Sacramento Apartment Holdings, LLC

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UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
In re 	No. 10-40200 T
Chapter 11
SACRAMENTO APARTMENT HOLDINGS,
LLC,
Debtor-in-Possession.
_______________________________/
MEMORANDUM OF DECISION RE MOTION FOR RECONSIDERATION
On 	April 	1, 	2010, 	Timothy 	A. 	Wilson 	(“Wilson”) 	and 	Ori 	S.
Blumenfeld (“Blumenfeld”) filed a motion for reconsideration of two
orders, one entered on March 19, 2010 and the other entered on March
31, 2010. 	The orders, respectively, directed Wilson and Blumenfeld
to 	pay 	monetary 	sanctions 	to 	JPMCC 	2002-C1 	Tuolumne 	Drive 	Limited
Partnership 	(“Secured 	Creditor”) 	and 	to 	the 	Office 	of 	the 	United
States 	Trustee 	(the 	“UST”). 	Secured 	Creditor 	opposed 	the 	motion.
Neither party requested a hearing, and no hearing is required by the
Court. 	Having 	considered 	the 	motion 	and 	the 	opposition, 	the 	Court
concludes that the motion should be denied.
Signed: April 15, 2010
________________________________________
LESLIE TCHAIKOVSKY
U.S. Bankruptcy Judge
________________________________________
Entered on Docket
April 16, 2010
GLORIA L. FRANKLIN, CLERK
U.S BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
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BACKGROUND AND PROCEDURAL HISTORY
On March 2, 2009, an entity entitled Gold River Apartments LLC
(“Gold River”) filed a chapter 11 case in the Oakland Division of the
United 	States 	Bankruptcy 	Court 	for 	the 	Northern 	District 	of
California (the “Gold River Case”). 	The petition listed the Law Firm
of 	Scott 	Sagaria 	(the 	“Sagaria 	Law 	Firm”) 	as 	counsel 	for 	the 	Gold
River. 	There 	were 	improprieties 	in 	the 	application, 	delaying 	its
approval. 	However, 	eventually, 	on 	April 	1, 	2009, 	the 	Sagaria 	Law
Firm was approved as counsel for Gold River.
Gold River’s sole asset was an apartment building in Sacramento,
California (the “Apartment Building”). 	Gold River valued the asset
in 	its 	bankruptcy 	schedules 	at 	$2.8 	million. 	Because 	the 	case 	was
a “single asset real estate case,” 	Secured Creditor was entitled to
relief from the automatic stay unless, within 90 days of the filing,
Gold 	River 	commenced 	monthly 	payments 	on 	the 	secured 	debt 	equal 	to
the 	interest 	on 	the 	secured 	debt 	at 	the 	nondefault 	rate 	or 	filed 	a
plan reasonably capable of being confirmed within a reasonable time.
11 U.S.C. § 362(d)(3).
On 	March 	13, 	2009, 	Secured 	Creditor 	filed 	a 	motion 	for 	relief
from stay, permitting it to foreclose on the Apartment Building. 	The
motion 	asserted 	that 	the 	principal 	balance 	of 	Secured 	Creditor’s
claim 	was 	approximately 	$2.5 	million 	and 	that 	there 	were
approximately 	$168,000 	in 	arrearages. 	It 	represented 	further 	that
Gold 	River 	had 	not 	made 	a 	payment 	on 	the 	claim 	since 	October 	2008.
Secured 	Creditor 	stated 	that 	it 	had 	obtained 	an 	appraisal 	of 	the
Apartment 	Building 	at 	less 	than 	$2.7 	million. 	The 	motion 	also
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asserted that Secured Creditor had a security interest in the rents
being collected and that Gold River had been using Secured Creditor’s
cash collateral without its consent or a court order.
The motion was held in abeyance while, over the next few months,
the 	parties 	attempted 	to 	negotiate 	a 	cash 	collateral 	stipulation.
During 	this 	period, 	Secured 	Creditor 	received 	some 	adequate
protection 	payments. 	However, 	the 	parties 	experienced 	continuing
difficulties, either in reaching agreement or in compliance with the
agreement once it was reached. 	Finally, the Court set an August 1,
2009 	deadline 	for 	filing 	a 	plan 	and 	disclosure 	statement 	and 	for
requesting conditional approval of the disclosure statement.
A 	plan 	and 	disclosure 	statement 	were 	filed 	on 	August 	3, 	2009.
On 	August 	13, 	2009, 	the 	Court 	issued 	an 	order 	denying 	conditional
approval 	of 	the 	disclosure 	statement, 	detailing 	the 	numerous
deficiencies 	in 	both 	the 	plan 	and 	disclosure 	statement. 	The 	Court
gave 	Gold 	River 	30 	days 	to 	file 	an 	amended 	plan 	and 	disclosure
statement.
An amended plan and disclosure statement were filed on September
14, 2009. 	On September 21, 2009, the Court issued an order denying
conditional 	approval 	of 	the 	amended 	disclosure 	statement, 	again
describing 	in 	detail 	the 	deficiencies 	in 	the 	disclosure 	statement.
The 	order 	stated 	that 	Gold 	River 	would 	be 	given 	one 	more 	chance 	to
amend 	the 	plan 	and 	disclosure 	statement 	and 	gave 	Gold 	River 	until
October 	6, 	2009 	to 	file 	a 	second 	amended 	plan 	and 	disclosure
statement.
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On October 6, 2009, Gold River filed a single document entitled
Second 	Amended 	Plan 	and 	Disclosure 	Statement. 	The 	names 	of 	Wilson
and Blumenfeld appeared on this document although no application had
been 	filed 	to 	employ 	them 	in 	place 	of 	the 	Sagaria 	Law 	Firm. 	The
document was extremely sloppy and wholly inadequate as a substantive
matter. 	On 	October 	9, 	2009, 	the 	document 	filed 	on 	October 	6, 	2009
was 	refiled 	and 	an 	additional 	document 	was 	also 	filed. 	On 	October
9, 	2009, 	a 	motion 	for 	approval 	of 	the 	amended 	disclosure 	statement
was filed by Wilson and Blumenfeld, scheduling a hearing for November
16, 2009.
On October 14, 2009, the Court issued an order to show cause why
the 	case 	should 	not 	be 	converted 	to 	chapter 	7 	or 	dismissed 	due 	to
Gold 	River’s 	apparent 	inability 	to 	reorganize. 	A 	hearing 	on 	the
order 	to 	show 	cause 	was 	also 	scheduled 	for 	November 	16, 	2009. 	The
order 	to 	show 	cause 	stated 	that 	Wilson 	and 	Blumenfeld 	would 	not 	be
permitted to appear on behalf of Gold River unless their employment
had been approved by the Court by the time of the hearing. 	It also
indicated 	that, 	if 	Gold 	River 	was 	unrepresented, 	the 	Court 	would
convert 	or 	dismiss 	the 	case 	because 	an 	entity 	debtor 	may 	not 	be
unrepresented by counsel.
On October 22, 2009, Secured Creditor filed a second motion for
relief from stay, scheduling a preliminary hearing on the motion for
November 	13, 	2009. 	This 	hearing 	was 	later 	rescheduled 	to 	November
16, 2009, to be heard at the same time as the order to show cause and
Gold River’s motion for approval of the amended disclosure statement
and plan.
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For 	some 	reason, 	three 	separate 	employment 	applications 	were
filed, on October 27, October 30, and November 3, 2009, respectively.
An order approving Gold River’s employment of Wilson and Blumenfeld
was 	signed 	on 	or 	about 	November 	13, 	2009. 	On 	November 	8, 	2009,
Wilson 	and 	Blumenfeld 	filed 	a 	third 	amended 	plan 	and 	disclosure
statement, 	noticing 	the 	third 	amended 	disclosure 	statement 	for
hearing eight days later, on November 16, 2009.
At the hearing on November 16, 2009, the Court granted Secured
Creditor’s motion for relief from stay. 	It concluded that Gold River
was 	not 	reasonably 	likely 	to 	confirm 	a 	plan 	within 	a 	reasonable
period of time. 	However, the Court indicated that it would stay the
effectiveness 	of 	the 	order 	for 	ten 	days 	to 	permit 	Gold 	River 	to
convert 	the 	case 	to 	chapter 	7 	if 	it 	wished 	to 	do 	so. 	An 	order 	to
that effect was entered on or about December 2, 2009.
On November 24, 2009, Wilson and Blumenfeld filed a motion for
leave 	to 	file 	a 	motion 	for 	reconsideration 	of 	the 	order 	granting
relief. 	On 	December 	7, 	2009, 	Wilson 	and 	Blumenfeld 	filed 	a 	second
motion for leave to file a motion for reconsideration. 	On December
8, 2009, Wilson and Blumenfeld refiled the second motion.
On 	December 	11, 	2009, 	Wilson 	and 	Blumenfeld 	filed 	a 	motion 	to
convert the case to chapter 7. 	This motion was withdrawn on the same
day it was filed. 	On December 11, 2009, Wilson and Blumenfeld filed
a motion for a stay of the order granting relief pending appeal. 	On
December 	14, 	2009, 	Wilson 	and 	Blumenfeld 	filed 	a 	notice 	of 	appeal
from 	the 	order 	granting 	relief. 	On 	December 	15, 	2009, 	the 	Court
issued its order denying the motion for reconsideration.
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On 	December 	22, 	2009, 	one 	of 	the 	principals 	of 	Gold 	River
transferred the Apartment Building to a newly created entity entitled
Sacramento 	Apartment 	Holdings, 	LLC. 	On 	the 	same 	day, 	Wilson 	and
Blumenfeld 	filed 	a 	chapter 	11 	bankruptcy 	case 	on 	behalf 	of 	this
entity in the San Francisco Division of the United States Bankruptcy
Court for the Northern District of California. 	On December 24, 2009,
Secured 	Creditor 	filed 	an 	ex 	parte 	motion 	for 	an 	intra-district
transfer of the venue of the case to the Oakland Division, which was
granted on January 6, 2010.
On January 8, 2010, Secured Creditor filed a motion for relief
from the automatic stay, scheduling a preliminary hearing for January
22, 2010. 	On January 12, 2010, the UST filed a motion for sanctions
based 	on 	the 	bad 	faith 	filing 	of 	the 	above-captioned 	case, 	seeking
reimbursement of its fees and costs, those of Secured Creditor, and
some 	payment 	of 	monetary 	sanctions 	to 	the 	Court 	based 	on 	Rule 	9011
of 	the 	Federal 	Rules 	of 	Bankruptcy 	Procedure. 	A 	hearing 	on 	the
motion was scheduled for February 16, 2010.
On the same day, Wilson and Blumenfeld filed a motion to recuse
the 	judge 	assigned 	to 	the 	case, 	who 	was 	the 	same 	judge 	who 	had
presided 	over 	the 	Gold 	River 	Case. 	They 	noticed 	the 	hearing 	on
their 	motion 	for 	February 	1, 	2010. 	However, 	the 	hearing 	was
continued 	by 	the 	Court 	to 	February 	16, 	2010, 	to 	be 	heard 	with 	the
UST’s motion for sanctions. 	On January 22, 2010, the hearing on the
motion 	for 	relief 	was 	also 	continued 	to 	February 	16, 	2010. 	Wilson
and Blumenfeld filed oppositions to the motion for sanctions and the
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1On February 17, 2010, the Gold River Case was dismissed.
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motion 	for 	relief. 	Secured 	Creditor 	filed 	an 	opposition 	to 	the
recusal motion.
On 	February 	16, 	2010, 	at 	the 	hearing, 	Wilson 	and 	Blumenfeld
informed 	the 	Court 	that 	they 	were 	withdrawing 	their 	recusal 	motion
and 	their 	opposition 	to 	the 	motion 	for 	relief. 	They 	apologized 	to
the 	Court 	for 	their 	conduct, 	attempting 	to 	justify 	it 	as 	simply
excessive zeal on behalf of their client. 	They asked that they not
be 	monetarily 	sanctioned. 	The 	UST 	responded 	that, 	notwithstanding
counsel’s 	present 	stance, 	the 	sanctions 	were 	appropriate 	because
their conduct had caused monetary harm to its office and to Secured
Creditor.
The 	Court 	concluded 	that 	sanctions 	should 	be 	imposed 	in 	these
amounts 	but 	declined 	to 	order 	any 	payment 	to 	the 	Court. 	It 	set 	a
schedule 	for 	declarations 	to 	be 	filed 	setting 	forth 	the 	fees 	and
costs 	incurred 	as 	a 	result 	of 	Wilson’s 	and 	Blumenfeld’s 	conduct 	in
this 	case 	and 	a 	deadline 	for 	any 	opposition 	to 	the 	amounts
requested. 1
On February 22 and 23, 2010, respectively, the UST and Secured
Creditor 	filed 	declarations, 	setting 	forth 	their 	fees 	and 	costs 	in
connection with the above-captioned case. 	The declaration filed by
Secured 	Creditor 	requested 	fees 	of 	$68,018 	and 	costs 	of 	$1,177.88.
It 	consisted 	of 	fourteen 	pages, 	containing 	a 	narrative 	description
of the work performed, broken into sections by time frame and setting
forth 	the 	time 	spent 	and 	the 	fees 	and 	costs 	requested 	with 	respect
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to the work described in that section. 	It did not include a task-by-
task itemization of the work done or costs incurred.
On March 8, 2010, Wilson and Blumenfeld filed an opposition to
fees requested by Secured Creditor but not the fees requested by the
UST. 	In 	their 	opposition, 	Wilson 	and 	Blumenfeld 	contended 	that 	the
above-captioned 	case 	was 	filed 	in 	good 	faith. 	They 	expressed
skepticism that Secured Creditor could have incurred fees of almost
$70,000 in the above-captioned case in such a short period of time.
They complained that Secured Creditor had filed excessive numbers of
motions in the Gold River Case and had otherwise “overlawyered” it.
However, 	they 	did 	not 	object 	to 	the 	lack 	of 	a 	task-by-task
itemization of the work done and costs incurred.
Wilson 	and 	Blumenfeld 	also 	argued 	that 	their 	dismissal 	of 	the
appeals 	in 	the 	Gold 	River 	Case 	saved 	Secured 	Creditor 	additional
legal 	fees 	and 	should 	be 	considered 	as 	a 	mitigating 	factor. 	They
asserted 	that 	their 	firm 	is 	a 	small 	boutique 	law 	firm 	with 	limited
means 	to 	pay 	a 	monetary 	sanction. 	Finally, 	Wilson 	and 	Blumenfeld
contended that the fee requested by the UST should also be excused.
They argued that the UST had made its point about “the Code” and any
monetary penalty would be punitive rather than instructive.
On March 11, 2010, Secured Creditor filed a reply. 	On March 19,
2010, 	after 	considering 	the 	arguments 	made, 	the 	Court 	issued 	an
order, 	directing 	Wilson 	and 	Blumenfeld 	to 	pay 	Secured 	Creditor
$50,000, 	over 	a 	period 	of 	ten 	months, 	at 	the 	rate 	of 	$5,000 	per
month. 	On 	March 	31, 	2010, 	the 	Court 	issued 	an 	order, 	directing
Wilson and Blumenfeld to pay the UST $2,850 in sanctions. 	On April
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2Wilson and Blumenfeld repeated the assertion that their
sanctions should be reduced because, by withdrawing their appeal in
the Gold River Case, they saved Secured Creditor money. 	However,
as noted above, the Gold River Case has been dismissed. 	As a
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1, 2010, Wilson and Blumenfeld filed a motion for reconsideration of
both 	of 	the 	sanction 	orders. 	On 	April 	1, 	2010, 	Secured 	Creditor
filed an opposition to the motion.
DISCUSSION
In 	their 	motion 	for 	reconsideration, 	Wilson 	and 	Blumenfeld
denied 	having 	acted 	with 	an 	improper 	purpose, 	so 	as 	to 	cause
unnecessary 	delay 	or 	needless 	increase 	in 	the 	cost 	of 	litigation.
They also objected to the failure of Secured Creditor and the UST to
produce 	“actual 	bills” 	showing 	how 	they 	arrived 	at 	the 	fees
requested. 	They 	expressed 	skepticism 	that 	Secured 	Creditor 	can
justify 	fees 	totaling 	$50,000 	for 	work 	done 	in 	only 	forty 	working
days. 	They 	contended 	that 	Secured 	Creditor 	should 	be 	required 	to
produce 	itemizations 	of 	the 	time 	spent 	such 	as 	those 	required 	of
counsel 	whose 	employment 	has 	been 	approved 	by 	the 	Court 	and 	whose
fees will be paid by a bankruptcy estate.
Wilson 	and 	Blumenfeld 	also 	objected 	to 	the 	Court’s 	order
directing the $50,000 sanctions to be paid to Secured Creditor at the
rate 	of 	$5,000 	per 	month. 	They 	noted 	that 	this 	is 	two 	times 	more
than 	their 	monthly 	office 	rent. 	They 	noted 	that 	their 	law 	firm 	is
a 	small 	boutique 	law 	firm 	which 	has 	just 	begun 	its 	operations. 	To
date, 	they 	claimed, 	neither 	of 	them 	has 	taken 	a 	partner 	draw 	equal
to $5,000 and some months they have been unable to take any draw at
all. 2 	They 	contended 	that 	$1,000 	per 	month 	is 	the 	most 	they 	could
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result, the appeal would have been dismissed as moot in any event.
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reasonably 	repay 	without 	jeopardizing 	the 	continued 	operation 	of
their firm.
Finally, 	Wilson 	and 	Blumenfeld 	noted 	that 	they 	had 	received 	a
retainer of only $2,500 for their work in the above-captioned case.
They contended that a more appropriate order would be to require them
merely to disgorge these fees.
Secured Creditor’s opposition to the motion was brief. 	It noted
that Wilson and Blumenfeld had an opportunity to object to the format
of 	Secured 	Creditor’s 	declaration 	regarding 	its 	fees 	and 	costs 	in
their original objection and failed to do so. 	It contended that the
rest 	of 	the 	argument 	made 	in 	the 	motion 	for 	reconsideration 	was
simply a repetition of Wilson’s and Blumenfeld’s original objection.
Secured Creditor noted that Wilson and Blumenfeld still expressed no
contrition 	for 	their 	conduct. 	To 	the 	contrary, 	they 	continued 	to
assert that their conduct was justified. 	For all of these reasons,
Secured Creditor requested that their motion for reconsideration be
denied.
The motion will be denied. 	Secured Creditor’s declaration was
sufficiently 	detailed 	to 	provide 	Wilson 	and 	Blumenfeld 	an 	adequate
opportunity 	to 	challenge 	the 	reasonableness 	of 	specific 	tasks
performed. 	They failed to do so, and the Court views their request
for such an itemization now as an effort to delay enforcement of the
Court’s 	order. 	The 	Court 	agrees 	with 	Secured 	Creditor’s 	assertion
that their motion reflects a lack of recognition that their conduct
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3Since it is presumably not in Secured Creditor’s best
interests to put Wilson’s and Blumenfeld’s law firm out of
business, the Court recommends that they attempt to confer with
Secured Creditor to substantiate their contentions concerning their
limited finances and to attempt to work out a reasonable payment
plan.
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was unacceptable. 	For this reason, their argument with regard to the
UST’s 	fees 	is 	particularly 	without 	merit. 	Counsel 	for 	Secured
Creditor is directed to submit a proposed form of order in accordance
with this decision. 3
END OF DOCUMENT
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COURT SERVICE LIST
Ori S Blumenfeld
Wilson and Associates LP
15260 Ventura Blvd. #1150
Sherman Oaks, CA 91403
Timothy A. Wilson
Wilson and Associates LLP
105 W. 4th St. #1400
Cincinnati, OH 45202
Phillip K. Wang
Duane Morris LLP
One Market Plaza
Spear Street Tower, Ste. 2200
San Francisco, CA 94105-1127
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