In re S. Mont. Elec. Generation & Transmission Coop., Inc., Case No. 11-62031-11

• Decision Date: 01 April 2014
• Docket Number: Case No. 11-62031-11
• Court: United States Bankruptcy Courts. Ninth Circuit. U.S. Bankruptcy Court — District of Montana
• Parties: In re SOUTHERN MONTANA ELECTRIC GENERATION AND TRANSMISSION COOPERATIVE, INC, Debtor.

In re SOUTHERN MONTANA ELECTRIC GENERATION

AND TRANSMISSION COOPERATIVE, INC, Debtor.

Case No. 11-62031-11

UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF MONTANA

FILED: April 1, 2014

MEMORANDUM of DECISION

At Butte in said District this 1^st day of April, 2014.

In this Chapter 11 bankruptcy, after due notice, a hearing was held March 11, 2014, in Billings on approval of three applications for fees and costs: (1) the Eighth Interim Application of Horowitz & Burnett, P.C. filed November 21, 2013, at docket no. 1154; (2) the Final Application of Horowitz & Burnett, P.C. for Professional Fees and Costs filed January 8, 2014, at docket no. 1234; and (3) the Eighth and Final Application of Lee A. Freeman, as Chapter 11 Trustee for Fees and Costs filed January 30, 2014, at docket no. 1254. John Cardinal Parks of Denver, Colorado, appeared at the hearing on behalf of Horowitz & Burnett, P.C., Harold V. Dye of Missoula, Montana, appeared at the hearing on behalf of the Unsecured Creditors' Committee, and Malcolm H. Goodrich of Billings, Montana, appeared at the hearing on behalf of the Debtor. The parties agreed at the hearing that the Court could consider estimates of Debtor's unencumbered cash, which estimates would not be binding upon any of the parties. Lee A. Freeman's Exhibits 1 through 8, Horowitz & Burnett, P.C.'s Exhibits 1 through 9, and Joint Exhibits 1 through 28 were admitted into evidence without objection. Lee A. Freeman, CarrieBoysun, and John Parks testified.

I. Eighth Interim Application of Horowitz & Burnett, P.C.

In their Eighth Interim Application, Horowitz & Burnett, P.C., counsel for the former Chapter 11 Trustee Lee A. Freeman, seeks approval of an award of fees in the amount of $303,820.50 and reimbursement of costs in the amount of $10,687.37 for services rendered and costs and expenses incurred from August 1, 2013 to October 31, 2013. Horowitz & Burnett, P.C.'s Eighth Interim Application is not opposed. Interim fee awards are specifically authorized by 11 U.S.C. § 331 which provides:

A trustee, an examiner, a debtor's attorney, or any professional person employed under section 327 or 1103 of this title may apply to the court not more than once every 120 days after an order for relief in a case under this title, or more often if the court permits, for such compensation for services rendered before the date of such an application or reimbursement for expenses incurred before such date as is provided under section 330 of this title. After notice and a hearing, the court may allow and disburse to such applicant such compensation or reimbursement.

This Court liberally allows interim payments under § 331 to alleviate economic hardship in protracted causes and thereby facilitate competent and efficient administration. After reviewing Horowitz & Burnett, P.C.'s Eighth Interim Application and attached billing records, and based upon the liberal policy under § 331, the Court awards the interim fees and costs requested, with final review and approval addressed separately in this Memorandum of Decision.

II. Final Application of Horowitz & Burnett, P.C. for Professional Fees and Costs.

In their Final Application for Professional Fees and Costs, Horowitz & Burnett, P.C., counsel for the former Chapter 11 Trustee Lee A. Freeman, makes its final application, seeking an aggregate final award in the amount of $2,458,418.76, which amount consists of (i) legal fees in the amount of $148,816.50 for services rendered from November 1, 2013 through December23, 2013; (ii) costs in the amount of $4,217.32 incurred by Horowitz & Burnett, P.C. during the Last Interim Application Period; (iii) legal fees in the amount of $303,820.50 and costs in the amount of $10,687.37 for services rendered, and costs incurred, respectively, from August 1, 2013 through October 31, 2013, which fees and costs are subject to the pending eighth interim fee application filed by Horowitz & Burnett, P.C. (which were approved above); (vi) legal fees in the amount of $765 that had been previously disallowed on an interim basis;¹ and (v) a final award of amounts previously awarded to Horowitz & Burnett, P.C. on an interim basis in the amount of $1,990,112.07 (for services rendered and costs incurred from December 4, 2011, through and including July 31, 2013). Horowitz & Burnett, P.C. has already received $2,259,790.62 of the amount requested. The Unsecured Creditors' Committee does not object to approval of the fees and costs billed by Horowitz & Burnett, P.C. prior to June 28, 2013, but argues that the fees and costs sought by Horowitz & Burnett, P.C. after that date should be disallowed or substantially reduced on grounds that after June 28, 2013, Horowitz & Burnett, P.C. "ceased to act as the honest brokers bringing the disparate parties in this case to consensus (or failing that to propose what they considered the best plan for all parties in their professional judgment) but acted as an unrestrained advocate for one creditor group - the Noteholders." Energy West Montana and Energy West Resources, Inc. filed a Declaration stating they do not oppose the allowance of the requested fees, but noting that payment of allowed compensation could present a problem for the Debtor given its unencumbered cash position and the pending request for allowance and payment of administrative expenses of Energy West Montana for$1,278,733.16 and Energy West Resources for $1,014,573.72 [Docket no. 1219] and the expectations of the debtor-in-possession's counsel and co-counsel that they will be paid going forward [Docket no. 1240] pursuant to the original interim compensation order [Docket no. 210]. Debtor remains neutral on the fee issue, and only asks that approval of the Final Applications in this Memorandum of Decision not become an encumbered versus unencumbered asset issue.²

As the parties recognized at the hearing, this Court has an independent obligation to review each application to evaluate the propriety of the compensation requested. Law Offices of David A. Boone v. Derham-Burk (In re Eliapo), 298 B.R. 392, 402 (9^th Cir. BAP 2003 (Eliapo I), rev'd in part on other grounds, 468 F.3d 592 (9^th Cir. 2006); In re Busy Beaver Bldg. Ctrs., Inc., 19 F.3d 833, 841 (3^rd Cir. 1994); In re Wildman, 72 B.R. 700, 701 (Bankr. N.D. Ill. 1987). In Busy Beaver, the court explained:

[T]he integrity of the bankruptcy system . . . is at stake in the issue of a bankruptcy judge's performance of the duty to review fee applications sua sponte. The public expects, and has a right to expect, that an order of a court is a judge's certification that the result is proper and justified under the law.... Nothing better serves to allay [public perceptions that high professional fees unduly drive up bankruptcy costs] than the recognition that a bankruptcy judge, before a fee application is approved, is obliged to [review it carefully] and find it personally acceptable, irrespective of the (always welcomed) observation of the [United States trustee] or other interested parties.

Busy Beaver, 19 F.3d at 841 (quoting In re Evans, 153 B.R. 960, 968 (Bankr. E.D.Pa 1993)).

Thus, this Court has an independent obligation to review each application to ensure that applicants provide an adequate summary of work performed and costs incurred. Extensive case law has developed regarding the amount and type of information that applicants must include intheir fee applications. The case of In re WRB-West Assocs., 9 Mont. B.R. 17, 18-20 (Bankr. D. Mont. 1990) summarizes thus:

Pursuant to 11 U.S.C. §§ 327-330 and Bankruptcy Rules 2016 and 2017, this Court has an independent judicial responsibility to evaluate fees requested from the estate. In re S.T.N. Enterprises, Inc., 70 B.R. 823, 831 (Bankr. Vt. 1987); In re Seneca Oil Co., 65 B.R. 902 (Bankr. W.D. Okla. 1986); In re Frontier Airlines, Inc., 74 B.R. 973 (Bankr. Colo. 1987). The burden of proof to show entitlement to all fees requested from the estate is on the applicant. In re Lindberg Products, Inc., 50 B.R. 220, 221 (Bankr. N.D. Ill. 1985). This burden is not to be taken lightly, especially given the fact that every dollar expended on fees results in a dollar less for distribution to creditors of the estate. In re Yankton College, 101 B.R. 151, 158 (Bankr. S.D. 1989); In re Pettibone Corp., 74 B.R. 293, 305 (Bankr. N.D. Ill. 1987). All expenses and fees must be shown as both actual and necessary under § [330(a)(3)] of the Code. S.T.N., 70 B.R. at 834; Yankton College, 101 B.R. at 158; Seneca Oil, 65 B.R. at 912. Moreover, In re Convent Guardian Corp., 103 B.R. 937, 939-940 (Bankr. N.D. Ill. 1989) holds:

Bankruptcy Rule 2016 provides that "[a]n entity seeking interim or final compensation for services, or reimbursement of necessary expenses, from the estate shall file with the court an application setting forth a detailed statement of (1) the services rendered, time expended and expenses incurred, and (2) the amounts requested." (emphasis added) The Application should contain a detailed list of expenses including the date, the type and the amount. Expenses must be actual not estimates. In re Wildman, 72 B.R. 700, 731 (Bankr. N.D. Ill. 1987); In re Marsh, 14 B.R. 615, 617 (Bankr. E.D. Va. 1981). An expense is necessary if it is incurred because it was reasonably needed to accomplish the proper representation of the client. Wildman, 72 B.R. at 731.

The above excerpt demonstrates that this Court is obligated to review each request for fees and costs to determine whether the applicant provided:

1. a description of the services provided, setting forth, at a minimum, the parties involved and the nature and purpose of each task;

2. the date each service was provided;

3. the amount of time spent performing each task; and

4. the amount of fees requested for performing each task.

Attached to Horowitz & Burnett, P.C.'s First Interim Application filed February 29, 2012, at docket no. 291 are billing invoices for services performed ($204,388.00) and costs incurred ($10,6...