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 "
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.
The federal district courts have "original and exclusive jurisdiction" of all cases under title 11 of the United States Code, 11
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.
The court has considered the arguments of the parties at the hearing on November 29, 2017 (the "
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:
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).
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,
On February 3, 2017 (the "
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 Code. Though the 543 Order was of limited duration, additional orders under section 543 were subsequently granted throughout the chapter 11 proceedings, preserving the effects of the 543 Order up until the appointment of the Trustee.
On February 28, 2017, there being no contest and the Petition having been raised, the Order for Relief was granted. Nonetheless, without the participation of the Debtor, the case continued to founder. On March 7, 2017, the court entered the Conversion Order, converting the Case from a proceeding under chapter 11 to a proceeding under chapter 7 (the "
On September 1, 2017, the Assignee filed the Application, initially seeking four forms of relief. First, the Assignee sought to allow Katten an administrative expense representing the amount due prior to the Petition Date and to allow Katten to withdraw that value from the Retainer. Though Katten's services for that period were not presented with any degree of particularity in the Application, the request for reimbursement for work performed prior to the Petition Date and the application of the Retainer to the same were not contested by the Trustee. Second, the Assignee sought compensation for services rendered by Katten for services performed between February 3, 2017, and June 27, 2017 (the "
On October 13, 2017, the Trustee filed the Response opposing the last three requests. On October 27, 2017, the Assignee filed the Reply in support of those requests. Further, without leave of the court, the Assignee filed the Supplement on November 28, 2017, to correct for inaccuracies made in the Application for Katten's incurred fees. In the Supplement, the Assignee also noted that Katten incurred additional costs for services provided to the Assignee since the initial filing of the Application. The Assignee has not filed a final application that reflects a calculation and request for compensation of those additional costs and services.
At the Hearing on the Application, at which counsel for the Assignee and the Trustee argued in support of their respective positions, the court stated that it would narrow its analysis to the legal issue of whether or not the Assignee was entitled to an administrative expense. The court also instructed the parties that only after that determination, if necessary, the court would conduct a further hearing on the quantification of the expenses. Upon review of the record of this matter, the court finds no other hearing necessary and this Memorandum Decision and accompanying order fully conclude the matter.
This matter is fundamentally about the treatment of administrative expenses of custodians and their counsel. The custodian in the Case, the Assignee, seeks an administrative expense for its counsel, Katten, under alternative theories based in section 503(b)(1), section 503(b)(3), section 503(b)(4) and section 543 of the Bankruptcy Code.
The Trustee has objected to the Application raising what are in essence four points of contention. First, the Trustee contends that Katten may not be allowed an administrative expense as it was required to seek approval from the court to render legal services to the Assignee. Second, the Trustee contends that administrative expenses under section 503 are limited to claims for prepetition services. Third, the Trustee contends that the services were unreasonable and not sufficiently described, resulting in vague, duplicative and excessive time entries. Last, the Trustee contends that Katten's services in preparing and
Before taking up the Trustee's objections, it is necessary to first determine which of the Assignee's alternative statutory arguments carries the day.
It is not contested that the Assignee was a "custodian" as defined in the Bankruptcy Code. 11 U.S.C. § 101(11)(B) (an "assignee under a general assignment for the benefit of the debtor's creditors").
As a custodian, the Assignee previously sought and was awarded an administrative expense under section 503(b)(3)(E). See Assignee Award. Administrative expenses under section 503(b)(3)(E) are reserved for custodians, and recently this court discussed the nuances of that section in an unrelated case. In re Montemurro, 581 B.R. 565, 578-79 (Bankr. N.D. Ill. 2018) (Barnes, J.). The court has also addressed recently the eligibility of a party to whom a custodian has become obligated to seek an administrative expense thereunder. In re Stainless Sales Corp., 579 B.R. 836, 841 (Bankr. N.D. Ill. 2017) ("
Katten is not a custodian, however, but rather counsel rendering services to a custodian. Katten is therefore not eligible for an administrative expense under section 503(b)(3)(E). See, e.g., Stainless I, 579 B.R. at 842 ("The better reading of section 503(b)(3) is that such expenses are for the named parties alone...."). Katten may, however, be eligible to be compensated under section 543(c)(1) (as a party to whom the Assignee has become obligated), section 543(c)(2) (as a cost or expense of the Assignee) or under section 503(b)(4) (as an administrative expense of a professional serving a party with an expense under section 503(b)(3)).
The first, section 543(c)(1), appears to be implicated on its face. Section 543(c)(1) states that the court shall "protect all entities to which a custodian has become obligated with respect to such property or proceeds, product, offspring, rents, or profits of such property." 11 U.S.C. § 543(c)(1). Katten appears to be such an entity. Unlike section 503(b), section 543 does not include a separate provision for the payment of a custodian's professionals. It follows therefore that such professionals would be eligible elsewhere, as the intention behind section 543 appears to be to prevent custodians from being caught out by a bankruptcy filing. See Randolph & Randolph v. Scruggs, 190 U.S. 533, 538, 23 S.Ct. 710, 47 S.Ct. 1165 (1903) (finding cause to compensate an assignee's "services, or services procured by him...."). "The legislative history shows that § 503(b)(3)(E) was specifically designed to codify the rule articulated in Randolph," In re 29 Brooklyn Ave., LLC, 548 B.R. 642, 645 (Bankr. E.D.N.Y. 2016). As such an entity, Mitten would be entitled to protection which, under the right circumstances, might include an administrative expense. Stainless I, 579 B.R. at 844-45.
Section 543(c)(2) may also be implicated. Section 543(c)(2) states that the court shall "provide for the payment of reasonable compensation for services rendered and costs and expenses incurred by" a custodian. 11 U.S.C. § 543(c)(2) (emphasis added). Thus compensation, costs and expenses of a custodian are compensable. Section 503(b) severs professional services to a custodian from services by a custodian, saying with respect to the latter that a custodian may recover "the actual, necessary expenses, ... incurred by ... a custodian superseded under section 543 of this title, and compensation for the services of such custodian." 11 U.S.C.§ 503(b)(3)(E) (emphasis added). Under section 503, only compensation and
Finally, section 503(b)(4) speaks directly to the issue, stating in pertinent part that an administrative expense is allowed for
11 U.S.C. § 503(b)(4).
Why, then, all the possibilities?
The court first noted the redundancy in these Bankruptcy Code sections in Stainless I. 579 B.R. at 842. In Montemurro, the court attempted to reconcile the sections. 581 B.R. at 573-75. There it concluded that:
Montemurro, 581 B.R. at 575-76 (emphasis added). Though not perfect, this was the best way the court could find to reconcile the provisions. Cf. United States v. Miscellaneous Firearms, Explosives, Destructive Devices & Ammunition, 376 F.3d 709, 712 (7th Cir. 2004) ("We will not construe a statute in a way that makes words or phrases meaningless, redundant, or superfluous.").
Here, as will be discussed in greater detail below, Katten seeks payment for services in three legally distinct periods: (i) prior to the Petition Date; (ii) during the chapter 11 case; and (iii) during the chapter 7 case.
With respect to the first period, while it has been shown that administrative expenses are not limited solely to postpetition obligations, see Stainless I, 579 B.R. at 845, as noted in Stainless I, the court does not take such steps lightly. Here, where either section 543(c)(1) or section 543(c)(2) would suffice as grounds to authorize the payment, there is no need to resort to section 503 and the redundancy is not triggered. Katten must still demonstrate that the predicates of those sections have been met (in the latter case, that the services were reasonable). Because the standards are different and because this issue has been insufficiently addressed in the filings to date, however, the court will leave a determination of which section applies specifically until after the parties have addressed it.
With respect to the second and third periods, the standards are the same and
As such, the court concludes that for the services performed postpetition, the Application best proceeds under section 503(b)(4).
The first factor establishes a threshold for section 503(b)(4) compensation: the existence of a section 503(b)(3) entity with allowable expenses. 29 Brooklyn Ave., 548 B.R. at 651 ("[T]he Receiver's request for compensation was allowed under § 503(b)(3)(E). This provides the basis for allowing the Receiver's counsel's request for compensation under § 503(b)(4)."); see also N. Sports, Inc. v. Knufer (In re Wind N' Wave), 509 F.3d 938, 946 (9th Cir. 2007). The word "allowable" does not require the actual award of a section 503(b)(3) administrative expense. In re Gurley, 235 B.R. 626, 635 (Bankr. W.D. Tenn. 1999) ("Section 503(b)(4) literally requires only that the requesting entity's expense be `allowable under paragraph (3),' not that such expenses actually be allowed."). The Assignee, whose expenses are not just allowable but have in fact been allowed, see Assignee Award, satisfies this criterion.
The second factor is reasonableness, the standard Katten must also satisfy with respect to its prepetition services if it proceeds under section 543(c)(2). Before taking up the question of reasonableness, in light of the foregoing, the court returns to the Trustee's objections.
The Trustee has objected, raising four points of concern with the Application: (1)
The Trustee's first contention is that Katten is barred from an administrative expense because it failed to obtain court approval under section 327, which states that:
11 U.S.C. § 327(a) (emphasis added).
Despite the Trustee's contention, section 327 does not apply in this situation. It is well established that section 327 only applies to trustees and debtors when acting in a trustee's stead. That is due to the express language in section 327 making it applicable to trustees and, as applicable, the language of other Bankruptcy Code provisions bestowing the rights and obligations of trustees on debtors. See, e.g., 11 U.S.C. § 1107(a). Without such provisions, section 327 simply does not apply. For example, committees must look to their own authorizing sections for the appointment of counsel. See, e.g., 11 U.S.C. §§ 1102 & 1103. Chapter 13 debtors, who do not have the powers and duties of a trustee, need not retain their counsel under section 327. In re Maldonado, 483 B.R. 326, 337 (Bankr. N.D. Ill. 2012) (Schmetterer, J.) ("Section 327 does not apply in Chapter 13 cases."); see also In re Jones, 505 B.R. 229, 231 (Bankr. E.D. Wis. 2014) ("[A]n individual chapter 13 debtor... is not a `trustee' for purposes of § 327.").
The Assignee is a custodian, not a trustee or an entity with comparable duties such as a debtor in possession. In re 400 Madison Ave. Ltd. Pshp., 213 B.R. 888, 894-95 (Bankr. S.D.N.Y. 1997) ("Simply put the receiver [custodian] has absolutely no responsibility to ensure the progress of the case by filing a plan of reorganization or negotiating with creditors or to perform any other duties which are the prerogative and burden of a debtor-in-possession and a trustee."). The Assignee thus was not subject to the employment provisions of section 327.
Because Katten was not employed under section 327, the general compensation provisions under section 330 did not, by their express terms, apply to it. See 11 U.S.C. § 330(a)(1); cf. 11 U.S.C. § 330(a)(4)(B) (providing an alternative standard for compensating counsel in chapter 13 matters, where professionals are not retained and thus not subject to section 330(a)(1)). Here, professionals providing services to custodians have an alternative standard for compensation codified in sections 503(b) and 543. They need not look elsewhere.
The second contention of the Trustee is that only the prepetition services of Katten are compensable as administrative expenses. As discussed above, this is not how the statute works.
The Trustee does, however, argue that postpetition fees may not be included in an administrative expense under section 503(b)(3)(E). This is correct, as there exists a separate provision for the compensation of professionals to custodians in section 503(b)(4), but not because of the postpetition nature of the services. The Trustee's argument, in fact, runs contrary to the traditional holding that administrative expenses are those that occur on a postpetition basis, not prepetition ones as the Trustee suggests. Stainless I, 579 B.R. at 845.
The court need look no further than the words of the statute to reject this argument. Section 503(b) makes no general mention of the prepetition or postpetition nature of the expenses thereunder. At points in the section, Congress has been specific. Compare 11 U.S.C. § 503(b)(1)(A)(i) ("services rendered after the commencement of the case") with 11 U.S.C. § 503(b)(9) ("the value of any goods received by the debtor within 20 days before the date of commencement of a case") (emphasis added in each). Sections 503(b)(3)(E) and 503(b)(4) have no such limiting provisions.
Here, there is no reading of section 503(b) that would limit these expenses to prepetition only.
As noted above, at the Hearing on the Application, the court stated that it would narrow its analysis to the legal issue of whether or not the Assignee was entitled to an administrative expense as a matter of law, leaving for later determination, if necessary, a hearing on the exact amounts of an administrative expense.
Before taking on the analysis of reasonableness, the court must first put to rest certain of the arguments and, hopefully, channel the future discussions in a productive way.
The Trustee is correct that in order for services to be compensated under either section 503(b)(4) or 543(c)(2), the compensation must be reasonable. In re 444 N. Nw. Hwy, LLC, Case No. 12 B 27041, 2013 WL 122527, at *9 (Bankr. N.D. Ill. Jan. 8, 2013) (Schmetterer, J.) ("[A] receiver's unpaid bills, including those of his counsel, must be determined to be reasonable before being paid.") (citing 400 Madison Ave. Ltd. Pshp., 213 B.R. at 898); see also 29 Brooklyn Ave., 548 B.R. at 652. Under section 503(b)(4), reasonableness is a factor of the nature, extent and value of the services and the comparable nonbankruptcy cost of such services. 11 U.S.C. § 503(b)(4). No additional factors are set forth in section 543(c)(2).
The Assignee argues that the section 503(b)(4) compensation Katten seeks is per se reasonable as it is "fused" with the Assignee's allowed expenses. In re R.L. Adkins Corp., 505 B.R. 770, 779 (Bank. N.D. Tex. 2014). Adkins holds that services performed at the behest of a custodian must be compensated if the custodian's services are compensated. Id. The court there bases its holding on a substantial
There is, however, nothing in the statute that makes this so, and the Adkins court itself acknowledges that "[s]uch construction does not necessarily follow from a strict reading of subsections (b)(3)(D) and (b)(4) of the statute...." Id. Further, substantial contribution, the theory upon which Adkins is predicated, is not implicated under section 503(b)(3)(E), the section under which the Assignee's expense was approved. Adkins ruling is, therefore, expressly limited to section 503(b)(3)(D), the section containing that concept.
As a result, Adkins is inapplicable here and Katten's services are not "fused" with those of the Assignee. The court is statutorily compelled to apply the reasonableness requirement to the compensation. 11 U.S.C. § 503(b)(4).
With respect to that reasonableness requirement, it is clear first and foremost that the court must make an independent finding of reasonableness. In re Kenneth Leventhal & Co., 19 F.3d 1174, 1178 (7th Cir. 1994); In re Pettibone Corp., 74 B.R. 293, 300 (Bankr. N.D. Ill. 1987) (Schmetterer, J.). Courts have, however, looked to section 330 to provide standards for this independent finding under section 503(b). Speights & Runyan v. Celotex Corp. (In re Celotex Corp.), 227 F.3d 1336, 1341 (11th Cir. 2000).
Section 330 states, in pertinent part, that
11 U.S.C. § 330(a)(3).
The Celotex approach is sound. The court will follow it in this matter.
In doing so, the court takes into account the rarity of this situation. The Assignee and Katten have seen this case through a number of unique and potentially legally-distinct phases. This case began with an involuntary petition timed, so it appears, to occur at the most disruptive possible point in the Assignee's tenure — immediately following the Auction, before the underlying Sale could be consummated. Once the Petition was filed, the Assignee and Katten were forced to consider how to comply with section 543 in what was obviously a grey period and determine what, if anything, should be done about the interrupted Sale. The entry of the 543 Order alleviated some of those concerns, but once
The first of these grey periods arose out of the unique combination of this being an involuntary chapter 11 filed to interrupt the ABC and there being little or no participation in the Case by the Debtor. Given the Debtor's lack of interest in the Case, the Case was in desperate need of an interim trustee. No provision for that exists for involuntary chapter 11 cases, however. But see 11 U.S.C. § 303(g) (allowing for an interim trustee to be appointed before the entry of an order for relief in an involuntary chapter 7). Instead, there was no party to protect the Assets other than the Assignee.
The entry of the Order for Relief and subsequent orders under section 543 may have provided some degree of additional certainty, but on the same day the Order for Relief was entered, the petitioning creditors moved for the appointment of a trustee and a secured creditor moved for an order converting the case to one under chapter 7. Though the Conversion was ultimately ordered, it occurred more than a month after the Petition Date. During this period, the Assignee was forced to maintain the Assets and, by order of the court, consummate the Sale.
The second grey period is of similar, though shorter nature, but occurred after the Conversion but before the Trustee was appointed. While the United States Trustee appointed a trustee on the day following the conversion, that trustee resigned. It was nine days after the Conversion that the Trustee took on his role. While it could be argued that the Conversion terminated the excuse from compliance permitted by the 543 Order, the Assignee was again left in the uncomfortable position of being the custodian of the Assets with no clear avenue to follow.
Following the appointment of the Trustee, all that remained for the Assignee was to turnover the remaining Assets and make an accounting for its actions. A custodian may be compensated for those actions. Kenval Mktg., 84 B.R. at 35-36. It follows, therefore, that a custodian's professionals may also be compensated for assisting in those actions. In re Snergy Props., Inc., 130 B.R. 700, 705 (Bankr. S.D.N.Y. 1991) ("[T]he custodian is entitled to apply to the bankruptcy court pursuant to 11 U.S.C. § 543(c)(2) for reasonable compensation for services rendered and costs and expenses incurred, including legal fees reasonably incurred in connection with the custodian's services.") (emphasis added).
The Trustee contends that compensation for the preparation and litigation of custodian fee applications is limited to a proportionate amount of the compensation awarded for the total hours in the main case. Courts have applied limits in the range of 3% to 5% in this regard. In re Spanjer Bros., Inc., 203 B.R. 85, 93 (Bankr. N.D. Ill. 1996) (Squires, J.) (compensation limited to 5%); In re Wildman, 72 B.R. 700, 711 (Bankr. N.D. Ill. 1987) (Schmetterer, J.) ("In the absence of unusual circumstances, the hours allowed by this Court for preparing and litigating the attorney fee application should not exceed three percent of the total hours in the main case.") (emphasis added); see also Pettibone, 74 B.R. at 304 (citing Coulter v. State of Tennessee, 805 F.2d 146, 151 (6th Cir. 1986)) (in non-bankruptcy cases, compensation for preparation and litigation of fee petitions limited to 3-5% of the hours of the main case).
The purpose of these holdings is to prevent unnecessary costs to the estate. Absent unusual circumstances, the court might not vary from the standard set by these cases. Given the issues briefly described above, unusual circumstances do exist. Even in the best of cases, applying normal rules of thumb for professional compensation in other areas to applications in the context of section 543 is hardly fair. The rules governing these requests are convoluted and ill-conceived. See, e.g., Montemurro, 581 B.R. at 578-79; Stainless I, 579 B.R. at 845.
As best as the court can determine, the compensation requested for preparation and litigation of the Assignee Application makes up approximately 10% of the Application's total requested compensation. Under the unique circumstances of this case, the court finds such efforts to be reasonable.
Recently the Supreme Court has applied the American Rule to the defense of fees under section 330 of the Bankruptcy Code. Baker Botts L.L.P. v. ASARCO LLC, ___ U.S. ___, 135 S.Ct. 2158, 2164, 192 L.Ed.2d 208 (2015). The American Rule is simple: "Each litigant pays his own attorney's fees, win or lose, unless a statute or contract provides otherwise." Hardt v. Reliance Standard Life Ins. Co., 560 U.S. 242, 252-253, 130 S.Ct. 2149, 176 L.Ed.2d 998 (2010).
In ASARCO, the Supreme Court found section 330 not to be the type of fee-shifting statute contemplated as an exception to the American Rule, stating that:
ASARCO, 135 S.Ct. at 2165 (2015) (citation omitted).
In the context of section 503(b)(1), this result comports with the other case law on the matter. See, e.g., In re Morry Waksberg M.D., Inc., 692 Fed.Appx. 840, 841 (9th Cir. 2017) (finding that section 503(b)(1) did not effectuate fee shifting, thus an applicant's counsel could be reimbursed for the costs of applying but not
The language of section 503(b)(4) is similar to the complained of language in section 330, allowing "reasonable compensation for professional services rendered by an attorney or an accountant of an entity... and reimbursement for actual, necessary expenses incurred by such attorney or accountant." 11 U.S.C. § 503(b)(4).
In 29 Brooklyn Ave., however, the court found cause to distinguish section 503(b)(4) from section 330 and ASARCO, stating that:
29 Brooklyn Ave., 548 B.R. at 647 (citations omitted). "Therefore, since the Receiver's underlying services provided a benefit to the estate, and the fees incurred defending the proof of claim were necessary in this case, those fees are allowable under § 503(b)(4)." Id. at 652.
The court agrees. Much of Katten's services were performed in successfully defending the Assignee Application. This case exemplifies the type of case where a custodian is entitled to the protections Congress afforded it in the statutes. The Assignee's services were necessary and reasonable. So too, are Katten's efforts in defending the Assignee Application.
Neither section 543(c)(1) nor (2) make clear how to treat counsel's expenses if counsel to a custodian is being compensated thereunder. Because such expenses are assessable to the custodian by its counsel, it follows therefore that the counsel's expenses may also be reimbursed thereunder. Randolph, 190 U.S. at 538, 23 S.Ct. 710. In the court's determination, Leventhal, 19 F.3d at 1178; Pettibone, 74 B.R. at 300, the standard under either section should be as it is generally in these provisions — reasonableness. Should Katten seek the authority of the court to apply the Retainer to prepetition expenses, it must meet this standard.
That said, even under this more expansive view, Katten's application costs are extraordinary. As part of the Application, Katten submitted Invoice No. 1301396983 in the amount of $22,042.50. This invoice is entirely spent on matters relating to compilation and submission of the Assignee Application. Excluding this amount from the total Application and excluding unsupported prepetition and post-Application fees, the total amount applied for by Katten is $60,682.50, resulting in a 36% application cost. This is beyond what the court may allow.
Under the circumstances, the court will expand the traditional 3-5% set forth in the cases above to 10%, but no more. Ten percent of $60,682.50. The court will therefore allow the fees sought in Invoice No. 1301396983 in the amount of $6,068.25. The remainder of this request is disallowed.
All the foregoing brings us in what is, essentially, a full circle — back to the question of reasonableness. The Trustee has challenged the reasonableness of specific tasks performed by Katten, providing an
As discussed above, applicable case law allows the court to apply the standard of section 330(a) to both compensation and expenses under section 503(b)(4). As a result, the court has reviewed the Application with those rules in mind. Bankr. N.D. Ill. R. 5082-1; see 444 N. Nw. Hwy, LLC, 2013 WL 122527, at *6-7; see also, e.g., Assignee Award, at *1.
Excluding the costs of the Application discussed above, the Assignee has sought $52,158.00 for Katten's services and $589.09 for Katten's expenses prior in the chapter 11 case and $8,524.50 for services and $3,141.74 for expenses in the chapter 7 case.
The Assignee has sought $52,158.00 for Katten's services and $589.09 for Katten's expenses in the chapter 11 case, from the Petition Date (February 3, 2017) to the entry of the Conversion Order on March 7, 2017. The court has reviewed the time entries and expenses in light of the applicable standards under section 503(b)(4) set forth above and the normal rules of compensation of this District, and finds the following reductions to apply:
As for services, a small amount of time (2.6 hours @ $375.00/hour) was either purely clerical in nature or of no benefit to the client. In addition, an even smaller amount of time was billed for a consultation in excess of the other party's time entries for the same consultation (0.2 hours @ $790.00/hour). As such, the court finds that $1,133.00 of the services rendered are not reasonable. The remainder will be allowed. As for expenses, multiple taxis were charged to attend court hearings approximately seven blocks from Katten's offices ($42.00). In the absence of further substantiation of the need for those taxi expenses are unnecessary and thus are disallowed. The remainder will be allowed.
As a result, the court allows as reasonable compensation $51,025.00 for services and $547.09 for actual, necessary expenses for this period.
The Assignee has sought $8,524.50 for Katten's services and $3,141.74 for Katten's expenses in the chapter 7 case, from the entry of the Conversion Order on March 7, 2017 to the filing of the Application on September 1, 2017. The court has reviewed the time entries and expenses in light of the applicable standards under section 503(b)(4) set forth above and the normal rules of compensation of this District, and finds the following reductions to apply:
As for services, the court finds the entire amount to be reasonable. The requested amount will be allowed. As for expenses, Katten mailed on June 22, 2017 a total of 255 items by certified mail, without any description of the need for certified mail as opposed to regular United States mail. The standard compensable mail costs for regular United States mail by meter is $0.47/letter. As a result, the court will reduce the requested $2,145.38 for certified mail costs to an allowed expense of $119.85 (255 items @ $0.47). The result is
As a result, the court allows as reasonable compensation $8,524.50 for services and $1,116.21 for actual, necessary expenses for this period.
In conclusion, the Application is approved and Katten's fees and expenses are allowed in the manner discussed above. A separate order in that effect will be entered concurrently herewith.
Upon the Application for Allowance and Payment of Administrative Expense Claim [Dkt. No. 181] (the "
NOW, THEREFORE, IT IS HEREBY ORDERED THAT:
The Application is GRANTED as set forth herein. Katten is allowed an administrative expense with priority under 11 U.S.C. § 503(b)(4) as follows: (1) For the period from February 3, 2017 to the entry of the order of conversion on March 7, 2017:
Fees: $51,025.00 Expenses: $547.09 Total $51,572.09 ; and
(2) For the period from the entry of the order of conversion on March 7, 2017 to the filing of the Application on September 1, 2017:
Fees:$8,524.50 Application Fees:$6,068.25 Expenses:$1,116.21 Total$15,708.96
The court makes no ruling with respect to Katten's prepetition fees or expenses (or the application of the any retainer thereto) or any addition, post-Application fees or expenses of Katten, as those requests have not been made in particularity and are not properly before it. This order does not preclude a further application for either of those two periods.
