Shalan Enterprises, LLC

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NOT FOR PUBLICATION
UNITED STATES BANKRUPTCY COURT
CENTRAL DISTRICT OF CALIFORNIA
LOS ANGELES DIVISION
In re: ) Case No. 2:09-bk-43263-PC
)
SHALAN ENTERPRISES, LLC, ) Chapter 11
)
Debtor. )
)
In re: ) Case No. 2:09-bk-43499-PC
)
ALAN RAPOPORT, ) Chapter 11
)
Debtor. ) Jointly Administered Under
) Case No. 2:09-bk-43263-PC
)
) MEMORANDUM DECISION
)
) Date: March 21, 2012
) Time: 9:30 a.m.
) Place: United States Bankruptcy Court
) Courtroom # 1539
) 255 East Temple Street
____________________________________) Los Angeles, CA 90012
Before the court is the Final Application of Jeffer Mangels Butler & Mitchell LLP, for
Compensation and Reimbursement of Expenses as Counsel to Debtors and Debtors in Possession
(“Application”). Jeffer Mangels Butler & Mitchell LLP (“JMBM”) seeks final allowance of
$537,865 in attorneys’ fees, plus $21,941.96 in expenses, for a total of $559,806.96, for the
period of November 25, 2009 through January 9, 2012. Alan Rapoport (“Rapoport”) and Shalan
FILED & ENTERED
APR 17 2012
CLERK U.S. BANKRUPTCY COURT
Central District of California
BY DEPUTY CLERK	egarcia
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Enterprises, LLC (“Shalan”) (collectively, “Debtors”) object to allowance of the fees and
expenses sought in the Application. Perry and Rita Klein (the “Kleins”) join in the Debtors’
objection.1 Having considered the Application and objection thereto, the evidentiary record, and
arguments of counsel, the court makes the following findings of fact and conclusions of law
pursuant to F.R.Civ.P. 52(a),2 as incorporated into FRBP 7052 and applied to contested matters
by FRBP 9014(c).
A. Debtors’ Request that JMBM’s Application Be Referred to Arbitration.
Shalan and Rapoport each executed a letter agreement with JMBM entitled “Terms of
Engagement for Legal Services” dated August 20, 2008 and November 25, 2009, respectively,
for the legal services to be rendered and costs advanced in the above referenced bankruptcy
cases. Each letter agreement contained a paragraph entitled “Arbitration and Waiver of Jury
Trial” which, in pertinent part, stated that “[a]ny dispute between you and us (including without
limitation, any individual attorney at the firm) shall be subject to binding arbitration.”3 Debtors
ask that the court “stay the hearing on the [Application] and refer the parties to binding fee
arbitration . . . in the form of a retired Judge . . . .”4
The Supreme Court and the Ninth Circuit favor and give deference to arbitration. Home
Exp., Inc. v. Alamo Group, LLC (In re Home Exp., Inc.), 226 B.R. 657, 659 (Bankr. N.D. Cal.
1 The Kleins’ joinder does not state a specific objection to the allowance of any of the legal
services rendered or costs advanced for which compensation is sought in the Application nor is it
supported by a declaration or other evidence.
2 Unless otherwise indicated, all “Code,” “chapter” and “section” references are to the
Bankruptcy Code, 11 U.S.C. §§ 101-1330 after its amendment by the Bankruptcy Abuse
Prevention and Consumer Protection Act of 2005, Pub. L. 109-8, 119 Stat. 23 (2005). “Rule”
references are to the Federal Rules of Bankruptcy Procedure (“FRBP”), which make applicable
certain Federal Rules of Civil Procedure (“F.R.Civ.P.”). “LBR” references are to the Local
Bankruptcy Rules of the United States Bankruptcy Court for the Central District of California
(“LBR”).
3 Reorganized Debtors’ Objections to Final Application of Jeffer Mangels Butler & Mitchell
LLP, for Compensation and Reimbursement of Expenses as Counsel to Debtors and Debtors-in-
Possession (“Debtors’ Objection”) 48, 57.
4 Debtors’ Objection 5:4-6.
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1998) (citations omitted). However, “disputes over fees in bankruptcy cases fall within the
extremely narrow category of disputes which Congress never envisioned being delegated to
nonjudicial entities for resolution.” Id. “Under the Bankruptcy Act of 1898, the Supreme Court
held that the jurisdiction of the bankruptcy court over fees is ‘paramount and exclusive,’
Congress having asked for ‘the informed judgment of the bankruptcy court, not another court or
agency.’ ” Id. (citing Brown v. Gerdes, 321 U.S. 178, 183–84 (1944)). “Nothing in the 1978
Code or amendments thereto indicates that Congress was unaware of this principle or that it
intended to change it.” Id. “As was stated in Dewsnup v. Timm, 502 U.S. 410, 112 S.Ct. 773,
779, 116 L.Ed.2d 903 (1992), the 1978 Code should not be interpreted ‘to effect a major change
in pre-Code practice that is not the subject of at least some discussion in the legislative history.’ ”
Id. “No such legislative history supports the delegation of the court’s fee-setting responsibilities
to binding arbitration.” Id. In other words, “bankruptcy policy . . . hold[s] sway over the
policies of the Federal Arbitration Act as to disputes involving § 327 through 330.” Id. Because
this court has the exclusive jurisdiction to award fees and costs in bankruptcy cases and to
adjudicate disputes concerning the allowance of such fees and costs, Debtors’ request is denied.
B. Standard for Final Allowance of Attorneys Fees and Expenses.
Section 330(a)(1) permits the court to award “reasonable compensation” for “actual,
necessary services” rendered by a properly employed trustee, examiner or professional person.
11 U.S.C. § 330(a)(1)(A). But compensation may not be awarded for: (1) unnecessary
duplication of services; or (2) services that were not: (i) reasonably likely to benefit the debtor’s
estate; or (ii) necessary to the administration of the case. 11 U.S.C. § 330(a)(4)(A)(i) & (ii).
In determining “reasonable compensation,” the court must consider the nature, extent and
value of the services, taking into account “all relevant factors,” including: (1) time spent on the
services (11 U.S.C. § 330(a)(3)(A)); (2) rates charged for the services (11 U.S.C. §
330(a)(3)(B)); (3) whether the services were: (i) necessary to the administration of the
bankruptcy case; or (ii) beneficial at the time the services were rendered (11 U.S.C. §
330(a)(3)(C)); (4) whether the services were performed within a reasonable amount of time
commensurate with the complexity, importance and nature of the problem, issue or task
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addressed (11 U.S.C. § 330(a)(3)(D)); (5) with respect to a professional person, whether the
person is board certified or has otherwise demonstrated skill and experience in the bankruptcy
field (11 U.S.C. § 330(a)(3)(E)); and (6) whether the compensation is reasonable based on the
customary compensation charged by comparably skilled practitioners in nonbankruptcy cases (11
U.S.C. § 330(a)(3)(F)).
The “lodestar” formula (under which the number of hours reasonably expended is
multiplied by a reasonable hourly rate for the person providing the services) is the traditional
standard for assessing an attorneys’ fee application in bankruptcy. See Law Offices of David A.
Boone v. Berham-Burk (In re Eliapo), 468 F.3d 592, 598–99 (9th Cir. 2006); Yermakov v.
Fitzsimmons (In re Yermakov), 718 F.2d 1465, 1471 (9th Cir. 1983). Cf. Unsecured Creditors’
Committee v. Puget Sound Plywood, Inc., 924 F.2d 955, 960-61 (9th Cir. 1991) (stating that use
of the lodestar formula is not mandated by § 330 and it is not the exclusive method for
calculating reasonable fees). A bankruptcy practitioner’s compensation, including the hourly
rate charged, must be commensurate with the compensation received by comparably skilled
attorneys in other practice areas. 11 U.S.C. § 330(a)(3)(F); In re Fleming Cos., Inc., 304 B.R.
85, 93 (Bankr. D. Del. 2003); see also Burgess v. Klenske (In re Manoa Fin. Co., Inc.), 853 F.2d
687, 690 (9th Cir. 1988) (“Congress did not intend to authorize higher compensation than
attorneys would receive for comparable non-bankruptcy services”)
Whether the services were necessary to the administration of the case or beneficial to the
estate is determined, not in hindsight, but objectively with reference to the time the services were
rendered. 11 U.S.C. § 330(a)(3)(A), (C); In re Mednet, 251 B.R. 103, 108 (9th Cir. BAP 2000);
In re Circle K Corp., 294 B.R. 111, 125 (Bankr. D Ariz. 2003). Furthermore, § 330 does not
require that the services result in a material benefit to the estate. It need only be shown that the
services were reasonably likely to benefit the estate at the time the services were rendered.
Mednet, 251 B.R. at 108; Lobel & Opera v. U.S. Trustee (In re Auto Parts Club, Inc.), 211 B.R.
29, 33 (9th Cir. BAP 1997).
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C. JMBM’s Application.
In the Application, JMBM seeks final allowance of the following attorneys’ fees and
expenses:
1. Final allowance and payment of $86,948.50 in attorneys’ fees and $6,241.21 in
expenses, for a total of $93,189.71 previously awarded on an interim basis by order granting
JMBM’s First Interim Fee Application entered on July 9, 2010;
2. Final allowance and payment of $83,728.00 in attorneys’ fees and $3,093.76 in
expenses, for a total of $86,821.76 previously awarded on an interim basis by order granting
JMBM’s Second Interim Fee Application entered on December 3, 2010;
3. Final allowance and payment of $82,710.00 in attorneys’ fees and $2,024.79 in
expenses, for a total of $84,734.79 previously awarded on an interim basis by order granting
JMBM’s Third Interim Fee Application entered on May 16, 2011; and
4. Final allowance and payment of $278,478.50 in attorneys’ fees and $15,064.84 in
expenses incurred between March 1, 2011 and January 9, 2012 – the Effective Date of the
Debtors’ confirmed plan (the “Fourth Compensation Period”), together with “$6,000 in
estimated fees associated with the preparation of the final fee application and appearance at a
hearing thereon.”5
The court approved JMBM’s employment on March 4, 2010, effective as of the petition
date in each case. JMBM rendered a total of 534.60 hours of services to the estate during the
Fourth Compensation Period billed at a blended hourly rate of $520.91. The legal services
rendered during the Fourth Compensation Period for which JMBM seeks compensation are
adequately documented by invoices, copies of which are included in Exhibit 1 to the Application.
JMBM’s invoices reflect the services performed by JMBM on behalf of the Debtors by category
of service. Within each category of service, the work performed is documented by (a) the date
the service was performed; (b) the attorney who performed the service; (c) a description of the
task performed; and (d) the time expended in performing the service recorded in increments of
5 JMBM’s Application 4:12 to 5:10.
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1/10th of an hour. Each invoice contains a summary of the work performed by each JMBM
attorney or paralegal for the Debtors and their respective hourly rates, together with a list of costs
advanced during the billing period. Exhibit 1 to JMBM’s Application includes five invoices
which cover the period of November 25, 2009 through January 9, 2012: (a) Invoice # 1466536
dated January 8, 2010, for services rendered from November 25, 2009 through December 31,
2009; (b) Invoice # 1478078 dated May 10, 2010, for the period beginning January 1, 2010 and
ending April 30, 2010; (c) Invoice # 1494428 dated November 4, 2010, for the period beginning
May 1, 2010 and ending October 31, 2010; (d) Invoice # 1505042 dated March 7, 2011, for the
period beginning November 1, 2010 and ending February 28, 2011; (e) Invoice # 1532830 dated
February 8, 2012, for the period beginning March 1, 2011 and ending January 9, 2012. The
court takes judicial notice that the hourly rates reflected in each of the invoices are within the
range of hourly rates charged by attorneys and paralegals for similar legal services rendered in
chapter 11 cases pending in the United States Bankruptcy Court for the Central District of
California, Los Angeles Division. This conclusion is supported by the evidence as well.6
JMBM rendered a total of 1,114.60 hours of legal services in the jointly administered
cases between November 25, 2009 and January 9, 2012, billed at a blended hourly rate of
$477.18. A copy of each of JMBM’s interim applications and the order thereon is attached to
JMBM’s Application as Exhibits 3 through 8. JMBM’s Application is also supported by the
Declaration of Joseph A. Eisenberg (“Eisenberg”). The court takes judicial notice of the
following documents filed in the case: (a) Declaration of Alan Rapoport in Support of First
Interim Application of Jeffer Mangels Butler & Marmaro LLP for Compensation and
Reimbursement of Expenses as Debtor in Possession filed on May 20, 2010 [Dkt # 70]; (b)
Declaration of Alan Rapoport in Support of Second Interim Application of Jeffer Mangels Butler
6 Robert Bass, a bankruptcy attorney who is not a lawyer employed by JMBM, testified that he
“reviewed the Final Fee Application submitted by JMBM, including their hourly rates . . . [and]
[t]he rates charged by JMBM are similar to the prevailing market hourly rates in the Central
District of California charged by attorneys of similar reputation and perceived experience.”
Reply of Jeffer Mangels Butler & Mitchell LLP to: Reorganized Debtors’ Objection to Final
Application of Jeffer Mangels Butler & Mitchell LLP for Compensation and Reimbursement of
Expenses as Counsel for Debtors and Debtors in Possession (“Reply”) 24:1-3.
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& Mitchell LLP for Compensation and Reimbursement of Expenses as Debtor in Possession
filed on November 16, 2010 [Dkt # 158]; and (c) Declaration of Alan Rapoport in Support of
Third Interim Application of Jeffer Mangels Butler & Mitchell LLP for Compensation and
Reimbursement of Expenses as Debtor in Possession filed on May 10, 2011 [Dkt # 209]. In each
declaration, Rapoport states under penalty of perjury:
I have reviewed the Fee Application. I have no unresolved objections to, and
approve, the fees and expenses requested in the Fee Application. I believe that
the work performed by JMBM was necessary and appropriate under the
circumstances and benefitted the estate.
JMBM’s Application satisfies the requirements of 11 U.S.C. § 330(a), FRBP 2016(a) and
LBR 2016-1(c), and demonstrates that (a) JMBM rendered actual services to the estate that were
necessary to the administration of, or beneficial at the time at which the services were rendered
toward the completion of, the case, and that the compensation sought for such services is
reasonable; and (b) the expenses incurred on behalf of the estate for which reimbursement is
sought were actual and necessary.
D. Debtors’ Objection.
Debtors argue that JMBM’s final compensation request should not be allowed and that
JMBM should be ordered to disgorge not less than $149,056.20 in fees previously allowed on an
interim basis for one or more of the following reasons:
(1) Debtors “were never informed of the legal procedures by way of the exclusivity
periods whereby they could file and confirm a joint chapter 11 plan to pay the Klein claim and
other claims in full from the inception of the Klein Dispute, thereby avoiding substantial
unnecessary legal fees and costs associated with the Klein claim and competing plan;”7
(2) “Throughout February 2011 to the date of the confirmed plan and after one of the
main associates familiar with the chapter 11 cases had left the firm, JMBM billed the [Debtors]
for matters in the Klein Dispute and on other matters at a senior partner’s billable rate of
7 Debtors’ Objection 3:19-23.
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$825.00/hour, disproportionate to the blended rates previously employed in the representation,
inclusive of the junior associates’ billable hours as documented in JMBM’s First, Second, and
Third Interim Fee Applications, while also adding new and more associates to work on the
[Debtors’] chapter 11 cases;”8
(3) “JMBM failed to provide monthly invoices to [Debtors] and, the invoices attached as
Exhibits to the First, Second, and Third Interim Fee Applications, were likewise not supplied to
[Debtors] for their timely review and approval, even after many requests by [the Debtors];”9 and
(4) “JMBM failed to disclose to this Court, to the Office of the United States Trustee,
and to [the Debtors] the periodic hourly rate changes made by JMBM for the period between
2009 and the time of plan confirmation and thereafter as required by FRBP 2016(b).”10
1. Debtor Had No Financial Ability to Confirm a Plan During the Exclusivity Period.
With respect to the first objection, Debtors claim that JMBM’s alleged “failure to advise
[the Debtors] of their right to file and confirm a plan, [and] the right to request an extension of
[the exclusivity periods] for cause, and the complete failure of not filing same, unnecessarily
caused [the Debtors] to be at risk of liquidating all of their assets and to spend at least
$149,056.20 in legal fees and costs to protect the Estate’s assets and to ultimately pay Klein in
full, a result that could have been achieved in early 2010.”11 In support thereof, Rapoport
testifies: “I was inclined to pay Klein and all other creditors of my estate and that of Shalan in
full from the beginning had I known the option to file my own joint plan existed.”12 Rapoport
claims that he “ had the resources” to pay off all creditors, including the Kleins, in full “in late
2009 and thereafter.”13 Rapport suggests that the Klein claim was an undisputed claim in the
8 Id. 3:24 to 4:4.
9 Id. 4:7-11.
10 Id. 4:14-17.
11 Id. 5:22 to 6:2.
12 Id. 16:5-6 (emphasis added).
13 Id. 15:23 (emphasis added).
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amount of $3.2 million as of the petition date.14 He speculates that JMBM “caused [him] to risk
liquidating all [his] assets and that of Shalan as proposed in the Klein competing chapter 11 plan
. . . .”15 Rapoport concludes that “[t]he legal services of JMBM were absolutely not necessary or
beneficial in settling the Klein Claim Objection because it could have been prevented all together
by the filing and confirmation of a 100% joint plan in early 2010, or by requesting an extension
of the exclusive rights of myself and Shalan to file and confirm such a plan for cause. I was
never informed of such options . . . .”16
First, Rapoport’s statements are not supported by the record. According to Shalon’s
Schedule D filed on November 25, 2009, the Kleins’ had a secured claim in the amount $4.2
million, not $3.2 million as alleged by Rapoport. Rapoport signed Shalon’s schedules under
penalty of perjury listing the Kleins’ claim as both contingent and disputed. According to
Rapoport’s Schedule D filed on January 19, 2010 (i.e., 2 months after the Shalan petition date),
Rapoport disclosed the Kleins’ claim under penalty of perjury as a contingent, unliquidated, and
disputed secured claim in the amount of $3,229,000. On March 17, 2010, the Kleins filed Claim
No. 23 in the amount of $9,715,869 of which amount the sum of $4,290,869.11 was disclosed as
a secured claim and $5,425,000 was disclosed as an unsecured non-priority claim. By March 31,
2010, there were 8 claims filed against the estates totaling in excess of $11,424,000, including
the Kleins’ disputed claim and the $1,680,494 secured claim of First Bank.
Debtors did not amend either Schedule D to list the Kleins’ claim as a non-contingent,
undisputed, and liquidated. In fact, the Kleins filed a motion on November 10, 2011, to have
their claim estimated at $7,556,417.98 for purposes of voting on the Debtors’ proposed plan.
Debtors opposed the motion. On June 20, 2011, the court entered an order estimating the Kleins’
claim in the amount of $4,289,700.96.
14 Id. 15:15-19 (JMBM “was fully aware of the reduced judgment in the amount of $3.2 million
that was determined by the Nevada Supreme Court when Shalan and I filed for bankruptcy
November 2009, and of the strength and difficulties of the expected Klein Claim Objection.”).
15 Id. 15:25-27.
16 Id. 16:9-13 (emphasis in original).
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Second, there is no credible evidence that the Debtors had the funds to pay in full all
claims against the two estates, including the Kleins’ claim, in late 2009, as alleged by Rapoport.
According to Shalon’s operating report for the period ending December 2009, Shalon’s debtor in
possession (“DIP”) account had a balance of only $136,133.70. Shalon’s operating report for the
period ending January 2010 reflects a DIP account balance of only $160,510.24. Similarly,
Rapoport’s operating report for the period ending December 2009 shows a DIP account balance
of only $102,087.71, and his operating report for the period ending January 2010 shows a DIP
account balance of $132,800.43. Rapoport does provide any details regarding the “100% joint
plan” that he was prepared to propose in late 2009 nor the “resources” that he ostensibly had to
fund it.17 The judicial admissions contained in the Debtor’s respective schedules and operating
reports belie the notion that the Debtors were willing and capable of paying in full all claims
against both estates in “late 2009 and thereafter” as part of a “100% joint plan in early 2010.”
Eisenberg, on the other hand, testified as counsel for the debtors in possession: “Based on my
review of the information provided to me by Debtors regarding Debtors’ assets, liabilities and
claims against Debtors’ estates, and based on my experience as a bankruptcy attorney for 40
years, Debtors did not have sufficient resources to pay ‘all creditors 100%’ within the first 120
days of the bankruptcy cases.”18
2. There is No Evidence That JMBM Did Not Exercise Proper Billing Judgment.
With respect to the second objection, Debtors essentially contend that JMBM failed to
exercise proper billing judgment. In support thereof, Rapoport testified:
JMBM is asking for payment for the work of more than one associate, some new,
for tasks that should have been done efficiently by someone familiar with the case
and/or more well-versed with chapter 11 plans, and not duplicate the more senior
partners work. Essentially, myself and Shalan are being asked to pay double for
the work done by associates and Mr. Eisenberg, when the legal work should have
been finished by an associate and a partner in a reasonable proportion.19
17 Id. 15:23 (“I had the resources to do so in late 2009 and thereafter.”).
18 Reply 18:19-22.
19 Debtors’ Objection 16:23-28.
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A bankruptcy court has a duty to review fee applications even in the absence of
objections by the United States trustee or parties in interest. In re Busy Beaver Bldg. Ctrs., Inc.,
19 F.3d 833, 841 (3d Cir. 1994). “What the court should not do, however, not without evidence
to the contrary, is to change the facts initially presented to it in an otherwise complete fee
application . . [and] on its own, second guess counsel in deciding whether this conference or that
phone call were necessary, whose participation was appropriate, what the market generally pays
for the time and services of counsel and its staff or how it reimburses certain expenses.” Matter
of Hunt’s Health Care, Inc., 161 B.R. 971, 981 (Bankr. N.D. Ind. 1993). As the court correctly
observed in Hunt’s Health Care:
Without being presented with facts beyond those contained in an otherwise
sufficient fee application, the court should not reduce an attorney’s hourly rate or
decide what is or is not to be characterized as overhead or how certain expenses
are properly billed. Neither should the court take the approach that, just because
it frequently reviews a multitude of fee applications, it is somehow in a better
position to determine the reasonableness of a requested fee than the market. An
attorney’s customary billing practices are presumptively correct. While they may
not be dispositive, departing from them requires a reason and information which
would warrant the conclusion that the presumption accorded to counsel’s regular
practice should not be followed. Thus, the burden is on the objector “to establish
a good reason why a lower rate is essential to access a ‘reasonable attorney’s
fee.’”
A party objecting to a fee application may not do so based on the general
proposition that the fee sought is simply too much. It should go beyond this
assertion to articulate a reason why and, if necessary, present evidence in support
thereof. . . The objector must, at some point, identify any allegedly improper,
insufficient, or excessive entries and direct the court’s attention to them. The
objector should also be able to identify a reason why the hourly rates involved and
the time charged are not reasonable or why the market would place a lower value
on counsel’s labors and offer evidence supporting its position.
Id. at 982 (citations omitted). Attorneys’ fees should not be reduced based on “inarticulable and
unsubstantiated dissatisfaction with the lawyers’ efforts to economize on their time and
expenses.” Matter of Cont’l Ill. Sec. Litig., 962 F.2d 566, 570 (7th Cir. 1992).
In his declaration, Rapoport refers the court to a chart which purports to analyze the
hourly rates charged by the JMBM attorneys and paralegals rendering services to Rapoport and
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Shalon throughout the case; and based thereon, Rapoport concludes that “JMBM’s rates should
be reduced so that JMBM’s hourly rate is charged at the same or similar “blended” rate as in the
First, Second, and Third Interim Fee Applications as when Caroline Djang worked on the chapter
11 cases as a whole.20 Rapoport also refers the court to two documents attached to Debtors’
Objection as Exhibits 1 and 2 which purport to “[detail] the time and rates at which the Klein
matter was charged by JMBM and should not have been, as that time was avoidable by an early
100% Plan that could have been filed and confirmed by [Rapoport] and Shalan.”21
Debtors concede that Rapoport is not an attorney. As such, Rapoport is not qualified to
render an opinion as to the time spent performing specific tasks in a chapter 11 case, the
necessity of the legal services rendered in performing such tasks, or the reasonablenss of the
“blended” hourly rate charged for such legal services.22 Debtors also concede that Exhibits 1 and
2 to Rapoport’s declaration in support of Debtors’ Objection were not prepared by Rapoport, but
by an unidentified attorney or other employee of the law firm of Hinds & Shankman, LLP.
Exhibits 1 and 2 are not properly authenticated. Neither exhibit is supported by a declaration (a)
identifying the person who prepared the analysis; (b) describing the qualifications of the person
to undertake such an analysis; (c) discussing the methodology used to analyze the information
extracted from the JMBM invoices; and (d) explaining the conclusions reached in the analysis
which form the basis for the Debtors’ Objection.
20 Id. 18:14-16.
21 Id. 17:17-19.
22 The Federal Rules of Evidence assign to the trial judge the task of ensuring that an expert’s
testimony both rests on a reliable foundation and is relevant to the task at hand. Daubert v.
Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579, 592 (1993); see Kumho Tire Co., Ltd. v.
Carmichael, 526 U.S. 137, 149 (1999) (Rule 702 imposes special obligation on judge to ensure
that expert’s testimony “is not only relevant, but reliable”). “Rule 702 embodies the twin
concerns of reliability . . . and helpfulness.” The test for reliability is the soundness of the
expert’s methodology, not the accuracy of the conclusions. Reliable testimony must also be
helpful, and the trial judge “may exclude testimony that falls short of achieving either end.”
Stilwell v. Smith & Nephew, Inc., 482 F.3d 1187, 1192 (9th Cir. 2007) (internal quotes omitted).
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There is no credible evidence that JMBM’s services, at the time rendered, were not
reasonably calculated to lead to a benefit to the Debtors and the estate. Debtors’ position,
presented solely through the Rapoport declaration, ignores the size and scope of the Kleins’
disputed claim and its impact on the Debtors’ ability to reorganize. There is no evidence that a
qualified expert studied the long history of the case, the procedural posture of the pending state
court action with the Kleins on the petition date, and the implications of the Kleins litigation on
the progress of the two bankruptcy cases and the Debtors’ ability to effectively reorganize with a
feasible, confirmable plan. In fact, Debtors’ Objection fails to point to any specific instances of
allegedly duplicative, unnecessary, or insufficient work; instead, it contains general and
conclusory statements regarding Debtors’ perception that the fees sought are unreasonable.
3. There is No Basis for a Disgorgement of Attorneys’ Fees Under Either California
Business & Professions Code § 6148 or FRBP 2016(b).
With respect to their third objection, Debtors assert that all of JMBM’s fees should be
disgorged for violation of California Business and Profession Code § 6148 because Debtors did
not receive monthly billing statements until December 2011 despite Rapoport’s requests for
monthly statements. Rapoport claims that “[t]he First, Second, and Third Fee Applications sent
to myself and Shalan by JMBM did not include the actual invoices that were attached to the
Application and filed with the Court,”23 and that he “would have been aware of the work for
which JMBM was billing and would not have approved the first three Fee [sic] Interim Fee
Applications” had he received monthly billing statements from JMBM.24 Rapoport also claims
that JMBM violated Rule 2016(b) and the LBRs because it failed to supplement its Rule 2016(b)
disclosure every time Eisenberg increased his hourly rate.
In California, an attorney must provide a bill within 10 days following the client’s request
unless such bill was sent within the preceding 31 days (in which event, the new bill may be sent
within 31 days after the earlier billing). Bus. & Prof. C. § 6148(b). The client may request
23 Debtors’ Objection 19:8-10.
24 Id. 19:3-5.
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such billing every 30 days thereafter. Bus. & Prof. C. § 6148(b). “The statute does not
specifically require the attorney to provide monthly or other periodic billings . . . [i].e., attorneys
can, if they choose, delay billing for services as long as they wish or until the client requests
a bill.” RUTTER GROUP CAL. PRAC. GUIDE: PROF. RESP., Ch. 5-H. Fee agreements
or billings that fail to meet the statutory requirements above are voidable by the client. Bus. &
Prof. C. § 6148(c). In such event, the attorney is entitled to collect only a “reasonable fee.” Bus.
& Prof.C. §§ 6147(b), 6148(c); Flannery v. Prentice, 26 Cal.4th 572, 589 (2001); Gutierrez v.
Girardi, 194 Cal.App.4th 925, 932 (2011).
Contrary to Rapoport’s understanding, the Business and Profession Code does not
mandate monthly billing statements. Attorneys are required, however, to provide billing
statements when asked. According to the evidence, JMBM provided copies of fee applications
containing billing entries and provided additional copies when asked.25 Moreover, Rapoport
admitted under penalty of perjury in prior declarations filed with the court that: (a) he reviewed
JMBM’s first, second, and third interim fee applications; (b) that he had “no unresolved
objections” to the fees and expenses sought in each application; (c) that the work performed by
JMBM was “necessary and appropriate under the circumstances and benefited the estate;” and
(d) that he “approve[d]” the fees and expenses sought. See Dkt. Nos. 70, 158 & 209. These
judicial admissions are binding on Rapoport, and the court gives little weight to Rapoport’s
recent assertion, also under penalty of perjury and in response to JMBM’s final fee request, that
he was “repeatedly strong armed into approving JMBM’s First, Second, and Third Interim Fee
Applications.”26
Rapoport has not shown that JMBM violated Business and Professions Code § 6148(b).
Even if there had been such a violation, JMBM would still be entitled to “reasonable fees” which
is a determination this court must necessarily make in any event in approving JMBM’s
Application.
25 Reply 20:13 to 21:10.
26 Debtors’ Objection 18:23-24.
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An attorney representing a debtor in bankruptcy must file with the court a statement
disclosing the compensation paid or agreed to be paid for representing the debtor in the case.
See 11 U.S.C. § 329(a); FRBP 2016(b). The statement must disclose: (1) the compensation paid
or agreed to be paid (if the payment or agreement was made within one year before the petition
date) for services rendered or to be rendered “in contemplation of or in connection with” the
debtor’s bankruptcy case; (2) the source of such compensation; and (3) whether the attorney has
shared or agreed to share the compensation with any other entity (other than other attorneys in
the attorney's firm) and the details of the compensation-sharing agreement. 11 U.S.C. §
329(a); FRBP 2016(b). Rule 2016(b) further states: “A supplemental statement shall be filed and
transmitted to the United States trustee within 14 days after any payment or agreement not
previously disclosed.” FRBP 2016(b). The Advisory Committee notes for Rule 2016(b) state
that an attorney must file a supplement to the § 329 statement “if an undisclosed payment is
made to the attorney or a new or amended agreement is entered into by the debtor and the
attorney.” FRBP 2016(b), adv. comm. notes. In the event of an attorney’s failure to timely file a
statement of compensation (or to disclose all relevant fee information in the statement), the court
has discretion to deny compensation in whole or in part and may also order the attorney to
disgorge fees previously received. See Neben & Starrett, Inc. v. Chartwell Fin. Corp. (In re
Park–Helena Corp.), 63 F.3d 877, 880–82 (9th Cir. 1995); Hale v. United States Trustee (In re
Basham), 208 B.R. 926, 931 (9th Cir. BAP 1997).
There is no evidence of an undisclosed payment to JMBM nor is there evidence of a new
or amended employment agreement between the Debtors and JMBM. JMBM revised the hourly
rates charged under its existing employment agreements with the Debtors. Periodic changes in
hourly rates were contemplated in the original employment application, which application was
served on all parties entitled to notice.27 Under our local rules, if the hourly rate has changed
during the period covered by an interim fee application, the application must specify the rate that
27 See Employment Application (Dkt. No. 2) ¶ 10 (“All JMBM rates are subject to periodic
adjustment generally on January 1 of each year and the applicable rates are those in effect at the
time services are rendered.”) (emphasis added).
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applies to the particular hours for which compensation is sought. LBR 2016-1(a)(1)(I). JMBM’s
hourly rate increases were disclosed in the interim fee applications served on the Debtors. To the
extent that the court has discretion to deny or reduce compensation for an alleged violation of
either FRBP 2016(b) or LBR 2016-1, the court declines to do so on the record that is before the
court.
E. JMBM is Entitled to Attorneys’ Fees Incurred in Defending the Application.
JMBM filed a Second Supplemental Declaration of Joseph A. Eisenberg Re: Fees
Incurred to Reply to Reorganized Debtors’ Objection to Final Application of Jeffer Mangels
Butler & Mitchell LLP for Compensation and Reimbursement of Expenses as Counsel to
Debtors and Debtors in Possession on March 19, 2012, seeking an additional award of
$16,748.50 in attorneys fees for 30.10 hours of legal services rendered at a blended hourly rate of
$556.43 between March 5, 2012 and March 14, 2012, replying to the Debtors’ Objection. Courts
may award compensation for time spent and expenses incurred in successfully litigating
objections to a fee application, provided the applicant demonstrates that: (1) the services
rendered satisfy the requirements of § 330(a)(4)(A); and (2) the case exemplifies a “set of
circumstances” that made the time spent and expenses incurred in the litigation “necessary”
under § 330(a)(1). Smith v. Edwards & Hale, Ltd. (In re Smith), 317 F.3d 918, 928 (9th Cir.
2002) (abrogated on other grounds by Lamie v. United States Trustee, 540 U.S. 526, 531–39
(2004)).
Debtors in possession have a fiduciary obligation to act in the best interests of creditors
and the estate. Counsel is charged with the duty to advise the debtor in possession of its
responsibilities under the Code, and to assist the debtor in possession, and its principals, in
discharging those responsibilities. See, e.g., In re Nilges, 301 B.R. 321, 325 (Bankr. N.D. Iowa
2003) (“Counsel has a duty to supervise client’s conduct for compliance with the Bankruptcy
Code.”); Zeisler & Zeisler, P.C. v. Prudential Ins. Co. of Am. (In re JLM, Inc.), 210 B.R. 19, 26
(2d Cir. BAP 1997) (“The debtor’s attorney, while not a trustee, nevertheless is charged with the
duty of counseling the debtor in possession to comply with its duties and obligations under the
law.”); In re Whitney Place Partners, 147 B.R. 619, 620-21 (Bankr. N.D. Ga. 1992) (“[T]he
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debtor’s attorney must take conceptual control of the case and provide guidance for management
of the debtor, not only to discern what measures are necessary to achieve a successful
reorganization, but to assure that, in so doing, compliance with the Bankruptcy Code and Rules
is sought rather than avoided”); In re Wilde Horse Enters, Inc., 136 B.R. 831, 840 (Bankr. C.D.
Cal. 1991) (“Because the attorney for the debtor in possession is a fiduciary of the estate and an
officer of the Court, the duty to advise the client goes beyond responding [to] the client’s
requests for advice”); In re Sky Valley, Inc., 135 B.R. 925, 939 (Bankr. N.D. Ga. 1992)
(“Debtor’s attorney’s duty as fiduciary of the estate requires an active concern for the interests of
the estate and its beneficiaries”).
In this case, JMBM’s services in defending against Debtors’ Objection were not
unnecessarily duplicative, were reasonably likely to benefit the estate, and aided in the
administration of the case. JMBM navigated the Debtors’ jointly administered case through
troubled waters created by ongoing litigation and intense animosity between the Debtors and the
Kleins. As a result of JMBM’s efforts, the Debtors reached a compromise with the Kleins which
formed the basis for confirmation of a consensual plan under which creditors were paid in full
and Debtors retained substantial assets and received a fresh start. Absent the efforts of JMBM,
the compromise with the Kleins may not have been possible and the estate assets may have been
liquidated in a chapter 7 case. For these reasons, JMBM’s defense of Debtors’ Objection
exemplifies a “set of circumstances” that made the time spent and expenses incurred in the
litigation “necessary” under § 330(a)(1).
F. Conclusion.
Based on the foregoing, the court will allow as final fees the sum of $256,386.50
previously awarded, plus $278,478.50 for the Fourth Compensation Period, $16,748.50 incurred
in defending against the Debtors’ Objection, and $3,175.00 incurred in appearing at the hearing
on March 21, 2012,28 for total fees of $554,788.50. The court will further allow as final
expenses the sum of $11,359.76 previously allowed, plus $15,064.84 for the Fourth
28 Eisenberg – 2.5 hours at 825.00 per hour; Alex McGinnis – 2.5 hours at $445.00 per hour.
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Compensation Period, for total expenses of $26,424.60.
JMBM shall submit an appropriate order.
###
United States Bankruptcy Judge
DATED: April 17, 2012
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NOTICE OF ENTERED ORDER AND SERVICE LIST
Notice is given by the court that a judgment or order entitled MEMORANDUM DECISION was
entered on the date indicated as AEntered@ on the first page of this judgment or order and will be served in
the manner indicated below:
I. SERVED BY THE COURT VIA NOTICE OF ELECTRONIC FILING (ANEF@) B Pursuant to controlling
General Order(s) and Local Bankruptcy Rule(s), the foregoing document was served on the following
person(s) by the court via NEF and hyperlink to the judgment or order. As of 4-17-2012 , the following
person(s) are currently on the Electronic Mail Notice List for this bankruptcy case or adversary proceeding
to receive NEF transmission at the email address(es) indicated below.
• Gregory J Babcock bknotice@mccarthyholthus.com, gbabcockecf@hotmail.com
• Robert D Bass rbass@greenbass.com
• Jared D Bissell ecfcacb@piteduncan.com
• Steven Casselberry scasselberry@mrllp.com, fbaig@mrllp.com;jjacobs@mrllp.com
• Leslie A Cohen leslie@lesliecohenlaw.com,
jaime@lesliecohenlaw.com;Brian@lesliecohenlaw.com
• Caroline Djang crd@jmbm.com
• Joseph A Eisenberg jae@jmbm.com
• Laleh Ensafi lensafi@yahoo.com, cmartin@pralc.com
• Mark S Faulkner marksfaulkner@cox.net, fbaig@mrllp.com;jjacobs@mrllp.com
• Thomas M Geher tmg@jmbm.com
• Jeffrey J Hagen jeff@hagenhagenlaw.com
• Anne W Hamann ahamann@piteduncan.com, ecfcacb@piteduncan.com
• James Andrew Hinds jhinds@jhindslaw.com
• Hye Jin Jang hjang@jhindslaw.com
• Sheri Kanesaka sheri.kanesaka@bryancave.com, theresa.macaulay@bryancave.com
• Erin L Laney ecfcacb@piteduncan.com
• Kenneth G Lau kenneth.g.lau@usdoj.gov
• Steven M Lawrence generalmailaswlawoffice.com@alvaradoca.com,
vaguirre@alvaradoca.com
• Charles Liu cliu@mrllp.com, ecfmarshackhays@gmail.com
• Christopher M McDermott ecfcacb@piteduncan.com
• Alexis M McGinness amm@jmbm.com, vr@jmbm.com;fc3@jmbm.com
• Brian A Paino ecfcacb@piteduncan.com
• Lee S Raphael cmartin@pprlaw.net
• Paul R Shankman pshankman@jhindslaw.com
• Michael W Tan michael.w.tan@irscounsel.treas.gov
• United States Trustee (LA) ustpregion16.la.ecf@usdoj.gov
• Catherine T Vinh ecfcacb@piteduncan.com
• David J Williams dwilliams@mrllp.com, fbaig@mrllp.com;jjacobs@mrllp.com
Service information continued
on attached page
II. SERVED BY THE COURT VIA U.S. MAIL: A copy of this notice and a true copy of this judgment or
order was sent by United States Mail, first class, postage prepaid, to the following person(s) and/or
entity(ies) at the address(es) indicated below:
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Greenberg Traurig, LLP
Mark E. Ferrario, Esq.
3773 Howard Hughes Parkway
Suite 400 North
Las Vegas, NV 89169
Service information continued
on attached page
III. TO BE SERVED BY THE LODGING PARTY: Within 72 hours after receipt of a copy of this judgment
or order which bears an AEntered@ stamp, the party lodging the judgment or order will serve a complete
copy bearing an AEntered@ stamp by U.S. Mail, overnight mail, facsimile transmission or email and file a
proof of service of the entered order on the following person(s) and/or entity(ies) at the address(es),
facsimile transmission number(s), and/or email address(es) indicated below:
Service information continued
on attached page
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