In re Cmty. Home Fin. Servs., Inc.

• Decision Date: 27 October 2015
• Docket Number: CASE NO. 1201703EE
• Court: United States Bankruptcy Courts. Fifth Circuit. U.S. Bankruptcy Court — Southern District of Mississippi
• Parties: IN RE: COMMUNITY HOME FINANCIAL SERVICES, INC.

IN RE: COMMUNITY HOME FINANCIAL SERVICES, INC.

CASE NO. 1201703EE

UNITED STATES BANKRUPTCY COURT FOR THE SOUTHERN DISTRICT OF MISSISSIPPI

October 27, 2015

CHAPTER 11

Hon. Kristina M. Johnson
kjohnson@joneswalker.com
Post Office Box 427
Jackson, MS 39205-0427

Chapter 11 Trustee

Hon. Mark A. Mintz
mmintz@joneswalker.com
201 St. Charles Ave. 49th Floor
New Orleans, LA 70170

Hon. Jeffrey R. Barber
jbarber@joneswalker.com
Post Office Box 427
Jackson, MS 39205-0427

Attorneys for Chapter 11 Trustee

Hon. Jim F. Spencer, Jr.
Hon. Stephanie M. Rippee
jspencer@watkinseager.com
srippee@watkinseager.com
Post Office Box 650
Jackson, MS 39205-0650

Attorneys for Edwards Family Partnership, LP
and Beher Holdings Trust

Edward Ellington, Judge

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MEMORANDUM OPINION

THIS MATTER came before the Court on the First Application for Compensation for the Period of January 2, 2014 through July 31, 2014, and Reimbursement of Expenses by the Law Firm of Jones Walker LLP as Counsel to Kristina M. Johnson, Trustee of the Estate of Community Home Financial Services, Inc. (Dkt. #783) filed by Kristina M. Johnson, Chapter 11 Trustee; Edwards Family Partnership, L.P. and Beher Holdings Trust's Objection to Fee Applications (Dkt. #820); and the Combined Reply and Memorandum: (I) in Support of First Application for Compensation for the Period of January 2, 2014 through July 31, 2014, and Reimbursement of Expenses by the Law Firm of Jones Walker LLP as Counsel to Kristina M. Johnson, Trustee of the Estate of Community Home Financial Services, Inc. [Dkt. #783]; and (II) in Opposition to Edwards Family Partnership, L.P. and Beher Holdings Trust's Objection to Fee Applications [Dkt. #820] (Dkt. #849) filed by Kristina M. Johnson, Chapter 11 Trustee. Having considered same, the testimony and evidence presented at trial, and the respective briefs¹ filed by the parties, the Court finds that for the reasons expressed more fully below, the application is granted in part and disallowed in part.

See Next Page

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TABLE OF CONTENTS

FINDINGS OF FACT .......................................................... 4

CONCLUSIONS OF LAW ..................................................... 11

I. Jurisdiction ............................................................ 11

II. Procedural Matters ...................................................... 11

A. Waiver of Right to Object .......................................... 11

B. Objection to Trial Exhibit .......................................... 12

III. Employment, Compensation and Duties ..................................... 14

A. Statutory Framework .............................................. 14

1. Compensation of a Trustee ................................... 14
2. Hiring and Payment of Professionals ............................ 15
3. Duties of a Chapter 11 Trustee ................................ 16

B. Case Law ....................................................... 20

1. "Traditional" Calculation of Attorney Fee ....................... 20
2. Trustee's Duties v. Professional Duties .......................... 22

a. Reviewing the Debtor's Records ......................... 24
b. Investigating Estate Property ............................ 25
c. Communicating with Other Parties ....................... 25
d. Reviewing and Objecting to Claims ...................... 26
e. Communicating with and Supervising Estate Professionals .... 27
f. Collecting and Liquidating Estate Assets .................. 27
g. Performing Banking Functions/Bookkeping ................ 28

C. Edwards' Specific Obections ....................................... 29

1. Compensation ............................................. 29

a. Dual Compensation ................................... 29
b. Hourly Rates of Attorneys .............................. 42
c. Hourly Rates for Paralegals/Non-Professionals ............. 49
d. Law Clerks .......................................... 51
e. Summary ........................................... 54

2. Expenses ................................................. 56

CONCLUSION .............................................................. 58

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FINDINGS OF FACT²

Although not directly relevant to the matter pending before the Court, the Court will briefly describe the events leading up to the bankruptcy filing. Community Home Financial Services, Inc. (CHFS) is in the business of purchasing and servicing loan portfolios. The president of CHFS is William D. Dickson (Dickson). CHFS entered into various business transactions with several companies controlled by Dr. Charles C. Edwards (Dr. Edwards). This bankruptcy case evolved out of disputes between Dickson and CHFS on the one hand, and Dr. Edwards and his companies on the other.

CHFS and Edwards Family Partnership, L.P. and Beher Holdings Trust³ (collectively, Edwards) entered into a series of agreements whereby Edwards invested money for the purchase of home improvement loans, typically second and third mortgages. In addition, CHFS and Edwards entered into seven (7) joint ventures for the purchase of mortgage portfolios. These mortgage portfolios consisted of a large number of individual promissory notes which were backed by first and second residential mortgages on homes located across the country. Edwards alleged the balance owed on the home improvement loans was $27,785,548.00, and the balance owed on the seven (7)

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joint ventures was $12,018,591.89.⁴ Edwards is by far the largest creditor of CHFS.

On February 15, 2012, CHFS (and Dickson individually) filed suit against Edwards and others in the Chancery Court of the First Judicial District of Hinds County, Mississippi. A variety of relief was sought in the complaint, including: specific performance; an accounting; damages for breach of contract; and rescission or modification of the agreement. On April 11, 2012, Edwards removed the suit to the United States District Court for the Southern District of Mississippi (District Court Litigation) [USDC Case No. 3:12-cv-252-CWR-LRA].

In the District Court Litigation, Edwards denied that CHFS and Dickson were entitled to any relief. Edwards also filed a counterclaim against CHFS and Dickson requesting various relief including: judgments against CHFS on the promissory notes; a judgment against Dickson on his guaranty agreements; and the appointment of a receiver for CHFS. Edwards filed a separate motion for the appointment of a receiver, and the district court set the receiver motion for trial.

Over the course of several days, the receiver motion was heard by United States District Court Judge Carlton W. Reeves (in Case No. 3:12-cv-252-CWR-LRA). The day prior to the final hearing before Judge Reeves, CHFS (Debtor) filed a petition for relief under Chapter 11 of the United States Bankruptcy Code on May 23, 2012.⁵

Except for the Internal Revenue Service, Edwards is, for the most part, the only creditor to

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actively participate in the Chapter 11 case. The relationship between Edwards and the Debtor appears to have been amicable at one point, but it deteriorated rapidly as the Chapter 11 case progressed. Any motion filed by the Debtor was hotly opposed by Edwards and vice versa. The Debtor filed adversary proceedings against Edwards that were also hotly contested. The Debtor proceeded as the debtor-in-possession (DIP) in the bankruptcy case for approximately a year and a half.

On December 20, 2013, the attorney for the Debtor, Derek A. Henderson (Henderson), filed Disclosure of Transfer of Funds and Other Matters (Dkt. #426) (Disclosure). In the Disclosure, Henderson stated that the Debtor had changed its principal place of business from Jackson, Mississippi, to Panama, and had opened branch offices in Panama and in Costa Rica. Further Henderson disclosed that the Debtor transferred all of the funds from the Wells Fargo DIP bank accounts to banks located in Panama. All of these actions were done by the president of the Debtor, Dickson, without the knowledge or the advice of Henderson or Dickson's personal bankruptcy attorney, Eileen N. Shaffer.⁶

On that same day, the United States Trustee (UST) filed the United States Trustee's Emergency Motion for Order for the Appointment of a Chapter 11 Trustee (Dkt. #427). On December 23, 2013, the Court entered the Order Granting United States Trustee's Emergency Motion for Order for the Appointment of a Chapter 11 Trustee (Dkt. #429). The UST was directed to appoint a Chapter 11 trustee for the Debtor.

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The United States Trustee's Application for Approval of Chapter 11 Trustee (Dkt. #455) was filed on January 8, 2014. On January 21, 2014, an Order (Dkt. #473) was entered appointing Kristina M. Johnson as the Chapter 11 trustee (Trustee) for the Debtor.

The Trustee filed an application to employ her law firm, Jones Walker, LLP (JW), as counsel for the Trustee. On March 5, 2014, an Order Granting Application of Kristina M. Johnson, Trustee, to Employ Jones Walker LLP as Counsel Nunc Pro Tunc to January 8, 2014, and Disclosure of Compensation with Supporting Affidavit [Dkt. #474] (Dkt. #558) was entered.

As noted above, at the time the Trustee was appointed, Dickson had moved to Central America and had taken almost all of the Debtor's books, records, and money, and had set up a new operating base in Central America. With the exception of a few relatives of Dickson, the employees of the Debtor living in Mississippi were either fired or relocated to Central America. Consequently, the Trustee was placed in a position where she had to operate the Debtor's loan servicing business with very few books and records, no computers, no employees, and very little cash.

The Trustee also had to stop someone's attempts (presumed to be Dickson) to divert funds from the bankruptcy estate to Central America by changing the Debtor's address to a company in Nevada and by telling borrowers to send payments to an address in Miami. With records later obtained from Edwards, the Trustee was able to send letters to borrowers instructing them to send their payments to the Trustee and to...