Arlington Capital LLC v. Bainton McCarthy LLC

• Decision Date: 26 June 2015
• Docket Number: Cause No. 1:14–CV–98–TLS.
• Parties: ARLINGTON CAPITAL LLC, Appellant, v. BAINTON McCARTHY LLC and Smith, Gambrell & Russell, LLP, Appellees.
• Court: U.S. District Court — Northern District of Indiana

534 B.R. 337

ARLINGTON CAPITAL LLC, Appellant

v.BAINTON McCARTHY LLC and Smith, Gambrell & Russell, LLP, Appellees.

Cause No. 1:14–CV–98–TLS.

United States District Court, N.D. Indiana, Fort Wayne Division.

Signed June 26, 2015.

Larry L. Barnard, Robert L. Nicholson, Carson Boxberger LLP, Fort Wayne, IN, for Appellant.

J. Joseph Bainton, Bainton McCarthy LLC, John G. McCarthy, Smith Gambrell & Russell, New York, N.Y., for Appellees.

OPINION AND ORDER

THERESA L. SPRINGMANN, District Judge.

This case is an appeal from a United States Bankruptcy Court decision to approve attorneys' fees for services rendered in an adversary proceeding brought by the Trustee of a bankruptcy estate. For the foregoing reasons, the Court affirms.

BACKGROUND

This case arose out of the bankruptcy of GT Automation Inc. (the Debtor). The Debtor filed a Chapter 11 bankruptcy petition on October 9, 2001, and the bankruptcy court allowed the Debtor to continue operating as a debtor-in-possession. Comerica, Inc.—the Debtor's largest secured creditor—filed a proof of claim in the bankruptcy proceedings for $7,818,406.10.

In February 2003, the Debtor moved for an order authorizing an auction of the Debtor's assets under 11 U.S.C. § 363. The bankruptcy court issued an order permitting the auction, subject to conditions agreed to by the Debtor and objecting creditors. The auction was held on April 3, 2003. GTA Acquisition LLC—an entity created by the Appellant, Arlington Capital LLC, for the purpose of acquiring the Debtor's assets—submitted a bid of $2,725,000, which was the highest bid. On April 8, 2003, the bankruptcy court approved the sale of the Debtor's assets to GTA.¹ In October 2003, Comerica filed an amended proof of claim reflecting a deficiency of $4,444,807.00.

On April 7, 2004, the bankruptcy Trustee filed a lawsuit seeking recovery under 11 U.S.C. § 363(n), claiming that Arlington and insiders of the Debtor entered into an agreement among potential bidders at the bankruptcy auction to control the sale price of the Debtor's assets. On September 29, 2004, the bankruptcy court approved the Trustee's application to employ Appellee Bainton McCarthy as special litigation counsel. Bainton McCarthy represented the Trustee in the adversary proceeding under § 363(n). On March 17, 2009, the bankruptcy court also approved the Trustee's application to employ Appellee Smith, Gambrell & Russell (SGR) as substitute special litigation counsel in the adversary proceeding under § 363(n).

The case proceeded to a seven-day jury trial from January 10–22, 2013, concerning the Trustee's claim against Arlington.² The Trustee requested compensatory damages of up to $2,275,000. The Trustee also requested punitive damages, and, in doing so, asked the jury to consider using as a guideline the amount of Comerica's deficiency claim and the approximately $2.6 million of unpaid pre-petition claims of the Debtor's unsecured creditors. The Trustee filed a separate claim to recover attorneys' fees, which the parties agreed would be determined by the bankruptcy court if the Trustee prevailed at jury trial. The jury ultimately returned a verdict in favor of Arlington.

On May 17, 2013, Bainton McCarthy filed a fee application seeking approval of $458,037.50 in fees and $27,297.37 in disbursements for its special litigation counsel services for the Trustee. On the same day, SGR filed a fee application seeking approval of $399,677.50 in fees and $21,475.67 in disbursements for its substitute special litigation counsel services for the Trustee. On June 13, 2013, Arlington filed objections to both fee applications. Arlington contended, in relevant part, that attorneys' fees are improper because the services rendered by Bainton McCarthy and SGR (collectively, Appellees) were not reasonably likely to benefit the Debtor's estate. Arlington specifically argued that Comerica was entitled to recover any damages arising from the Trustee's § 363(n) claim. The parties conducted discovery, and on November 18, 2013, the parties filed a proposed Joint Pretrial Order, which contained stipulations to the following relevant facts: (1) Comerica had a lien on all of the assets sold at the auction on April 3, 2003; (2) Comerica consented to the sale of the collateral; and (3) Comerica has never asserted a lien on any recovery from the § 363(n) claim.

The bankruptcy court conducted a trial on February 18, 2014. In a bench ruling, the bankruptcy court rejected Arlington's claim, finding that the Debtor's estate would have been entitled to damages arising from the Trustee's § 363(n) claim. The court issued a separate order overruling Arlington's objections and granting the Appellees' fee applications. On February 24, 2014, Arlington filed a timely notice of appeal.³

STANDARD OF REVIEW

The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 158(a)(1), which gives district courts jurisdiction to hear appeals from final judgments, orders, and decrees of bankruptcy courts. The Court reviews the Bankruptcy Court's determinations of law de novo and its findings of fact for clear error, but on issues that the Bankruptcy Code has committed to the discretion of the bankruptcy court, the Court reviews such decisions only for an abuse of discretion. Wiese v. Cmty. Bank of Cent. Wis., 552 F.3d 584, 588 (7th Cir.2009). A court “ ‘abuses its discretion when its decision is premised on an incorrect legal principle or a clearly erroneous factual finding, or when the record contains no evidence on which the court rationally could have relied.’ ” Id. (quoting Corp. Assets, Inc. v. Paloian, 368 F.3d 761, 767 (7th Cir.2004) ). The Court reviews an award of attorneys' fees under 11 U.S.C. § 330 for abuse of discretion. In re Taxman Clothing, Co., 49 F.3d 310, 314 (7th Cir.1995) (citing In re Kenneth Leventhal & Co., 19 F.3d 1174, 1177 (7th Cir.1994) (citation omitted).

DISCUSSION

A. Attorneys' Fees Pursuant to 11 U.S.C. § 330

Under the United States Bankruptcy Code, a court may award compensation to an attorney for “actual, necessary services rendered” and “actual, necessary expenses.” 11 U.S.C. § 330. Compensation cannot be awarded, however, for services that were not “reasonably likely to benefit the debtor's estate” or “necessary to the administration of the case.” § 330(a)(4)(A)(ii)(I) and (II). On appeal, Arlington renews its argument that attorneys' fees are improper under § 330 because the services rendered by the Appellees were not reasonably likely to benefit the bankruptcy estate.⁴

1. Waiver

As an initial matter, the Appellees contend that Arlington's claim—as articulated on appeal—is barred by the well-settled rule that an argument not raised at the trial court is waived on appeal. Pole v. Randolph, 570 F.3d 922, 937 (7th Cir.2009). Even an argument raised in the trial court may be waived if it is “underdeveloped, conclusory, or unsupported by law.” Puffer v. Allstate Ins. Co., 675 F.3d 709, 718 (7th Cir.2012) (citing United States v. Berkowitz, 927 F.2d 1376, 1384 (7th Cir.1991) (“[P]erfunctory and undeveloped arguments, and arguments that are unsupported by pertinent authority, are waived”) (citation omitted). Nonetheless, if a party has presented an argument, although “ ‘skeletal’ ” in nature, that “ ‘the [trial] court [has] recognized and addressed, and which the party has now fleshed out and emphasized on appeal,’ ” the issue may be preserved. Emergency Servs. Billing Corp. v. Allstate Ins. Co., 668 F.3d 459, 465 (7th Cir.2012) (quoting Bailey v. Int'l Bhd. of Boilermakers, Local 374, 175 F.3d 526, 529–30 (7th Cir.1999) ).

Here, Arlington presented the following argument at the trial stage: attorneys' fees under 11 U.S.C. § 330 were improper because Comerica, as a result of its security interest in the Debtor's assets, was entitled to any reasonable damages arising from the Trustee's § 363(n) claim. Moreover, Arlington raised—albeit, in a somewhat amorphous fashion—two theories in furtherance of its general argument: (1) Comerica possessed a pre-petition lien on all assets sold at the auction, and therefore, § 363(n) damages represent the “proceeds” of such assets; and (2) Comerica possessed a post-petition lien on § 363(n) damages by virtue of a cash collateral order.⁵ Arlington raises only the first theory on appeal.

The Appellees argue that waiver is enforceable because Arlington failed to “articulate the specific argument it now makes” to the Court. (Appellees' Br. 12, ECF No. 5.) The Appellees particularly note that Arlington failed to cite the legal authority upon which it now relies. But again, a party is permitted to fine-tune its position on appeal. See Emergency Servs. Billing Corp., 668 F.3d at 465. Even a “skeletal argument” may be “fleshed out and emphasized,” so long as it was recognized and addressed by the trial court.Id.⁶ And while the bankruptcy court appears to have only addressed Arlington's second theory in its holding (see Trial Tr. 102–11, ECF No. 2–1 at 284–92), the Court is not convinced that the underlying purposes of the waiver rule are compromised by adjudicating Arlington's claim on appeal. As noted in Bailey, the purpose of the waiver rule is to ensure that (1) the trial court had the first opportunity to pass on the appellant's theory and avoid error; (2) to avoid usurping the trial court's proper role as factfinder; and (3) to ensure an adequate record to review on appeal. 175 F.3d at 530. The bankruptcy court not only recognized and addressed the general argument raised by Arlington, but it was also presented with, and had the first opportunity to pass on Arlington's first theory—although “skeletal” in nature. Furthermore, Arlington's first theory raises a legal question: as a matter of law, did Comerica's lien on the assets sold at auction—a fact stipulated by both parties—render § 363(n) damages as “proceeds” of Comerica's collateral. In the Court's view, no additional fact finding is necessary to resolve this issue. See Id. (denying application of the waiver...