In re King

• Citation: 546 B.R. 682
• Decision Date: 18 March 2016
• Docket Number: Case No. 13–30301
• Parties: In re: Raquel Tricia King, Debtor.
• Court: United States Bankruptcy Courts. Fifth Circuit. U.S. Bankruptcy Court — Southern District of Texas

546 B.R. 682

In re: Raquel Tricia King, Debtor.

Case No. 13–30301

United States Bankruptcy Court, S.D. Texas, Houston Division.

Signed March 18, 2016

Thomas E. Glenn, Jr., Glenn Law Firm PLLC, Humble, TX, Liza A. Greene, Laura Dale & Associates, P.C., Houston, TX, for Debtor.

Bret David Allen, Angel L. Reyesand Associates PC, Dallas, TX, Stephen B. Caldwell, Gaddis & Lanier, LLC, Atlanta, GA, Don J. Knabeschuh, Don J. Knabeschuh, Attorney at Law, R. Christopher Naylor, Devlin Naylor and Turbyfill, Nancy H. Hamren, Houston, TX, John Ernest Smith, John E. Smith & Associates, Friendswood, TX, for Creditor.

Ellen Maresh Hickman, Diane G. Livingstone, Office of U. S. Trustee, Houston, TX, for U.S. Trustee.

Timothy L. Wentworth, Cage, Hill & Niehaus, LLP, Houston, TX, for Trustee.

MEMORANDUM OPINION REGARDING THE FIRST AND FINAL APPLICATION FOR COMPENSATION BY ATTORNEY FOR TRUSTEE, CAGE, HILL & NIEHAUS, L.L.P. FOR PERIOD MARCH 5, 2013 THROUGH NOVEMBER 2, 2015

[Doc. No. 133]

Jeff Bohm, United States Bankruptcy Judge

I. INTRODUCTION

In Matter of IFS Financial Corp., 803 F.3d 195, 209 (5th Cir.2015), a case involving a Chapter 7 trustee from the Southern District of Texas who improperly billed the estate for his family's hotel charges, the Fifth Circuit affirmed the ruling removing the trustee from all of his cases due to his misconduct. In the last paragraph of its opinion, the Fifth Circuit issued a telling reminder about a trial court's duty to preserve the integrity of the judicial system:

The district courts and in turn the bankruptcy courts are the keepers of the temple. These courts rely on the bar to abide by its strict rules and norms of conduct. Bankruptcy practice presents many tasks attended and girded by strict identity of duty and diligence by its officers. The courts below were only minding their role: not to end, but to redirect a distinguished presence at the bar, and to give sustenance to necessarily demanding norms of practice. That this is expected does not diminish its importance.

Id.

Now before this Court is a final fee application of a law firm which has been representing one of the Southern District of Texas's other panel Chapter 7 trustees. This application comes from the law firm where the Chapter 7 trustee is a name partner. In assessing this application, it is painfully apparent that this trustee, just like the trustee in IFS Financial, has failed to abide by the strict rules and norms of the bankruptcy system regarding what can be billed to the estate. Stated differently, he has violated his fiduciary duty to the creditors in this case by allowing his firm to seek illegitimate fees from the estate. In complying with its duty to be a "keeper of the temple of justice," this Court will now take steps to minimize the chances of future violations of this fiduciary duty. The Court writes this Memorandum Opinion to put all Chapter 7 trustees in the Southern District of Texas on notice that this Court will require more diligence on their part in supervising what services their own law firms should bill to the estate.¹

Pursuant to Federal Bankruptcy Rules 9014and 7052, this Court now issues the following Findings of Fact and Conclusions of Law.² To the extent that any Finding of Fact is construed to be a Conclusion of Law, it is adopted as such. To the extent that any Conclusion of Law is construed to be a Finding of Fact, it is adopted as such. The Court reserves the right to make any additional Findings and Conclusions as may be necessary or as requested by any party. For the reasons set forth herein, the Court approves $42,140.75 of the requested fees (including the fees for preparing the Fee Application), and $3,712.26 of the requested expenses; and disapproves $81,141.50 of the requested fees and $847.77 of the requested expenses.

II. PROCEDURAL HISTORY

1. On November 16, 2015, the law firm of Cage, Hill & Niehaus L.L.P. (the "Applicant ") filed its First and Final Application for Compensation by Attorney for Trustee, Cage, Hill & Niehaus, L.L.P. for Period March 5, 2013 through November 2, 2015 (the "Fee Application "). [Doc. No. 133]. The Fee Application seeks approval for fees of $123,282.25 and reimbursement of expenses totaling $4,560.03—resulting in an aggregate amount of $127,842.28. [See id. ]. The services described in the Fee Application relate to the Applicant's representation of Joseph M. Hill, who is the Chapter 7 trustee (the "Trustee ") in this case. The Trustee is also a name partner of the Applicant.

2. On December 7, 2015, Western Surety Company ("Western Surety "), the largest unsecured creditor in this case, filed its Response and Limited Objection to the Fee Application, wherein it objected to the Applicant's requested fees as being "excessive and as not benefitting the Estate." [Doc. No. 136, p. 1 of 5]. Moreover, Western Surety has objected to the Applicant seeking fees for services that Western Surety contends are tasks "that are part of the ordinary duties of a trustee and therefore, not compensable." [Id., p. 5 of 5].

3. On January 28, 2016, this Court held a hearing on the Fee Application. After listening to testimony and admitting exhibits, the Court heard closing arguments from the parties and then took the matter under advisement.

4. On January 29, 2016, the Applicant filed a post-hearing Brief in Support of the Fee Application. [Doc. No. 145]. The post-hearing brief concerned an issue that arose at the hearing: namely, whether the Trustee, after being requested to do so by Western Surety, should have dismissed the objection to discharge that it had filed against the Debtor in order for the estate to avoid incurring legal fees in prosecuting this cause of action. [Id. ].

5. On February 2, 2016, Western Surety filed a response to the brief filed by the Applicant. [Doc. No. 146]. This response cited case law and focused significantly on arguing that the Applicant is seeking fees for services that are non-compensable because they fall within the ordinary duties that the Trustee has under § 704(a). [Id. ].

6. On February 8, 2016, the Applicant filed its Supplemental Brief in Support of the Fee Application. [Doc. No. 147]. This supplemental brief primarily focused on correcting certain statements made by Western Surety in its response of February 2, 2016.

III. FINDINGS OF FACT

A. Filing of the Chapter 7 Petition and Appointment of the Trustee

1. On January 24, 2013, Raquel Tricia King (the "Debtor ") filed a voluntary Chapter 7 petition. [Doc. No. 1].

2. On January 25, 2013, the Trustee was appointed in this case. [See Doc. No. 8]. According to the resume that the Applicant submitted when seeking approval to represent the Trustee, the Trustee has been practicing law in the State of Texas since 1976; has been serving as a bankruptcy trustee since 1976; has administered thousands of Chapter 7 cases; and is often hired by other lawyers to handle complex bankruptcy matters. He is board-certified in business bankruptcy by the Texas Board of Legal Specialization and the American Board of Certification. [Doc. No. 25, p. 17 of 19].

B. Retention of Cage, Hill & Niehaus (i.e., the Applicant) as Counsel for the Trustee

3. On March 20, 2013, the Trustee filed his Application for Retention of Counsel for the Trustee (the "Original Application to Employ "). [Doc. No. 18]. The Original Application to Employ requested this Court to approve the Trustee's retention of his own law firm (Cage, Hill & Neihaus, LLP) to represent him in this case.

4. On April 15, 2013, the Trustee filed his Amended Application for Retention of Counsel for the Trustee (the "Amended Application to Employ "). [Doc. No. 25]. In the Amended Application to Employ, in footnote number 1, the Trustee made the following representation to the Court: "The initial review and assessment of claims filed in the debtors' cases is routinely undertaken by the trustee or his paralegals and law clerks without incurring legal fees." [Id., p. 5].

5. On April 24, 2013, this Court entered an order granting the Amended Application to Employ. [Doc. No. 30].

6. On January 7, 2015, the Trustee filed his Second Amended Application for Retention of Counsel for the Trustee (the "Second Amended Application to Employ "). [Doc. No. 86]. The Trustee filed the Second Amended Application in order to obtain approval to add Sean Wilson as an additional attorney to provide services to the Trustee in this case. [Id., p. 12 of 14]. Once again, in the Second Amended Application to Employ, in footnote number 1, the Trustee made the following representation to the Court: "The initial review and assessment of claims filed in the debtors' cases is routinely undertaken by the trustee or his paralegals and law clerks without incurring legal fees." [Id., p. 5].

7. On February 19, 2015, this Court entered an order approving the Second Amended Application to Employ. [Doc. No. 94].

C. Liquidation of Assets of the Estate

8. The Trustee has been able to recover approximately $191,000.00 for the estate. Approximately $179,000.00 was generated from the sale of certain real property located in Flatonia, Texas (the "Ranch "). [Doc. Nos. 116 & 120]. Approximately $8,000.00 was generated from the Debtor's turning over to the Trustee her tax refund. [Hr'g Tr. 36:19–20, Jan. 28, 2016]. Finally, another $4,000.00 was generated from the Debtor's payment for exempting certain personal assets (i.e., jewelry). [Hr'g Tr. 10:20–23; 36:20–21, Jan. 28, 2016].

D. The Trustee's Objection to Discharge

9. On June 21, 2013, the Applicant, on behalf of the Trustee, filed a complaint objecting to the Debtor's discharge (the "Objection to Discharge "), thereby initiating Adversary Proceeding No. 13–03142. [Doc. No. 58]; [Adv. Proc. No. 13–03142, Adv. Doc. No. 1].

10. On July 2, 2014, after holding a trial on the Objection to Discharge, this Court entered a Judgment of Non–Dischargeability with respect to Adversary Proceeding No. 13–03142, wherein the Court denied the Debtor her discharge. [Doc. No. 85]; [Adv.

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