In re Southwest Food Distributors, LLC

• Decision Date: 31 March 2009
• Docket Number: No. 08-5160.,08-5160.
• Citation: 561 F.3d 1106
• Parties: In re SOUTHWEST FOOD DISTRIBUTORS, LLC, d/b/a The Fadler Company, Debtor. Official Committee of Unsecured Creditors, Appellant, v. Eugene Harris, Receiver for JFC Management, Inc.; F & M Bank & Trust Company, Appellees.
• Court: U.S. Court of Appeals — Tenth Circuit

561 F.3d 1106

In re SOUTHWEST FOOD DISTRIBUTORS, LLC, d/b/a The Fadler Company, Debtor.

Official Committee of Unsecured Creditors, Appellant, v. Eugene Harris, Receiver for JFC Management, Inc.; F & M Bank & Trust Company, Appellees.

No. 08-5160.

United States Court of Appeals, Tenth Circuit.

March 31, 2009.

Harley J. Goldstein, Bell, Boyd & Lloyd, LLP, Chicago, IL, for Appellant.

Terry M. Thomas, Kayci Bair Hughes, Michael R. Pacewicz, Crowe & Dunlevy, PC, J. Schaad Titus, Kelley G. Loud, Titus, Hillis, Reynolds, Love, Dickman & McCalmon, Tulsa, OK, for Appellees.

Before KELLY, ANDERSON, and BRISCOE, Circuit Judges.

ANDERSON, Circuit Judge.

Appellant, the Official Committee of Unsecured Creditors ("Committee"), appeals the district court's affirmance of a bankruptcy court's order denying the appointment of certain counsel.^* We affirm.

BACKGROUND

On January 8, 2008, Southwest Food Distributors, LLC d/b/a The Fadler Company ("Debtor"), filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court in the Northern District of Oklahoma. On the same day, the Debtor filed its "List of Creditors Holding 20 Largest Unsecured Claims," which included unsecured creditors in Texas, Illinois, Pennsylvania, Nebraska, Minnesota, and Georgia. On January 23, 2008, the Debtor filed its Summary of Schedules and Schedules A-H (collectively "Summaries and Schedules"), which listed total assets of $1,157,651 and total liabilities of $12,240,882.

On January 31, 2008, the Office of the United States Trustee ("UST") appointed the Committee as an official committee to represent the interests of the unsecured creditors of the Debtor, pursuant to 11 U.S.C. § 1102, and filed a formal notice the next day reflecting this appointment. At the time of the Committee's appointment, the Committee was composed of five entities, each represented by an individual located outside the Northern District of Oklahoma.¹ Also on January 31, 2008, the Committee selected Bell, Boyd & Lloyd LLP ("Bell Boyd") of Chicago, Illinois, as its lead counsel. Bell Boyd, in turn, selected Gable & Gotwals of Tulsa, Oklahoma, as its local counsel.

The Committee filed an "Application for Order Authorizing Official Committee of Unsecured Creditors to Retain and Employ Bell, Boyd & Lloyd LLP as Counsel" and an "Application for Order Authorizing Official Committee of Unsecured Creditors to Retain and Employ Gable [&] Gotwals as Local Counsel" in February 2008. The application to employ Bell Boyd included (1) a summary of Bell Boyd's qualifications to represent the Committee; (2) the professional services to be provided to the Committee; (3) the names and hourly rates of the professionals expected to be providing services to the Committee; (4) an explanation of the formula used to calculate Bell Boyd's legal fees; (5) a request that the application be approved retroactive to the date of the appointment of the Committee; and (6) a statement that Bell Boyd has no connection with the Debtor, its creditors, or other parties in interest except as set forth in counsel's declaration. See Doc. 68, Appellant's App. at 165-69. The application represented that the rates for the Bell Boyd attorneys expected to perform work on the case ranged from $250 to $505 per hour, and that rates for legal assistants ranged from $180 to $225 per hour. The application also stated that the listed rates for Bell Boyd personnel would be subject to "periodic adjustments." The declaration to which the application referred affirmed the accuracy of the statements in the application, described the conflict check process utilized by Bell Boyd, and included a disclosure of Bell Boyd's current and previous representation of certain affiliates, subsidiaries, joint ventures, and/or entities associated with creditors of the Debtor in matters unrelated to the Debtor's bankruptcy. The next day, the Committee filed an application seeking the appointment of Gable & Gotwals as local counsel. That application made substantially the same representations, with the exception of fees, as the application for Bell Boyd's retention.

Appellee F & M Bank & Trust Company ("F & M"), a secured creditor of the Debtor, filed an objection to both applications. Among other things, F & M objected to the Committee's proposed retention of "`national' counsel at rates twice the rates of highly competent local, state or regional counsel." F & M's Objection to Application to Retain Bell Boyd at 1, Appellant's App. at 189. F & M went on to argue that "Gable Gotwals is a regional firm that could more than adequately represent the Committee. Bell Boyd's rates are not competitive with the rates of Gable Gotwals or other local firms in this market," and that "retaining Bell Boyd will require the bankruptcy estate to incur significant expenses for travel time that could be avoided if a regional firm were retained." Id. at 190-91. In its objection to the retention of Gable & Gotwals, F & M stated that "Gable Gotwals is a regional firm that can more than adequately represent the Committee in this case. F & M Bank therefore objects to the Application to Employ Gable Gotwals only in so far as Gable Gotwals would be local counsel supporting Bell Boyd as lead counsel." F & M's Objection to Application to Retain Gable Gotwals at 1-2, Appellant's App. at 197-98.

On February 19, 2008, the UST filed his comments on the applications for the retention of Bell Boyd and Gable & Gotwals. The UST explained:

The UST has discussed with all parties his concern about administrative expenses in this case. The UST has also discussed the rates proposed to be charged by Bell Boyd as compared to the lower hourly rates charged by local professionals with similar levels of experience. The UST recognizes that, at this point, employment is all that is sought by the professionals. However, the UST does not want to surprise any professional with an objection to hourly rates and travel expenses after significant time and out of pocket expenses have been expended in furtherance of UCC representation.

Comments of the UST at ¶ 3, Appellant's App. at 202. The UST further observed:

If Bell Boyd were to cap all fees at the applicable rates set out in the Local Fee Survey for 2008, and if both firms sought to be retained by the UCC undertake efforts to minimize duplication of services with clear task division and minimal inter-office conferences and administrative support functions, the expense to the estate would be reduced and if results at the end of the case warranted, the Court could consider an application for a bonus at that time.

Id. at 203.

Also on February 19, the Committee filed a supplemental declaration disclosing additional parties searched by Bell Boyd for conflicts and maintaining that Bell Boyd represented no adverse interests to any parties or entities involved in the bankruptcy case, within the meaning of 11 U.S.C. § 1103. On the same day, the Committee responded to each of F & M's objections to Bell Boyd's retention, and argued, in particular, that the Committee is entitled to retain the counsel of its choice, even if such counsel is from outside the region. On February 20, Eugene Harris, the Receiver for JFC Management, Inc., the holder of an unsecured claim, filed its "Notice of Support" for the positions taken by F & M with respect to the applications to retain Bell Boyd and Gable & Gotwals.

On February 21, the Bankruptcy Court held a hearing on the applications. The Committee argued that Bell Boyd had met the standard for retention of counsel set out in 11 U.S.C. § 1103, and that the concerns raised by those objecting to Bell Boyd's retention were issues related to compensation approval, rather than retention. The Court observed the following:

One of the questions that I have in my mind—and I do recognize the fact that there should be some deference given to the Committee to employ counsel of its choice is whether or not we really need to have two firms. Do we really need to have two firms regardless of what rates are finally approved and what fees are allowed when no matter how efficient the two firms are it does by—through no fault of anyone's it adds some additional inefficiencies or some duplication and it makes things more complicated for me in reviewing fee applications. There has to be coordination if there's more than one firm involved.

Tr. on Hr'g on Application to Employ Counsel at 17-18, Appellant's App. at 243-44. The court then determined to receive evidence during the hearing, and Neal Tomlins, the Senior Vice-President and General Counsel of F & M, testified as to its interest as an unsecured creditor of the Debtor.²

After the presentation of evidence, F & M argued that there was "no evidence that a local firm cannot adequately inform and advise the Committee with regard to any other matter that might arise in this case. . . . [T]he Committee must acknowledge that Gable & Gotwals or another local firm can do the job adequately and more economically." Id. at 257-58. F & M further argued that "[t]here are always national creditors in cases in Tulsa, Oklahoma, as the Court and all the counsel up here well know. National creditors and businesses routinely entrust their matters to local firms." Id. Finally, F & M observed that it "will undoubtedly be the largest unsecured creditor in this case. It's money and the money of all unsecureds is at issue here. We request that the application of Bell Boyd be denied." Id.

The UST then argued that his "issue is primarily that of economics. Given the status of the case, given the scope of the . . . case, the U.S. Trustee is very concerned about the costs of the administration of this case." Id. at 259.

Bell Boyd argued that "this is not a case with a handful of national creditors. This is a case predominantly with national creditors. While the bank is local, the real sizeable claims of the unsecured creditors are not located in Tulsa. [B]ased...