In re Ozcelebi

631 B.R. 629

IN RE: Fatih OZCELEBI, Debtor

Case No: 20-70295

United States Bankruptcy Court, S.D. Texas, McAllen Division.

Signed July 20, 2021

David N. Calvillo, Jarrod B. Martin, Chamberlain Hrdlicka, Houston, TX, for Debtor.

MEMORANDUM OPINION

Eduardo Rodriguez, United States Bankruptcy Judge

Many professionals become involved in the administration of a bankruptcy case or in the representation of the debtor, debtor in possession, trustee, examiner, creditors or committees. The level of court review of the debtor's choice of an attorney varies, dependent upon the chapter for relief filed. In Chapter 11 cases, section 327(a) governs the employment of professionals by the debtor in possession or trustee. In a subchapter V case, however, section 1195 of The Small Business Reorganization Act of 2019 modifies section 327(a) by providing that "a person is not disqualified for employment under section 327 of this title, by a debtor solely because that person holds a claim of less than $10,000 that arose prior to commencement of the case."¹ What section 1195 does not answer is whether, in a subchapter V case, a non-disqualifying debtor's counsel is entitled to make a post-petition draw on a pre-petition retainer to pay a $9,999 pre-petition claim.

Here, the Court has been tasked with determining whether Chamberlain, Hrdlicka, White, Williams & Aughtry, P.C. may drawdown its pre-petition retainer in the amount of $69,394.48 which includes $9,999 in unbilled time notwithstanding Dr. K.V. Chowdary, M.D., individually and doing business as Valley Gastroenterology Clinic, P.A., and Valley Gastroenterology, Clinic, P.A.'s objections that the $9,999 is nothing more than a general unsecured claim which is likely avoidable as section 547 preference; and that the entire amount of $69,394.48 is subject a section 548 fraudulent transfer claim because Fatih Ozcelebi's medical practices, business real estate, and the vast majority of his earned income and other income for over a decade was fraudulently transferred to a so-called "spendthrift" trust that was in fact a self-settled trust.

On June 23, 2021, the Court held an evidentiary hearing and at the conclusion of the hearing ordered briefing and took the matter under advisement. All briefs have been submitted and the matter is ripe for determination. For the reasons set forth herein, Dr. K.V. Chowdary, M.D., individually and doing business as Valley Gastroenterology Clinic, P.A., and Valley Gastroenterology, Clinic, P.A.'s objections are overruled and Chamberlain, Hrdlicka, White, Williams & Aughtry, P.C.'s first fee statement and first interim application for compensation and expenses for the period from October 17, 2020 through March 31, 2021, seeking the amount of $188,358.11, of which $184,898.50 is for services rendered, and $3,459.61 is for reimbursement of out-of-pocket expenses, are approved. Chamberlain, Hrdlicka, White, Williams & Aughtry, P.C may draw down the entirety of its $69,394.48 retainer which includes $9,999 in unbilled time. As for Dr. K.V. Chowdary, M.D., individually and doing business as Valley Gastroenterology Clinic, P.A., and Valley Gastroenterology, Clinic, P.A.'s objection that the first interim application includes fees that are duplicative of efforts and also excessive is left for another day as such objection has been reserved to such time as Chamberlain, Hrdlicka, White, Williams & Aughtry, P.C. files a final fee application and thus is not ripe for determination.

I. Findings of Fact

This Court makes the following findings of fact and conclusions of law pursuant to Federal Rule of Bankruptcy Procedure 7052, which incorporates Federal Rules of Civil Procedure 52 and 9014. To the extent that any finding of fact constitutes a conclusion of law, it is adopted as such. To the extent that any conclusion of law constitutes a finding of fact, it is adopted as such. This Court made certain oral findings and conclusions on the record. This Memorandum Opinion supplements those findings and conclusions. If there is an inconsistency, this Memorandum Opinion controls.

A. Procedural History

1. On October 16, 2020, Dr. Fatih Ozcelebi, M.D. ("Ozcelebi " or "Debtor ") filed his subchapter V petition under chapter 11 and "Disclosure of Compensation of Attorney for Debtor" ("Disclosure ").² Debtor's Disclosure was updated on December 9, 2020.³ On the same date, Chamberlain, Hrdlicka, White, Williams & Aughtry, P.C. ("CHWWA ") filed its disclosure of compensation and listed a $75,000 retainer ("Retainer ").⁴

2. On October 20, 2020, Catherine Stone Curtis, the chapter 11, subchapter V trustee ("Trustee "), was appointed to the above-numbered case.⁵

3. On November 9, 2020, Debtor sought application to employ CHWWA as his bankruptcy counsel ("Application ").⁶ In the Application, CHWWA disclosed that of the $75,000 Retainer, it applied $5,605.52 in earned fees and expenses.⁷ The Application further stated that "[d]ue to an internal miscommunication within CWHWA, as of the filing of Debtor's bankruptcy, CHWWA was owed fees and expenses by the Debtor in the amount of $21,696.91 for unreleased time that was not billed prior to the bankruptcy filing. Pursuant to § 1195, CHWWA wrote-off $11,697.91. CHWWA seeks to draw down the $9,999 from the retainer it holds as allowed under § 1195."⁸

4. On December 9, 2020, CHWWA filed its amended disclosure of compensation acknowledging the Retainer of $75,000 and noting that "the $9,999 was not billed pre-petition that will be included in the first retainer draw of CHWWA."⁹

5. On December 16, 2020, the Court held a hearing on the Application and after Dr. K.V. Chowdary, M.D, individually and doing business as Valley Gastroenterology Clinic, P.A. ("Chowdary ") withdrew the oral objection,¹⁰ the Court granted the Application ("Retention Order ").¹¹ The Retention Order authorized CHWWA to submit monthly interim fee statements and draw down on the Retainer subject to final approval by this Court every 120 days through a fee application.¹²

6. On December 15, 2020, Chowdary filed his "Motion to Convert or Dismiss Case, or Alternatively, for Authority to Pursue Chapter 5 Causes of Action Against Insiders" ("Motion to Convert ").¹³

7. On December 16, 2020, the Court approved Debtor's Application to employ CHWWA as Debtor's counsel.¹⁴

8. On January 11, 2021, Chowdary simultaneously filed his "Objection to Debtor's Claimed Exemptions" ("January 11, 2021 Objection ") and initiated an adversary proceeding against the Debtor seeking to deny discharge of a $1.8 million state court judgment ("Adversary Proceeding ") pursuant to 11 U.S.C. § 523.¹⁵ The January 11, 2021 Objection was struck by the Court and refiled by Chowdary on January 12, 2021.¹⁶

9. On January 13, 2021, Debtor promulgated his chapter 11, subchapter V plan ("Plan ").¹⁷

10. On January 14, 2021, the Court denied Chowdary's Motion to Convert for failure to show cause within the meaning of the Bankruptcy Code.¹⁸

11. On February 5, 2021, Debtor filed his "Joint Emergency Motion for Mediation Order" ("Joint Motion ").¹⁹

12. On February 8, 2021, the Court approved the Joint Motion, and reset the Plan confirmation hearing to March 31, 2021.²⁰

13. On March 10, 2021, CHWWA filed its "First Fee Statement of Chamberlain, Hrdlicka, White, Williams & Aughtry, P.C., Counsel for Debtor, and Notice of Distribution of Prepetition Retainer" ("First Fee Statement "), seeking compensation for professional services rendered in the amount of $59,494.00 ("Fees "), and for reimbursement of out-of-pocket expenses incurred in the amount of $2,264.33 ("Expenses "), for the period from October 17, 2020 through December 31, 2020.²¹

14. On March 31, 2021, Chowdary filed his objection to the First Fee Statement ("Fee Statement Objection ").²²

15. On April 30, 2021, the Court held a status conference where the parties announced that the mediation resulted in an impasse.²³ Additionally, the Court ordered briefing.

16. On June 1, 2021, CHWWA filed its "First Interim Application of Chamberlain, Hrdlicka, White, Williams & Aughtry, P.C. for Compensation and Expenses for the Period from October 17, 2020 through March 31, 2021" seeking the amount of $188,358.11, of which $184,898.50 is for services rendered, and $3,459.61 is for reimbursement of out-of-pocket expenses ("First Interim Application ").²⁴

17. On June 9, 2021, CHWWA filed its brief in response to Chowdary's Fee Statement Objection ("CHWWA Response to Chowdary's Fee Statement Objection ").²⁵

18. On June 16, 2021, Chowdary filed his brief in support of his Fee Statement Objection.²⁶

19. On June 23, 2021, the Court held a hearing on the First Fee Statement and related objection.

20. On June 28, 2021, CHWWA filed its certificate of no objection.²⁷

21. On June 29, 2021, Chowdary filed his objection to the First Interim Application ("First Interim Application Objection ").²⁸

22. On July 6, 2021, CHWWA filed its response to Chowdary's First Interim Application Objection ("CHWWA Response ").²⁹

II. Conclusions of Law

A. Jurisdiction and Venue

This Court holds jurisdiction pursuant to 28 U.S.C. § 1334 and now exercises its jurisdiction in accordance with Southern District of Texas General Order 2012–6.³⁰ Bankruptcy judges wield constitutional authority to issue final orders and judgments for core proceedings, but can only issue reports and recommendations for non-core proceedings, unless the parties consent to the entry of final orders or judgments on non-core matters.³¹ The application of Plaintiffs' counsel for allowance of compensation and reimbursement of expenses under 11 U.S.C. §§ 105, 327, 329, and 330, Federal Rules of Bankruptcy Procedure 2014 and 2016, and Bankruptcy Local Rule 2014-1, arises under title 11.³² Accordingly, this is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A), (B), and (O).

This Court may only hear a case in which venue is proper.³³ 28 U.S.C. § 1409(a) provides that "a proceeding arising under title 11 or arising in or related to a case u...