The City of El Monte and El Monte Community Redevelopment Agency (together, El Monte) appeal two orders of the bankruptcy court that granted the debtor's applications to employ professionals: (1) Landsberg & Associates, a Professional Law Group (Landsberg) as general insolvency counsel (BAP No. CC-11-1264-HKiMk); and, (2) Jeffer Mangels Butler & Mitchell, LLP (Jeffer) as special litigation counsel (BAP No. CC-11-1263-HKiMk). We DISMISS both appeals for lack of jurisdiction.
TV, LLC (the Debtor) filed a chapter 11
On March 4, 2011, the Debtor filed an application to employ Landsberg as general insolvency counsel (the Landsberg Application). The Debtor sought approval of Landsberg retroactively to February 22, 2011.
The Landsberg Application set out the proposed scope of Landsberg's representation in assisting the Debtor in all matters concerning the administration of the bankruptcy case. It provided the biographical information for the Landsberg attorneys, the terms of the employment, including billing rates, terms, and practices. It also included a verified statement that Landsberg had no interest adverse to the Debtor and no prior connection with the Debtor, the Debtor's insiders, creditors, or other parties in interest.
Additionally, the Debtor requested that the bankruptcy court allow Landsberg's fees and costs to be paid directly, on a monthly basis by the Debtor's majority member, Cross Ocean Holdings (USA), Inc. (Cross Ocean), as a gift on behalf of the Debtor. And, to the extent that Cross Ocean did not, or could not pay the fees and costs, the Debtor requested the fees and costs be paid as an administrative expense of the estate. Included with the Landsberg Application was the Debtor's request that a $25,000 retainer received from Cross Ocean be approved. Landsberg stated that, for any fees sought from the estate, it would apply to the bankruptcy court for compensation in accordance with §§ 327, 328, 330 and 331.
At the time the Debtor filed bankruptcy, Jeffer was assisting the Debtor with two pending disputes. First, the Debtor asserted that it held an equitable and beneficial interest in the Property, even though the Property's title was held by Dennis Leung (Leung), a former member of the Debtor. The Debtor alleged that Leung was obligated under the terms of the Debtor's operating agreement to contribute the Property to the Debtor but failed to do so. The Debtor and Cross Ocean retained Jeffer in connection with the dispute and filed, prepetition, a complaint in California state court against Leung for breach of contract and to quiet title to the Property in favor of the Debtor (the Leung Action).
The second dispute concerned a major development project surrounding the El Monte bus depot (the Project). The Debtor was created to develop the Project with El Monte under a 2008 Disposition and Development Agreement (DDA). Sometime in 2010, El Monte terminated the DDA with the Debtor. After filing bankruptcy, in early March 2011, the Debtor filed a complaint in California state court against El Monte for breach of contract (the El Monte Action).
At the same time the Debtor filed the El Monte Action, it filed an application to employ Jeffer as special litigation counsel, retroactive to the petition date of January 31, 2011, for the purpose of assisting the Debtor with ongoing litigation in the Leung Action and to prosecute the El Monte Action (the Jeffer Application).
The Jeffer Application set out the proposed scope of Jeffer's representation, its billing rates, terms, and practices, and biographical information of its attorneys. The Jeffer Application also included a verified statement that Jeffer did not hold or represent any interest adverse to the Debtor with respect to the Leung Action or the El Monte Action.
Jeffer made several disclosures regarding its relationships with the Debtor and Cross Ocean, as well as with some of the Debtor's members that it represented in connection with the DDA, the Leung Action, and in other general business and corporate matters. Jeffer also disclosed that Cross Ocean was paying its own fees and costs, as well as the fees and costs of the Debtor.
In the Jeffer Application, Jeffer requested that the bankruptcy court approve the fees already incurred and paid by Cross Ocean. It also requested that the bankruptcy court allow Cross Ocean to continue paying Jeffer directly, on a monthly basis for the Debtor's attorney's fees. To that end, Jeffer disclosed the fees it received prepetition and postpetition for services provided to the Debtor and to Cross Ocean. Jeffer represented that Cross Ocean would pay the fees as a gift to the Debtor and not seek reimbursement from the estate. However, to the extent Cross Ocean did not pay the Debtor's fees and Jeffer sought compensation from the estate, Jeffer stated it would apply to the bankruptcy court for compensation in accordance with §§ 327, 328, 330 and 331.
El Monte filed objections to the Landsberg Application and the Jeffer Application. El Monte argued that: (1) neither Landsberg nor Jeffer adequately disclosed all connections with the Debtor, creditors, and parties in interest; (2) having attorneys' fees paid by Cross Ocean created an improper conflict of interest; (3) Jeffer did not provide informed consent waivers from his former clients; and, (4) there were no grounds for approving employment retroactively.
The bankruptcy court held a hearing on the Landsberg Application and the Jeffer Application on April 27, 2010 (Application Hearing). At the Application Hearing, El Monte pressed its main arguments that Landsberg, and particularly Jeffer, failed to disclose all conflicts with creditors, and that an adverse interest existed to disqualify both Landsberg and Jeffer because Cross Ocean was paying the fees, not the Debtor.
The bankruptcy court sought clarification from Jeffer of the fees already paid but otherwise overruled El Monte's objections and granted the Jeffer Application. The bankruptcy court also granted the Landsberg Application after it was satisfied that Landsberg would adequately address any conflict with Cross Ocean that could arise in the future.
The bankruptcy court entered an order granting the Jeffer Application on May 11, 2011, and the Landsberg Application on May 12, 2011 (together, the Employment Orders). The Employment Orders granted the Landsberg Application and the Jeffer Application in their entirety, approving all their terms, including the direct monthly payments by Cross Ocean, and Cross Ocean's payment of retainers and other fees. El Monte filed timely notices of appeal.
After El Monte appealed, at the close of a hearing on May 25, 2011, the bankruptcy court appointed a chapter 11 trustee replacing the Debtor as debtor-in-possession. Landsberg subsequently submitted two fee statements to the trustee setting out the fees and costs incurred by the Debtor during February and March 2011 (Fee Statements). The Fee Statements indicated that Landsberg would draw against the retainer in its trust account unless an objection was filed. Although El Monte received notice of the Fee Statements, it did not file any objection to them.
On June 17, 2011, the Bankruptcy Appellate Panel (BAP) filed orders requiring El Monte to explain how the Employment Orders were final orders subject to appellate jurisdiction. El Monte responded by arguing that the Employment Orders were final in that they authorized the employment and compensation of Landsberg and Jeffer without allowing any further supervision by the bankruptcy court. The BAP granted El Monte's motions for leave to appeal by orders issued on July 26, 2011, reserving for the BAP's merits panel its own jurisdictional review regarding the issue of finality.
Do we have jurisdiction over the appeal?
If so, did the bankruptcy court err in entering the Employment Orders?
The bankruptcy court had jurisdiction under 28 U.S.C. § 157(b)(2)(A), and § 1334(b). We address below our jurisdiction under 28 U.S.C. § 158(a)(3).
Questions of our own jurisdiction, such as whether an order is final, may be raised sua sponte, and are reviewed de novo.
Orders on employment and disqualification of professionals are reviewed for abuse of discretion.
A bankruptcy court order may be considered final if it "1) resolves and seriously affects substantive rights, and 2) finally determines the discrete issue to which it is addressed."
Here, the BAP motions panel determined that leave to appeal was appropriate. 28 U.S.C. § 158(a); Rule 8003(c) (authorizing the Panel to grant leave to appeal an interlocutory order). However, we are not bound by that determination.
Granting leave to appeal an interlocutory order is appropriate when the order involves a controlling question of law as to which there is substantial ground for difference of opinion and when the appeal is in the interest of judicial economy because an immediate appeal may materially advance the ultimate termination of the litigation.
According to the Landsberg Application and the Jeffer Application, Cross Ocean's payment of the fees was a "gift" to the estate. Gifts are generally considered to be property of the estate.
Accordingly, leave to appeal the Employment Orders is not necessary because, contrary to El Monte's contention, the matter can still be addressed by the bankruptcy court.
Landsberg contends that these appeals are moot because a chapter 11 trustee has now been appointed to protect the estate's interests. However, because we have already determined that we lack jurisdiction over the appeals as interlocutory, we do not need to reach the question of whether the appeals are also moot.
Because we do not have jurisdiction of the appeals, we do not reach the merits of El Monte's arguments on appeal.
We DISMISS the appeals for lack of jurisdiction.
In California, a gift requires "(1) competency of the donor to contract; (2) a voluntary intent on the part of the donor to make a gift; (3) delivery . . . (4) acceptance . . .; (5) complete divestment of all control by the donor; and (6) lack of consideration for the gift."
However, LBR 2014-1(c)(1) provides that "[i]f the court approves the terms of a professional's employment, including a fee based on an hourly rate, fixed or percentage fee, contingency or success fee, or a combination thereof, the court will not reconsider such terms of employment at a subsequent time except as provided in 11 U.S.C. 328(a)."
