In re MBF Inspection Servs., Inc.

Decision Date24 December 2019
Docket NumberCase No. 18-11579-t11
Parties IN RE: MBF INSPECTION SERVICES, INC., Debtor.
CourtU.S. Bankruptcy Court — District of New Mexico

Eric S. Bravo, Lane Alton & Horst LLC, Columbus, OH, Christopher M. Gatton, George D. Giddens, Jr., Giddens, Gatton & Jacobus, P.C., Albuquerque, NM, Richard E. Olson, Hinkle Shanor LLP, Roswell, NM, for Debtor.

Daniel Harris Reiss, Levene, Neale, Bender, Yoo & Brill L.L.P, John-Patrick McGinnis Fritz, Los Angeles, CA, for Creditor Committee.

OPINION

Hon. David T. Thuma, United States Bankruptcy Judge

The Court entered an order confirming Debtor's plan of reorganization on December 18, 2019. At the confirmation hearing two days earlier, Debtor asked the Court to enter a final decree closing the case so it could stop paying U.S. Trustee fees. The U.S. Trustee's office objected, arguing that pending fee applications prevent closure. Having reviewed the applicable statutory and case law and considered the facts of this case, the Court determines that entry of a final decree is appropriate.

I. FACTS.

The Court finds:1

Debtor filed this chapter 11 case on June 22, 2018. The same day Debtor applied to retain B.L.F., LLC as its bankruptcy counsel. The employment was approved by an order entered September 13, 2018.

Debtor was forced to retain new counsel in March 2019 because B.L.F.'s sole attorney, Jennie D. Behles, was disbarred. B.L.F. apparently assigned its account receivable to Ms. Behles. On July 16, 2019, Ms. Behles filed a final fee application for $279,318.52 for work done on the case. Debtor and the U.S. Trustee's office both objected to the fee application. A final hearing on the application and objections thereto is scheduled for January 14, 2020.

The main issue in this case was how to deal with the liability associated with a class action lawsuit against Debtor for underpaid wages. On the petition date, the lawsuit was pending in federal court in the Southern District of Ohio, styled Ganci v. MBF Inspection Services, Inc., Cause no 2:15-cv-02959-GCS-CMV. Class members are certain of Debtor's current or former pipeline weld inspectors.

On May 16, 2019, the Court entered an order appointing a mediator to mediate the dispute between Debtor and the class action claimants. The mediation took place on May 30, 2019. The parties settled their dispute, subject to bankruptcy court and district court approval.

Based on the settlement, Debtor filed an amended plan of reorganization on August 16, 2019. The amended plan contains the following provisions germane to the issue before the Court:

• The plan's effective date is the "first day of the first month following the date upon which an Order confirming this Plan become final." Article 1, Section 1.1.13;
• Administrative expenses will be paid by the reorganized debtor within 30 days of the effective date. Article 6, section 6.1;
• Payments to the class claimants start on or before the effective date. Article 7, section 6.5.1;
• The reorganized debtor assumes management after confirmation. Article 7, section 7.4;
• All property of the estate vests in the reorganized debtor on the effective date. Article 11, section 2.2; and
• There are no deposits required by the plan.

The Court's confirmation order is a final order, although the appeal period will not run until January 2, 2020. No appeal is anticipated because confirmation of the plan was not contested.2

In addition to Ms. Behles' fee application, the Court must rule on final fee applications of counsel for Debtor and the Unsecured Creditors' Committee ("UCC"). The fee applications have not yet been filed. At a December 23, 2019, hearing on Debtor's request for a final decree, the reorganized debtor's management represented to the Court and the parties that they did not anticipate objecting to either final fee application. Counsel for Debtor and the UCC confirmed that the proposed fee application amounts had been discussed and approved.

At the same hearing, the U.S. Trustee's office informed the Court that if Debtor settled its fee dispute with Ms. Behles, the U.S. Trustee's office objection would be resolved as well. Later that day, after the hearing, the Court was notified by counsel that Debtor and Ms. Behles settled the fee dispute. Thus, subject to entry of an order, it appears the Behles fee dispute has been resolved.

From the petition date through October 31, 2019, Debtor has disbursed about $66,619,000, or about $4,200,000 per month. If the Court enters a final decree now, Debtor proposes to pay the class action claimants $2,225,000 before the end of the year. The U.S. Trustee fee on this amount would be $22,250. Currently, Debtor is being charged U.S. Trustee fees at the rate of 1% of disbursements, or about $42,000 a month.

II. DISCUSSION.
A. Payment of U.S. Trustee Fees.

Chapter 11 debtors are required to pay quarterly fees to the U.S. Trustee's office.

28 U.S.C. § 1930(a)(6)(A). The quarterly U.S. Trustee fee on quarterly disbursements of $12,500,000 is $10,400, id., unless the "system fund" dips below $200,000,000, in which case the quarterly fee increases to the lesser of 1% of disbursements or $250,000. 28 U.S.C. § 1930(a)(6)(B).3 For Debtor, the current fee (at 1%) is more than 12 times higher than the regular quarterly fee of $10,400.

Although the statute does not make this clear, U.S. Trustee fees are not charged after a chapter 11 case is closed. See In re CF & I Fabricators of Utah, Inc. , 150 F.3d 1233, 1237 (10th Cir. 1998) ("Congress intended debtors pay UST fees until a case is converted, dismissed, or closed leaving no open docket in which to assess the fees.") (emphasis in original).

B. Entry of a Final Decree in Chapter 11 Cases.

11 U.S.C. § 350 provides:

(a) After an estate is fully administered and the court has discharged the trustee, the court shall close the case.
(b) A case may be reopened in the court in which such case was closed to administer assets, to accord relief to the debtor, or for other cause.

Fed. R. Bankr. Pro. ("BR") 3022 provides:

After an estate is fully administered in a chapter 11 reorganization case, the court, on its own motion or on motion of a party in interest, shall enter a final decree closing the case.

"A final decree is essentially an administrative task, a docket entry reflecting the conclusion of a case for record-keeping purposes." In re McClelland , 377 B.R. 446, 453 (Bankr. S.D.N.Y. 2007), citing In re Fibermark, Inc. , 369 B.R. 761, 767 (Bankr. D. Vt. 2007).

C. The "Fully Administered" Requirement.

1. The Court's Discretion. The bankruptcy court should review each case on its facts and determine whether the estate has been fully administered:

[D]etermining when a case is ‘fully administered’ is a decision for the bankruptcy court based on consideration of numerous case-specific, procedural, and practical factors. The bankruptcy court is uniquely positioned to make this determination given that it will have overseen the particular debtor's case from the beginning and will have first hand knowledge of what matters have been, or need to be, completed before closure of the case. Further, the bankruptcy court will be very familiar with the debtor's confirmed plan of reorganization, the requirements for consummation of that plan, as well as the status of any pending motions, contested matters, and adversary proceedings.

In re Union Home and Indus., Inc. , 375 B.R. 912, 917 (10th Cir. BAP 2007). The determination is within the bankruptcy court's discretion. Id. at 918 ; see also In re Shotkoski , 420 B.R. 479, 483 (8th Cir. BAP 2009) (bankruptcy court decision on entry of a final decree is reviewed for abuse of discretion); In re Spokane Raceway Park Inc. , 2013 WL 3972429, at *3 (9th Cir. BAP) (abuse of discretion standard applied to bankruptcy court's decision to enter a final decree and close a Chapter 11 case); In re Hoti Enters., L.P. , 2016 WL 8674684, at *1 (S.D.N.Y.) (same).

2. Factors to Consider. "The definition of ‘fully administered’ is not provided anywhere in the Code or Rules. The few

courts that have considered the issue have looked to the 1991 Advisory Committee Note for guidance." Union Home , 375 B.R. at 916. The note lists six factors to evaluate when determining whether a case has been fully administered:

1. whether the order confirming the plan has become final,
2. whether deposits required by the plan have been distributed,
3. whether the property proposed by the plan to be transferred has been transferred,
4. whether the debtor or the successor of the debtor under the plan has assumed the business or the management of the property dealt with by the plan,
5. whether payments under the plan have commenced, and
6. whether all motions, contested matters, and adversary proceedings have been finally resolved.

BR 3022, Advisory Committee Note (1991); Union Home , 375 B.R. at 916 (quoting the note in its entirety).

The factors are not exclusive or exhaustive. Union Home , 375 B.R. at 917 ; In re Mold Makers, Inc. , 124 B.R. 766, 768 (Bankr. N.D. Ill. 1990) ; In re Valence Tech., Inc. , 2014 WL 5320632, at *3 (Bankr. W.D. Tex. 2014) ; In re Provident Fin., Inc. , 2010 WL 6259973, at *9 (9th Cir. BAP), aff'd 466 Fed.Appx. 672 (9th Cir. 2012).

3. Weighing the Factors. The Court weighs the Advisory Committee Note factors as follows:

  1. Whether the order confirming the plan has      The confirmation order was entered December
                  become final.                                     18, 2019. It was a final order upon entry. It will
                                                                    become final and nonappealable on January 2
                                                                    2020. This factor weighs in favor of entering a
                                                                    final decree
                  2. Whether deposits required by the plan have     N/A. This factor is neutral
                  been distributed
                  3. Whether the property proposed by the plan      The plan vests all estate property in the
                  to be transferred has been transferred.
...

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