In re Kula
| Decision Date | 31 October 1997 |
| Docket Number | BAP No. 97-6014NE. |
| Citation | 213 BR 729 |
| Parties | In re Edward James KULA, Debtor. Eugene CHAMBERLAIN, Trust-Appellant, v. Edward James KULA, Debtor-Appellee, Community First State Bank, f/k/a The Abbott Banks, Creditor-Appellee. |
| Court | U.S. Bankruptcy Appellate Panel, Eighth Circuit |
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Christopher J. Connolly, Wayne, NE, for appellant.
Jerrold Lee Strasheim, Omaha, NE, for appellee.
Before KOGER, WILLIAM A. HILL and DREHER, Bankruptcy Judges.
Eugene Chamberlain ("Chamberlain") appeals the decision by the bankruptcy court in which Chamberlain was ordered to disgorge a portion of the interim fees he had received as the "liquidating agent" under a confirmed Chapter 11 liquidating plan. Although the order finally allowed Chamberlain $46,450.11 in fees and expenses, Chamberlain appeals the order because, not only was it less than he had requested, it was $26,646.87 less than had already been paid on an interim basis. Appellee, Community First State Bank, f/k/a/ Guardian State Bank ("Community First State Bank"), is the debtor's largest unsecured creditor, holding a claim of just under $500,000 which represents about 90% of the total unsecured claims. The debtor, Edward James Kula ("Kula"), filed a "letter brief" but did not address the issue of Chamberlain's fees.
We have jurisdiction to hear this appeal pursuant to 28 U.S.C. § 158(b) and (c).
Kula filed his Chapter 11 petition in 1986. Prior to the Chapter 11 plan being confirmed, Chamberlain had acted as examiner in this case and was compensated for his services in that regard. That compensation is not a subject in this appeal. The Chapter 11 plan, a creditor's liquidating plan, was confirmed in February, 1987, wherein Chamberlain was appointed as a liquidating agent with "all of the rights and powers of an examiner under Chapter 11 of the Bankruptcy Code, and all of the rights and powers of a trustee under Title 11, United States Code, pursuant to the authority of 11 U.S.C. section 1106(b)." The plan provided for Chamberlain to manage Kula's farm and ranch on an interim basis during the liquidation and to sell Kula's assets as necessary to pay the allowed claims. The plan of liquidation did not address Chamberlain's compensation for his role in liquidating the estate.
For the first few months following Chamberlain's appointment under the plan, Kula and Community First State Bank were negotiating a possible restructuring on loans which would have allowed Kula to dismiss the bankruptcy, so Chamberlain did not conduct an inventory or begin his liquidation at that time. In June of 1987, however, Kula was voluntarily admitted to a hospital for treatment of a mental problem. At that time, Chamberlain assumed control of Kula's farming and ranching operations, and, although Kula was released from the hospital in late August, 1987, Chamberlain remained in control of the management of the farming and ranching operations throughout the rest of the bankruptcy case. In addition, while Kula was in the hospital, Chamberlain began to undertake the liquidation of Kula's assets. Although he had not yet taken an inventory of the contents of Kula's two residences, Chamberlain authorized two or three of Kula's "friends" to enter Kula's residences for the purpose of removing all of Kula's personal property worth $200.00 or less per item. These items were to be kept for Kula and his children as "exemptions." Anything thought to be worth more than $200.00 was to be stored until it could be sold at auction. Beginning in September, 1987, when the first auction of Kula's personal property was conducted, and throughout the ensuing liquidation process, Kula alleged that Chamberlain was improperly administering and liquidating the estate in several respects. Chamberlain responded to the allegations with general denials.
After Chamberlain filed his Final Report on August 3, 1990, Kula objected, again alleging wrongdoing on Chamberlain's part, including that Chamberlain had not accounted for some of the property of the estate, that some of his property had been unlawfully taken, that Chamberlain had failed to pursue claims of the estate, and that redundant payments were made to certain creditors. Chamberlain continued to deny all of Kula's allegations, and pursuant to court order, filed an Amended Final Report which was again objected to by Kula. The bankruptcy court tried three times to schedule a trial on the Amended Final Report and Kula's objections, but ultimately concluded that Kula was not competent to try the case. As a result, the bankruptcy court decided it was in the best interest of the bankruptcy estate to appoint an independent third party to investigate Kula's allegations and to report his findings to the court.
Thus, on July 29, 1994, pursuant to § 105, the bankruptcy court appointed an independent examiner, Michael Snyder, to investigate Chamberlain's administration and liquidation of the estate. Among other things, Snyder was particularly directed to investigate the existence and whereabouts of certain substantial items of personal property which Kula had maintained were "stolen" from him while he was in the hospital in the Summer of 1987. Specifically, Kula alleged certain people had taken, among other things, a saddle and spur collection, a china and porcelain collection, pianos, an antique pipe organ, a diamond ring, vehicles, horses, cattle, farm equipment, and cash which he had hidden in his residences.
Snyder conducted a thorough investigation and submitted his conclusions (a report and supplemental report which were filed with the court in November and December, 1994) which mentioned several irregularities in regard to Kula's property. Although Snyder was able to uncover little hard evidence as to exactly what property was taken and by whom, he was convinced that many of Kula's allegations were well-founded and that property of substantial value had been taken prior to Chamberlain's inventory of the personal property. For example, Snyder was convinced that prior to Kula's June, 1987 hospitalization, he had a china collection valued at $100,000 to $200,000. By the time Chamberlain conducted his inventory of the personal property, which was after he authorized its removal, the entire collection was missing. As a result, and because Kula did not list any valuable property in his schedules nor did he mention it at the § 341 meeting, Chamberlain did not even know these items had existed.1
Snyder noted concern that Chamberlain waited some five months after he was appointed in February of 1987 before he actually took possession of the assets in June of 1987 and emphasized the fact that Chamberlain had not inventoried the contents of Kula's residences prior to authorizing the removal of personal property items. The examiner further commented that the events alleged by Kula, in large part, took place between February, 1987 and August, 1987, the period of time between Chamberlain's appointment and the inventory of the assets.
Based on Snyder's conclusions, the court ordered Kula to file a list of all the property he believed constituted property of the estate as of the date the plan was confirmed. Chamberlain was then to declare his intention as to each of those items. Although Kula failed to file such a list, Chamberlain responded to the court's order by filing a motion to abandon all of the property that had not been administered (which would include the allegedly missing property). Because there were no objections to Chamberlain's motion to abandon the property, the court granted the motion. Chamberlain made no effort to recover the missing property or to identify who had taken it; rather, he simply abandoned it because he thought that any effort to recover the missing property would not be cost-efficient or would be entirely futile. Meanwhile, Chamberlain tried three times to close the case, but because of the irregularities, the case could not be closed.
Chamberlain eventually filed an Application for Final Compensation, requesting fees in the total amount of $89,673.75, of which he had already received interim compensation in the amount of $73,096.98. The bankruptcy court issued an order dated January 31, 1997, in which it concluded that some of the fees requested by Chamberlain were duplicative, that there was a factual basis for some of Kula's allegations, and that due to Chamberlain's inability or failure to respond to Kula's allegations, some of the fees were excessive. Therefore, the court disallowed some of the requested fees and ordered Chamberlain to disgorge the excess interim fees paid.
In calculating the appropriate compensation in its January 31, 1997 order, the court distinguished between services provided before and after the filing of Chamberlain's First Final Report on August 8, 1990, because by that date, the assets of the bankruptcy estate had already been fully administered by Chamberlain. The court noted that Chamberlain claimed he had worked some 498 hours between plan confirmation and the final report and he had worked 386.28 hours after he filed his final report.
As to the charges billed for the period before the final report, Chamberlain's billings included commissions of $28,523.71 and fees and expenses of $33,471.73, for a total of $61,995.45. The bankruptcy court concluded that this figure was unreasonable because it involved duplicative charges in that it was not appropriate for Chamberlain to be paid both a commission and an hourly rate for services performed. A trustee, the court noted, would not have been entitled to an hourly rate in addition to the percentage fee, so the court disallowed the commissions as duplicative. Without taking account of the number of hours or the rate charged, the court then found that balance, $33,471.73, was appropriate and customary compensation for a...
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