In re Jeffery

1

In re: Ivan L. Jeffery, Debtor.

No. 16-15037 (PMM)

United States Bankruptcy Court, E.D. Pennsylvania

November 2, 2023

Chapter 7

OPINION

PATRICIA M. MAYER, U.S. BANKRUPTCY JUDGE

I. INTRODUCTION

Before this court is the first and final fee application for compensation and reimbursement of expenses of Duane Morris LLP, as counsel for the Chapter 7 trustee, for the period from August 15, 2016 through June 30, 2023 filed on July 7 2023. Duane Morris's fee application seeks allowance of compensation in the amount of $220,000.00 and reimbursement of expenses of $11,267.36. Creditor-Artesanias Hacienda Real S.A. de C.V. objects to the fee application. For the reasons set forth below, after a reduction of compensation in the amount of $3,223.50, the Application will be approved in the amount of $216,776.50 in compensation and $11,267.36 as reimbursement for expenses.

II. JURISDICTION AND VENUE

Venue in this District and Court is proper pursuant to 28 U.S.C. §§1408 and 1409. Jurisdiction over this matter is proper pursuant to 28 U.S.C. §1334(b). This is a core proceeding under 28 U.S.C. §157(b)(2)(A).

III. PROCEDURAL AND FACTUAL BACKGROUND

Debtor Ivan L. Jeffery (the "Debtor") filed a voluntary petition for relief under Chapter 7 of the Bankruptcy Code on July 15, 2016. On July 18, 2016, Lynn E. Feldman was appointed as the Chapter 7 trustee (the "Trustee"). The Trustee later determined that this was an asset case.

Shortly thereafter, the Trustee filed an application to retain the services of Duane Morris LLP ("Duane Morris"), nunc pro tunc to August 15, 2016, as counsel to the Trustee. At the time of the Trustee's application, Duane Morris charged $375.00 to $715.00 per hour for its services. No parties filed an objection to the Trustee's retention of Duane Morris as counsel. This Court later approved the Trustee's application, finding that Duane Morris's retention was in the best interest of the estate and its creditors pursuant to 11 U.S.C. §327(a).

The Debtor was formerly the principal of the entity Wilton Armetale, Inc. a/k/a WAPITA, Inc. ("Wilton"), which produced and sold household tableware to large suppliers. On September 9, 2016, Wilton filed a separate voluntary petition for Chapter 7 relief. See Bankr. Case No. 16-16779. Following the Debtor and Wilton's separate filings, two (2) creditors filed proofs of claims against both Debtor and Wilton's Estates: North Mill Capital, LLC ("North Mill") and Artesanias Hacienda Real S.A. de C.V. ("AHR"). The third creditor relevant to this decision, LEPCO, filed a claim only against the Debtor.

For nearly seven (7) years, on behalf of the Trustee, Duane Morris pursued and settled claims against and with parties-at-interest to both Debtor and Wilton's Estates. As a result, Duane Morris maintained overlapping responsibilities between the two (2) cases that are not common to "routine" Chapter 7 filings in this District.^[1] On July 7, 2023, the Applicant filed its first and final fee application (the "Application"), and now seeks an allowance of compensation in the amount of $220,000.00 and reimbursement of expenses of $11,267.36. The Application shows that Duane Morris billed 395.50 hours at rates ranging from $305.00 to $1,045.00 per hour for its services rendered between August 15, 2016 through June 30, 2023.

On July 28, 2023, AHR filed an objection to the Application (the "Objection") by which AHR requested the reduction of Duane Morris's fees to one-third of net proceeds recovered for the Debtor's Estate. Duane Morris timely filed a response on August 17, 2023. An evidentiary hearing on Duane Morris's Application and AHR's Objection was held on August 22, 2023.

IV. THE PARTIES' ARGUMENTS

AHR forwards six (6) arguments to support its contention that this Court should disallow a portion of Duane Morris's professional compensation.

First, AHR asserts that the withdrawal of North Mill's claim against the Debtor's Estate (the "North Mill Settlement") was the result of negotiations between AHR, the Chapter 7 Trustee in the Wilton case ("the Wilton Trustee"), and North Mill; August 22, 2023 Hearing Transcript at 19-21 [Doc. # 245] ("Aug. 22 Transcript"). In other words, AHR contends that Duane Morris served no role in devising the Wilton Settlement; Aug. 22 Transcript at 19-21. Duane Morris responds that AHR fails to distinguish between North Mill's settlement in the Debtor's case and North Mill's settlement in the Wilton case. Aug. 22 Transcript at 9. Duane Morris argues that its services rendered in connection to the North Mill Settlement were a separate, additional concession that only related to the Debtor's case and a product of Duane Morris's own efforts. Aug. 22 Transcript at 9.

Second, AHR argues that Duane Morris seeks compensation for services that should have been rendered instead by the Trustee. Aug. 22 Transcript at 21-24. To support this argument, AHR submits that Duane Morris's involvement in the sale of Debtor's real property and Mercedes-Benz was an "ordinary service" which the Trustee had a statutory obligation to pursue. Aug. 22 Transcript at 21-24. Yet AHR does not advance what portion-if any-of Duane Morris's professional services were those that were vested to the Trustee under 11 U.S.C. §704. Instead, AHR provides a blanket assertion that services relating to this sale of the Debtor's real property and Mercedes-Benz in this case should have been rendered by the Trustee. Duane Morris responds that the sale of the real property and Mercedes-Benz were not typical sales in a Chapter 7 case. Aug. 22 Transcript at 10-12. Duane Morris contends that prior to the Debtor's filing, the Debtor leased the Debtor's real property and Mercedes-Benz to two third-party lessees (the "Third-Party Lessees"). Aug. 22 Transcript at 10-12. Duane Morris argues after the Debtor's filing, the Third-Party Lessees refused to surrender possession of the Debtor's real property and Mercedes-Benz to the Trustee-thwarting the prospect of its sales. Aug. 22 Transcript at 10-12. As a result, the Third-Party Lessees continuing use of the Debtor's properties required Duane Morris to expend significant time and resources in ensuring the Trustee's collection and disposition of the properties. Aug. 22 Transcript at 10-11.

Third, AHR argues Duane Morris charged fees for "unreasonable and unnecessary services" in its assertion of claims against the Wilton Estate. Aug. 22 Transcript 22-23. AHR argues the Duane Morris billed $29,000.00 for its actions taken against the Wilton Estate and that those actions recovered $5,000.00 for the Estate.^[2] Aug. 22 Transcript 22-23. AHR further submits Duane Morris's professional services were unreasonable and unnecessary because the Wilton Estate's only assets were its real property and a potential malpractice claim against Wilton's former counsel and, as a result, recovery against the Wilton Estate was limited from the outset. Aug. 22 Transcript 22-23. Duane Morris filed two proofs of claim against the Wilton Estate (the "Wilton Claims") and later settled objections the Wilton Claims with the Wilton Trustee (the "Wilton Settlement"). Aug. 22 Transcript at 13; see also Case No. 16-16779, Claim Nos. 10-1, 11-1, Doc. # 113. Duane Morris contends fees incurred in connection with the Wilton Settlement were appropriate and necessary because they led to the eventual and continued disbursement of funds towards both AHR and the Debtor's Estate. Aug. 22 Transcript at 13.

Fourth, AHR argues Duane Morris's services rendered following the closing of the last preference action in 2019 were neither reasonable nor necessary. AHR contends Duane Morris's services rendered between 2019 to 2023 resulted in unreasonable and unnecessary fees for the estate. Doc. # 234. AHR does not state in its Objection why those services were unreasonable and unnecessary. Duane Morris argues its preference actions recovered $358,535.22 for the estate and much of which will ultimately be disbursed to AHR. In support of its argument, Duane Morris provided this Court with time sheets reflecting its preparation, negotiations, and settlement of those preference actions. See Doc. # 230, Ex. A. Duane Morris further argues AHR itself increased Duane Morris's fees because AHR opposed numerous matters in the Debtor's case, the adversary proceedings, and in the Wilton Case. Doc. # 240, Ex. C; Aug. 22 Transcript at 17.

Fifth, AHR argues Duane Morris's fees far exceed the prevailing market rate in this District and that Duane Morris charged excessive rates for a "relatively simple" case. Doc. # 234; Aug. 22 Transcript at 24-27. That is, according to the objector, the administration of this case did not require a high degree of experience or skill. Doc. # 234. AHR submits rates of local counsel- none of whom have acted as counsel to a Chapter 7 Trustee in this District. Doc. # 234; Aug. 22 Transcript at 25. AHR further argues this Court limits a Chapter 7 Trustee's attorney's professional fees to one-third of net recoveries. Aug. 22 Transcript at 27. Duane Morris points out that its junior counsel, with lower rates, rendered services when possible. Aug. 22 Transcript at 17. Duane Morris further submits that the majority of its services were rendered before its hourly rate reached $1,045.00 per hour. Aug. 22 Transcript at 17. Duane Morris also argues a flat fee for counsel's services are in direct contrast to 11 U.S.C. §330(a)(3)(E), which directs the court to look at the skills and experience of the Chapter 7 trustee's professional.

The UST raised two (2) points to AHR's fifth argument: (1) this court has never followed a one-third net recovery rule; and (2) while Duane Morris charges a higher rate than most local attorneys, this District has no local rule capping an attorney's hourly rate....