In re Tribeca Mkt., LLC

• Decision Date: 02 September 2014
• Docket Number: No. 13 Civ. 7625 (KPF).,13 Civ. 7625 (KPF).
• Citation: 516 B.R. 254
• Parties: In re TRIBECA MARKET, LLC, et al., Debtors.
• Court: U.S. District Court — Southern District of New York

516 B.R. 254

In re TRIBECA MARKET, LLC, et al., Debtors.

No. 13 Civ. 7625 (KPF).

United States District Court,

S.D. New York.

Signed Sept. 2, 2014.

Rodney Alan Brown, Brown & Whalen, P.C., New York, NY, Avrum J. Rosen, Huntington, NY, for G.M. Data Corp.

Douglas J. Pick, Pick & Saffer LLP, New York, NY, for Pick & Zabicki, LLP.

OPINION AND ORDER

KATHERINE POLK FAILLA, District Judge.

Appellant–Cross–Appellee Pick & Zabicki LLP (“Appellant” or “P & Z”) appealsfrom an order (the “Fee Order”) entered in the United States Bankruptcy Court for the Southern District of New York (Glenn, J.) awarding fees to P & Z for professional services rendered as counsel to the Official Committee of Unsecured Creditors (the “Creditors' Committee” or the “Committee”) in In re Tribeca Market, LLC, Case No. 11–10737(MG) (Bankr.S.D.N.Y.). In particular, the Bankruptcy Court reduced P & Z's fee application by 40 percent, after finding that P & Z had filed (and billed for) multiple court submissions on behalf of the Creditors' Committee without convening a single in-person or telephonic meeting of that Committee—which, in the Court's estimation, raised “serious questions” about P & Z's representation of the Creditors' Committee. Appellee–Cross–Appellant G.M. Data Corp. (“Appellee” or “GMDC”) cross-appeals, arguing that the Bankruptcy Court not only had the discretion to reduce P & Z's fees by 40 percent, but also could, and should, have reduced the fees even further, up to 100 percent.

This Court's review of the record makes plain that the Bankruptcy Court did not abuse its discretion in assessing the reduction. However, because of a minor arithmetic error, the Court will vacate the Bankruptcy Court's order and remand the matter for the limited purpose of correcting the error.

BACKGROUND¹

A. Factual Background1. The Bankruptcy Petitions

Tribeca Market, LLC (“Tribeca Market”) was formed in January 2010 with the same members as a predecessor company, Potato Farms, LLC (“Potato Farms”). (R. 7 at ¶ 3). Tribeca Market took over all of Potato Farms' operations, but the lease remained in Potato Farms' name. ( Id.).

In response to tax and litigation issues that plagued Potato Farms (R. 7 at ¶ 4), Tribeca Market and Potato Farms (together, “the Debtors”) each filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code on February 22, 2011, in the United States Bankruptcy Court for the Southern District of New York (R. 1). Tribeca Market's petition (the “Petition”) listed 19 unsecured creditors. (R. 7 at ¶ 5). As relevant to the instant appeal, they included GM Data Corp., d/b/a GMDC Business c/o the Brown Group, P.C. (“GMDC”); Okey Enterprises, Inc. (“Okey”); and New York Cheese Corp. (“NYCC”). ( Id.).² According to the Petition, Tribeca Market was indebted to GMDC for $729,466.00, to Okey for $5,933.69, and to NYCC for $3,823.49. ( Id.).

On March 7, 2011, Debtors' counsel moved for an order authorizing the joint administration of the two Chapter 11 petitions pursuant to Rule 1015(b) of the Federal Rules of Bankruptcy Procedure. (R. 8). Presiding Bankruptcy Judge Martin Glenn issued the joint administration order on April 26, 2011. (R. 28).

2. The Establishment of the Creditors' Committee

Section 1102 of the Bankruptcy Code provides that “as soon as practicable after the order for relief under chapter 11 of this title, the United States trustee shall appoint a committee of creditors holding unsecured claims....” 11 U.S.C. § 1102(a)(1). A creditors' committee aids, assists, and monitors the debtors to ensure that the unsecured creditors' views are heard and their interests are promoted and protected. See generally Pan Am Corp. v. Delta Air Lines, Inc., 175 B.R. 438, 514 (S.D.N.Y.1994).

On March 29, 2011, pursuant to Section 1102, the United States Trustee for Region 2 (the “U.S. Trustee”) appointed a three-member Creditors' Committee for the Debtors' bankruptcy proceeding, comprising representatives of GMDC, Okey, and NYCC. (R. 22). Rodney Brown served as GMDC's counsel (R. 326); Jeeil Choi served as NYCC's counsel (R. 324); and Lawrence Morrison served as Okey's counsel (R. 33, 323).³

3. The Committee's Ability to Retain Professionals

The Federal Rules of Bankruptcy Procedure further provide that “[a]n order approving the employment of attorneys, accountants, appraisers, auctioneers, agents, or other professionals ... shall be made only on application of the trustee or committee.” Fed. R. Bankr.P.2014(a). Specifically, under Section 328, the Committee or a trustee

may employ or authorize the employment of a professional person under § 327 [by trustee request] or § 1103 [by committee request] ... as the case may be, on any reasonable terms and conditions of employment, including on a retainer, on an hourly basis, on a fixed or percentage fee basis, or on a contingent fee basis.

11 U.S.C. § 328(a).

However appointed, professionals retained to assist the parties in a bankruptcy proceeding are subject to various limitations under the Bankruptcy Code. Among other things, professionals who represent the Committee must not represent adverse interests while they are employed by the Committee:

An attorney or accountant employed to represent a committee appointed under section 1102 of this title may not, while employed by such committee, represent any other entity having an adverse interest in connection with the case.

11 U.S.C. § 1103(b). Section 327 similarly states that the professionals a trustee employs must not “hold or represent an interest adverse to the estate, and [must be] disinterested persons.” 11 U.S.C. § 327(a); see alsoFed. R. Bankr.P.2014 (requiring applicants to detail all connections with the parties and parties in interest).⁴

4. The Committee's Meetings and Retention of P & Z

The Creditors' Committee first met on April 14, 2011, at the office of Rodney Brown, counsel to GMDC. During the meeting, Douglas K. Pick, a partner at P & Z, offered P & Z's services as counsel for the Committee. (R. 322, 323, 324). ⁵ Each committee member and his respective attorney attended this meeting. ( Id.).

A second Creditors' Committee meeting was conducted on May 2, 2011, at the Law Offices of Yoon & Kim, LLP, counsel to NYCC. Again, each committee member and his respective attorney attended. (R. 35, 322). Although no P & Z representative was present at this meeting, the Creditors' Committee voted to retain that firm as counsel by a vote of 2 to 1, with GMDC objecting to P & Z's retention. (R. 311, 322–324, 326). On or about May 3, 2011, Pick was informed that the Committee had selected P & Z as its counsel, and also that it had elected the NYCC representative to serve as the Chairman of the Committee. (R. 326). As counsel to the Creditors' Committee, P & Z would “represent the Committee with regard to all of its interests in the Debtor's Chapter 11 case.” (R. 35 at ¶ 2).

On May 2, 2011, the same day P & Z was elected as counsel for the Creditors' Committee, the NYCC representative, in his capacity as Chairman, filed an “Application for Authority to Retain Pick & Zabicki, LLP, nunc pro tunc, as Counsel to the Official Committee of Unsecured Creditors” pursuant to Section 1103. (R. 35). In the application, the Chairman explained that the Committee required P & Z's services and Chapter 11 expertise to, among other things, (i) advise and assist the Committee with respect to its rights, duties, and powers in the case; (ii) assist the Committee in its analysis and negotiations with the Debtor or third parties; and (iii) review and analyze all applications, orders, statements of operations, and schedules filed with the Bankruptcy Court and advise the Committee as to their propriety. ( Id. at ¶ 4). P & Z agreed to bill at the firm's standard hourly rates of $335.00 to $405.00 for partners, $250.00 for associates, and $125.00 for paraprofessionals. ( Id. at ¶ 8).

In his affidavit in support of the application to retain P & Z, Pick attested that P & Z “has not represented any of the parties related to the Debtor, its creditors and other parties-in-interest,” and that it “has not, does not, and will not represent any of the Debtor's creditors or any other entity other than the [Creditors'] Committee in matters related to this case.” (R. 35 at ¶ 6). In a supplemental affidavit filed two days later, on May 4, 2011, Pick retreated from his original averments, and stated instead that “[a]lthough P & Z has attempted to identify all such representations, it is possible that P & Z may have represented certain of the Debtor's creditors or other entities that consider themselves parties-in-interest in matters unrelated to this Chapter 11 case.” (R. 37 at ¶ 3).

The Bankruptcy Court authorized the Creditors' Committee's retention of P & Z on July 5, 2011, pursuant to Section 1103(a). (R. 64).

5. The Debtors' Indictment and the Appointment of a Chapter 11 Trustee

One year later, on July 18, 2012, several individuals affiliated with the Debtors, includingtheir principal, were indicted in connection with alleged tax-related conduct. (R. 185). As a consequence of the indictment, on July 24, 2012, the United States Trustee moved for an order to appoint a Chapter 11 trustee to ensure that the Debtors' financial reporting—at least some of which had precipitated the indictment—“would be accurate, honest, and trustworthy.” ( Id.).⁶ Thereafter, on July 27, 2012, Judge Glenn appointed Janice Grubin as Chapter 11 Trustee (R. 190, 201), at which point P & Z stopped performing services for the Creditors' Committee (R. 280 at ¶ 7; R. 311 at ¶ 11).

6. P & Z's Representation of the Creditors' Committee

As noted, P & Z was retained over GMDC's objection. (R. 311 at ¶ 16 n. 9). The instant cross-appeals concerning P & Z's fees center on a series of events that occurred during P & Z's representation of the Creditors' Committee. ⁷

a. The Failure to Adopt Committee Bylaws

One week after P & Z's retention, on May 9, 2011, Pick sent form bylaws to the Creditors'...