In re College Properties Limited Partnership, Case No. 02-05-10095-PHX-CGC (Bankr.Ariz. 5/29/2007)
| Decision Date | 29 May 2007 |
| Docket Number | Case No. 02-05-15155-RJH. Jointly Administered.,Case No. 02-05-10095-PHX-CGC. |
| Court | U.S. Bankruptcy Court — District of Arizona |
| Parties | In re COLLEGE PROPERTIES LIMITED PARTNERSHIP, a limited partnership, Chapter 11 Proceedings, In re COLLEGE PROPERTIES II, an Arizona limited partnership, Debtors. |
Altfeld Battaile & Goldman, P.C. ("ABG") seeks Court approval of its First and Final Fee Application totaling $ 225,000 in attorneys fees. The fees are divided into two portions: 1) $125,000 for prepetition and postpetition work as counsel in the "General Partner Litigation" and 2) $100,000 for postpetition work as special counsel for Trustee Brian Mullen in this bankruptcy. The dispute here centers solely on whether ABG is entitled to its fees for the work it did prior to its appointment as special counsel. No party objects to the $100,000 in fees for ABG's postpetition work as special counsel for the Trustee and those fees have already been allowed and approved for payment by the Court.
The prepetition fees arose as follows. In August, 2004, ABG was engaged by Anthony De Petris, Landis Mitchell, and Patricia Palmer to represent them in a suit to enforce their rights as limited partners in College Properties limited partnership against College Properties, Black Mountain Estates, Montage, Inc., Tom D'Ambrosio and others. In that lawsuit, the plaintiffs alleged that Mr. D'Ambrosio, College Properties' general partner, transferred valuable real estate owned by College Properties to other entities owned by Mr. D'Ambrosio and without notice to College Properties' limited partners. In return, College Properties received a $2,025,000 secured note and deed of trust that was subsequently replaced with worthless shares in Montage, Inc. The real property was then scheduled for auction which, if concluded, would have resulted, according to ABG, in Mr. D'Ambrosio's entities receiving all of the sale proceeds without payment to the limited partner investors. The litigation plan was for plaintiffs, in a representative capacity, to assert class and derivative claims arising out of what ABG refers to as the "Montage Merger." This representation occurred both pre- and post-petition from July 10, 2004, to November 18, 2005, at which time ABG was employed as special counsel to the Trustee.
Under the original fee agreement with the three limited partner plaintiffs, ABG agreed to represent them under a contingency fee arrangement for one third of any "gross recovery" ABG obtained on plaintiffs' behalf, meaning all sums recovered through litigation from whatever source, "whether by payment, settlement, judgment or any other means" from D'Ambrosio or Montage.
Eventually, the property was sold through the bankruptcy for $ 5,825,000. Subsequently, a global settlement was reached in the General Partner Litigation pursuant to which the Trustee agreed to hold $425,000 of the proceeds in reserve for Trustee and Professional Fees. Of this amount, ABG has already been awarded $100,000 for fees as Special Counsel for the Trustee. The Trustee and Trustee's counsel plan to seek approval of $100,000 each from the reserve, leaving the Court to determine whether ABG is entitled to an additional $125,000 in fees for representing the individual plaintiffs prior to its appointment as special counsel. Any amounts not awarded for fees from the reserve will be paid pro rata to the limited partners, not including D'Ambrosio.
ABG tacitly acknowledges that its entitlement to fees is not transparently clear. While it is not uncommon for a lawyer who represented a debtor on a contingency basis to be employed as special counsel and thereafter receive payment from the estate when the case is settled or litigated post-petition, that model is not helpful here to ABG because it never represented Debtor. Rather, ABG seeks fees from a bankruptcy estate for work done for third parties (three limited partners) without ever having been hired by Debtor or certified as representative counsel for investors in the Debtor.
ABG's claim for fees is based primarily upon the so-called "common fund" doctrine. It argues that in class and derivative actions in Arizona, the common fund doctrine applies to award fees to lawyers who create, enhance or preserve a common fund for a group of beneficiaries. In re Estate of Brown, 137 Ariz. 309, 670 P.2d 414 (App. 1983). The doctrine applies where "1. the suit confers a substantial benefit; 2. the benefit goes to members of an ascertainable class; and 3. `the court's award would spread the costs proportionately among the beneficiaries.'" Friedman v. Microsoft Corp., 213 Ariz. 344, 351, 141 P.3d 824, 831 (App. 2006). Here, ABG argues that is representation of the three plaintiffs in the Pinal County lawsuit substantially contribution to the common fund represented by a substantial portion of the proceeds of the sale of the property.
Several objections were received, among them Thomas D'Ambrosio, former general partner of Debtors and defendant in the underlying proceedings and Anthony DePetris, a limited partner and one of the original three plaintiffs. Mr. D'Ambrosio contends that ABG is not entitled to any fees because its participation was 1) against the wishes of the majority of the limited partners, 2) the common fund created was due to the efforts of Mr. D'Ambrosio and not ABG (and, in fact, ABG's participation actually hindered and diminished the ultimate return), and 3) the requested fees are not supported by the fee agreement. In addition, Mr. DePetris objects on the grounds that the fees are exorbitant and unearned, especially in light of the fact that the settlement was contrary to the original engagement letter in that it was not a return of the plaintiffs' original investment plus fair market appreciation. Mr. DePetris also contends that ABG abandoned its initial clients when it elected to represent the Trustee on behalf of the estate. Last, Montage Industries, Inc. and Casa Del Oro Development, L.L.C., object to the "characterization of the services rendered by the Firm, as well...
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