In re Grabanski
| Decision Date | 19 April 2013 |
| Docket Number | Bankruptcy No. 10-30902 |
| Parties | In re: Thomas M. Grabanski and Mari K. Grabanski, Debtors. |
| Court | U.S. Bankruptcy Court — District of North Dakota |
DeWayne Johnston, attorney for Debtors Thomas M. Grabanski and Mari K. Grabanski, filed a Final Application for Compensation on January 16, 2013, seeking fees and expenses he incurred related to Debtors' case. PHI Financial Services, Inc., the Hanson-Tallackson Parties and United States Trustee Robert B. Raschke filed written objections to the application.
Debtors Thomas M. Grabanski and Mari K. Grabanski filed for relief under Chapter 11 of the Bankruptcy Code on July 22, 2010. On August 20, 2010, Debtors filed an Application for Approval of Employment of Attorney, requesting that attorney DeWayne Johnston be employed to assist Debtors with all aspects oftheir pending bankruptcy proceedings. The Court granted the application to employ DeWayne Johnson as Debtors' attorney on August 30, 2010. The order granting the application provided that Attorney Johnston's professional employment was subject to the limitations provided by 11 U.S.C. § 328.
On October 22, 2010, Debtors filed a Motion of Debtors Pursuant to Sections 331 and 105(a) of the Bankruptcy Code for Reimbursement of Expenses of Professionals ("Application for Compensation"). Debtors' motion sought reimbursement from Debtors' estate for legal fees and expenses incurred between July 21, 2010 and September 30, 2010, in the amount of $43,121.00. Debtor argued these fees and expenses were incurred by Attorney Johnston and his law office.
Assistant United States Trustee Bruce J. Gering and AgCountry Farm Credit Services ("AgCountry"), a creditor, objected to Debtors' motion. The U.S. Trustee argued the motion should be denied because Attorney Johnston failed to recognize that Debtors' case and its companion case, Grabanski Grain, LLC, were two distinct legal entities with separate bankruptcy estates. Attorney Johnston included legal fees for both cases in his application. Further, the U.S. Trustee argued Attorney Johnston failed to provide any detail for the services rendered, time expended, or expenses incurred. AgCountry echoed those arguments andadded that Attorney Johnston failed to comply with Rule 2016(a) of the Federal Rules of Bankruptcy Procedure.
On December 1, 2010, the Court held a hearing on Debtors' motion. The motion was denied on the record during the hearing with allowance given to Johnston to re-file the application with additional information and a more complete history of the fees and expenses sought. The Court specifically desired more detail about the value of the work performed, the likelihood of success, and the progress being made toward plan confirmation. The Court entered a written order on December 13, 2010, noting the denial and leave to re-file.
Attorney Johnston had filed an amended application for expenses and compensation on December 12, 2010. He was directed, however, to re-file his application as an application for compensation. As a result, on December 13, 2010, Attorney Johnston filed an Application for Compensation. This application requested fees and expenses of $34,013.76 for the period between August 17, 2010, and December 13, 2010.
AgCountry was the only party that objected to this application. AgCountry argued the application should be denied because it failed to substantiate Debtors' ability to pay interim compensation, Attorney Johnston had yet to comply withRule 2016(a), and the services of the Johnston Law Office had not benefitted Debtors' bankruptcy estate.
The Court held a hearing on January 27, 2011. The Court approved the Application for Compensation on the record. The Court explained that it was approving the application because Attorney Johnston was making some progress negotiating with Debtors' creditors. On the same day, the Court entered an Order Granting Application for Compensation for DeWayne Johnston, Debtors' Attorney, Period: 8/17/2010 to 12/13/2010, awarding fees of $28,871.00 and expenses of $5,142.76, for a total of $34,013.76.2
Attorney Johnston filed another Application for Interim Compensation on June 14, 2011. He attached invoices for fees and expenses incurred December 1, 2010, through June 3, 2011. These invoices totaled $23,853.62.
The U. S. Trustee and the Hanson-Tallackson Parties3 objected to this application. At the time of Attorney Johnston's filing, Debtors had yet to file a plan or a disclosure statement. The U.S. Trustee objected to approval of theapplication on this point and also argued that reorganization and rehabilitation did not appear possible and that Attorney Johnston's services had not benefitted Debtors' estate. The Hanson-Tallackson Parties also argued that Attorney Johnston's services had not benefitted Debtors' estate, that he remained non-compliant with Rule 2016(a), that he failed to substantiate Debtors' ability to pay interim compensation, and that the invoices lacked sufficient detail about the services rendered for Debtors' case.
On July 21, 2011, the Court held a hearing on Attorney Johnston's application. The Court denied the application on the record and explained that interim compensation was not warranted because there had been no forward progress in Debtors'case. Specifically, the Court noted Debtors had not filed a plan and disclosure statement despite the passage of a full year since the date of filing. The Court entered an Order Denying Application for Interim Compensation on July 26, 2011, and it did not grant leave to re-file the application. Attorney Johnston made no effort for reconsideration of the Court's order.4
Attorney Johnston next filed an Application for Compensation on June 8, 2012. This application included fees and expenses of $41,651.41 incurred by the Johnston Law Office from December 14, 2010, until June 7, 2012.
The U.S. Trustee, the Hanson-Tallackson Parties, and PHI Financial Services, Inc. ("PHI") filed objections to the Application for Compensation. Each party offered similar arguments, including that Attorney Johnston had yet to abide by Rule 2016(a), that reorganization and rehabilitation were never possibilities in Debtors' case, that Attorney Johnston's services had not benefitted Debtors' bankruptcy estate, and that Debtors continued to engage in obfuscation and delay because a disclosure statement had not been approved and a plan had not been confirmed.
A hearing on the application was held on July 5, 2012, and the Court took the matter under advisement. In July, the Court was made aware that United States District Judge for the District of Colorado reversed a governmental denial of $8 million in payments to an entity in which Thomas Grabanski was a partner. The Court did not know what affect that ruling would have on the bankruptcies. At the time, Thomas Grabanski was quoted in an article as saying that now he could now make payments to creditors and make things right. Part of this Court's delay in ruling on this matter — and other pending matters — was the result of await-and-see approach to determine if any party in this bankruptcy made a claim and/or was entitled to what seemed to be a sizable amount of money. Because this litigation in Colorado was often cited as the impetus for Debtors' bankruptcy, the Court wondered whether the Colorado ruling would reverse some of the problems in this case and result in a flow of money back to this estate.
On January 9, 2013, the Court held an additional hearing on this and numerous other matters. The Court inquired about the possible effect of the Colorado ruling on this and related matters. Debtors responded that the money is tied up in litigation in Colorado. The Court asked how much money was in the estate right now. Debtors' counsel responded, "Probably zero."
The Court denied Attorney Johnston's application on the record without prejudice to file a final application for compensation within seven days. The Court instructed Attorney Johnston that if he desired reimbursement, he needed to address some serious concerns the Court had. These concerns included that: there is no money in the estate; the Court, in its July 26, 2011, order already denied the fees and expenses sought by Attorney Johnston; Debtors' proposed Chapter 11 plan was essentially "dead on arrival"; Attorney Johnston's services had not benefitted the estate; and that Debtors' bankruptcy case had been used merely as astall tactic for Debtors to enjoy the protections of the automatic stay and keep their creditors at bay.
Attorney Johnston filed his Final Application for Compensation on January 16, 2013. He included fees and expenses incurred from December 14, 2010, through January 16, 2013. He requested $40,443.92 in fees and $3,401.49 in expenses, for a total of $43,845.41. Attorney Johnston argues these fees and expenses are appropriate: because they were necessary; because Debtors' Chapter 11 plan was proposed in good faith although its confirmation was denied; because Debtors made a worthy effort to achieve plan confirmation and discharge; and because Debtors faced aggressive creditors and were still able to achieve some successful results. Further, Attorney Johnston asserts that none of the requested fees and expenses was previously denied by the Court. Johnston argues the order entered on July 26, 2011, denying fees and expenses from December 1, 2010 through June 3, 2011, did not indicate whether the denial was with or without prejudice. Attorney Johnston believes that if the Court wanted to bar reconsideration of those fees, it would have denied the fees and expenses with prejudice. Because it did not, Attorney Johnston asserts the Court should permit reconsideration.
On January 25, 2013, PHI filed an Objection of PHI Financial Services, Inc. to Final Fee Application Submitted by Debtors' Counsel. PHI argues that the application should be denied in its...
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