MARVIN ISGUR, Bankruptcy Judge.
The Court must determine whether Lowell Cage must be removed as the chapter 7 Trustee in this case. Because the Court has determined that Cage has faithfully honored his duties as Trustee, he will not be removed.
Mr. Cage has recovered approximately $1.5 million dollars in his capacity as Trustee for the Estate. With Court approval, the Trustee retained his own law firm, Cage, Hill & Niehaus, L.L.P. ("Cage Hill") as counsel. In its Third Interim Fee Application, Cage Hill requested total fees in the amount of $748,856.65. Despite this substantial recovery, the distributions to creditors will be minimal because of the high litigation costs incurred by the Estate. Nevertheless, a substantial award of additional legal fees is justified.
At the hearing on the Third Interim Fee Application, the Court learned that Sonny Adams, an employee of the Estate, received a vehicle from the Estate's largest creditor (Automotive Finance Corporation, hereinafter "AFC"), and did not provide consideration for the vehicle. Certain former investors alleged that this "gift" of the vehicle led to decisions by Mr. Cage that were unreasonably favorable to AFC.
At the hearing, it was readily apparent that Mr. Cage and many of the claimholders strongly dislike one another.
If Cage Hill's application had been approved as originally filed, substantially all of the Estate's funds would have been paid either to Mr. Cage, his lawyers, or AFC.
These facts raised concerns as to whether Mr. Cage remained in a position to objectively serve in his capacity as trustee of the Estate. Mr. Cage indicated his view that it was in the best interests of the Estate for him to remain as Trustee. The Court issued a show cause order to determine whether Mr. Cage should remain as trustee.
Section 324(a) of the Bankruptcy Code makes the trustee the representative
The duties of a trustee are of great import to preserving the integrity and efficiency of the bankruptcy system. Accusations or appearances of impropriety by a trustee should not be taken lightly. Courts should investigate serious accusations against trustees to uphold public confidence in the integrity of the bankruptcy system.
Based on this precept, the Court issued its Order to Show Cause. ECF No. 654. Hearings were held over a three month period. A total of 25.5 hours of Court time were consumed. 47 exhibits were offered into evidence. Five witnesses testified in the Trustee's case-in-chief. Five witnesses testified in the Respondent's case-in-chief. Following these extensive hearings, the Court is firmly convinced that Mr. Cage has fully satisfied his fiduciary obligations and should not be removed as the chapter 7 trustee.
On October 31, 2007 an involuntary chapter 7 petition was filed on behalf of JMW Auto Sales, L.L.C. ("JMW"). Case No. 07-37364. The principals of JMW, Marvin and Joan Moye filed a voluntary chapter 7 petition on November 6, 2007. Case No. 07-37770.
Prior to the bankruptcy filings, JMW was in the retail used car business and provided in-house financing on its vehicles. Waite, et al. v. Cage (In re Moye), 458 Fed.Appx. 385, 387 (5th Cir.2012). In order to obtain in-house financing from JMW, purchasers would execute a retail installment sales contract. Id. JMW generated additional cash-flow by selling pools of installment contracts to outside investors. Id.
The sales of the installment contracts were memorialized by a generic Master Purchase and Sale Agreement ("PSA"). Id. The parties often ignored the terms of the PSA. Id. at 388. For example, JMW would often remit monthly distributions to a pool participant equal to the full amount of principal and interest due, regardless of the amount actually collected by JMW. Id. Consequently, JMW was unable to continue making payments to the pool participants. To generate needed cash, JMW sold certain of the installment contracts to a third party, Mid-Atlantic Finance Company, ("Mid-Atlantic"), at a discounted price. Id. A portion of the proceeds of the sale to Mid-Atlantic were paid to pool participants. Id. at 388-89. At the time of the petition JMW's inventory included approximately 100 vehicles.
Subsequent to the Moyes filing their voluntary petition, Lowell Cage was appointed chapter 7 trustee in the voluntary case. On November 13, 2007, the Court issued an Agreed Order for Relief in an Involuntary Case Requiring Appointment of a Chapter 7 Trustee and Interim Provision for Filing Schedules in the JMW Case. ECF No. 50 at 1. Mr. Cage was appointed chapter 7 trustee in the JMW case as well. ECF No. 50 at 1. On December 3, 2007, the Court issued an Order for Joint Administration of Case No. 07-37364 and Case No. 07-37770.
On December 20, 2007, the Trustee filed his Application for Retention of Counsel for the Trustee, (ECF No. 50), seeking to employ a law firm in which Cage is a partner, Cage Hill. On January 1, 2008,
On April 27, 2012, Cage Hill filed its Third Interim Application for Compensation by Attorney for Trustee, Cage, Hill & Niehaus, L.L.P. for Period July 29, 2010 through March 31, 2012 (the "Application"). ECF No. 627. Cage Hill sought fees in the amount of $320,806.00 resulting in total fees requested in the Application and all prior applications of $748,856.65.
On May 18, 2012, several creditors filed their Response Opposing the Third Interim Application for Compensation by Attorney for Trustee.
A hearing was held on the Application on October 5, 2012. At the October 5 hearing, Sonny Adams (a former employee of JMW and the Trustee) testified that he received a 2001 Lexus L430 automobile (the "Lexus") from the Moyes as an employment perk. Mr. Adams testified that title to the Lexus was signed over to him by Mrs. Joan Moye. On May 30, 2008, Judge Steen (then the presiding judge over this bankruptcy case) issued an Order declaring the post bankruptcy transfer of the Lexus to Adams a void transaction. Judge Steen also denied the Trustee's motion to authorize a nunc pro tunc transfer of the Lexus.
The Lexus was run through an auction to determine its value. AFC placed the car in the auction, but purchasers were advised that the Lexus might or might not actually be sold. The highest bid at the auction was for $5,700.00. ACF then offered to sell the Lexus to Mr. Adams for $5,800.00. In July 2008, Mr. Adams received the Lexus and the title from AFC in exchange for a cashier's check in the amount of $5,800.00.
Mr. Adams' cashier's check for the Lexus was never cashed by AFC. He alleges that he received a written notification from his credit union informing him that the check was never cashed. When he contacted AFC about the notification, Adams was informed that everything was in order.
Mr. Cage and his counsel expressed surprise that the check was never cashed. The Court ordered a continuance of the hearing to allow the parties to depose an
The hearing was continued to November 27, 2012. At the November 27 hearing, Alan Padfield appeared on behalf of AFC. He was unable to provide any additional information about the Lexus or why Mr. Adams' check was not cashed.
To compound the problem, Mr. Adams was responsible for preparing certain documents that were ultimately filed with the Court. One of those documents — prepared by Mr. Adams but signed by Mr. Cage — inaccurately stated that the Lexus was sold at auction and also stated an inaccurate date for the sale.
The Court expressed its concern as to whether Mr. Cage remained in a position to objectively serve in his capacity as Trustee of the estate. The Court stated that:
The Court gave the Trustee and his counsel the opportunity to discuss whether Mr. Cage should remain in his position as Trustee. Mr. Cage expressed that as a fiduciary of the Estate, the Estate would be best served if he remained.
On November 28, 2012, the Court issued its Order to Show Cause on whether Mr. Cage should be removed. ECF No. 654.
Mr. Michael Durrschmidt served as the Moyes' attorney prior to the appointment of Mr. Cage as the Trustee. Mr. Durrschmidt testified at the show cause hearing regarding the state of affairs Mr. Cage inherited upon his appointment. There were ninety-six used cars, 112 contracts, no ability to reorganize and no equity, and 700 pages of schedules and statements. The majority of the Debtors' customers were low-income, many did not speak English. Many of the car notes were payable weekly and were paid in cash or by cashier's check. Because of this unique circumstance, it was necessary to maintain a deposit box for customers to deliver their payments. Due to the complexity of the business, the Trustee chose to retain two JMW employees, Sonny Adams and Sandra Martinez. Mr. Durrschmidt recommended these employees to Mr. Cage. He recommended Mr. Adams because he had an understanding of the notes and the pools. He recommended Ms. Martinez because she was interfacing with customers.
Mr. Cage also testified that upon his appointment, he found the estate in a mess. This was the most difficult case he has ever administered. There were many contracts for payment and he was unsure which of the pool participants owned the contracts. Some of the pool participants were collecting on their contracts and others were relying on JMW to collect on the contracts. Many cars that had been sold out of trust were being driven without tags. Various people claimed to have liens on vehicles sold at or around the time of the involuntary petition. It took Mr. Cage
After conducting a UCC search, Mr. Cage determined which of the pool participants he believed had liens on the vehicles — he determined that AFC and Dealer Services Corporation ("DSC") held perfected liens. It appeared that AFC and DSC had a lien on the inventory they had floor-planned. AFC and DSC had already seized their collateral prepetition, so the Trustee agreed to lifting the stay. After notice and hearing, an order was issued that lifted the stay and AFC and DSC foreclosed on their respective collateral.
Mr. Hardy Rawls/Hardy Rawls' Enterprises LLC ("Hardy Rawls") also claimed to have provided outside financing to JMW for at least some of the collateral repossessed by AFC and DSC prepetition. Trustee's Exhibit 4 is a letter from Hardy Rawls' attorney, Patrick Hoskins.
Warren Waite, Jr./Kings Kar LLC, Warren Waite, III, and Robert and Shirley Strange were also pool participants claiming an interest in the repossessed vehicles.
Mr. Cage, through counsel, sent letters to all pool participants requesting face-to-face meetings. He did not immediately begin litigating, because he believed that attempting to peaceably resolve the participants claims would keep costs down. When no agreement could be reached, and with encouragement from the Court to move the case more rapidly, Mr. Cage decided to sue MRB and Warren Waite, Jr./ Kings Kar LLC (the largest two pool participants). See Trustee's Exhibit 8. Mr. Cage chose his strategy because he believed that if he succeeded in these suits, he could get a declaratory judgment that none of the pool participants owned the contracts, and he could bring preference actions against them.
The Trustee also filed his Application to Sell Property of the Estate Free and Clear of Liens, Claims and Encumbrances, seeking authority to sell 130 vehicles.
Judge Steen ordered a global mediation by all interested parties.
Mr. Rawls, Mrs. Strange and Mr. Waite III, did not appear at the mediation in Dallas. At the mediation, Mr. Warren Waite Jr. and Mr. Robert Strange alleged that they served as representatives of the absent defendants.
When cross-examined, Mr. Waite admitted that he made no counter offer at the mediation or otherwise. He asserted that no counter offer was made because the mediator told him that doing so would be futile. Mr. Waite's complaint is misplaced. A bankruptcy trustee can and should make reasoned negotiating decisions. In certain instances, a trustee may be prepared to make uniform settlements. In other instances, a trustee may decide that non-uniform settlements will result in a greater recovery. Some of the obviously valid reasons for this differential are:
Contrary to the arguments made by the Hinds' Clients, Mr. Cage has demonstrated that he has devoted the time, and judgment, to best administer this case. He has recognized each defendant's individual factors, and based on his own business judgment, Mr. Cage attempted to negotiate the
On September 29, 2008, Judge Steen issued a Memorandum of Law Concerning Title and Liens on Vehicles in Texas. ECF No. 212. Judge Steen found that AFC had filed a UCC-1 financing agreement giving it a perfected first lien on the Debtors' inventory. Based on this finding, relief from the automatic stay was granted to allow AFC to exercise its state law rights with respect to the inventory. ECF No. 212 at 1.
Judge Steen concluded that Hardy Rawls did not have a perfected security interest in any of the Debtors' vehicles and directed Mr. Cage to deliver the vehicle titles to AFC. ECF No. 212 at 1. Judge Steen found that it was the law of the case that Hardy Rawls' interest was unperfected and found that the Hardy Rawls' claim was unsecured.
By the time that Mr. Cage filed his fourth operating report on December 3, 2008, he had incurred 98.6 trustee hours during the period from August 15, 2008 through December 3, 2008, totaling approximately 440 hours. During the same period, Mr. Cage reported 247 hours of attorney time, for a total of approximately 757 hours. Mr. Cage believes that the amount of time spent on the case was unusually large and was due in large part to an attempt to resolve the competing ownership interests in the loans and collect on the loans. Mr. Cage does not believe that anything could have been done differently to reduce the hours incurred as of his December 3, 2008 report. There is no evidence challenging the accuracy of those beliefs.
By the time Mr. Cage filed his fourth operating report, he had resolved all of the adversary proceedings except those against the Hinds' Clients. Mr. Cage eventually obtained summary judgment against all of the Hinds' Clients. These judgments were appealed to the district court, and subsequently to the Fifth Circuit. The judgments were affirmed by both appellate courts.
AFC sold its collateral at auction and credited its claims against the Estate with the net auction proceeds.
In Mr. Cage's Motion for Authority to Sell, (ECF No. 130), he stated his opinion that the auction would net conservatively, $250,000.00 for the remaining vehicles. The average price per vehicle sold at AFC's auction was $1,400.00.
In July 2009
According to Respondents' Exhibit B, which provides auction invoices for all of the vehicles sold, some vehicles were auctioned for amounts as low as $50.00. Darlene Phillips, a JMW employee, and Mr. Strange, both testified that in their extensive experience in the used car auction industry, there was no explanation for such low sale prices.
The evidence introduced by the Hinds Clients showed that the auction amounts for many vehicles were far below the actual cash value, ("ACV"), listed on the auction papers for the vehicles. Ms. Phillips and Mr. Strange both testified that the ACV listed on the auction papers was a reasonable estimate for the expected value at auction. Accordingly, the Court selected the three vehicles with the greatest disparity. As to those vehicles, the Court ordered that the entire auction file be produced. The auction file on these three vehicles was produced. It included extensive photographs of the vehicles.
As established by subsequent testimony, Ms. Phillips and Mr. Strange were incorrect in their testimony. The ACV in the auction papers represented the value that would be expected to be received from a vehicle in average condition given the age and make of the vehicle.
Trustee's Exhibits 36, 39, 42, and 45 provide photographic evidence of the condition of the cars auctioned for the exceptionally low amounts. It is apparent from the photographs that the values were reasonable based on the stripped condition of the vehicles.
The Court concludes:
The Hinds' Clients challenge whether Mr. Cage properly controlled the legal fees incurred by the Estate. The Hinds Clients argue that hiring counsel on a contingency fee would have been more beneficial to the Estate since Cage Hill's fixed fee has resulted in the Mr. Cage's firm receiving approximately ninety percent of the recovery to the Estate.
Mr. Cage denied that his firm is receiving ninety percent of the recovery. The total recovery to the Estate is approximately $1.5 million. Administrative expenses include, among other things, bond fees, sales taxes, licensing fees, deposition transcript costs, DMV taxes, monthly expenses related to the Debtors' computer systems and record storage, mediator fees, estate employees and professionals. He estimated that there was a total of $300,000.00 in operating expenses, $150,000.00 paid to AFC, and approximately $80,000.00 paid to other professionals.
As an initial matter, the retention of Cage Hill on an hourly fee basis was approved by the Court. The Court cannot now alter the terms of the retention, unless events have occurred that could not have been anticipated at the time of the retention. 11 U.S.C. § 328.
Mr. Cage performed a comparison of the hourly fee (actually charged by his firm) and what would have been charged had he retained counsel on a contingency. Regardless of whether certain work was performed on a contingent basis, there was still hourly work to be done. The testimony is uncontroverted that $260,000.00 in legal fees were incurred for work that could not have been performed on a contingent fee basis. With respect to work that could have been performed on a contingent fee basis, the following chart shows the hypothetical contingent fees:
Hypothetical Contingent Rate Total Contingent Fee
30% $407,000.00
40% $543,000.00
When the $260,000.00 in base legal fees is added to these hypothetical contingency fees numbers, the total fees for the Trustee's counsel would have been between $667,000.00 and $803,000.00. The actual total fees incurred by the Trustee's counsel at the time of hearing were $748,856.65 — essentially in the middle of the two hypothetical contingency figures.
Based on the Court's experience and the nature of these claims, the Court finds it unlikely that contingent fee counsel would have accepted an assignment in these cases at the 30% level.
Additionally, at the Trustee's request, Cage Hill voluntarily reduced the fees in its Third Interim Application from $320,806.00 to $200,000.00 and has agreed to waive payment of the fees accrued through December 1, 2012, totaling approximately $62,000.00. These reductions result in total fees of $628,050.65. This total is less than the hypothetical legal fees if the Trustee had obtained a 30% contingency fee arrangement.
The District Court has jurisdiction over this proceeding under 28 U.S.C. § 1334(a). Pursuant to 28 U.S.C. § 157(a), this proceeding
The Bankruptcy Code is silent on the standard of proof required to remove a trustee. In re Tres-Ark, Inc., 483 B.R. 460, 467 (Bankr.W.D.Tex.2012). At least one court has held that due to the seriousness of removing a trustee, the standard should be clear and convincing evidence. In re Walker, 2004 WL 3152787, at *1 (S.D.Fla. Dec. 1, 2004).
Removal of a trustee is an extreme remedy. See United States Trustee v. Repp (In re Sheehan), 185 B.R. 819, 822 (Bankr.D.Ariz.1995); see also Ritchie Special Credit Investments, Ltd., et al. v. U.S. Trustee, et al., 415 B.R. 391, 399 (D.Minn. 2009). The seriousness of removal is emphasized by the fact that some courts will only remove a trustee upon a showing of fraud or actual injury to the estate. See In re Bennett, 2007 WL 2480524, at *9 (Bankr.N.D.N.Y. Aug. 28, 2007) (citing Freeport Italian Bakery, Inc., 340 F.2d 50, 54 (2d Cir.1965)); see also In re Lundborg, 110 B.R. 106, 108 (Bankr.D.Conn.1990).
The Code provides that whenever a trustee is removed from a case under § 324, the trustee will automatically be removed from all cases in which he is serving, unless the court specifically orders differently. If the trustee engaged in a breach of his fiduciary duty, it is only appropriate that the default provision of § 324 (that is, removal from all cases) should be invoked. If the trustee is removed for a lesser cause, the Court might invoke authority to remove the trustee from a single case.
In this case, the concern is one of a breach of fiduciary duty. If the Trustee should be removed, then he should be removed from all cases under § 324(b). Cage is currently a trustee in 329 open cases and adversary proceedings. His removal would be disruptive as it would result in a change of trustee in all 329 cases and adversary proceedings. Under these circumstances, there are particularly important interests at stake that mandate the use of a "clear and convincing" standard of proof.
The majority of the case law concerning the removal of a trustee involves negligence or intentional misconduct by the trustee. Baker v. Seeber (In re Baker), 38 B.R. 705, 707 (D.Md.1983). However in some instances a trustee is removed based solely on a consideration of what is in the best interests of the bankruptcy estate. Id. at 708. In In re Mason, the
In contrast, when a trustee is removed from all cases in which he is serving, removal would indicate negligence or intentional misconduct by the trustee. A trustee's negligent or intentional misconduct jeopardizes an important public interest, the integrity of the bankruptcy system. As such, when removal from all cases is at stake, the standard of proof should be clear and convincing evidence. Because this proceeding contemplates negligence or intentional misconduct by the Trustee, the standard of review is clear and convincing evidence.
Clear and convincing evidence is "that weight of proof which produces in the mind of the trier of fact a firm belief on conviction as to the truth of the allegations sought to be established, evidence so clear, direct and weighty and convincing as to enable the fact finder to come to a clear conviction, without hesitancy, of the truth of the precise facts of the case." Shafer v. Army & Air Force Exch. Serv., 376 F.3d 386, 396 (5th Cir.2004).
In In re CNC Payroll, Inc., this Court, issued an order to show cause following a letter the trustee wrote soliciting other firms to serve as estate counsel. 2013 WL 1844109, at *1 (Bankr.S.D.Tex. May 1, 2013). The show cause order was issued because the letter appeared to be designed to favor the trustee's firm — a breach of the trustee's fiduciary duty. Id. The Court found that the letter was intended to dissuade other firms from competing with the trustee's own firm, to the detriment of the estate. Id. at *8. However the Court was especially persuaded by the declaration of an attorney at one of the firms that received the solicitation letter, which provided that once his firm expressed interest in the case, the trustee treated him fairly in all respects. Id. The Court held that there was not clear and convincing evidence that the trustee breached his fiduciary duty. Id.
In In re IFS Financial Corporation, et al., this Court issued an order to show cause when it was discovered that the trustee and his attorney (also his wife), billed the estate $3,486.37 in travel expenses for a five day trip to New Orleans for Fifth Circuit oral arguments.
11 U.S.C. 324 provides that:
What constitutes cause for dismissal is not defined in the Code, but is to be determined on a case-by-case basis. Dye v. Brown, et al. (In re AFI Holding, Inc.), 530 F.3d 832, 845 (9th Cir.2008); see also Miller v. Miller (In re Miller), 302 B.R. 705, 709 (10th Cir. BAP 2003). "It is well established that cause may include trustee incompetence, violation of the trustee's fiduciary duties, misconduct or failure to perform the trustee's duties, or lack of disinterestedness or holding an interest adverse to the estate." In re AFI Holding, 530 F.3d at 845.
As set forth above, the Court recently removed a chapter 7 trustee when he acted in derogation of his fiduciary duties and for the benefit of his own law firm. In re IFS Financial Corporation, et al., 2013 WL 2018540, at *1 (Bankr.S.D.Tex. May 13, 2013).
In Morgan v. Goldman, the chapter 13 trustee negotiated a deal with debtors to use insurance settlement proceeds to pay a secured creditor ahead of unsecured creditors while not reflecting such a deal in the debtors' plan. In re Morgan, 573 F.3d 615, 618-619 (8th Cir.2009). The trustee later changed her testimony and denied she made such a deal. Id. at 621-22. The bankruptcy court issued a show cause order, requiring the trustee to show cause why she should not be removed. Id. at 622. The Eighth Circuit upheld the trustee's removal because the trustee gave false testimony regarding her agreement with the debtors. Id. at 627-28. The trustee was removed from all cases in which she was serving as trustee. Id. at 622.
In In re AFI Holding, the chapter 11 trustee failed to disclose that she had previously represented one of the debtor's former investors in a dispute between the investor and the debtor. In re AFI Holding, 530 F.3d at 841. The trustee brought numerous preference actions and failed to bring a preference action against the former client. Id. at 842. The trustee did not disclose the extent of her relationship with the former client until after deposition testimony revealed the connection. Id. The removal of the trustee for lack of disinterestedness was upheld by the Ninth Circuit Bankruptcy Appellate Panel and the Ninth Circuit.
In In re Vega, the chapter 7 trustee solicited $50,000.00 from a lender, ostensibly to fund a lawsuit related to the bankruptcy. 102 B.R. 552, 554 (Bankr. N.D.Tex.1989). Instead, the trustee invested the funds in certificates of deposit, which he used to secure a personal loan obligation. Id. at 553. A portion of the funds were delivered to the trustee's law firm and consumed in the course of the firm's general operations. Id. The court found that the unauthorized acquisition and use of the funds was a breach of the trustee's fiduciary duty under § 324, and cause for dismissal from all cases in which he was serving as trustee. Id. at 554.
In In re Stephens & Co., the court held that although it could not conclude that the trustee was dishonest, his neglect and indifference
Cause does not exist to remove Mr. Cage in this case. To the contrary, the Court finds that Mr. Cage has well and faithfully executed his duties as Trustee. When Mr. Cage became Trustee he was faced with a very difficult task. Due to the state of the Debtors' affairs upon appointment, Mr. Cage was required to expend an unusual amount of time in administering this Estate. Mr. Cage incurred approximately 440 trustee hours in the first nine months of the case. He acknowledges that this amount is unusually high, but the Court finds that the time expended was reasonable in light of the complex nature of the case.
Mr. Cage made diligent, good faith efforts to resolve the disputes with potential preference defendants without protracted litigation. He successfully settled with all other preference defendants (except for the Hinds' Clients) during mediation. He subsequently obtained summary judgment against the Hinds' Clients in the preference actions.
Judge Steen previously made findings that several of the Hinds' Clients were vexatious litigants. As the Court has previously found, it is apparent that the parties in this case dislike one another. Of course, the Hinds' Clients were well within their rights to appeal any judgments entered against them, and vigorously defend their positions. While the Court makes no judgment regarding their actions, it is a fact that these actions did create additional costs for the Estate and prolonged the case for a significant period of time. These actions were beyond Mr. Cage's control, and as the fiduciary of the Estate he was charged with defending against such litigation.
It is true that Mr. Cage became exasperated with the Hinds' Clients. Although they had every right to vigorously defend themselves, they sometimes crossed the line from vigorous defense to vexatious conduct. More importantly, their vigorous defenses were untempered by economic and practical realities. The Court doesn't blame the Hinds' Clients for their uneconomic and impractical defenses. But, the results are now in. The final appeal is over. Mr. Cage's legal and factual positions were vindicated on appeal.
In apportioning responsibility for the unreasonably high legal costs, surely the prevailing party should not be blamed for a successful defense. To criticize Mr. Cage's successful defense would invite litigants to spend unreasonable sums just to force bankruptcy trustees to abandon meritorious claims. Rather than criticizing Mr. Cage, the Court applauds his conduct.
The Court heard extensive testimony as to whether Mr. Adams exercised any influence over Mr. Cage's decisions with respect to either AFC or the Hinds' Clients. There is a complete absence of evidence that Mr. Cage's conduct was in any way influenced in these matters by Mr. Adams. Accordingly, Mr. Cage's conduct in these matters was not impugned by the evidence.
With respect to the vehicle auctions, it is clear that the Trustee acted reasonably. Evidence was provided regarding the state of the vehicles which were allegedly auctioned below their value. It is apparent from Trustee's Exhibits 36, 39, 42, and 45 that they were completely inoperable, junk vehicles and the low auction prices were commensurate with the condition of the vehicles when sold.
The show cause hearing provided extensive testimony regarding Mr. Cage's performance as Trustee. The evidence at the hearing demonstrates that the Trustee diligently executed his fiduciary duties to the Estate. The Court finds no evidence that Mr. Cage breached his fiduciary duty. He will not be removed.
The Fifth Circuit has held that in determining the compensation of professionals employed by the estate the lodestar method, Johnson factors and 11 U.S.C. § 330, coalesce to form the framework for arriving at the proper fee amount. CRG Partners Group, L.L.C. v. Neary (In re Pilgrims Pride Corp.), 690 F.3d 650, 656 (5th Cir.2012).
The lodestar amount is found by multiplying the number of hours reasonably expended by the prevailing hourly rate in the community for similar work. Id. at 655. A bankruptcy court has the discretion to adjust the lodestar amount upwards or downwards in light of its analysis of the Johnson factors. Id.
The twelve Johnson factors that courts must consider in determining reasonableness of fees are:
Pursuant to 11 U.S.C. § 330(a)(1)(A), the court may award reasonable compensation
11 U.S.C. § 330(a)(3) provides that the following factors should be considered in determining the amount of reasonable compensation to a professional person:
The Court finds that the rates charged by Cage Hill are commensurate with the prevailing hourly rate in the community for similar work. The rates were disclosed in the Trustee's Application for Retention of Counsel for the Trustee. ECF No. 50. Approval by Judge Steen evidences a finding of reasonableness of the rates.
After review of Cage Hill's Billing Report from July 29, 2010 through March 31, 2012 the Court finds that the hours reflected in the Report were reasonably expended. The total of 1,273.12 hours when multiplied by the variable rates of each professional provides a total of $320,806.00.
Beginning with the base number of $320,806.00, the Court next considers the Johnson factors. The lodestar method is presumed to account for four of the twelve Johnson factors — "the novelty and complexity of the issues, the special skill and experience of counsel, the quality of representation, and the results obtained from litigation." In re Pilgrims Pride Corp., 690 F.3d at 659. Therefore these factors are not considered when making an upwards or downwards adjustment of the fee.
The time and labor required is reflected in the Cage Hill Billing Report and reflects that a significant amount of time was expended by counsel, but is fully accounted for within the lodestar calculation. The Court has determined that the rates charged by Cage Hill are a customary rate in the community for similar work. The fee arrangement with Cage Hill was on a fixed fee basis. The time limits imposed on Cage Hill relate to Mr. Cage's duty to administer the estate as efficiently and expeditiously as possible. The Court determines that Mr. Cage and his counsel made a good faith effort to fulfill this duty. The Court determines that the fees requested by Cage Hill are comparable to awards in similar cases. The Court does not consider preclusion of other employment, undesirability of the case, or the nature and length of the professional relationship to be relevant factors in this instance.
Upon examination of the relevant Johnson factors, the Court determines that no upwards or downwards adjustment of the lodestar amount is necessary.
The discussion supra encompasses a discussion of the non-exhaustive factors provided in 11 U.S.C. § 330(a)(3). Consideration
Cage Hill has voluntarily reduced its fee to $200,000.00. This amount is approved. The reimbursable expenses in the amount of $11,211.61 are also approved.
The Court will enter orders consistent with this Memorandum Opinion.
