In re Stainless Sales Corp.

583 B.R. 717

IN RE: STAINLESS SALES CORPORATION, Debtor.

Case No. 17bk03148

United States Bankruptcy Court, N.D. Illinois, Eastern Division.

Signed March 30, 2018

Gregory K. Stern, Dennis E. Quaid, Monica C. O'Brien and Rachel S. Sandler, Gregory K. Stern P.C., Chicago, IL, for Attorneys for Chapter 7 Trustee

Kenneth J. Ottaviano and Paige E. Barr, Katten Muchin Rosenman LLP, Chicago, IL, for Attorneys for Michael J. Eber, Assignee for the Benefit of Creditors of Stainless Sales Corporation

MEMORANDUM DECISION

Timothy A. Barnes, United States Bankruptcy Judge

Before the court is the Application for Allowance and Payment of Administrative Expense Claim [Dkt. No. 181] (the "Application") brought by Michael J. Eber and High Ridge Partners, Inc. (together, the "Assignee") in its capacity as assignee for the benefit of creditors of Stainless Sales Corporation (the "Debtor") in the above-captioned bankruptcy case (the "Case"), seeking to have the court award an administrative expense to the Assignee's counsel Katten Muchin Rosenman LLP ("Katten"). The Application is opposed by David R. Herzog (the "Trustee"), the chapter 7 trustee of the Debtor. This matter calls into question if, and if so the extent to which, a custodian's counsel is entitled to an administrative expense, and what standards should be applied to specific time periods in a bankruptcy case.

For the reasons set forth more fully below, upon review of the parties' respective filings, the court finds that the Assignee's counsel is entitled to an administrative expense for its reasonable compensation for services rendered for the Assignee and actual, necessary expenses, in the manner set forth herein.

JURISDICTION

The federal district courts have "original and exclusive jurisdiction" of all cases under title 11 of the United States Code, 11 U.S.C. § 101, et seq. (the "Bankruptcy Code"). 28 U.S.C. § 1334(a). The federal district courts also have "original but not exclusive jurisdiction" of all civil proceedings arising under the Bankruptcy Code, or arising in or related to cases under the Bankruptcy Code. 28 U.S.C. § 1334(b). District courts may, however, refer these cases to the bankruptcy judges for their districts. 28 U.S.C. § 157(a). In accordance with section 157(a), the District Court for the Northern District of Illinois has referred all of its bankruptcy cases to the Bankruptcy Court for the Northern District of Illinois. N.D. Ill. Internal Operating Procedure 15(a).

A bankruptcy judge to whom a case has been referred may enter final judgment on any core proceeding arising under the Bankruptcy Code or arising in a case under the Bankruptcy Code. 28 U.S.C. § 157(b)(1). Bankruptcy judges must therefore determine, on motion or sua sponte , whether a proceeding is a core proceeding or is otherwise related to a case under the Bankruptcy Code. 28 U.S.C. § 157(b)(3). As to the former, the court may hear and determine such matters. 28 U.S.C. § 157(b)(1). As to the latter, the bankruptcy court may hear the matters, but may not decide them without the consent of the parties. 28 U.S.C. §§ 157(b)(1) & (c) ; Wellness Int'l Network, Ltd. v. Sharif , ––– U.S. ––––, 135 S.Ct. 1932, 1939, 191 L.Ed.2d 911 (2015) ; Richer v. Morehead , 798 F.3d 487, 490 (7th Cir. 2015) (noting that "implied consent is good enough"). Instead, the bankruptcy court must "submit proposed findings of fact and conclusions of law to the district court, and any final order or judgment shall be entered by the district judge after considering the bankruptcy judge's proposed findings and conclusions and after reviewing de novo those matters to which any party has timely and specifically objected." 28 U.S.C. § 157(c)(1).

An application for administrative expenses arises under section 503(b) of the Bankruptcy Code and thus may only arise in a bankruptcy case. The bankruptcy court is therefore empowered to enter final orders with respect to the same. Matilla v. Radco Merch. Servs., Inc. (In re Radco Merch. Servs., Inc. ), 111 B.R. 684, 686 (N.D. Ill. 1990) ("A claim for administrative expenses is one of the core proceedings listed in 28 U.S.C. § 157(b)(2)(B)."). Further, all parties have consented to this court's entry of a final order adjudicating the Application.

Accordingly, determination of the Application is within the scope of the court's jurisdiction and constitutional authority.

PROCEDURAL HISTORY

The court has considered the arguments of the parties at the hearing on November 29, 2017 (the "Hearing"), and has reviewed and considered the following filed documents in the Case to be relevant:

(1) The Application;

(2) Exhibit 1 to the Application [Dkt. No. 181–1] ("Exhibit 1");

(3) Exhibit 3 to the Application [Dkt. No. 181–3] ("Exhibit 3");

(4) Chapter 7 Trustee's Response to Application for Allowance and Payment of Administrative Expense Claim of Katten Muchin Rosenman LLP [Dkt. No. 191] (the "Response");

(5) Exhibit A to the Response [Dkt. No. 191–1] ("Exhibit A");

(6) Reply in Support of Application for Allowance and Payment of Administrative Expense Claim [Dkt. No. 199] (the "Reply"); and

(7) Supplement to Application for Allowance and Payment of Administrative Expense [Dkt. No. 202] (the "Supplement").

The court has also considered the procedural history and previous court filings in the Case generally in determining the propriety of the Application and has found the additional filings to be relevant:

(a) Emergency Motion To Direct Assignee [Dkt. No. 12] (the "543 Motion");

(b) Trust Agreement and Assignment for the Benefit of Creditors of Stainless Sales Corporation (Exhibit A to the 543 Motion) [Dkt. No. 12–1] (the "Assignment Agreement");

(c) Order Granting and Continuing Emergency Motion to Direct Assignee [Dkt. No. 25] (the "543 Order");

(d) Second Order Granting and Continuing Emergency Motion to Direct Assignee [Dkt. No. 37];

(e) Third Order Granting and Continuing Emergency Motion to Direct Assignee [Dkt. No. 50];

(f) Fourth Order Granting Motion to Direct Assignee [Dkt. No. 62];

(g) Order for Relief [Dkt. No. 47] (the "Order for Relief");

(h) Order Converting Debtor's Case to a Case Under Chapter 7 [Dkt. No. 56] (the "Conversion Order");

(i) Application for Allowance and Payment of Administrative Expense Claim and Request for Approval of Limited Notice [Dkt. No. 99];

(j) Amended Application for Allowance and Payment of Administrative Expenses [Dkt. No. 126] (the "Assignee Application");

(k) Chapter 7 Trustee's Response to Amended Application for Allowance and Payment of Administrative Expense Claim of High Ridge Partners, Inc. [Dkt. No. 133];

(l) Reply in Support of Amended Application for Allowance and Payment of Administrative Expense Claim of High Ridge Partners, Inc. [Dkt. No. 137]; and

(m) Findings of Fact and Conclusions of Law in Support of Order Awarding to High Ridge Partners, Prepetition Assignee, for Allowance and Payment of Compensation and Reimbursement of Expenses as an Administrative Claim [Dkt. No. 141] (the "Assignee Award").¹

In addition to the items discussed herein, the court has also taken into consideration any and all exhibits submitted in conjunction with the matter before it. Though these items do not constitute an exhaustive list of the filings in the instant case, the court has taken judicial notice of the contents of the docket in this matter. See Levine v. Egidi , Case No. 93C188, 1993 WL 69146, at *2 (N.D. Ill. Mar. 8, 1993) (authorizing a bankruptcy court to take judicial notice of its own docket); In re Brent , 458 B.R. 444, 455 n.5 (Bankr. N.D. Ill. 2011) (Goldgar, J.) (recognizing same).

BACKGROUND

Prior to the commencement of the Case, the Debtor's business consisted of the distribution of stainless steel products to various manufacturers. When the Debtor's financial condition began to deteriorate, the Debtor's board of directors approved the Assignment Agreement, commencing an Illinois assignment for the benefit of creditors through which the Assignee was duly appointed to liquidate the assets of the Debtor (the "ABC").² On or about November 11, 2016, Katten was engaged by the Assignee under a general retainer in the amount of $155,000.00³ (the "Retainer") to provide legal assistance regarding the Assignee's duties. Among the services with which Katten assisted were settlements with creditors and an auctioning of the Debtor's equipment on February 2, 2017 (the "Auction").

On February 3, 2017 (the "Petition Date"), one day after the Auction but prior to the consummation of the sale under the Auction (the "Sale"), certain creditors of the Debtor commenced an involuntary bankruptcy proceeding against the Debtor under chapter 11 of the Bankruptcy Code. Timed as it was, the petition prevented the Sale from being concluded, leaving the Assignee in limbo. Further, the petitioning creditors sought no first-day relief from the court to clarify this situation. Through Katten, the Assignee attempted to obtain instructions from the Debtor regarding the turnover of the Debtor's property in the Assignee's possession (the "Assets"), but the Debtor did not wish to actively participate in the bankruptcy. As a result, the Assignee remained in possession of the Debtor's property, and in light of the Sale and the continuing duties of the Assignee under the ABC, Katten promptly filed the 543 Motion seeking on behalf of the Assignee guidance from the bankruptcy court on how to proceed.

On February 9, 2017, the court conducted a hearing on the 543 Motion at which the Assignee, Katten and the petitioning creditors were present and at which no party contested the Assignee's continuing possession of the Assets. The Debtor, through counsel, also appeared but took no position on the matters. As a result, the court entered the 543 Order, which directed the Assignee to remain in possession of the Assets and continue to administer them in accordance with prepetition agreements and the Sale. The 543 Order also relieved the Assignee of the requirements imposed by section 543(a) and (b) of the Bankruptcy...