Barron & Newburger, P.C. v. Tex. Skyline, Ltd. (In re Woerner)
| Decision Date | 15 July 2014 |
| Docket Number | No. 13–50075.,13–50075. |
| Citation | 758 F.3d 693 |
| Court | U.S. Court of Appeals — Fifth Circuit |
| Parties | In the Matter of Clifford J. WOERNER; Gail S. Woerner, Debtors. Barron & Newburger, P.C., Appellant v. Texas Skyline, Limited; Pecos & 15th, Limited; United States Trustee; Skyline Interests, L.L.C., Appellees. |
OPINION TEXT STARTS HERE
Stephen W. Sather, Barbara M. Barron, Barron, Newburger & Sinsley, P.L.L.C., Austin, TX, for Appellant.
William Paul Johnson, Duggins Wren Mann & Romero, L.L.P., Arthur A. Stewart, Office of the Attorney General, Deborah A. Bynum, U.S. Department of Justice, Office of the U.S. Trustee, Austin, TX, Noah Mariano Schottenstein, Trial Attorney, U.S. Department of Justice, Executive
Office of the U.S. Trustee, Washington, DC, for Appellees.
Appeals from the United States District Court for the Western District of Texas.
Before REAVLEY, PRADO, and OWEN, Circuit Judges.
This case concerns a bankruptcy court's order reducing the fees a debtor's counsel received under 11 U.S.C. § 330. On May 13, 2010, on the eve of a major state court judgment against him, Debtor Clifford Woerner (“Woerner”) 1 filed a voluntary petition under Chapter 11 of the Bankruptcy Code. Appellant Barron & Newburger (“B & N”), a law firm, represented Woerner in his Chapter 11 bankruptcy. On April 20, 2011, the bankruptcy court converted the case to Chapter 7. Its services terminated, B & N filed an application for fees in excess of $130,000. The bankruptcy court allowed approximately $20,000 and disallowed the remainder, finding that the additional fees were unreasonable. The district court affirmed. B & N appeals, contending that the bankruptcy court misapplied Fifth Circuit precedent and 11 U.S.C. § 330 in reducing the fees awarded to it. We affirm.
In 2006, Woerner and Texas Skyline, Ltd. (“Texas Skyline”) formed a limited partnership for the purpose of a real estate venture. Within the partnership, DPRS—a company Woerner owned—was the sole general partner, Woerner was a limited partner with a 49.99% interest in the partnership, and Texas Skyline was the sole investor and a limited partner in the project. Over the course of the next three years, Woerner misappropriated funds from the partnership for personal use. When Texas Skyline discovered Woerner's activities, it sued him in state court for breach of the partnership agreement and breach of fiduciary duties. The case proceeded to a bench trial on April 27, 2010. After the parties rested, the state court announced an oral ruling in favor of Texas Skyline and set a remedies hearing for May 14, 2010.
Woerner and his state-court trial counsel met with B & N on May 4, 2010 to discuss filing for bankruptcy. Woerner was “agitated” and wanted to find counsel that would “stand up to the Texas Skyline parties,” although “he wanted to make sure that every creditor with legitimate claims against him was paid.” B & N agreed to the representation and filed Woerner's voluntary petition for Chapter 11 bankruptcy relief on May 13–the night before the state-court remedies hearing. That filing triggered the Bankruptcy Code's automatic stay provision, which brought the state-court proceeding to a halt. See11 U.S.C. § 362(a).
In the ensuing eleven months, B & N provided services that it claimed were worth $134,800 in legal fees. These services included the filing of a mandatory disclosure statement. On May 18, 2010, Woerner filed mandatory disclosure documents with the bankruptcy court—namely, schedules and a statement of financial affairs.
These services also included efforts to defend Woerner in adversary proceedings to prevent Woerner from discharging liabilities.On August 4, 2010, Texas Skyline initiated an adversary proceeding with the bankruptcy court under 11 U.S.C. 523(a)(4) for a breach of fiduciary duty. Texas Skyline then fought to lift the stay of the state court judgment. Woerner contested and lost, and the stay of state court proceedings was lifted. Woerner also contested adversary proceedings brought by John Baker II (“Baker”), one of the other active creditors in this case. On November 2, 2010, Woerner filed Amended Schedules (b) and (c) and also amended his Statement of Financial Affairs.
B & N helped Woerner negotiate with his creditors. Woerner and the adversarial creditors agreed to mediation with a bankruptcy judge. Talks with Texas Skyline broke down, but on December 17, 2010, B & N filed a Joint Motion to Compromise with the bankruptcy court, which B & N maintained would have resolved this case had it completely settled. Yet Baker insisted that the settlement was merely a proposal, objected to it and refused to execute it. For these negotiation services, B & N sought over $6,000. See infra Part I(D).
B & N also investigated the concealment of some of Woerner's assets and subsequently amended Woerner's financial disclosures to include approximately $9,000 of additional personal goods, including investments, jewelry, firearms, and fur coats that were not originally disclosed. This concealment prompted Baker to move to convert Woerner's case from a Chapter 11 reorganization to a Chapter 7 trustee-administered liquidation. See11 U.S.C. § 1112(b)(1) (). Texas Skyline moved to intervene in the motion to convert. B & N litigated Woerner's attempts to press for a motion to approve the settlement and oppose the motion to convert. The billing records show that the firm (1) prepared a motion to sell some of Woerner's personal property for the purpose of funding an appeal from the state-court judgment; (2) started investigating potential causes of action against Texas Skyline and Baker; (3) drafted a disclosure statement and reorganization plan; and (4) deposed a representative from Texas Skyline about potential mismanagement of partnership assets.
The bankruptcy court conducted a hearing on the pending motions, denying the motion to approve settlement and granting the motion to convert on April 20, 2011. As the bankruptcy court summarized in its oral ruling on the fee application, “the Court found that it was appropriate to convert this case to Chapter 7 because the Court was of the opinion ... that [Woerner] w[as] not forthright as a Debtor[ ] under the Bankruptcy Code in terms of listing [his] assets and giving proper evaluations.” On September 3, 2011, B & N filed an application for approximately $134,000 in fees under § 330. Following the U.S. Trustee's objection, B & N amended its fee application. B & N ultimately sought $130,656.50 in fees, and $5,793.37 in expenses. The Trustee renewed its objection to the fees. Skyline also objected, arguing that all of the fees were unreasonable because (1) Woerner never had the means to fund a Chapter 11 reorganization and (2) B & N's actions were dilatory and required creditors to incur unnecessary attorneys' fees.
The bankruptcy court then conducted a hearing on the fee request. B & N offered testimony from Woerner's nonbankruptcy counsel and two attorneys from B & N to prove that (1) Woerner brought the case for a legitimate purpose and (2) the litigation costs were driven up by Texas Skylines's alleged intransigence.
The bankruptcy court took the fee application under advisement and entered an oral ruling on April 11, 2012. Citing In re Pro–Snax Distributors, Inc., 157 F.3d 414 (5th Cir.1998), the court explained that, for a service to be compensable under § 330, fee applicants must prove that the service resulted in an “identifiable, tangible, and material benefit to the estate.” Id. at 426. Applying that standard, the bankruptcy court awarded the expenses in full, but only $19,409.00 in fees, an 85% reduction. The bankruptcy court arrived at $19,409.00 by considering separately each category of fees (such as case administration, resisting a motion to lift the stay, preparing bankruptcy schedules, and similar categories), granting some in whole, some in part, and denying others. Most of the disallowed fees were denied due to B & N's lack of success. Specifically, the bankruptcy court found much of B & N's billed time was not of identifiable benefit to the estate.
The following table (based on U.S. Trustee's Br. 16–17) summarizes the bankruptcy court's findings:
FEE
Fees for initial analysis reasonable Asset Analysis and Recovery 8,692 1,500 Fees for subsequent investigations unreasonable
Fees for Texas Skyline deposition not beneficial to the estate
Alternative Dispute Resolution 6,647 6,647 Reasonable Case Administration 46,532 5,000 Fees for mandatory meetings and filings reasonable
Fees for litigating conversion motion and settlement motion not beneficial to the estate
Claims Determination 14,301 0 No benefit to the estate Dischargeability 25,170 0 No benefit to the estate Disclosure Statement and Plan 13,075 0 No material benefit to the estate Employment and Fees 3,172 0 No material benefit to the estate Filing of Schedules and Statement of Financial Affairs 5,000 2,500 Redundant with asset analysis, unreasonable Lift Stay 3,810 1,000 Abnormally high Business Operations 562 562 Reasonable Client Communications 2,200 2,200 Reasonable Financing 225 0 Unreasonable Sale Use and Lease of Assets 1,252 0 No benefit to the estate TOTAL $130,638 $19,409
B & N then moved to certify a direct appeal to the Fifth Circuit. In denying the motion, the bankruptcy court also noted its ruling was informed by the bad conduct of the Debtors themselves, which should have lead B & N to withdraw from the case sooner than it ultimately did. As the U.S. Trustee pointed out at the time, “[T]he only issue that would be advanced is whether or not Barron and Newburger is entitled to get paid fees in a case...
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Barron & Newburger, P.C. v. Tex. Skyline, Ltd. (In re Woerner)
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...use to evaluate fee applications and which the Fifth Circuit may revisit in a pending reconsideration of Pro–Snax.See In re Woerner, 758 F.3d 693, 702–03 (5th Cir.)reh'g en banc granted,771 F.3d 820 (5th Cir.2014). In Woerner, Judge Prado penned a special concurrence urging reconsideration ......
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