In re Living Hope Se., LLC

• Decision Date: 21 March 2014
• Docket Number: No. 4:12–bk–11082.,4:12–bk–11082.
• Citation: 509 B.R. 629
• Court: U.S. Bankruptcy Court — Eastern District of Arkansas
• Parties: In re LIVING HOPE SOUTHEAST, LLC, Debtor.

509 B.R. 629

In re LIVING HOPE SOUTHEAST, LLC, Debtor.

No. 4:12–bk–11082.

United States Bankruptcy Court,

E.D. Arkansas,

Little Rock Division.

Signed March 21, 2014.

Jeannette A. Robertson, Robertson Law Firm, Jonesboro, AR, for Debtor.

Robert W. Miller, Fred C. Statum, III, Justin Damon Wear, Michael E. Collins, Manier & Herod, Nashville, TN, for Trustee.

ORDER APPROVING FEE APPLICATION

AUDREY R. EVANS, Bankruptcy Judge.

On October 2, 2013, the Court heard the Amended Final Application for Payment of Attorneys' Fees and Reimbursement of Expenses filed by Smith, Akins & Gladden, P.A. (“Smith Akins”) (Dkt. # 250) (the “Fee Application”) which amended the Final Application for Compensation for Payment of Attorneys' Fees and Reimbursement of Expenses filed by Smith, Akins & Gladden, P.A. (Dkt. # 247). The Court also heard the following: an Objection to Amended and Final Application for Payment of Attorneys' Fees and Reimbursement of Expenses filed by David Kimbro Stephens ¹ on behalf of the A.K. Tennessee Irrevocable Trust (the “A.K. Trust”) (Dkt. # 284); the Objection to Amended Final Application for Payments of Attorneys' Fees and Reimbursement of Expenses filed by Judy Simmons Henry on behalf of James J. Naples (Dkt. # 285) who is the successor-in-interest to Pinewood Enterprises, L.C. (“Pinewood”); ² a Response to Objection of A.K. Tennessee Irrevocable Trust to Fee Application filed by Smith Akins (Dkt. # 303); the Response to Objection of Naples to Fee Application filed by Smith Akins (Dkt. # 304); and the A.K. Tennessee Irrevocable Trust Response to Applicant's Response to Objection to Fee Application filed by David Kimbro Stephens on behalf of the A.K. Trust (Dkt. # 336). At the October 2, 2013 hearing (the “Fee Hearing”), Jim Smith, Allison Gladden, Kimberley Woodyard, and Denise Hoggard appeared on behalf of Smith Akins; Judy Simmons Henry and Charles T. Coleman appeared on behalf of James Naples; Kimbro Stephens appeared on behalf of the A.K. Trust; Michael E. Collins, the Chapter 11 Trustee, appeared on his own behalf; and Charles Tucker appeared on behalf of the United States Trustee. At the close of evidence, the Court took the matter under advisement.

The proceeding before the Court is a core proceeding pursuant to 28 U.S.C.A. § 157(b)(2)(A). The Court has jurisdiction to enter a final judgment in the case. This memorandum constitutes the Court's findings of fact and conclusions of law. Fed. R. Bankr.P. 7052; 9014.

INTRODUCTION

The factual background and history of this Chapter 11 Debtor, as well as certain related entities and individuals, has been described extensively in the Addendum to: Order Granting Motions to Appoint Trustee (Dkt. # 293) entered on July 9, 2013 (the “Addendum”) and other orders and opinions entered in this case.³ The Court will not repeat that background here except to provide necessary context for the objections raised to the Fee Application.

The Debtor, Living Hope Southeast, LLC, filed bankruptcy on February 27, 2012, to continue operating while managing litigation in other forums. Smith Akins was approved to represent the Debtor effective June 13, 2012, the date of Smith Akins' application to be hired. See Order Approving Application to Employ Attorney entered on October 4, 2012 (Dkt. # 60). Smith Akins was hired over the objection of Pinewood after a two-day hearing held July 26–27, 2012. ⁴ As described more thoroughly in the Addendum, tensions arose between Debtor's counsel and certain parties attempting to control the Debtor in late 2012 and early 2013. The friction culminated in those parties—specifically, Kimbro,⁵ and a board created to control the Debtor consisting of Greg Stephens (Kimbro's brother), Steve Ward (Kimbro and Greg's uncle), and Ken Stephens (Kimbro and Greg's father)—attempting to terminate Smith Akins as counsel during a trial held before the Honorable James G. Mixon in a related adversary proceeding against the Debtor brought by Renee Williams, trustee of the Living Hope Southwest Medical Svcs, LLC Chapter 7 bankruptcy case (the “Southwest Trustee”). Williams v. Living Hope Southeast ( In re Living Hope Southwest ), No. 4:09–ap–7023 (the “Southwest AP”). Judge Mixon did not allow Smith Akins to withdraw as counsel during the trial but later granted its motion to withdraw as counsel for the Debtor in the Southwest AP. These same events—the purported creation of a board for the Debtor, the firing of Smith Akins, and other actions taken by Kimbro and his brother Greg—led to motions to appoint a Chapter 11 Trustee for the Debtor in late January and early February 2013.

During this same time period, Pinewood filed a Motion for Leave to File Complaint on January 28, 2013, which sought permission under the Barton doctrine to file a complaint in U.S. District Court against Smith and his law firm (the “Barton Action”); Pinewood disclosed that it was simultaneously seeking leave from Judge Mixon to file the same complaint against the Southwest Trustee and her counsel. The Barton doctrine requires a party to obtain leave of the bankruptcy court that appointed a trustee before suing the trustee or the trustee's attorney in another forum for acts done in the trustee's authority as an officer of the court.⁶ The Barton Action (which could not be filed unless the Court granted leave) asserted the following causes of action against Smith, the Southwest Trustee, and Tom Streetman (the Southwest Trustee's counsel), personally, in connection with their handling of the Southwest AP settlement and trial: (1) abuse of process; (2) conspiracy; (3) breach of fiduciary duty and waste; and (4) malicious prosecution and abuse of process. Smith hired private counsel to represent him and his firm. The motion for leave to file the complaint against Smith and his firm was set for hearing for February 14, 2013, but was orally withdrawn during the hearing to appoint a trustee held February 14, 2013, when it became evident that Naples's actions in personally suing a trustee, her attorney, and the DIP's counsel (for actions taken as attorneys and/or fiduciaries) were offensive to the Court because the Court viewed the Barton Action as an unprofessional, unacceptable trial strategy. The withdrawal of the motion for leave was subsequently documented by an order entered in this case on February 19, 2013.

On January 29, 2013, the day before the scheduled hearing on a Motion to Appoint a Trustee, the Debtor sought to substitute Jeannette Robertson for Smith Akins as Debtor's counsel (Dkt. # 148). Citing irreconcilable differences with the Debtor, principals of the Debtor, and persons purporting to be principals of the Debtor, Smith moved to withdraw as counsel on February 4, 2013 (Dkt. # 158). The Court did not allow the substitution of Robertson for Smith Akins pending its decision on the appointment of a trustee.⁷ Hearings on the motions to appoint a trustee took place on February 14, February 18, March 8, and March 11 of 2013 (the “Trustee Appointment Hearings”). On April 19, 2013, the Court granted motions to appoint a Chapter 11 Trustee, and on May 2, 2013, the Court ordered the appointment of Michael E. Collins as the Trustee of the Debtor (the “Southeast Trustee”).⁸ In both the Addendum and the Court's April 19, 2013 Order Granting the Motions to Appoint a Trustee, the Court found the Debtor—through its purported board—terminated Smith because he honored his duty to the bankruptcy estate and its creditors as the Debtor's counsel rather than take instructions from individuals seeking to benefit the Stephens family. Despite Smith's efforts to withdraw, an order allowing Smith Akins to withdraw as the Debtor's attorney was not entered until June 21, 2013 (Dkt. # 269). As a consequence, Smith served as Debtor's counsel for four months under economically risky and professionally untenable circumstances.⁹

The Fee Application seeks reimbursement of attorneys' fees and expenses incurred by Smith Akins, as counsel for the Debtor-in-possession, for the period from November 1, 2012, to June 7, 2013.¹⁰ The Fee Application originally requested fees in the amount of $57,787.90 and costs of $94.13 for a total of $57, 882.03. Because the U.S. Trustee objected Smith Akins agreed to reduce those fees by $10,250; the reduction included fees for having multiple attorneys present on the second, third, and fourth days of the Trustee Appointment Hearings.¹¹See Dkt. # 283. The U.S. Trustee and Southeast Trustee do not object to the Debtor's Fee Application as reduced by the agreement with the U.S. Trustee. The application ultimately sought only compensation for those entries which survived the scrutiny of the U.S. Trustee and the Southwest Trustee (a creditor) after applying the legal standard provided by 11 U.S.C. § 330(a). However, the A.K. Trust, represented by Kimbro,¹² and Naples, Pinewood's successor-in-interest, object to the Fee Application despite the agreed upon reduction. As explained herein, the Court finds those objections to be without merit and approves the Fee Application as reduced by agreement with the U.S. Trustee.

LEGAL STANDARD

An attorney approved to represent a debtor-in-possession (the “DIP”) pursuant to 11 U.S.C. § 327 is allowed reasonable compensation under 11 U.S.C. § 330(a). In relevant part, § 330(a) provides:

(1) After notice to the parties in interest and the United States Trustee and a hearing, and subject to sections 326, 328, and 329, the court may award to ... a professional person employed under section 327 or 1103–

(A) reasonable compensation for actual, necessary services rendered by the ... professional person, or attorney and by any paraprofessional person employed by any such person; and

(B) reimbursement for actual, necessary expenses.

(2) The court may, on its own motion or on the motion of the United States Trustee,the United States Trustee for the District or Region, the trustee for the estate, or any other party in interest, award...