it simply stated that an award of 50 per cent. of the claim was
reasonable. However, Artoc offered expert testimony to justify Fehrenbacher’s fee
in which its expert used $250 for the hourly rate and a lodestar multiplier of 2.3.
Appellee’s App. 447. This hourly rate and multiplier, which produce a fee equal to
50 per cent. of the allowed claim, exceed what is necessary to compensate
Fehrenbacher for this case. Therefore, we re-calculate the fees using a lower hourly
rate and a lower multiplier.

        Artoc’s expert stated that the fee should be calculated using $250 as the hourly
rate. However, in the year Fehrenbacher worked on this matter before Apex filed for
bankruptcy (from December 1986 to December 1987), the firm’s normal hourly rate
for principals was $175. Appellee’s App. 453. Artoc’s expert opined that $175 was
a “very low rate for a principal of a law firm in a major city” and used a baseline rate
of $250 instead. Appellee’s App. 447. We see no justifiable reason for this increase.
While some other firms may have charged $250 per hour in 1986-87, Fehrenbacher
did not. Presumably Fehrenbacher set its hourly rate at a competitive level based on
its size, expenses, experience and reputation as a firm, and other market forces. See
To-Am Equip. Co. v. Mitsubishi Caterpillar Forklift Am., Inc., 953 F. Supp. 987, 998
(N.D. Ill. 1997). It was an abuse of discretion to depart from Fehrenbacher’s normal
hourly rate in this matter. If it was the correct amount to charge other clients, it is the
correct amount for work on Artoc’s case. We use $175 per hour in our calculations
of the base fee.



                                           -8-
       After raising Fehrenbacher’s hourly rate, Artoc’s expert applied a multiplier of
2.3 This factor is multiplied by the amount of the fees after the base fee of total hours
and hourly rate are calculated. Lodestar multipliers are permissible under Texas law.
See Borg-Warner Protective Services Corp. v. Flores, 955 S.W.2d 861, 870 (Tex.
App. 1997, no writ history). In this case, Artoc’s expert stated that a lodestar
enhancement was justified by the complexity of the subject matter, the quality of the
representation, and the contingent nature of the legal services. Appellee’s App. 447.
The Bankruptcy Court also relied on these reasons to justify its award of an amount
equal to 50 per cent. of the claim. While these considerations are present in Arthur
Andersen and are appropriate concerns in determining a fee, a multiplier of 2.3 was
too large. The facts, as applied in accordance with the three factors listed as relevant
by the Bankruptcy Court, do not support such a sizeable increase in the base fee.

       First, we disagree with the Bankruptcy Court that the complexity of the legal
work necessitated any increase. While the lower courts and our Court disagreed over
the merits of this case, this is an everyday occurrence and does not suffice to make
a matter “complex.” Multi-million dollar cases are rarely simple, and we agree this
case probably was not either. But we do not see anything unusually challenging
about this litigation. Cf. Vela, 276 F.3d at 680 (finding that managing and analyzing
2,600 individual claims in area of governmental-employee-relations law required skill
of the highest order.) Further, in light of the very substantial number of hours
Fehrenbacher allegedly worked on this case during 1986-87, we think any complexity
has already been taken into account in the hourly calculations of the base fee.

       On these facts, we also disapprove of using expedited trial preparation as a
justification for enhancing the fees. The significant number of hours expended in
Fehrenbacher’s first year of representing Artoc already reflect the fact that quick trial
preparation was required. The reconstructed time records show that Fehrenbacher
spent 4,883 hours in one year. This is a huge figure, representing about 30 hours per
week for each of three principals in the Fehrenbacher firm. Presumably these hours

                                          -9-
were being used for expedited trial preparation, which occurred before Apex filed for
bankruptcy. Since Fehrenbacher’s reconstructed time records are being allowed to
stand, it therefore already recovers for the time it spent preparing for trial.

      We agree with the Bankruptcy Court that the third factor, the uncertainty of
success, merits an enhancement in Fehrenbacher’s base fee award. Apex strenuously
argues that the Bankruptcy Court erred because it allowed fees for Fehrenbacher’s
work equal to what that firm would have been entitled to had the contingency
agreement been enforced. Apex is correct that Arthur Andersen prohibits using the
contingency agreement alone to determine the reasonableness of a fee. 945 S.W.2d
at 818. However, we do not believe that is what happened here. The Bankruptcy
Court listed and considered other Arthur Andersen factors in setting the fee. There
was no per se legal error.

       Although we reject that basis for reducing the fee award, we agree with Apex
that a fee award that equaled 50 per cent. of the recovery was, in fact, excessive for
the pre-petition work done in this case. The multiplier of 2.3, which produced a
figure of $1,445,000 for fees, exceeds what is reasonable and necessary to
compensate Fehrenbacher for the risk of representing Artoc. We agree with the
Bankruptcy Court that this litigation had an uncertain prospect of success and that
Artoc was a high-risk client. These facts are supported by evidence. Artoc’s former
counsel submitted affidavits explaining why it believed Artoc was a high-risk client,
with a small chance of prevailing in this litigation. Further, the uncertainty of success
in Artoc’s case is also reflected in the fact that the only counsel Artoc could obtain
demanded a high contingent fee. However, the risk was not so great that a 2.3
multiplier was necessary or reasonable. Therefore, we approve of a fee enhancement
based on this factor, but reduce the multiplier from 2.3 to 1.2. We believe this smaller
number still adequately compensates Fehrenbacher for the risk it bore in representing
Artoc in this litigation and also produces an appropriate total fee.



                                          -10-
       Fehrenbacher’s reconstructed time records and hourly rate schedule for each
employee who worked on this matter show a total fee of $821,675. Appellee’s App.
465. We adopt this number as the base fee. Applying a lodestar multiplier of 1.2, we
conclude that Artoc should be allowed $986,010 as part of its claim for
Fehrenbacher’s pre-petition services. This amount satisfies the reasonable-and-
necessary standard, is justified by the Arthur Andersen factors, and, in light of all the
facts, reimburses Fehrenbacher for its pre-petition work on this case.

                                          IV.

       As explained above, we affirm the decision to allow Artoc’s claim of $1.7
million, plus prejudgment interest of $1.19 million. Artoc is not estopped to recover
for the wrongful setoffs. Because Artoc is the prevailing party, it is entitled to
reasonable and necessary attorneys’ fees. However, the fees allowed by the
Bankruptcy Court did not meet this standard and were excessive. Therefore, for the
reasons explained above, we reduce the allowed fees from $1.76 million to
$1,302,860. This smaller amount is reasonable and necessary to compensate Breed,
Abbot and Fehrenbacher. Accordingly, the judgment of the BAP is affirmed in part
and reversed in part, and this case is remanded to the BAP with instructions to enter
judgment in accordance with this opinion.

      A true copy.

             Attest:

                     CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.




                                          -11-
