In re Jack Kline Co. Inc.

• Decision Date: 30 September 2010
• Docket Number: No. 09-36569-H4-7,09-36569-H4-7
• Citation: 440 B.R. 712
• Parties: In re JACK KLINE CO., INC., d/b/a Trojan Too Manufacturing, Debtor.
• Court: U.S. Bankruptcy Court — Southern District of Texas

440 B.R. 712

In re JACK KLINE CO., INC., d/b/a Trojan Too Manufacturing, Debtor.

No. 09-36569-H4-7.

United States Bankruptcy Court,

S.D. Texas,

Houston Division.

Sept. 30, 2010.

Anthony F. Mercurio, Attorney at Law, Bellaire, TX, for Debtor.

MEMORANDUM OPINION ON TRUSTEE'S SECOND AMENDED MOTION TO SURCHARGE CENTRAL BANK AND OBJECTION TO CLAIM NO. 8

[Docket No. 116]

JEFF BOHM, Bankruptcy Judge.

I. Introduction

The Court writes this Memorandum Opinion to underscore the following points: (1) Chapter 7 trustees deserve compensation not only for both liquidating assets to pay unsecured claims but also for selling assets that result in payment of secured claims; (2) secured creditors must file an application pursuant to Federal Rule of Bankruptcy Procedure 2016 and 11 U.S.C. § 506(b) to obtain approval to collect their post-petition attorneys' fees and costs, and their failure to do so may merit disgorgement of amounts that they have collected; ¹ and (3) secured creditors also must file an application pursuant to § 506(b) to collect post-petition interest at the default rate,²and their failure to do so may also merit disgorgement of interest that they have collected.

The Court makes the following findings of fact and conclusions of law pursuant to Federal Rules of Bankruptcy Procedure 9014 and 7052. To the extent that any finding of fact is construed as a conclusion of law, it is adopted as such. Moreover, to the extent that any conclusion of law is construed as a finding of fact, it is adopted as such. The Court reserves its right to make additional findings of fact and conclusions of law as it deems appropriate or as may be requested by any of the parties.

II. Findings of Fact

1. On September 1, 2009 (the Petition Date), Jack Kline Company, Inc. (the Debtor) filed its voluntary Chapter 7 petition. [Doc. No. 1]. As of the petition date, the estate created by this filing (the Estate) had assets that could be sold to pay claims.

2. On October 2, 2009, Rodney Tow, the Chapter 7 trustee (the Trustee), filed an Application to Employ Amanda Enriquez, Agent of Keller Williams Realty as Real Estate Agent and Request for Authorization to Pay Commission at Closing (the Application). [Doc. No. 13]. The Application states that the normal commission for this type of sale is six percent, and that Amanda Enriquez (the Realtor) should be compensated based on the sales price of the Estate's interest. [Doc. No. 13, p. 3]. The Trustee sought to employ the Realtor because the Trustee was attempting to sell certain properties owned by the Estate located at 910 Curtin Avenue and 912 Curtin Avenue (the Property) to Sandra L. White and Kenneth J. Welsh for the amount of $500,000.00. [Doc. No. 65, p. 3]. According to the Trustee, the costs and expenses associated with the sale of the Property included the Trustee's fees, certain attorneys' fees, the real estate commission, the annual assessment, title insurance, and property taxes.³ [June 8, 2010 Tr. 70:16-71:24]. The Trustee testified that all of the costs and expenses were reasonable and necessary. [June 10, 2010 Tr. 85:3-7].

3. On October 9, 2009, Doc's Trading Post, LLC (Doc's) filed a Response and Objection to the Application. [Doc. No. 17].

4. On October 19, 2009, the Court issued an Order Authorizing Employment of Tow & Koenig, PLLC as General Counsel.⁴ The Order further states that compensation is to be paid in such amounts as may be allowed by the Court upon proper application. [Doc. No. 22].

5. On November 17, 2009, the Court granted the Trustee's Motion to Withdraw the Application. [Doc. No. 37].

6. On December 8, 2009, the Trustee filed a Notice of Assets & Requests for Notice to Creditors Proofs of Claims due by March 8, 2010. [Doc. No. 42].

7. On December 9, 2009, the Trustee filed his Second Application to Employ Amanda Enriquez, Agent of Keller Williams Realty as Real Estate Agent (the Second Application). [Doc. No. 44].

8. On December 9, 2009, the Trustee filed his Motion to Sell Property Free and Clear of all Liens, Claims and Encumbrances (the Motion), plus the proposed order granting this motion. [Doc. No. 45]. Paragraph 27 states that the total per diem post-petition interest rate for both loans to be charged by Central Bank is $29.00. [Doc. No. 45, p. 7 ¶ 27]. Neither the Trustee nor any other party in interest disputes that Central Bank had a properly perfected lien on the Property as of the Petition Date and therefore is a secured creditor in this case. Nor does any part dispute that Central Bank has a first lien on the Property that is superior to the lien of any other party who has a lien on the Property.

9. On December 29, 2009, Doc's filed a Response and Objection to the Motion [Doc. No. 50].

10. On January 11, 2010, the Court entered an Order granting the Second Application. The Order authorized the Debtor to pay a real estate commission of six percent to the Realtor. [Doc. No. 54].

11. On January 27, 2010, the Trustee and SAFT America (Saft) filed a Stipulation as to the Subordination Agreement and Estate, wherein SAFT agreed to subordinate its lien on the Property to the Estate in exchange for the payment of $16,000.00 from the proceeds of the Property's sale, and to transfer its lien to the Estate pursuant to 11 U.S.C. § 510(c)(2). [Doc. No. 57].

12. On January 28, 2010, the Internal Revenue Service (the IRS), a secured creditor in this case, filed its Consent by Internal Revenue Service to the Motion. [Doc. No. 60]. In filing this pleading, the Trustee was representing that the IRS consented to the sale of the Property.

13. On January 28, 2010, Harris County, a secured creditor in this case, filed its Consent by Harris County to the Motion. [Doc. No. 61]. In filing this pleading, the Trustee was representing that Harris County consented to the sale of the Property.

14. On January 28, 2010, Trades Publishing, Inc., a secured creditor in this case, filed its Consent to the Motion. [Doc. No. 62]. In filing this pleading, the Trustee was representing that Trades Publishing, Inc. consented to the sale of the Property.

15. On January 29, 2010, this Court issued an Order on the Motion (the Sale Order) authorizing the Trustee to sell the Property. The Property was: (1) to be sold free and clear of all liens, claims and encumbrances; (2) any liens on the Property were to attach to the proceeds of the sale; and (3) the Trustee was authorized to pay closing costs, taxes and the real estate commission of six percent of the gross sales price at closing. Moreover, the Court authorized the Trustee to pay Central Bank's lien at closing. [Doc. No. 65]. Specifically, the language in the Sale Order reads as follows: "it is further, Ordered that the Trustee is authorized to pay the following lien at closing: Central Bank." [Doc. No. 65, p. 3].

16. On February 15, 2010, the Trustee, Sandra White and Kenneth Welsh entered into an agreement to sell the Property, and a settlement statement (the Statement) was produced, reflecting a $500,000.00 contract sales price. [Trustee's Ex. B]. The Statement included a payoff to Central Bank in the amount of $249,067.79; this figure included post-petition accrued, unpaid interest at the default rate and post-petition attorneys' fees incurred by Central Bank. [Trustee's Ex. B]. The Statement also included commissions to be paid to Prudential Gary Greene, Keller Williams Realty, Chuck Bradley, and Amanda Enriquez in the amounts of $7,485.00, $4,857.00, $7,515.00, and $10,143.00, respectively (totaling $30,000.00 in real estate commissions). [Trustee's Ex. B]. The title company, Veritas Title Partners, L.P. (Veritas Title), was to distribute the sale proceeds. [Trustee's Ex. B]. And, in fact, closing took place and Veritas Title distributed proceeds pursuant to the Statement, with Central Bank receiving the amount of $249,067.79. [Trustee's Ex. B]. The amount received by Central Bank included post-petition accrued, unpaid interest at the default rate and post-petition attorneys' fees incurred by Central Bank.

17. On March 4, 2010, the Trustee filed his Motion to Authorize Distribution to Secured Creditors, requesting the Court to authorize him to disburse $9,958.45 to the IRS, $3,772.81 to NM Energy of Texas, $19,727.64 to the Internal Revenue Service, and $16,000 to SAFT as payment in full. [Doc. No. 69].

18. On March 5, 2010, the Trustee filed his Application for Compensation and Reimbursement of Expenses for Tow & Koenig, PLLC, Trustee's Attorney (the Fee Application). [Doc. No. 70]. The Trustee requested fees of $29,547.45, together with reimbursement of out of pocket expenses in the amount of $859.52, totaling $30,406.97. [Doc. No. 70, p. 1].

19. On March 5, 2010, the Trustee also filed his Notice of Filing of Attorney's First Application for Payment of Fees for Tow & Koenig, PLLC in the amount of $30,406.97. [Doc. No. 71].

20. Additionally, on March 5, 2010, the Trustee filed a Motion to Surcharge Central Bank Pursuant to 11 U.S.C. § 506(c) in the amount of $38,806.61 to recover costs associated with the sale of the Property (the Motion to Surcharge). [Doc. No. 74]. The Trustee sought to assess a surcharge against CentralBank for its pro-rata share (here, 46.72%) of the expenses associated with the reasonable and necessary costs and expenses of preserving and disposing of the Property.⁵ [Doc. No. 74, p. 2]. The pro rata share is a proportion of recovery from the sale proceeds. [Doc. No. 74, p. 2-3]. Other creditors with junior liens on the Property (already mentioned in Findings of Fact Nos. 11-14) gave conditional consents to the surcharge ( i.e., they consented to the surcharge as to them so long as Central Bank was surcharged). [Trustee's Ex. F].

21. On March 16, 2010, Central Bank filed its Response and Objection to the Motion to Surcharge (Central Bank's Response). [Doc. No. 76]. Central Bank objected to the Motion to Surcharge, asserting that that: (a) the amount sought was neither necessary, reasonable, nor beneficial to Central Bank; (b) the requested

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