In re Sandpoint Cattle Co., Bankr. No.: 13–40219

• Court: United States Bankruptcy Courts. Eighth Circuit. U.S. Bankruptcy Court — District of Nebraska
• Writing for the Court: Shon Hastings, Judge, United States Bankruptcy Court, Sitting By Designation
• Citation: 556 B.R. 408
• Parties: In re: Sandpoint Cattle Company, LLC, Debtor.
• Decision Date: 28 July 2016
• Docket Number: Bankr. No.: 13–40219

556 B.R. 408

In re: Sandpoint Cattle Company, LLC, Debtor.

Bankr. No.: 13–40219

United States Bankruptcy Court, D. Nebraska.

Signed July 28, 2016

556 B.R. 412

Anna M. Bednar, Robert F. Craig, Craig/Bednar Law, Robert V. Ginn, Patrick Raymond Turner, Stinson Leonard Street LLP, Diana J. Vogt, Sherrets, Bruno & Vogt LLC, Omaha, NE, for Debtor.

MEMORANDUM AND ORDER APPROVING IN PART AND DISAPPROVING IN PART THE FINAL APPLICATION FOR ALLOWANCE OF COMPENSATION AND REIMBURSEMENT OF EXPENSES AND ORDERING PARTIAL DISGORGEMENT OF FEES

Shon Hastings, Judge, United States Bankruptcy Court, Sitting By Designation

Robert F. Craig, P.C., d/b/a Craig/Bednar Law, P.C. (“Craig/Bednar Law”)¹ filed a Final Application for Allowance of Compensation and Reimbursement of Expenses under 11 U.S.C. § 331 on August 27, 2014. Doc. 629. Craig/Bednar Law seeks an award of $519,736.20 in fees and $23,971.51 in costs. Id. at ¶ 8. It also filed an addendum to the fee application seeking $2,469.00 for the cost of preparing the fee application.

556 B.R. 413

In its application, Craig/Bednar Law represented that Sandpoint Trucking Company, LLC paid it a retainer of $25,000 on January 31, 2013. Various entities paid Craig/Bednar Law a total sum of $484,178.14 for legal fees and costs. Id. Specifically, Debtor Sandpoint Cattle Company, LLC paid $109,498.14, Clark A. Compher, Jr. advanced $309,680.00 for payment of legal fees and costs and Sandpoint Trucking Company advanced $65,000.00 for payment of legal fees and costs. Id. Craig/Bednar Law requests the Court approve an administrative expense in the amount of $546,176.71, from which Sandpoint will repay the advances from Compher and Sandpoint Trucking Company.

Sandpoint and Alger Cattle Company, LLC and Raymond and Mary D. Alger, as Trustees of the R. and M. Alger Family Trust (collectively, “Alger”), each filed an objection to the final application for fees and expenses. Doc. 640; Doc. 642. Compher and George Londos joined in Sandpoint's objection. Doc. 641. The Court consolidated trial of the final application for compensation and reimbursement of expenses with trial of Sandpoint's malpractice action against Robert Craig, Craig/Bednar Law and Anna Bednar in adversary proceeding 14–4052. Compher and Londos did not offer evidence or argue in support of their objection or joinder in Sandpoint's objection at the trial. Alger withdrew his objection on February 4, 2015. Doc. 764. The Court incorporates by reference the findings of fact and conclusions of law in its Memorandum and Order filed July 22, 2016 in adversary proceeding 14–4052. See Doc. 697.

I. Background

Craig/Bednar Law filed a Disclosure of Compensation of Attorney for Debtor on February 13, 2013. Doc. 13. In the disclosure, Craig/Bednar Law certified that it accepted $25,000 for services rendered on behalf of Sandpoint in contemplation of or in connection with the bankruptcy case, checking boxes indicating that the source of compensation was both “Debtor” and “Other (specify)—Unknown at this time.” Id. At the January 2016 trial, Compher testified that he paid the retainer.²

Sandpoint filed an application to employ Craig/Bednar Law on February 15, 2013. Doc. 21. In its application, Craig/Bednar Law represented: “Debtor has agreed to pay the actual fees and expenses incurred by the Firm from property of the estate as allowed by the Court and, potentially, from

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third parties.... The Firm received $25,000 from Debtor by way of wire transfer on the 31st day of January, 2013[.]” Id. at 4. The Court³ granted Sandpoint's application to employ Craig on February 28, 2013. Doc. 54.

Also on February 15, 2013, Sandpoint filed a Motion to Approve Procedures for Interim Compensation and Reimbursement of Professional Fees. Doc. 23. It sought entry of an administrative order establishing procedures for interim compensation and reimbursement of expenses on the following basis and subject to the following restrictions:

1. The professionals will provide monthly fee and expense statements to the parties entitled to service under Rule 2002(i) of the Rules of Bankruptcy Procedure including Debtor, the U.S. Trustee, counsel to the Creditors' Committee (if one is appointed), and those creditors and equity security holders who serve on the Debtor and file a request that all notices be mailed to them (the “Reviewing Parties”).

2. If none of the Reviewing Parties objects in writing filed with the Court within five (5) days of the mailing of the monthly fee and expense statement, then 80% of the professional fees for services rendered by such professional, and 100% of the professional's out-of-pocket expenses, shall be paid on a monthly basis.

3. If written objection is received and filed with the Court within five (5) days, then a hearing will be held to resolve the objection(s) to the monthly fee and expense statement, unless resolved by agreement prior thereto.

4. Once the 5–day time period passes without an objection being filed, or once an objection is resolved by agreement or by this Court, then payment of the allowed fees and expenses shall be due and payable.

5. The professionals shall not be paid unless the estate is current on post-petition taxes and Trustee's fees, and unless the estate is current on payments to post-petition creditors or has the financial capacity to make such payment.

6. The professionals shall file interim fee applications at 120–intervals [sic].

7. Upon the approval of such interim applications, the Trustee or Debtor shall pay the 20% hold-back to the professionals.

8. All payments will be subject to court approval of a final fee application filed by the professionals.

9. The professionals acknowledge that any order authorizing payment of fees and reimbursement of expenses under the conditions set out herein, or any others imposed by this Court, shall not constitute a waiver by the United States Trustee of any right to comment or to make objection(s) to any fees or expenses for which court approval is sought by professionals.

Id. The Court granted the motion on March 26, 2013. Doc. 90.

Pursuant to the procedures for interim compensation and reimbursement of expenses, Craig/Bednar Law filed a Declaration of Robert F. Craig in Support of March Legal Fees on April 19, 2013. Doc. 101. The next day Craig/Bednar Law filed statements of fees and expenses for February 2013 in the sum of $32,186 (Doc. 102)⁴ and for March 2013 in the sum of

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$44,335.51 ($43,020.60 for legal services and $1,314.91 for expenses) (Doc. 101–2; Doc. 103).

Alger objected to Craig/Bednar Law's attorney's fees and expenses, claiming that Sandpoint failed to serve “Debtor's Attorneys' Fees and Expenses for March 2013” on Alger's counsel in accordance with the Procedure for Interim Compensation and Reimbursement of Professional Fees approved by the Court. Doc. 100. Alger also complained that these procedures did not allow sufficient time for proper review of the fees or for comparison of the requested amount to the projections in the cash collateral plan. Doc. 95. In addition, Alger argued that the proposed legal fees and expenses Sandpoint requested for March 2013 exceeded Sandpoint's cash flow projections (Doc. 77–1) offered in support of its Second Motion for Use of Cash Collateral (Doc. 63) by 174 percent. Doc. 100. Alger explained that Sandpoint projected $25,500 in legal fees and expenses for March, but Craig/Bednar Law's fees and expenses totaled $44,335.51. Sandpoint did not amend its projections.

On April 24, 2013, the Court ordered:

Fees are allowed in the amount of $25,000.00 and expenses of $1,314.91 for March 2013. Th [sic] remainder of the request is deferred until reviewed after the 120 day filing and notice. The reason for the smaller amount at this time is the failure to serve the fee statement on counsel for Alger and the fact that the fee statement amount exceeded the budget.”

Doc. 104.

On May 3, 2013, Craig/Bednar Law filed a statement of fees and expenses for April 2013 in the sum of $11,072.98 ($10,835 for legal services and $237.98 for expenses). Doc. 110. Pursuant to procedures approved by the Court, 80 percent of fees ($8,668) and 100 percent of expenses ($237.98) became payable to Craig/Bednar Law absent any objection. No one filed an objection.

On June 3, 2013, Craig/Bednar Law filed a statement of fees and expenses for May 2013 in the sum of $30,704.78 ($30,484 for legal services and $220.78 for expenses). Doc. 117. Pursuant to procedures approved by the Court, 80 percent of fees ($24,387.20) and 100 percent of expenses ($220.78) became payable to Craig/Bednar Law absent any objection. No one filed an objection.

On July 2, 2013, Craig/Bednar Law filed a statement of fees and expenses for June 2013 in the sum of $29,493.67 ($28,208 for legal services and $1,285.67 for expenses). Doc. 163. Pursuant to procedures approved by the Court, 80 percent of fees ($22,566.40) and 100 percent of expenses ($1,285.67) became payable to Craig/Bednar Law absent any objection. No one filed an objection.

On August 2, 2013, Craig/Bednar Law filed a statement of fees and expenses for July 2013 in the sum of $40,744.32 ($39,515.60 for legal services and...