Third party releases are a controversial topic with Congress considering legislation to ban them. However, Judge Greg Costa, writing for the Fifth Circuit, has distinguished between an impermissible third-party release and a plan provision reducing a guarantor's liability in a new opinion.  New Falls Corporation v. LaHaye (Matter of LaHaye), No. 19-30795 (5th Cir. 11/12/21) which can be found here.What HappenedMr. and Mrs. LaHaye owned an LLC named LaHaye Enterprises, LLC. The LLC owned a grocery store. To finance the business, the LaHayes pledged the grocery store and a house they owned to Regions Bank.  The grocery store closed when a national chain came to town. The LLC tried to transfer its property to Regions Bank to reduce the debt. Instead, Regions Bank sold the debt to New Falls Corporation.  When the LLC filed bankruptcy, New Falls filed a proof of claim valuing the property at $225,000. The LLC confirmed a plan which surrendered the grocery store to New Falls in return for a credit of $225,000. The Plan also provided that the LaHayes would only be liable for the remaining balance of $100,000.New Falls then tried to foreclose on both the grocery store property and the house owned by the LaHayes. The LaHayes filed their own Chapter 11 bankruptcy. New Falls filed a proof of claim for the full amount of the debt without regard for the credit from the first bankruptcy. The Debtors objected to the claim which the Bankruptcy Court sustained. The LaHayes then confirmed a plan providing for payment of the $100,000 debt. New Falls appealed.  The Court's RulingOn appeal, New Falls made two arguments. First, it argued that it was not required to give credit for the value of the grocery store until it received title to the property. At the time of the individuals' bankruptcy, New Falls still had not received title and the vacant property had gone down in value. The Court noted that a plan is effective upon confirmation under 11 U.S.C. Sec. 1141(a) but relied on the specific plan language that said:The LaHayes shall be entitled to a partial release of the guaranties of the New Falls debt upon confirmation of this plan in an amount equal to the value of the property surrendered under the Plan. The LaHayes shall thereafter be liable only for the remaining balance of $100,000.00 as provided for above.The plan did not leave any room for ambiguity. The individuals were entitled to credit upon plan confirmation not upon property transfer.The second argument that the creditor made was that the plan provision was not binding on it vis a vis the guarantors. I am going to quote several pages of the opinion because it is extremely well-written and the court says it better than I could summarize.Under the Bankruptcy Code, the “provisions of a confirmed plan bind the debtor . . . and any creditor.” 11 U.S.C. § 1141(a). Based on this provision, we have long understood a confirmed bankruptcy plan to have binding effect on subsequent proceedings that involve the same debt. (citations omitted). This binding effect extends to third parties. Indeed, a confirmation order binds every entity that holds a claim or interest in the planned reorganization, regardless of whether they assert those interests before the bankruptcy court. (citation omitted).That being said, the “discharge of a debt of the debtor does not affect the liability of any other entity” for the debt 11 U.S.C. § 524(e). A debtor’s bankruptcy plan generally does not discharge its guarantors’ obligations, even if the plan reduces or restructures the debt itself. (citation omitted). After all, the reason a lender obtains a guaranty is to guard against the risk that the borrower will not repay the loan. If a borrower’s insolvency discharged even a guarantor’s liability, the guaranty would lose much of its force. But discharge is not the issue here. The LLC’s bankruptcy plan does not discharge the New Falls debt or the LaHayes’ obligations under it. To the contrary, the plan provides that the LaHayes’ guarantees and mortgage “shall remain in force until the New Falls debt is paid in full.” The provision granting the LaHayes a partial release of liability for the secured portion of the debt is not a discharge. Rather, it requires New Falls to recover the secured debt from an asset—the Grocery Store—that is part of the LLC’s estate. The guarantee remains, with the LaHayes still owing the leftover balance. This is not the first time we have recognized the distinction between erasing a guaranty (impermissible) and reducing a guarantor’s liability by ordering a debtor to surrender assets in satisfaction of the debt (permissible). (citations omitted). In Stribling, for example, the debtor’s bankruptcy plan did not discharge a guaranty; instead, it ordered asset transfers and payments that reduced the debt and, in tandem, the guarantors’ liability. (citation omitted). Applying the same logic, in Sandy Ridge, we approved a proposed Chapter 11 plan similar to the LLC’s. That debtor also offered to surrender some of its real estate in exchange “for a ‘credit on the indebtedness.’” (citation omitted). The bankruptcy court rejected the plan due, in part, to its concern that the credit would release the debtor’s guarantors from liability. (ctiation omitted). We reversed, explaining that the proposed plan would not “operate to release the nondebtor guarantors.” (citation omitted). The surrendered assets would satisfy the secured portion of the claim and, with the guaranty still in existence, the creditor “would then be able to pursue the guarantors” for the remaining unsecured sum (the total debt minus the credit). (citation omitted). The LLC’s plan operates the same way. A simple way to frame the difference between discharging a debt and crediting an asset against its balance is to imagine that the bankruptcy court had ordered the LLC to turn over cash instead of real estate. No one would view an order requiring the LLC’s estate to pay New Falls $250,000 in cash as eliminating a guaranty. It would be a payment that reduced the debt—and thus the guarantee—to a $100,000 balance. The fact that the provision at issue contemplates an exchange of real property rather than cash does not make it any less binding. (citation omitted). A bankruptcy plan, then, can limit a creditor’s claim against third-party guarantors—not by discharging the guaranty but by determining the source and value of payments satisfying the guaranteed debt. Indeed, the bankruptcy court has broad discretion to determine how a debt will be settled, including through the sale or transfer of “all or any part of the property of the [bankrupt entity’s] estate.” See 11 U.S.C. § 1123(a)(5)(A)–(D).Opinion, pp. 7-9 (emphasis added). The opinion makes clear that this is not a Shoaf-type ruling where the creditor was bound due to failure to object. Rather, surrendering property to reduce the debt of both the debtors and the guarantor was permissible.Why It's Important This short opinion is important for several reasons. First, plans matter. When a debtor puts language in a plan, that language will bind the creditor even if the creditor doesn't like how the case turned out. Second, dirt for debt remains viable in the Fifth Circuit. In re Sandy Ridge Dev. Corp., 881 F.2d 1346, 1351 (5th Cir. 1989) was controversial at the time it was decided. However, today's Fifth Circuit regards it as settled law. I really liked the passage where Judge Costa compared paying a debt with real estate to paying with cash. Both types of property have value, although real estate is significantly less liquid than cash. Finally, it is permissible for a plan to impact the liability of a third party. While third party releases are impermissible, payments which benefit third parties are acceptable.  Finally, although I omitted the citations in my lengthy quotation, the opinion is a veritable encyclopedia of Fifth Circuit bankruptcy opinions from the 80s and 90s which remain viable today. 

Summary judgment was intended to be a method of disposing of cases where there are not any disputed issues for the court to trial. Sometimes it seems that summary judgment is a way to get rid of cases that the court doesn't want to try. In a new opinion about insurance coverage, the Fifth Circuit has reminded lower courts that no genuine issue of material fact means exactly that. Guzman v. Allstate Assurance Company, Case No;. 20-11247 (5th Cir. 11/10/21).   In Guzman, a 26 year old man purchased an insurance policy. In his application, he said that he did not smoke and had not smoked in the past. The insurance company reviewed his medical records and a urine test and issued a policy for $250,000. When he died of a seizure just two years later, the insurance company performed an investigation and concluded that the man really was a smoker. The company refunded the premiums paid of $433.84. His wife sued. The insurance company filed for summary judgment. Allstate submitted medical records, most of which described the decedent as a smoker. His wife and his wife's sister submitted affidavits stating that he was not a smoker. The district court decided that it could ignore the affidavits because they were "self-serving" and granted summary judgment. The Fifth Circuit, in an opinion by Judge Elrod, reversed the District Court ruling. Judge Elrod said that the trial court was wrong for two reasons. First, “self-serving” affidavits and depositions may create fact issues even if not supported by the rest of the record. Where self-interested affidavits are otherwise competent evidence, they may not be discounted just because they happen to be self-interested. Indeed, “[e]vidence proffered by one side to . . . defeat a motion for summary judgment will inevitably appear ‘self-serving.’” (citation omitted). But self-serving evidence may not be discounted on that basis alone. How much weight to credit self-interested evidence is a question of credibility, which judges may not evaluate at the summary judgment stage. (citation omitted). Rather, self-serving evidence must only comport with the standard requirements of Federal Rule of Civil Procedure 56. Self-serving affidavits and declarations, like all summary judgment evidence, must “be made on personal knowledge, set out facts that would be admissible in evidence, and show that the affiant or declarant is competent to testify on the matters stated.” (citation omitted). And these facts must be particularized, not vague or conclusory. (citation omitted). *** Unlike in these cases, Mirna’s and Martha’s affidavits are competent summary judgment evidence. They are based on personal knowledge, set out facts that are admissible in evidence, are given by competent witnesses, and are particularized rather than vague or conclusory. Mirna and Martha testify about their personal experiences with Guzman. In her deposition and affidavit, Mirna claimed that Guzman was not a smoker; that she was often with Guzman and would know if he smoked; that she is “able to tell whether [people] use tobacco because they have a peculiar and specific smoke smell”; and that neither Guzman nor his belongings, including his clothes and truck, ever smelled like smoke. Martha made substantially similar claims in her own affidavit. Though self-serving, this testimony is sufficient to—and does— create a genuine dispute of material fact. Opinion, pp. 5-6, 7. The Court went on to find that summary judgment should not have been granted because Allstate's own summary judgment evidence was inconsistent, in that some medical records said he was a smoker and some did not. Additionally, the medical records were not clear about who had described the decedent as a smoker. Was this something that he said or someone else's conclusion? This is a good opinion because the Court of Appeals points out that the issue on summary judgment is whether there is a fact issue. Period. That fact issue can come from insufficiency in the moving party's proof or an affidavit from a self-interested witness which provides specific facts based on personal knowledge. The irony here is that the District Court was willing to discount the affidavits from the self-interested witnesses but overlooked the inconsistencies in the insurance company's proof. Given that federal judges have lifetime appointments, they should take the time to get it right, even if that means allowing a possibly weak case with genuine fact issues to go to trial.

The proposed law would prohibit “divisive mergers” in Chapter 11, a corporate reorganization tool made available by Texas and Delaware that allows companies to assign liabilities to a subsidiary that can then seek the protective auspices of bankruptcy. See an excellent article on this topic athttps://www.jdsupra.com/legalnews/new-bill-would-end-the-texas-two-step-3111746/?origin=CEG&utm_source=CEG&utm_medium=email&utm_campaign=CustomEmailDigest&utm_term=jds-article&utm_content=article-link

Sports Gambling Comes to Virginia Like most people, I’ve noticed that ads for sports gambling have taken over the TV (at least on basketball and college football, which is about all the TV I watch.) Sports gambling was legalized in Virginia April last year and began in January 2021. Now in October and November, I’ve […] The post Sports Gambling Comes to Virginia by Robert Weed appeared first on Northern VA Bankruptcy Lawyer Robert Weed.

 Evictions and BankruptcyOn November 7, 2021, the New York Times published an article titled "With Cases Piling Up, an Eviction Crisis Unfolds Step by Step". The article can be found at https://nyti.ms/3mP XsGf The article stated that evictions are on the rise nationwide. We are receiving more and more calls and emails from individuals facing evictions and/or businesses in distress at Shenwick & Associates.The first step an individual or business facing eviction should take is to consult with an experienced litigator or landlord-tenant attorney.  Can bankruptcy help these people and businesses? Yes, it can. Bankruptcy can provide temporary or permanent relief from many of these problems.By filing a bankruptcy petition, all litigation against the Debtor (person or company that owes money) is automatically stayed pursuant to section 362 of the bankruptcy code. The purpose of section 362 is to give the debtor breathing room!Chapter 13 of the Bankruptcy Code allows an individual debtor to reorganize pursuant to a   confirmed chapter 13 plan. A chapter 13 plan could permit the debtor to keep their house or lease, despite the pending eviction action. Chapter 13 plans are generally funded by 3 to 5 years of the debtor's future earnings. Corporations and limited liability companies cannot file for chapter 13 bankruptcy.Individuals who don't want to keep their lease or home and owe money to banks, landlords, or creditors can file for chapter 7 bankruptcy, which will wipe out their debts and give them a "fresh start."Corporations or LL Cs may file Chapter 7 or Chapter 11 bankruptcy or a new Subchapter V Chapter 11 bankruptcy. Debtors' finances are reviewed holistically, including the property they own, who owes money to them, a recent tax return and an after-tax monthly budget. For business we review their Income Statement, Balance Sheet, a recent tax return and guarantees. If you or your business is contemplating bankruptcy, call or email Jim Shenwick, Esq. 212 541 6224 or [email protected] to learn about your options.     

WHY ARE BANKRUPTCY FILINGS LOWER? Federal Aid Helped Bankruptcies Decline Through Covid Pandemic U.S. bankruptcies continued on a four-year decline through the COVID-19 pandemic according to research published by the Administrative Office of the U.S. Courts on Monday, Courthouse News reported. According to the report, “increased government benefits and moratoriums on evictions and certain foreclosures may have eased financial pressures in many households.” Bankruptcy filings often climb side by side with unemployment rates. With unemployment peaking at 14.8% in April 2020, some economists therefore expected a subsequent hike in evictions, foreclosures and bankruptcies. The $1.2 trillion CARES Act signed in March 2020 seems to have stanched some of the economic bleeding. The unprecedented stimulus package paid out stimulus checks, increased unemployment benefits, and placed moratoriums on evictions and foreclosures. Between September 2020 and September 2021, bankruptcies fell nearly 30%. Less than half a million individuals, 434,540 declared bankruptcy during that time period, compared with 615,561 a year prior. The 2021 figure includes 16,140 business and 418,400 non-business filings. Wednesday, November 10, 2021

 https://www.nytimes.com/2021/11/07/us/evictions-crisis-us.html

Many consumer debtor attorneys have chosen to enhance their revenue by filing suit on relatively minor violations of the automatic stay or discharge. There is nothing inherently wrong with these suits since they vindicate the rights that debtors receive when they file bankruptcy. However, some practitioners have resorted to filing form complaints which go on for hundreds of paragraphs with boilerplate allegations about the callousness of the particular creditor. Recently, a creditors' lawyer fought back against exaggerated allegations in a complaint against his client and succeeded in recovering sanctions under Fed.R.Bankr.P. 9011. Defeo v. Winyah Surgical Specialists, P.A. (In re Defeo). 2021 Bankr. LEXIS 2685 (Bankr. D. S.C. 9/27/21).  What HappenedIn the Defeo case, a medical practice sent a chapter 13 debtor an invoice for $910 after bankruptcy had been filed. The debtor had not listed the debt in its schedules so the creditor was not aware of the automatic stay. Debtor's counsel contacted the creditor who followed its normal procedures to note the account as being in bankruptcy. However, due to an error in settings, the notation did not save. Several months later, the medical practice sent the debtor a second bill which stated "Your account in in default and could be sent to a collection agency. Please call."  Six days later, debtor's counsel filed a complaint which contained the following allegations ("the Disputed Allegations"):a. "[W]ith a specific intent to violate bankruptcy laws, [Defendant] contacted [Debtor] by mail dated February 3, 2021 illegally attempting to collect a $910.00 debt listed in [Debtor's] bankruptcy case." (Compl., ¶ 9.)b. "Notwithstanding being on Notice of this monetary exposure for violating the Automatic stay the Defendant chose to flagrantly, wantonly and with gross disdain and disregard violate the bedrock of the bankruptcy process." (Compl., ¶ 10.)c. "The Defendant's acts, by and through its agents, servants and/or employees, establish this creditor as one that does not hesitate to engage in overly aggressive, devious, deceptive, manipulative, oppressive, abusive and illegal collection." (Compl., ¶ 11.)d. "Upon information and belief, the Defendant knew of [Debtor's] bankruptcy filing yet willfully, deliberately and intentionally chose to ignore the automatic stay provisions of 11 U.S.C. § 362." (Compl., ¶ 13.)e. "[Debtor] would show that said aforementioned collection act [i.e., Defendant's mailing of the invoice] was done with the express intent to annoy, threaten, cause harm, abuse, intimidate or harass him." (Compl., ¶ 14.)f. "Defendant has engaged in acts which constitute a flagrant, willful, knowing and intentional violation of the bankruptcy automatic stay." (Compl., ¶ 17.)Opinion, at *4-5.. The caption of the pleading also stated: ACTUAL AND PUNITIVE DAMAGES: $50,000.  The creditors' lawyer served the debtor's counsel with its proposed motion for sanctions and waited twenty-one days before filing it. The motion alleged that the Debtor would not have included the allegations stated above in the Complaint if he had conducted even a minimal allegation and that the Complaint was filed for the improper purpose of needlessly increasing expenses.When the Debtor did not withdraw the disputed allegations, the Creditor filed his motion with the court and the court conducted a hearing.The Court's RulingThe Court noted that under Rule 9011(b):By presenting to the court (whether by signing, filing, submitting, or later advocating) a petition, pleading, written motion, or other paper, an attorney or unrepresented party is certifying that to the best of the person's knowledge, information, and belief, formed after an inquiry reasonable under the circumstances,(1) it is not being presented for any improper purpose, such as to harass or to cause unnecessary delay or needless increase in the cost of litigation;* * * (3) the allegations and other factual contentions have evidentiary support or, if specifically so identified, are likely to have evidentiary support after a reasonable opportunity for further investigation or discovery; (emphasis in original)The Court found that the plaintiff did not conduct a reasonable inquiry before making the Disputed Allegations.None of Debtor's Counsel's referenced efforts relate to the mailing of the second invoice which is the subject of the claim for willful violation of automatic stay. The record reflects a negligible, if any at all, investigation into the facts by Debtor's Counsel. It appears from the Complaint that the only evidence available to Debtor's Counsel at the time of the filing of the Complaint was the disputed invoice received by Debtor and Debtor's statements that he experienced stress and worry upon receiving that invoice.However, the Complaint contains several specific allegations regarding the mindset of Defendant, including that Defendant "chose to flagrantly, wantonly and with gross disdain and disregard violate the bedrock of the bankruptcy process" and that "the collection act was done with the express intent to annoy, threaten, cause harm, abuse, intimidate or harass [Debtor]," but there was no investigation or inquiry conducted by Debtor's Counsel whereby such a mindset or intent could have been expressed or revealed by Defendant. Debtor's Counsel admitted that neither they nor Debtor attempted to contact Defendant after the mailing of the disputed invoice. No witnesses were interviewed regarding the facts of the case. Prior to filing the Complaint, Debtor's Counsel uncovered no other communications from Defendant to Debtor, such as threatening letters, emails, calls, text messages, personal visits or lawsuits, which would support such allegations.Opinion at *12-13. After rejecting several other arguments made by plaintiff's counsel, the court found that the plaintiff's counsel failed to make a reasonable inquiry before making the Disputed Allegations.The Court did not reach the issue of whether the complaint was filed for an improper purpose, noting that the records was mixed.Under the circumstances of this case, the Court finds that the Complaint appears to have been filed for the reasonable purpose of seeking to enforce Debtor's rights under the Bankruptcy Code to be protected by the automatic stay from further collection efforts from Defendant. It also appears, however, that the Complaint was filed for the additional purpose of obtaining a substantial damages award or settlement, including attorney's fees and punitive damages, which may be unjustified under the circumstances of this case. The prominent placement of a demand for $50,000 in actual and punitive damages on the front page of the Complaint and extreme characterization of Defendant's conduct within the Complaint is indicative of Debtor's Counsel's desire to threaten and intimidate the Defendant by increasing the perceived financial risk to Defendant. This could be considered bad faith or an improper purpose that is so excessive as to eliminate the proper purpose of seeking the protection of the automatic stay on behalf of Debtor. See id. at 518. In light of the Court's finding that sanctions are appropriate under Rule 9011(b)(3), it is unnecessary for the Court to determine this issue at this time.Opinion at *25-26.The defendant's counsel sought reimbursement of $37,000 in attorneys' fees, of which approximately $13,000 related directly to the motion for sanctions. The Court found that Rule 9011 requires that the Court impose the least sanction necessary to deter future violations. It awarded $10,000 in sanctions and struck the Disputed Allegations.   What It MeansThis case illustrates why most cases settle. The defense invested $37,000 in a case over a $900 invoice and recovered $10,000 back but must still litigate the underlying stay violation. The debtor's counsel set out to vindicate its client's rights and make some money and wound up owing $10,000. The continuing interactions between these two lawyers and between the two sets of lawyers and their clients is likely to be tense going forward.  While the cost-benefit analysis for both parties has turned out badly, the opinion provides a cautionary tale to other parties in similar situations. The lesson for the plaintiff is simple. Don't use form complaints which contain outrageous allegations that bear no relation to the current case. Be prepared to file complaints which resemble the TV show Dragnet ("just the facts ma'am") more than cable news shouting matches. The secondary lesson is that if you get caught filing the complaint full of inapplicable outrage, withdraw the offending allegations when you receive the safe harbor letter. Rule 9011 encourages parties to remedy their bad behavior. If you have a chance for grace, take it.This case illustrates the difficult position that defense counsel has in representing small creditors. While the creditor's offense was small, the debtor's threat to recover $50,000 was likely an existential threat to the creditor's continuing existence. In a more enlightened error, plaintiff's counsel would have picked up the phone and solved the problem without filing suit. However, once the suit was filed, the defendant had to hire counsel and deal with it. The logical course would be to admit liability and negotiate a minimal settlement. However, if plaintiff's counsel was unreasonable, then defense counsel would have been justified in serving the proposed Rule 9011 motion, even if there was a possibility that the plaintiff's counsel would comply with Rule 9011 and withdraw the offending allegations. What does not make sense, and what is not explained by the record, is why the defense counsel would spend nearly $37,000 on such a small case. Maybe the client told counsel to spend whatever it took. Maybe the case involved old grievances between the attorneys. We don't know. We just know the result.There is one other thing that defense counsel did right that I have not mentioned yet. At the same time that counsel served the proposed motion on the plaintiff, he also submitted an offer of judgment. The way an offer of judgment works is that if the plaintiff accepts the offer, the case is resolved. If the plaintiff does not accept the offer and recovers less than the amount of the offer, the plaintiff cannot recover any costs after the date of the offer. Costs is generally construed to include attorney's fees. A well drafted offer of judgment can deter a plaintiff from racking up big fees in the hopes of recovering a big judgment. Not all clients will authorize an offer of judgment, but it makes sense in a small case where liability is clear but damages should be slight. 

Bankruptcy Filings have increased in October 2021 1.8% over the prior month. This is the first time this has happened in quite a while. Does it mean there is economic stress in the future?

Federal court practitioners, particularly those appearing in bankruptcy court, are familiar with the requirements of the lodestar method for proving up attorneys' fees. Under Johnson v. Georgia Highway Express, Inc., 488 F.2d 714 (5th Cir. 1974) and subsequent cases, attorneys were used to producing contemporaneous time sheets in sufficient detail to describe the work performed and the rate charged. For many years, practice in Texas state courts seemed much looser in that an attorney could simply state that he was an expert and opine that an amount of attorneys' fees was reasonable. In 2012, the Texas Supreme Court expressly endorsed the lodestar method for calculating attorneys' fees in El Apple I, Ltd. v. Olivas, 370 S.W.3d 757 (Tex. 2012). A new opinion from the Austin Court of Appeals reinforces that lodestar review cannot be evaded by redacting time entries to the point that they are meaningless. Person v. MC-Simpsonville, SC-1-UT, LLC, 2021 Tex. App. LEXIS 7155 (Tex. App.--Austin, 8/27/21).  The Court's Opinion The case involved suit on a guaranty. The landlord requested attorneys' fees of $266,000, which the trial court reduced to $248,074. The guarantors appealed arguing that the attorneys' fee invoices were so heavily redacted as to preclude review of the reasonableness and necessity of the fees awarded. In order to recover fees under Tex. Civ. Prac. & Rem. Code  Sec. 38.001, the applicant must prove both the reasonableness and necessity of the fees. Under El Apple I, the lodestar method is the way to prove reasonableness and necessity. The lodestar requires proof of "the reasonable hours spent by counsel in the case and a reasonable hourly rate for such work." To determine the reasonable number of hours worked, the court should look at "(1) the nature of the work, (2) who performed the services and their rate, (3) approximately when the services were performed and (4) the number of hours worked." The court also pointed out that the Texas Supreme Court has expressly found that "generalities . . . are not sufficient to support a fee-shifting award under the lodestar method."   The plaintiff argued that under Tex. Civ. Prac. & Rem. Code Sec. 38.003 and 38.004 that it "is presumed that the usual and customary attorneys' fees for a claim of the type described in Section 38.001 are reasonable" and that the "court may take judicial notice of the usual and customary attorneys fees and of the contents of the case file without receiving further evidence." The court rejected this argument, stating:Section 38.004 allows the trial court to take judicial notice of the usual and customary fees but says nothing about reasonableness and necessity. Section 38.003, on the other hand, creates a rebuttable presumption that the usual and customary fees are reasonable. But it is well settled in Texas that “[a] presumption is simply a rule of law requiring the trier of fact to reach a particular conclusion in the absence of evidence to the contrary. . . . The presumption disappears when evidence to the contrary is introduced.” (citations omitted). As this Court has recognized, when contrary evidence is introduced “the case proceeds as if no presumption ever existed.”  Opinion at *18-19. In this case, opposing counsel testified extensively that the plaintiff's fees were neither reasonable nor necessary. This was sufficient to rebut the presumption. The court then explained that the billing entries submitted were so heavily redacted that they could not meet the plaintiff's burden of proof. In the present case, while some of the billing entries in the record showed with reasonable clarity the types of tasks that were performed, the redactions eliminated virtually all specificity about those tasks and therefore largely prevented a meaningful evaluation of their reasonableness and necessity. For example, the majority of entries on the redacted billing records show only that an attorney or other legal professional had a telephone conference with somebody about something, emailed somebody about something, discussed something with somebody, reviewed something, researched something, drafted something, coordinated something, or worked on something. As a whole, the redacted billing records admitted in evidence were not sufficient, in light of the supreme court’s admonitions in Rohrmoos concerning the need to identify specific tasks performed, to allow the trial court to evaluate the reasonableness and necessity of hours worked that gave rise to nearly a quarter million dollars of attorney’s fees.* * *As discussed above, the lodestar method requires a showing of both reasonable and necessary hours worked and a reasonable hourly rate. (citation omitted). Without detailing it, we believe the evidence here is sufficient to show that the rates charged by MC-Simpsonville’s attorneys were reasonable. In light of the supreme court’s requirement of specificity regarding the services performed, however, we conclude that the evidence of reasonableness and necessity of the hours worked does not meet the supreme court’s standards. The billing records were too obscured by redactions, and the testimony of the two primary attorneys for MC-Simpsonville was too general, to allow the trial court to determine whether the hours worked were reasonable and necessary. Therefore, the evidence presented by MC-Simpsonville was not sufficient for a meaningful review of the fee application. Accordingly, we hold that the proof in this case did not provide the trial court legally sufficient evidence to calculate a reasonable fee award using the lodestar method. Opinion, at *20-23. As a result, the court reversed the award of attorneys' fees and remanded for a redetermination.Practice PointsThis opinion does an outstanding job of summarizing the leading supreme court cases on attorneys' fees, including Arthur Anderson & Co. v. Perry Equipment Corp., 945 S.W.2d 812 (Tex. 1997), El Apple I, Ltd. v. Olivas, supra, and Rohrmoos Venture v. UTSW DVA Healthcare, LLP, 578 S.W.3d 469 (Tex. 2019).  Taken together, these cases show that for a period of over twenty years, the Texas Supreme Court has been requiring a level of proof to establish attorneys' fees. However, because of the presumptions in sections 38.003 and 38.004, it is possible for sloppy, imprecise testimony to support an award of attorneys' fees. It is not unprofessional for one attorney to question another attorney's poorly supported demand for fees. Attorney fees are simply an amount of damages which must be proven through competent evidence. When an opposing counsel fails to offer countervailing testimony, the presumption applies and unjustified fees may slide through unchallenged.Finally, state court attorneys must learn what bankruptcy attorneys have long been required to do. Time entries must be worded so that they will convey the nature of the work performed without revealing privileged communications. Three examples illustrate this point.11/3/21    0.5     Spoke to ________ about ______. As pointed out by the court, this type of redacted time entry fails to convey enough specific information to be useful.11/3/21    0.5    Spoke to Mr. Jones about not mentioning the product safety studies showing client's product is extremely dangerous.This time entry discloses confidential information and professional misconduct as well.11/3/21       0.5    Spoke to Mr. Jones about his upcoming testimony on the issue of product safety.This is the time entry which is "just right." It shows that the attorney spoke to the witness to prepare him for an aspect of his testimony without concealing the subject matter or revealing too much.   Drafting time entries which disclose enough detail to justify a fee award requires both attention and practice. Bankruptcy attorneys who are required to submit fee applications have been practicing this discipline for many years. It appears that the Texas courts are going to require that their attorneys meet the same standard as well if they wish to recover attorney fees.  Hat tip to Matt Garcia for sending me the opinion.