Hansen, Jones & Leta, PC v. Segal, 2:96-CV-572-B
| Decision Date | 18 February 1998 |
| Docket Number | 2:96-CV-573-B.,No. 2:96-CV-572-B,2:96-CV-572-B |
| Parties | HANSEN, JONES & LETA, P.C., Appellant, v. Roger G. SEGAL, Trustee, Appellee. SNELL & WILMER, L.L.P., Appellant, v. Roger G. SEGAL, Trustee, Appellee. |
| Court | U.S. District Court — District of Utah |
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David B. Watkiss, Watkiss Dunning & Watkiss, P.C., Salt Lake City, UT, Richard A. Derevan, Snell & Wilmer, L.L.P., Irvine, CA, for Snell & Wilmer L.L.P.
Vernon L. Hopkinson, Julie A. Bryan, Cohne, Rappaport & Segal, P.C., Salt Lake City, UT, for Roger G. Segal, Trustee.
On July 1, 1996, Hansen, Jones & Leta, P.C. ("HJ & L") and Snell & Wilmer, L.L.P. ("S & W"), former counsel for bankruptcy debtor, Bonneville Pacific Corporation ("BPC"), filed their appeals from the bankruptcy court's denial of compensation for their services and costs. The appeals were assigned to this Court on February 3, 1997. The Court consolidated the appeals on March 17, 1997, as both appeals arise from the representation of BPC by David E. Leta ("Leta") as its general counsel in the bankruptcy proceedings. HJ & L represented BPC from December 4, 1991 through March 31, 1992, when Leta left HJ & L to become a partner at S & W. As Leta was the attorney responsible for the representation of BPC, S & W took over as BPC's general counsel on April 1, 1992. The fee applications of both firms were submitted to and denied by the bankruptcy court. In June 1997, HJ & L entered into a settlement with appellee Roger G. Segal (the "Trustee"), which resulted in the court-approved dismissal of HJ & L's appeal on July 21, 1997. Consequently, the only appeal before the Court is S & W's appeal of the denial of its fees and costs, which was argued before the Court on July 8, 1997.
This Court has jurisdiction pursuant to 28 U.S.C. § 158(a), and reviews the bankruptcy court's denial of compensation for abuse of discretion. In re Interwest Business Equipment, Inc., 23 F.3d 311, 315 (10th Cir.1994). The orders appealed from are the initial order of December 1, 1992, published at In re Bonneville Pacific Corp., 147 B.R. 803 (Bankr.D.Utah 1992), denying all appellants' pending fee applications and requiring the disgorgement of fees and costs already paid ("Bonneville I"), and the order of May 22, 1996, published at In re Bonneville Pacific Corp., 196 B.R. 868 (Bankr.D.Utah 1996), denying appellants' motion to alter or amend the denial of their fee applications ("Bonneville II").
HJ & L is no longer a party to this appeal. However, since the bankruptcy court's two decisions denying compensation rely on findings involving Leta's conduct while he was associated with both HJ & L and the remaining appellant, S & W, the Court focuses its review on Leta's role in the underlying proceeding, without reference to his associated firm. Further, because that role changed with the appointment of the Trustee on June 12, 1992, the Court divides its review into two parts: Leta's employment as general counsel for BPC as debtor-in-possession from December 4, 1991 through June 11, 1992; and his appointment as special counsel to the Trustee from June 12, 1992 through November 30, 1992.1
For the reasons set forth below, the Court affirms the bankruptcy court's disallowance of fees and costs incurred by S & W while employed as general counsel for BPC as debtor-in-possession and reverses the bankruptcy court's disallowance of S & W's fees and costs while employed as special counsel to the Trustee.
BPC was founded in 1980 as an independent energy producer. AA Tab 13 at 475.2 Its original founders were Raymond L. Hixson ("Hixson"), L. Wynn Johnson ("Johnson"), Robert L. Wood ("Wood"), Carl T. Peterson ("Peterson"), John T. Dunlop ("Dunlop") and Deedee Corradini ("Corradini"). AA Tab 40 at 1786; AA Tab 42 at 2047. BPC's primary business focused on the development and operation of cogeneration and alternative energy facilities. Cogeneration facilities produce two or more forms of energy (e.g., electricity and steam) from a single source of fuel; alternative energy facilities produce energy through non-fossil fuels, such as geothermal, hydroelectric and bio-mass technologies. AA Tab 40 at 1788. From 1982 through 1991, BPC developed and placed into operation 29 separate energy projects and started construction on three others. AA Tab 13 at 475.
By the fall of 1991, BPC, principally a holding company, either owned or had partnership interests in approximately 43 corporations and partnerships, and was involved in more than 350 separate executory contracts. AA Tab 18 at 809-16, 902-40. BPC and its various subsidiaries were a tightly integrated operation, with interlocking officers and directors, centralized accounting, and intercompany debt. RT 54-55 (2/17/93). Bonneville Services Corporation, a wholly-owned subsidiary, maintained and operated BPC's various facilities. BPC also operated in three other industries through its subsidiaries: Bonneville Fuels Corporation in gas property acquisitions to supply BPC and its affiliates with natural gas; Bonneville Foods Corporation in food industry acquisitions to purchase steam or hot water from BPC's electric generating facilities; and RECOMP, Inc., in the development of waste processing and in-vessel organic composting operations. AA Tab 40 at 1788-90.
BPC went public in 1986, and by late 1991 sold over $100,000,000 of securities in three public offerings. AA Tab 42 at 2048. BPC's financial statements for the offerings and its annual reports were audited by the accounting firm Deloitte, Haskins & Sells ("Deloitte").
In the fall of 1990, Portland General Holdings, Inc. ("Portland General"), an Oregon-based utility, acquired 46% of BPC's stock for $49 million and over the course of the next year loaned BPC $26 million. AA Tab 13 at 476; AA Tab 20 at 1356, ¶¶ 49,50. With this acquisition, Portland General effectively controlled BPC, replacing three BPC representatives on BPC's board of directors with Portland General representatives, and placing Portland General employees in key officer positions at BPC. AA Tab 47 at 2439-44; AA Tab 13 at 476; AA Tab 40 at 1787-88; AA Tab 42 at 2049.
On November 11, 1991, Portland General, after conducting an internal investigation into BPC's financial affairs, withdrew all of its financial and management support. The next day, all Portland General directors resigned and Portland General employees left. Because this incident precipitated an immediate liquidity problem, BPC concluded that it had to file a voluntary petition under Chapter 11 of the Bankruptcy Code. AA Tab 13 at 476; RT 56-57 (2/17/93); AA Tab 47 at 2441-44; AA Tab 40 at 1793. A few weeks after the Portland General pullout, BPC hired Buccino & Associates ("Buccino"), a crisis management and turnaround consulting firm, to work with management to deal with the financial crises. RT 51-52 (2/17/93).
On December 5, 1991, BPC filed Chapter 11 bankruptcy. At that time, there were five (5) directors sitting on BPC's Board of Directors: Ralph F. Cox, Calvin L. Rampton, Johnson, Wood and Dunlop. AA Tab 40 at 1879; AA Tab 42 at 2061. Wood was also President and Chief Operating Officer ("COO") of BPC until the Board, with the concurrence of Buccino, appointed Clark Mower ("Mower") as President and COO on January 17, 1992.3 AA Tab 40 at 1880; AA Tab 42 at 2030-31. Other BPC officers included Gerald Hansen as Executive Vice-President; Robert Malone as Vice-President of Engineering, Construction and Operations; Mark Rinehart ("Rinehart") as BPC's Vice-President, Secretary and General Counsel; and Gerald C. Monson ("Monson") as Vice-President, Accounting. AA Tab 42 at 2060, 2070-73.
BPC intended that Mayer, Brown & Platt ("Mayer, Brown"), which had long represented BPC in corporate and securities matters, act as its general counsel in the bankruptcy, representing BPC and all of its various subsidiaries and affiliates. RT 161 (2/24/93 p.m.). One of the partners at Mayer, Brown suggested that BPC retain Leta in the firm of Hansen Jones & Leta, P.C. in the limited role of local counsel. RT 161-63 (2/24/93); RT 45-47 (2/17/93). Leta had had no prior relationship with BPC. RT 48-49 (2/17/93). When Leta first met with representatives from BPC, Mayer, Brown, and Buccino on December 4, 1991, the decision to file a Chapter 11 petition and to retain Mayer, Brown as general counsel had already been made. RT 50-54 (2/17/93). At this meeting, a discussion was held regarding the propriety of Mayer, Brown representing both BPC and its subsidiaries. Leta noted that there was case authority in the District of Utah which might result in the denial of Mayer, Brown's application to represent BPC and its nondebtor subsidiaries. RT 54-55 (2/17/93). However, BPC's initial exparte applications to employ counsel sought to have Mayer, Brown appointed as general counsel for BPC and its subsidiaries, and HJ & L appointed as local counsel only. AA Tabs 1 and 2.
At a hearing on December 9, 1991, the bankruptcy court denied Mayer, Brown's application, holding that Mayer, Brown could not represent both the interests of BPC as debtor-in-possession and those of non-debtor subsidiaries.4 RT 57-58 (2/17/93). BPC then submitted other applications that same day seeking to employ HJ & L as general counsel and Mayer, Brown as special counsel which the bankruptcy court denied because Mayer, Brown's role as special counsel was too broad. RT 58-59 (2/17/93); AA Tabs 3, 4 and 5. The second applications were then amended to limit the scope of Mayer, Brown's employment to four specific tasks, which the bankruptcy court approved. AA Tabs 6 and 7. Thus, with the court's approval, Leta was retained as BPC's general counsel and Mayer, Brown as special counsel.
On January 17, 1991, the United States Trustee appointed the...
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