Qmect, Inc. v. Burlingame Capital Partners II et al

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
In re 	No. 04-41044 T
Chapter 11
QMECT, INC., etc.,
Debtor-in-Possession.
__________________________________/
In re 	No. 04-46443 T
Chapter 11
FRED AND LINDA KOELLING,
Debtors-in-Possession.
__________________________________/
QMECT, INC., etc., 	A.P. No. 04-4190 AT
(Consolidated with
Plaintiff, 	A.P. Nos. 04-4365 AT
and 04-4366 AT)
vs.
BURLINGAME CAPITAL PARTNERS II,
L.P., etc. et al.,
Defendants.
__________________________________/
AND RELATED ADVERSARY PROCEEDINGS
__________________________________/
Signed: November 16, 2006
________________________________________
LESLIE TCHAIKOVSKY
U.S. Bankruptcy Judge
________________________________________
Entered on Docket
November 16, 2006
GLORIA L. FRANKLIN, CLERK
U.S BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
Case: 04-04190 Doc# 214 Filed: 11/16/06 Entered: 11/16/06 12:52:50 Page 1 of
8

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
2
MEMORANDUM AND ORDER DENYING MOTION FOR
POST-PETITION ATTORNEYS’ FEES WITHOUT PREJUDICE
Defendant 	Burlingame 	Capital 	Partners 	II, 	L.P. 	(“Burlingame”)
seeks an award of post-petition attorneys’ fees and costs as part of
its 	judgment 	in 	the 	above-captioned 	consolidated 	adversary
proceedings. 	For 	the 	reasons 	stated 	below, 	the 	request 	will 	be
denied without prejudice.
The 	above-captioned 	adversary 	proceedings 	were 	filed 	in 	two
related chapter 11 cases–-i.e., the case of Qmect, Inc. (“Qmect”), a
corporation, 	and 	the 	case 	of 	Fred 	and 	Linda 	Koelling 	(the
“Koellings”), 	shareholders 	of 	Qmect 	and 	guarantors 	of 	some 	of 	its
obligations. 	In 	one 	of 	the 	adversary 	proceedings, 	Qmect 	sought 	to
equitably subordinate Burlingame’s claim and objected to the claims
filed 	by 	Burlingame 	and 	its 	affiliate, 	Electrochem 	Funding, 	LLC
(“Funding”). 	This proceeding was filed as an original matter in the
bankruptcy court. 	The other two adversary proceedings were filed in
state 	court 	initially, 	either 	by 	or 	against 	Qmect 	and/or 	the
Koellings. 	Cross-complaints 	were 	filed 	in 	each 	proceeding. 	Both
proceedings 	were 	removed 	to 	the 	bankruptcy 	court 	after 	Qmect’s 	and
the 	Koellings’ 	chapter 	11 	cases 	were 	filed. 	The 	issues 	raised 	in
these two proceedings were all governed by state law.
The Qmect case has since been converted to a case under chapter
7 of the Bankruptcy Code. 	Burlingame had previously obtained relief
from 	the 	automatic 	stay 	and 	foreclosed 	on 	most, 	if 	not 	all, 	of 	its
assets. 	Consequently, neither Burlingame nor Funding seek an award
of attorneys’ fees or costs against Qmect at this time. 	In addition,
Case: 04-04190 Doc# 214 Filed: 11/16/06 Entered: 11/16/06 12:52:50 Page 2 of
8

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26 	1Section 1717(a) of the California Civil Code provides that:
“In any action on a contract, where the contract specifically
3
the Court has determined that the Koellings have been released from
their guaranty of Qmect’s obligations to Funding. 	Thus, Funding is
no 	longer 	seeking 	an 	award 	of 	attorneys’ 	fees 	and 	costs 	from 	the
Koellings either. 	The only relief sought at present is by Burlingame
against the Koellings.
After 	the 	issues 	were 	narrowed 	by 	partial 	summary 	judgment, 	a
trial was held, beginning in October 2005 and ending in January 2006.
Burlingame prevailed on most, if not all, of the issues. 	The Court
made 	a 	determination 	of 	the 	amounts 	owed 	to 	Burlingame 	by 	the
Koellings, 	including 	pre-petition 	attorneys’ 	fees 	and 	costs. 	The
award 	did 	not 	include 	post-petition 	attorneys’ 	fees 	and 	costs.
Judgment 	was 	entered 	on 	August 	14, 	2006. 	The 	Koellings 	moved 	for
reconsideration, but the motion was denied.
At 	about 	the 	same 	time, 	Burlingame 	filed 	a 	motion, 	seeking 	an
award of its post-petition attorneys’ fees and costs, to be included
in its judgment in these proceedings. 	A hearing was conducted with
respect to this motion on October 5, 2006. 	At the conclusion of the
hearing, the Court took the motion under submission. 	The Court now
concludes that the motion should be denied without prejudice.
DISCUSSION
Burlingame 	asserts 	a 	right 	to 	include 	its 	post-petition
attorneys’ fees and costs in its judgment against the Koellings based
on its contracts with both Qmect and the Koellings and on Cal. Civ.
Code 	§ 	1717. 1 	Included 	among 	the 	fees 	that 	Burlingame 	seeks 	to
Case: 04-04190 Doc# 214 Filed: 11/16/06 Entered: 11/16/06 12:52:50 Page 3 of
8

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
provides that attorney’s fees and costs, which are incurred to
enforce that contract, shall be awarded...to the prevailing party,
then the party who is determined to be the party prevailing on the
contract...shall be entitled to reasonable attorney’s fees in
addition to other costs.” 	Cal. Civ. Code § 1717(a).
2The holding in Fobian seems inconsistent with 11 U.S.C. §
506(b). 	If an unsecured creditor is entitled to include its post-
petition attorneys’ fees in its claim, what is the need for §
506(b)? 	The Ninth Circuit seems to have answered this question by
holding that a secured creditor is also entitled to include in its
secured claim, to the extent of the value of its collateral, its
post-petition attorneys’ for litigating issues peculiar to
bankruptcy law. 	See In re Kord Enterprises II, 139 F.3d 684, 687
(9 th Cir. 1998). 	Coincidentally, the issue of whether an
unsecured creditor is entitled to attorneys’ fees for litigating
issues peculiar to bankruptcy law is before the United States
Supreme Court this term. 	It is scheduled for oral argument in late
January 2007. 	See Travelers Cas. & Sur. Co. v. Pacific Gas and
Electric, 167 Fed.Appx. 593 (9 th Cir. 2006) (unpublished), cert.
granted, 127 S.Ct. 377 (2006).
4
include in its judgment are fees incurred litigating issues peculiar
to 	bankruptcy. 	At 	present, 	the 	law 	in 	the 	Ninth 	Circuit 	is 	clear
that 	an 	unsecured 	creditor 	is 	not 	entitled 	to 	include 	in 	its 	claim
its post-petition attorneys’ fees incurred litigating issues peculiar
to bankruptcy. 	An unsecured creditor is entitled to include in its
claim 	its 	post-petition 	attorneys’ 	fees 	for 	litigating 	issues
governed 	by 	nonbankruptcy 	law 	provided 	the 	creditor 	has 	a 	right 	to
recover its attorneys’ fees based on contract or statute. 	See In re
Fobian, 951 F.2d 1149, 1159 (9 th Cir. 1991). 2
Burlingame contends that Fobian does not apply because it is not
at 	present 	seeking 	to 	include 	its 	post-petition 	attorneys’ 	fees 	in
its 	unsecured 	claim 	against 	the 	bankruptcy 	estate. 	It 	is 	merely
seeking 	to 	include 	the 	fees 	in 	its 	judgment 	in 	these 	adversary
proceedings. 	Burlingame 	concedes 	that 	there 	is 	no 	present 	purpose
Case: 04-04190 Doc# 214 Filed: 11/16/06 Entered: 11/16/06 12:52:50 Page 4 of
8

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
5
for 	this 	determination. 	However, 	it 	envisions 	that 	various
contingencies 	might 	occur 	which 	would 	make 	such 	a 	determination
useful. 	The 	Koellings 	argue 	that 	it 	would 	constitute 	an 	improper
advisory 	opinion 	for 	the 	Court 	to 	make 	such 	a 	determination 	in 	the
absence of a present need for it. 	The Court agrees.
The Koellings also contend that it would be unfair to make them
undertake the work required to evaluate the reasonableness of the fee
request under these circumstances. 	They also note that the form of
the 	fee 	application 	is 	inadequate 	to 	permit 	them 	to 	do 	so 	in 	any
event. 	The 	invoices 	have 	been 	heavily 	redacted 	and 	have 	not 	been
segregated by task, and no narrative has been provided. 	Again, the
Court agrees.
Burlingame contends that it has supplied more than is required
already. 	It 	argues 	that 	all 	that 	is 	required 	to 	support 	a 	fee
request 	is 	a 	simple 	declaration 	that 	the 	fees 	have 	been 	incurred.
The Court has no doubt that, in some other case, some court has found
a 	simple 	declaration 	to 	be 	sufficient 	for 	its 	purposes. 	In 	this
case, however, given the multiplicity of the litigated matters and a
fee 	request 	of 	over 	$1 	million, 	the 	Court 	would 	not 	find 	a
declaration sufficient nor does it find what Burlingame has submitted
to date sufficient.
Burlingame’s 	right 	to 	attorneys’ 	fees 	is 	not 	governed 	by 	11
U.S.C. 	§ 	330. 	Therefore, 	its 	fee 	application 	need 	not 	comply 	with
the 	rigorous 	format 	requirements 	of 	the 	Court’s 	fee 	guidelines 	for
trustees 	and 	Court 	appointed 	professionals. 	Nevertheless, 	the 	fee
application must have sufficient specificity to permit the Court to
Case: 04-04190 Doc# 214 Filed: 11/16/06 Entered: 11/16/06 12:52:50 Page 5 of
8

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
6
determine the reasonableness of the fees. 	In particular, given the
Court’s 	conclusion 	that 	Burlingame 	may 	not 	obtain 	an 	award 	of
attorneys’ 	fees 	for 	litigating 	issues 	specific 	to 	bankruptcy 	law,
clearly, the work performed and fees requested must be segregated by
task.
For that reason, the Court will deny Burlingame’s motion without
prejudice. 	Burlingame 	may 	file 	and 	notice 	for 	hearing 	an 	amended
motion 	for 	fees. 	The 	amended 	motion 	must 	contain 	a 	narrative
describing the various tasks performed for which fees are requested
with a summary of the hours and fees related to each task. 	The tasks
must 	be 	fairly 	narrowly 	defined. 	For 	example, 	the 	Court 	would 	not
find 	it 	adequate 	if 	the 	amended 	fee 	application 	contained 	only 	two
tasks: e.g., one for issues governed by state law and the other for
issues governed by bankruptcy law.
The invoices must be revised to segregate the description of the
work 	performed 	by 	task 	so 	that 	the 	line 	items 	related 	to 	each 	task
appear consecutively. 	This may be done invoice by invoice or for the
case 	as 	a 	whole. 	The 	tasks 	identified 	on 	the 	invoices 	should
correspond 	to 	the 	tasks 	identified 	in 	the 	narrative 	as 	should 	the
hours and fees.
Given the ongoing litigation between the parties, the Court will
permit Burlingame to limit the copies of the invoices served on the
Koellings 	to 	redacted 	copies. 	However, 	unredacted 	copies 	must 	be
provided 	to 	the 	Court. 	The 	narrative 	must 	be 	served 	on 	the
Koellings.
Case: 04-04190 Doc# 214 Filed: 11/16/06 Entered: 11/16/06 12:52:50 Page 6 of
8

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
7
Based on the foregoing, it is
SO ORDERED.
END OF DOCUMENT
Case: 04-04190 Doc# 214 Filed: 11/16/06 Entered: 11/16/06 12:52:50 Page 7 of
8

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
8
COURT SERVICE LIST
Paul E. Manasian
Manasian & Rougeau, LLP
400 Montgomery St., Ste. 1000
San Francisco, CA 94104
Tobias S. Keller
Pachulski, Stang, Ziehl, Young,
Jones & Weintraub P.C.
Three Embarcadero Center, Ste. 1020
San Francisco, CA 94111-4023
Robert R. Moore
Allen Matkins Leck Gamble & Mallory LLP
Three Embarcadero Center, 12 th Floor
San Francisco, CA 94111
Philip J. Nicholsen
Law Offices of Philip J. Nicholsen
221 Main St., #740
San Francisco, CA 94105
Case: 04-04190 Doc# 214 Filed: 11/16/06 Entered: 11/16/06 12:52:50 Page 8 of
8