Alliance Financial Capital, Inc.

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MEMORANDUM RE JACKSON-FENTON
MOTION FOR TURNOVER OF FUNDS 	-1-
UNITED STATES BANKRUPTCY COURT
FOR THE NORTHERN DISTRICT OF CALIFORNIA
In re
ALLIANCE FINANCIAL
CAPITAL, INC.,
Debtor.
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Case No. 08-30575 TEC
Chapter 7
MEMORANDUM RE TRUSTEE’S MOTION FOR ORDER AUTHORIZING SURCHARGE OF
CASH COLLATERAL TO PAY ADMINISTRATIVE EXPENSES
On June 29, 2009, the court held a hearing in the above-
captioned case on trustee’s Motion for Order Authorizing Surcharge
of Cash Collateral to Pay Administrative Expenses. 	Katherine D.
Ray appeared for the chapter 7 trustee, E. Lynn Schoenmann. 	Chris
D. Kuhner appeared for Jacqueline Jackson, the Jacqueline Jackson
Trust, the Robert S. Jackson Trust, and Jacqueline and David Fenton
(the Jackson-Fenton Parties).
For the following reasons, the trustee’s motion for surcharge
is granted in the sum of $12,385.50.
FACTS
The Jackson-Fenton parties hold a judgment lien in the sum of
$289,970, recorded against Debtor on October 30, 2007. 	Debtor
filed the above-captioned bankruptcy case on April 4, 2008. 	As of
Signed and Filed: August 18, 2009
________________________________________
THOMAS E. CARLSON
U.S. Bankruptcy Judge
________________________________________
Entered on Docket
August 18, 2009
GLORIA L. FRANKLIN, CLERK
U.S BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
Case: 08-30575 Doc# 122 Filed: 08/18/09 Entered: 08/18/09 11:33:14 Page 1 of
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1 This figure is taken from Category C (Services Rendered to
Marshall and Liquidate Estate Assets) in the Supplement to
Trustee’s Motion for Surcharge, filed on June 5, 2009.
2 An order was signed on February 24, 2009 approving the first
and final fee application of trustee’s counsel, and awarding fees
in the sum of $67,408.50. 	An order was signed on March 11, 2009
approving the fee application of trustee’s accountant, and awarding
fees in the sum of $7,631.50.
MEMORANDUM RE JACKSON-FENTON
MOTION FOR TURNOVER OF FUNDS 	-2-
that date, the Jackson-Fenton parties had not recovered any amount
of their judgment. 	The bankruptcy case was converted to chapter 7
on April 22, 2008. 	On April 30, 2008, the chapter 7 trustee was
appointed.
On June 27, 2008, trustee filed a motion to abandon non–cash
assets of the estate. 	The motion recited that trustee holds cash
in the sum of $249,456 (the Cash).
Trustee contends that her professionals spent 35.10 hours
collecting the Cash, 1 for which they incurred fees totaling
$13,468.50. 2 	$1,855 of this amount relates to the termination of a
factoring agreement with Security Protection Services and obtaining
a replacement factor, which yielded $16,536 for the estate. 	Other
services in this category include investigating the status of
Debtor’s receivables, installment payments owing to Debtor, and
bankruptcy claims filed by Debtor in other cases.
In addition to services related to recovering the Cash
(Category C), trustee’s professionals rendered services in the
following categories: (1) Category A: identification and
preservation of estate assets, $16,430; (2) Category B:
identification of and responding to competing liens, adverse
claims, and interests, $6,872.50; and (3) Category D: disposition
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3 This category only includes counsel’s efforts to obtain
secured creditor consent to use cash collateral to pay the
trustee’s administrative expenses, and trustee’s motion to
distribute assets to secured creditors and to abandon non-cash
assets to Debtor.
4 This is the statutory maximum based upon the $119,457
disbursed by trustee to the Jackson-Fenton parties.
5 The parties stipulated to set aside $75,000 of the Jackson-
Fenton parties’ collateral, in the event the court surcharged such
collateral with all the allowed fees of trustee’s counsel and
accountant. 	The parties did not stipulate to the amount of the
surcharge.
MEMORANDUM RE JACKSON-FENTON
MOTION FOR TURNOVER OF FUNDS 	-3-
of assets, $14,541. 3 	Trustee seeks to surcharge the Jackson-Fenton
parties with all of these fees, plus the trustee’s statutory fee of
$9,223. 4
Trustee argues that the Jackson-Fenton parties benefitted from
her services and those of her professionals, because the Jackson-
Fenton parties received all of the Cash collected by trustee,
except funds that were not property of the estate ($31,827), funds
paid to Burke Environmental LLC with the consent of the Jackson-
Fenton parties ($22,808), and a $75,000 surcharge reserve. 5 	Trustee
argues that, absent her services and those of her professionals,
the trustee could not have collected the cash ultimately
distributed to the Jackson-Fenton parties. 	Trustee contends that,
had she not done so, the Jackson-Fenton parties would have had to
determine the extent and identity of all parties believed to hold
liens, claims or interests in Debtor’s assets. 	Regarding the funds
paid to Burke Environmental LLC, trustee argues that these were
overpayments by account debtors to which the Jackson-Fenton parties
had no right, but from which, thanks to the efforts of trustee, the
Jackson-Fenton parties received $4,000.
Case: 08-30575 Doc# 122 Filed: 08/18/09 Entered: 08/18/09 11:33:14 Page 3 of
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MEMORANDUM RE JACKSON-FENTON
MOTION FOR TURNOVER OF FUNDS 	-4-
GOVERNING LAW
Pursuant to 11 U.S.C. § 506(c), administrative expenses may be
reimbursed out of a secured party’s collateral upon a showing that
the expenses incurred were reasonable, necessary, and provided a
benefit to the secured creditor, or that the secured creditor
caused or consented to the expense. 	In re Compton Impressions
Ltd., 217 F.3d 1256, 1262 (9th Cir. 2000); In re Cascade Hydraulics
& Utility Svc., Inc., 815 F.2d 546, 548 (9th Cir. 1987). 	The party
seeking the surcharge has the burden of showing a “concrete” and
“quantifiable” benefit. 	In re Debbie Reynolds Hotel & Casino,
Inc., 255 F.3d 1061, 1068 (9th Cir. 2001).
The necessity and reasonableness of trustee’s expenses are
measured against the benefits obtained for the secured creditor
“and the amount that the secured creditor would have necessarily
incurred through foreclosure and disposal of the property.”
Compton, 217 F.3d at 1260. 	To establish benefit, movant must
establish in quantifiable terms that it expended funds “directly to
protect and preserve the collateral.” 	Compton, 217 F.3d at 1261.
DISCUSSION
(1) The Jackson-Fenton parties received a quantifiable benefit
only regarding the Cash collected by trustee. 	Trustee moved to
abandon all other assets shortly after she was appointed.
(2) If the Jackson-Fenton parties had enforced their lien
against the Cash themselves, they would have had to: (a) examine
Debtor’s books and records to identify bank deposits and
collectible accounts receivable; (b) examine public records for
liens; (c) file papers with the levying officer and give notice to
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MEMORANDUM RE JACKSON-FENTON
MOTION FOR TURNOVER OF FUNDS 	-5-
third parties with an interest in the Cash; and (d) respond to
competing claims of third parties.
(3) Trustee’s professionals collected the Cash and examined
competing claims against the Cash.
(4) The Jackson-Fenton parties did not consent to a section
506(c) surcharge of the Cash. 	Trustee does not contend that the
stipulation to reserve $75,000 for the section 506(c) surcharge
resolved the amount of the surcharge to be allowed. 	Trustee has
filed no other evidence of consent to the amount of the surcharge
sought by trustee and her professionals. 	The Jackson-Fenton
parties’ failure to object to the services provided by trustee and
her professionals, and notice of non-opposition to conversion of
the case to chapter 7, do not imply consent. 	See Cascade
Hydraulics, 815 F.2d at 548 (“Mere cooperation with the debtor does
not make the secured creditor liable for all administrative
expenses.”)
(5) The statutory commission sought by trustee is not properly
charged to the Jackson-Fenton parties, because trustee has not
submitted time records showing that she performed any of the acts
necessary for collecting and preserving the Cash or, to the extent
she did perform such acts, the value of the services performed.
The section 326 commission, calculated from funds distributed to
creditors, is the compensation due from the estate for all the
services performed by a trustee, and does not establish the benefit
provided to secured creditors for purposes of section 506(c).
(6) The Cash should be surcharged in the amount of $5,299.50
for accountants’ fees and expenses. 	All of the work performed by
the accountants, other than services related to case
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6 The original fee application filed by trustee’s accountants,
and approved by this court on March 11, 2009, sought $7.660.37 in
fees and expenses. Trustee’s accountants consented to a reduction
in this sum in the Supplement to Trustee’s Motion for Surcharge,
filed on June 5, 2009.
MEMORANDUM RE JACKSON-FENTON
MOTION FOR TURNOVER OF FUNDS 	-6-
administration, related to recovering the Cash. 	The accountants’
request for surcharge voluntarily reduced the amount sought by
$2,430.87 to exclude services related to case administration. 6
(7) The Cash should be surcharged in the amount of $7,086 for
the following services performed by trustee’s counsel. 	Trustee’s
counsel liquidated Debtor’s factoring agreement with Security
Protection Services, obtained funds from Debtor’s bank accounts and
lockbox, secured Debtor’s premises, reviewed Debtor’s books and
records, obtained a portion of Burke Environmental LLC’s cash
collateral and distributed such funds to the Jackson-Fenton
parties, and reviewed competing liens and interests.
(8) The Cash should not be surcharged the amounts sought by
trustee’s counsel for the services described below, because those
services did not provide a quantifiable benefit to the Jackson-
Fenton parties.
(a) The surcharge motion and counsel’s efforts to obtain
the Jackson-Fenton parties’ stipulation to surcharge.
These services provided no benefit to the Jackson-Fenton
parties, and would have been unnecessary outside of
bankruptcy.
(b) Services regarding estate’s non-cash assets. 	These
services did not benefit the Jackson-Fenton parties,
because those assets yielded no monetary recovery for the
Jackson-Fenton parties. 	Debbie Reynolds, 255 F.3d at
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MEMORANDUM RE JACKSON-FENTON
MOTION FOR TURNOVER OF FUNDS 	-7-
1068; In re Baum’s Bologna, Inc., 50 B.R. 689, 691 (E.D.
Pa. 1985).
(c) Conferences with third party lawyers; drafting
internal memoranda; motions to abandon assets and for
turnover; services re scooters and houseboat; review of
Debtor’s schedules; Blue-Sky research. 	Counsel has
failed to show that this work was part of the
identification and recovery of the Cash, or the
notification of parties holding competing liens and
interests against the Cash.
**END OF MEMORANDUM**
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MEMORANDUM RE JACKSON-FENTON
MOTION FOR TURNOVER OF FUNDS 	-8-
Court Service List
Daniel M. Linchey, Esq.
Katherine D. Ray, Esq.
Goldberg, Stinnett, Davis and Linchey
44 Montgomery Street, Suite 2900
San Francisco, CA 94104
Chris D. Kuhner, Esq.
Kornfield, Paul, Nyberg & Kuhner
1999 Harrison Street, Suite 2675
Oakland, CA 94612
E. Lynn Schoenmann
800 Powell Street
San Francisco, CA 94108
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