In re Miller Auto. Grp., Inc.
| Decision Date | 24 October 2014 |
| Docket Number | No. 13–20027–DRD–11.,13–20027–DRD–11. |
| Citation | 521 B.R. 323 |
| Court | U.S. Bankruptcy Court — Western District of Missouri |
| Parties | In re MILLER AUTOMOTIVE GROUP, INC. f/k/a Miller Chrysler Dodge Jeep, Debtor. |
OPINION TEXT STARTS HERE
Robert K. Ball II, Kansas City, MO, for Debtor.
Adam E. Miller, Office of the United States Trustee, Kansas City, MO, for U.S. Trustee.
Two matters are before this Court: 1) the Final Application of Attorneys for Debtor for Fee Allowance and Reimbursement of Costs (the “Fee Application”) filed by William L. Needler and Associates, Ltd. (individually, “Needler”), and 2) the Motion for the Examination and Disgorgement of Fees Paid to William L. Needler and for the Imposition of Sanctions (the “Motion”) filed by the United States Trustee (the “Trustee”). This is a core proceeding under 28 U.S.C. § 157(b)(2)(A) over which the Court has jurisdiction pursuant to 28 U.S.C. §§ 1334(b), 157(a) and (b)(1). For the reasons set forth below, the Court denies Needler's request for the allowance of fees and reimbursement of costs, and grants the Trustee's Motion.
Miller Automotive Group, Inc. (the “Debtor”) held the franchise from Chrysler Corporation (“Chrysler”) granting it the right to sell and service Chrysler, Dodge, Ram and Jeep vehicles as a factory dealer. The dealership was run by David Miller as general manager, and his wife, Gloria Miller, as office manager. On January 11, 2013, the Debtor filed its voluntary petition under Chapter 11. Days later, the Debtor filed an application to employ Needler as its attorney. Needler reported in his Disclosure of Compensation (“Rule 2016 Disclosure”) that he had been paid a pre-petition retainer of $8,000 (the “Retainer”). Over the Trustee's objection, the Court authorized Needler's employment with the caveat that his fees would be carefully scrutinized.
As part of the first day motions, Needler sought the Court's approval to employ Chad Gutschow (“Gutschow”), a broker who had worked with the Debtor pre-petition to sell the dealership's assets. The Trustee objected to the employment, citing “significant connections” between Gutschow and Needler that were undisclosed. Needler subsequently withdrew the application to employ Gutschow.
The Debtor filed a Chapter 11 Plan (the “Plan”) shortly after the petition date, but the Court was unable to consider it because it lacked a disclosure statement. The Debtor also filed a motion to use cash collateral (the “Cash Collateral Motion”); the Court denied it without prejudice primarily on the grounds that the financial information on which the Cash Collateral Motion was based was unreliable. Immediately after the decision was handed down, Needler filed an Emergency Motion to Withdraw the Reference to the United States District Court. That motion was denied.
In February, 2013, the two largest creditors of the Debtor filed motions for relief from the automatic stay: Ally Financial Inc. (“Ally”) to foreclose its security interest against the Debtor's vehicles and other collateral, and Chrysler Group LLC (“Chrysler”) to terminate certain sales and service agreements. Both motions were set for hearing, but in the interim, the Debtor filed its motion to dismiss the case. Ally's motion was subsequently granted and Chrysler's was granted in part.
An Order granting the dismissal motion was entered in April, 2013, and the case was closed. The Trustee sought to reopen the case to seek a determination of the reasonableness of the Debtor's attorney's fees, and the motion to reopen was granted. Needler's fee application along with this Motion followed.1
The Bankruptcy Code provides a framework for evaluating the appropriateness of professional fees. Section § 329(b) authorizes the court to examine the reasonableness of a debtor's attorney's fees and, if such compensation exceeds the reasonable value of the services rendered, the court may order the return of any payment made, to the extent excessive. This statute allows the court sua sponte to regulate attorneys who seem to have charged debtors excessive fees, and is aimed at preventing overreaching by a debtor's attorney. In re Zepecki, 258 B.R. 719, 725 (8th Cir. BAP 2001). The decision to reduce fees under § 329 is within the sound discretion of the bankruptcy court. In re Sullivan's Jewelry, Inc., 226 B.R. 624, 627 (8th Cir. BAP 1998), citing In re Coones Ranch, 7 F.3d 740, 744 (8th Cir.1993).
Section 330(a) provides that in determining the amount of reasonable compensation, the court shall consider the nature, the extent, and the value of such services, taking into account all relevant factors, including whether the professional has demonstrated skill and experience in the bankruptcy field. It provides further that the court shall not allow compensation for services that were not “reasonably likely to benefit the debtor's estate....” 11 U.S.C. § 330(a)(4)(A)(ii)(I). The attorney seeking compensation bears the burden of proving entitlement to all fees and expenses requested. In re Kula, 213 B.R. 729, 736 (8th Cir. BAP 1997). This burden is not to be taken lightly given that every dollar expended on legal fees results in a dollar less that is available for distribution to the creditors. In re Ulrich, 517 B.R. 77 (Bankr.E.D.Mich.2014) (citations omitted).
A bankruptcy court does not determine the reasonableness of an attorney'srequested compensation through hindsight. The Bankruptcy Code requires only that the services in question had the reasonable likelihood of benefiting the estate at the time they were provided, not that they actually did provide a benefit. In re Blue Stone Real Estate, 487 B.R. 573, 577 (Bankr.M.D.Fla.2013). The court must make this determination in an objective manner, making sufficient factual findings, on the record, on which to base its decision. In re Ahead Communications Systems, Inc., 395 B.R. 512, 517 (D.Conn.2008).
The fact that the Chapter 11 plan was ultimately not confirmed does not, by itself, bar recovery of compensation for services performed in the reorganization case. In re American Metallurgical Products Co., Inc., 228 B.R. 146, 159 (Bankr.W.D.Pa.1998). The court in In re Jefsaba, Inc., 172 B.R. 786, 799 (Bankr.W.D.Pa.1994), explained the standard this way:
[W]e do not conclude that only successful actions may be compensated under § 330. To the contrary, so long as there was a reasonable chance of success which outweighed the cost in pursuing the action, the fees relating thereto are compensable. Moreover, professionals must often perform significant work in making the determination whether a particular course of action could be successful. Such services are also compensable so long as, at the outset, it was not clear that success was remote.
See also In re Kohl, 95 F.3d 713, 714 (8th Cir.1996)(fees may be denied when counsel should have realized that reorganization was not feasible); In re Crown Oil, Inc., 257 B.R. 531, 542 (Bankr.D.Mont.2000) (); In re Central Florida Metal Fabrication, Inc., 207 B.R. 742, 751 (Bankr.N.D.Fla.1997)(“If attorneys are not guarantors of the results in bankruptcy cases, they may not remain ostrich like and ignore the reality of a case crumbling about them.”) (citations omitted).
There is ample precedent for denying all compensation to an attorney for failure to provide value to the estate. In In re Spickelmier, 469 B.R. 903 (Bankr.D.Nev.2012), for example, the court ordered pursuant to § 329 that the debtor's attorney disgorge all monies paid by the debtor because “the work counsel performed for the Debtors in this case reflects a lack of competence and diligence that does not deserve to be compensated.” Id. at 914. The attorney initially filed a case for which the debtors were ineligible. The case was ultimately dismissed. The attorney then filed a motion for reconsideration, but failed to appear at the hearing. He also filed pleadings without citing any legal authority, and appeared at hearings unprepared. The court found that the reasonable value of his services was zero. See also In re Sullivan's Jewelry, Inc., 226 B.R. 624 (8th Cir. BAP 1998)(legal fees reduced to zero because debtor's attorney rendered services that benefitted debtor's insiders instead of the estate).
The Trustee takes the position that the services provided by Needler were of no benefit to the estate and, therefore, Needler should be denied all fees requested and be ordered to disgorge all fees received. The Court agrees. The record indicates that Needler not only failed to provide a benefit, but took actions that were detrimental to the Debtor and the estate.
From the very beginning, Needler caused the Debtor to incur unnecessary legal fees. Needler filed the initial petition naming Miller Chrysler Dodge, Inc. as Debtor. No such corporate entity exists. The Trustee brought this error to Needler'sattention, but he took no action to correct it. The Trustee was forced to file a motion to dismiss the case for ineligibility, and Needler ultimately filed an Amended Petition to reflect the corrected corporate name.
As the Trustee points out, Needler was unable to obtain a final order authorizing the Debtor's use of cash collateral. According to Mrs. Miller, Needler never advised her what the Debtor needed to prove in order to use cash collateral, nor did he review the projections she prepared to determine if they were feasible or accurate. In denying the Debtor's Cash Collateral Motion, the Court all but handed Needler a list of the documentation necessary to meet the Debtor's burden of proof, namely, accurate and reliable sales and expense projections. Needler ignored the Court's directive, and instead, filed a motion to withdraw the reference to the District Court. It was...
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