611 B.R. 313 (Bkrtcy.E.D.Wis. 2019), 18-30182-beh, In re C2R Global Manufacturing, Inc.

Docket Nº:18-30182-beh
Citation:611 B.R. 313, 68 Bankr.Ct.Dec. 58
Opinion Judge:Beth E. Hanan, United States Bankruptcy Judge
Party Name:IN RE: C2R GLOBAL MANUFACTURING, INC., Debtor-in-possession.
Attorney:Brent Alan Lorentz, Brooks F. Poley, Ian Michael Rubenstrunk, Winthorp & Weinstine, P.A., Minneapolis, MN, Evan Schmit, Gregory M. Schrieber, Jerome R. Kerkman, Kerkman & Dunn, Johanna Wilbert, Michael Piery, Quarles & Brady LLP, Milwaukee, WI, for Debtor-in-possession
Case Date:December 30, 2019
Court:United States Bankruptcy Courts, Seventh Circuit

Page 313

611 B.R. 313 (Bkrtcy.E.D.Wis. 2019)

68 Bankr.Ct.Dec. 58

IN RE: C2R GLOBAL MANUFACTURING, INC., Debtor-in-possession.

No. 18-30182-beh

United States Bankruptcy Court, E.D. Wisconsin

December 30, 2019

Brent Alan Lorentz, Brooks F. Poley, Ian Michael Rubenstrunk, Winthorp & Weinstine, P.A., Minneapolis, MN, Evan Schmit, Gregory M. Schrieber, Jerome R. Kerkman, Kerkman & Dunn, Johanna Wilbert, Michael Piery, Quarles & Brady LLP, Milwaukee, WI, for Debtor-in-possession

DECISION AND ORDER ON AMENDED SECOND APPLICATION OF SPECIAL COUNSEL FOR INTERIM COMPENSATION

Beth E. Hanan, United States Bankruptcy Judge

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The matter before the Court is the amended second application of debtor’s special counsel for patent and related matters, Quarles & Brady, for interim compensation under 11 U.S.C. § 331. For the reasons set out below, the Court will approve the request, and allow interim fees in the amount of $365,091.75 and expenses in the amount of $42,243.74, for a total of $407,335.49.

JURISDICTION

The Court has jurisdiction over the issue before it pursuant to 28 U.S.C. § 1334. Court consideration of applications for compensation and reimbursement of expenses under 11 U.S.C. § 330 are core proceedings insofar as they concern the administration of the estate and are proceedings for the allowance of claims against the estate. 28 U.S.C. § § 157(b)(2)(A), (B) and (O).

FACTS AND PROCEDURAL HISTORY

Debtor C2R Global Manufacturing, Inc. filed a voluntary Chapter 11 petition on October 29, 2018. On January 10, 2019, the Court approved the employment of Quarles & Brady LLP, effective as of October 29, 2018, to act as special counsel on patent and related matters, general business matters and possible sale of the company. The request to employ and the related order identified by name and hourly billing rate six professionals who would provide such services to the debtor and its estate in connection with the Chapter 11 proceeding. Quarles & Brady’s responsibilities are separate from those of the debtor’s bankruptcy counsel.

On December 28, 2018, Verde Environmental Technologies, Inc. filed a proof of claim in the amount of $6,821,918.00. Its claim was based upon damages arising from a lawsuit it commenced against the debtor approximately seven months before the debtor initiated this bankruptcy case, in the United States District Court for the Eastern District of Wisconsin, Case No. 18-cv-423-pp. Verde’s suit asserts claims of patent infringement and false advertising, and seeks monetary damages and injunctive relief. The debtor answered the complaint in district court, and objected to Verde’s proof of claim in this Court, asserting a number of defenses including patent invalidity.

Verde moved for relief from stay, and the debtor and another creditor, POP-Solutions LLC, objected. The Court reviewed the briefing and heard oral arguments. Ultimately, the Court declined to grant relief from stay, and the parties together devised a schedule to permit resolution of the claim dispute. Patent infringement and validity issues are not typical fare for bankruptcy courts. The schedule devised by the Court and parties includes claim construction briefing and hearing, discovery and ultimately a trial on the infringement and validity issues themselves. To their credit, the parties already have made one attempt at mediation.

Quarles & Brady submitted its first interim application for fees and expenses on August 27, 2019, for the eight-month period from October 28, 2018 through June 30, 2019, for the amount of $133,901.30 ($130,464.50 in fees and $3,436.80 in expenses). No party objected to that application. The Court reviewed and approved it.1

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Quarles & Brady submitted a second interim fee application on December 6, 2019, for the five-month period of July 1, 2019 through November 30, 2019, in the amount of $485,551.29 ($439,298.50 in fees and $46,252.79 in expenses). Clearly more activity related to the patent litigation occurred in this timeframe. The debtor asked that the Court enter an order approving the application on December 31, 2019 so that the debtor could pay its special counsel by year end. The debtor asserted that, due to tax considerations, it would save approximately $100,000 by paying the Quarles firm before January 1, 2020, and so sought a shortened period of approval under Section 331 of the Code.

On December 13, 2019, creditor POP-Solutions filed an objection, asserting that the amount of fees and expenses sought in the second interim fee application would deplete over 75% of the debtor’s current cash on hand. POP-Solutions objected to the "specter" that nearly all estate assets could go to a law firm, instead of being disbursed to creditors, of which POP is the second-largest. POP cited In re Sapolin Paints, Inc., 38 B.R. 807 (Bankr. E.D. N.Y. 1984), which considered the size of the debtor’s estate as a factor in whether to allow fees under 11 U.S.C. § 330. POP expressed concern about the substantial expenditure of legal resources likely yet to occur in the patent claim litigation herein,2 and also pointed to over $129,000 in billings by paralegals in the recent five-month period, at hourly rates of $255 and $270. POP asked the Court to make a downward adjustment, but offered no comparative rates in support of its argument.

On December 19, 2019, Quarles & Brady responded to POP’s objection, describing the patent litigation as vital to the outcome of the debtor’s bankruptcy, an outcome which should benefit creditors like POP. The firm’s response noted that the extensive use of paralegals to handle the over 200,000 documents produced in the patent litigation actually reduced costs to the client. In addition, while maintaining that all fees were reasonable, and denying that the debtor was administratively insolvent, the firm agreed to reduce its requested fees by $20,000 as an accommodation to the debtor and to resolve an informal objection received from the United States Trustee’s office related to a "limited number of lumped time entries." See Local Rule 2016(a)(2)(A) (requiring fee applications to state "the time spent on each service or task in tenths of an hour").

The Court held a hearing on December 23, 2019. During that hearing, the Court pointed to several requirements of its Local Rules, including the rule requiring a description of the background and experience of timekeepers, and the rule against billing for more than one timekeeper’s time for any project, meeting, etc. without further justification. The Court discussed additional concerns with entries which appeared to reflect billing for clerical tasks, or not aimed at presentation to a bankruptcy court.

At the conclusion of the hearing, Quarles & Brady agreed to submit an amended fee application. It filed the amended application on December 27, 2019, with a substantial reduction in fees. No creditor has objected to that submission.

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DISCUSSION

The Bankruptcy Code authorizes reasonable compensation for actual, necessary services rendered by an attorney or paraprofessional. 11 U.S.C. § 330 (a)(1)(A). As the debtor and its counsel firms acknowledge, the Bankruptcy Code requires that the Court satisfy itself, regardless of whether any party has lodged an objection, that compensation sought from the estate is reasonable. In re Harry Viner, Inc., 520 B.R. 268, 274 (Bankr. W.D. Wis. 2014); 11 U.S.C. § 330. Thus, the Court would have conducted a careful review of the Quarles firm’s second interim fee application whether or not POP-Solutions objected. It is the confluence of POPs objection, the fact that the courthouse has been and will be closed for several days due to...

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