China Village, LLC

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For The Northern District Of California
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MEMORANDUM DECISION ON
FINAL REPORT AND FEE APPLICATIONS
UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
In re 	] 	Case No. 10-60373 ASW
]
CHINA VILLAGE, LLC, 	] 	Chapter 11
]
Debtor. 	]
]
MEMORANDUM DECISION ON MOTIONS TO APPROVE FEE APPLICATIONS AND
RECEIVER’S FINAL REPORT
Before this Court are the final report and accounting, as well
as the application for fees and expenses of Robb Evans & Associates
LLC (“Robb Evans”), the superseded state court receiver for debtor,
China Village, LLC (“China Village”). 	Also before the Court are
applications for approval of fees and expenses requested by Larson
& Gaston, LLP (”L&G”) and the Law Offices of William P. Fennell
(“Fennell”), who respectively served as Robb Evans’ state court
receivership and bankruptcy counsel. 	China Village and one of its
secured creditors, Fremont Investment Property Company, LLC
(“Fremont”), oppose the applications. 	For the reasons explained,
this Court approves Robb Evans’ final account and the fee
IT IS SO ORDERED.
Signed January 4, 2012
Arthur S. Weissbrodt
U.S. Bankruptcy Judge
________________________________________
Entered on Docket
January 05, 2012
GLORIA L. FRANKLIN, CLERK
U.S BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
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MEMORANDUM DECISION ON
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applications of Robb Evans, L&G and Fennell with the adjustments
discussed below.
This Memorandum Decision constitutes the Court’s findings of
fact and conclusions of law, pursuant to Rule 7052 of the Federal
Rules of Bankruptcy Procedure.
A. 	PROCEDURAL HISTORY
On May 25, 2011, Robb Evans filed its request for approval of
fees and expenses as well as a request for approval of its final
report and accounting related to its service as receiver for China
Village from November 1, 2009 through February 28, 2011. 	On the
same day, L&G and Fennell filed applications for allowance and
payment of compensation and reimbursement of expenses incurred as
counsel for Robb Evans.
On June 9, 2011, Fremont filed objections to each of the
applications. 	China Village filed its own objections on June 16,
2011. 	As a group, Robb Evans, L&G and Fennell filed replies to
both Fremont’s and China Village’s objections on June 16 and June
17.
At a June 23, 2011 hearing on the pending applications, the
Court tentatively ruled that the receiver and its counsel were
entitled to fees, but directed the parties to provide additional
evidence to address a factual dispute as to whether Robb Evans’
late payment of certain property taxes was an act reasonably
carried out within the authorized scope of the receiver’s
appointment. 	The Court also set a briefing schedule for the
applicants to submit unredacted time records and any other
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MEMORANDUM DECISION ON
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materials needed to establish the reasonableness of the fee and
expense requests. 	The hearing was continued to September 9, 2011.
Robb Evans, L&G and Fennell submitted supplemental declarations
on July 25, 2011. 	These declarations authenticated time records in
support of the fee requests and explained the circumstances
surrounding the April 2010 property tax payment. 	On August 15,
2011, China Village and Fremont filed supplemental responses
reiterating each of their earlier objections. 	On August 29, 2011,
the applicants filed a joint reply together with additional
declarations revising their fee requests to reflect actual time
billed through August 29, 2011.
The Court continued the September 9, 2011 hearing to November
15, 2011 and, subsequently, took the November 15, 2011 hearing off
calendar to allow the Court to issue a written decision.
B. FACTUAL BACKGROUND
Debtor, a single asset real estate LLC, owns a commercial
shopping center in Fremont, CA consisting of 374,000 square feet of
retail and restaurant space (the “property”). 	The property is
encumbered by two deeds of trust. 	Cathay Bank (“Cathay”) holds the
senior lien. 	Redwood Mortgage Investors VIII (“Redwood”)initially
held the second deed of trust, but Fremont, the successor-in-
interest to Redwood, is the current holder of the second.
In June 2009, at Cathay’s request, the Alameda County Superior
Court appointed Robb Evans to be the receiver of the property.
With state court approval, Robb Evans retained L&G as legal counsel
for all purposes associated with the receivership retroactive to
the date Robb Evans was appointed.
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By order dated June 24, 2009, the state court authorized Robb
Evans to do all things ordinarily done by owners and operators of
businesses and property similar to the property at issue. 	The
exception was capital improvements, which required prior court
approval. 	Robb Evans’ appointment order also provided that if Robb
Evans received notice of a bankruptcy case that included
receivership property as part of the bankruptcy estate, Robb Evans
had to determine whether Cathay intended to seek relief from the
automatic stay or relief from the receiver’s turn-over obligations
under § 543 of the Bankruptcy Code. 	If Cathay intended to seek
either form of relief, then Robb Evans could retain possession and
preserve the receivership property pending resolution of any motion
or motions that Cathay filed. 	If Cathay did not intend to seek
either type of relief or if no motion for relief was filed within
ten days after receiving notice of the bankruptcy, Robb Evans was
to “immediately turn over the property to the appropriate
[bankruptcy entity] and otherwise comply with 11 United States Code
section 543.” 	If Robb Evans failed to turn over the property in
accordance with the appointment order, the order further provided
that the receiver “shall not be paid for time and expenses after
the date on which the receiver should have turned the property
over.”
In December 2009, when Robb Evans was preparing to pay the
first installment of the 2009-2010 real property taxes for the
property, Robb Evans learned that the last installment of the 2008-
2009 taxes was delinquent. 	Robb Evans paid both installments, but
subsequently, Alameda County returned Robb Evans’ payment for the
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last installment of the 2008-2009 taxes because Redwood had
previously paid it.
On March 23, 2010, about three weeks before the April 12, 2010
due date for the second installment of the 2009-2010 taxes, Robb
Evans emailed Redwood asking to coordinate payment. 	Redwood
responded on April 1, 2010 advising Robb Evans to call “any time to
discuss.” 	On April 5, 2010, one week before the taxes were due,
Robb Evans emailed counsel for Cathay to advise that the receiver
wanted to authorize payment of the property taxes and that there
was sufficient money in the property management account to cover
it. 	The next afternoon, Redwood emailed Robb Evans to advise that
Cathay had asked Redwood to pay the tax installment. 	Redwood asked
to discuss the matter with Robb Evans. 	Over the next few days,
there were several emails that focused on Redwood’s payment of the
second installment of the 2008-2009 taxes, but did not mention or
discuss the upcoming installment. 	Then, on April 9, 2010, Robb
Evans emailed Cathay, with no copy to Redwood. 	Robb Evans’ email
informed Cathay that Redwood acknowledged receipt of a request from
Cathay’s counsel to pay the property taxes but that Redwood
believed that the receiver should pay them. 	Robb Evans reported
that Robb Evans had referred Redwood back to Cathay’s counsel.
Robb Evans’ email stated that “As we have heard no more on this, we
conclude that Redwood Mortgage has paid the taxes.”
No further email or other discussion took place until April 13,
2010, the morning after the taxes were due. 	On that morning,
Redwood emailed Robb Evans and inquired as to whether Robb Evans
had been able to resolve the property tax issue. 	Robb Evans
responded that afternoon describing the earlier duplicate payment
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and stating that 	“the receiver understands that Redwood Mortgage
was to pay the second installment.” 	Redwood replied that
afternoon, acknowledging that Redwood had paid the 2008-2009
delinquency as a condition of a forbearance agreement with Cathay,
but further stating,
“as discussed with you previously, it is [Redwood’s]
understanding that the property taxes are an operating
expense and as such would be paid out of operating income.
We do not have an agreement or understanding to pay the
second installments of the 2009/2010 property taxes and
expect that the receiver will pay these from the cash
reserves, as was done for the first installments.”
The morning of April 26, 2010, Robb Evans emailed both Redwood and
Cathay to confirm that the receiver had not made the property tax
payment that was due on April 12. 	Several email exchanges ensued
where Cathay threatened to foreclose if Redwood did not make the
tax payment and Redwood maintained that the receiver was obligated
to pay because the property had earned sufficient income to cover
the payment. 	Robb Evans received and reviewed a copy of the
Cathay-Redwood forbearance agreement and determined that under its
terms, Redwood was required to pay the taxes only if China
Village’s operating funds were insufficient to cover the payment.
Robb Evans paid the property taxes that same day.
Six months later, on October 4, 2010, China Village filed its
chapter 11 petition. 	On November 2, 2010, Cathay filed two
motions, one for relief from the automatic stay and the second to
excuse compliance with the turnover requirements of Bankruptcy Code
§ 543. 	The United States Trustee, China Village and Redwood
opposed the motion to excuse the turnover of estate property. 	On
December 7, 2010, the Court heard and orally denied the turnover
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motion without prejudice to the filing of a motion to appoint a
chapter 11 trustee. 	No written order was entered.
The next day, December 8, 2010, Victor Cosentino, an attorney
with L&G, emailed China Village’s counsel, Lawrence Jacobson,
requesting a conference to coordinate transfer of the property. 	On
December 17, Cosentino again emailed Jacobson summarizing the
anticipated receiver’s fees and expenses as well as the anticipated
amount to be turned over. 	Cosentino advised that the receiver
wanted to coordinate having the property manager begin working for
debtor as quickly as possible and again requested a telephone
conference with Jacobson so the turnover could be coordinated.
Cosentino warned that “If the turnover does not occur before
Thursday 12/24, it may not get done until early in the new year”
due to the holidays and Cosentino’s absence from the office.
On December 21, Jacobson responded with an email commenting
that China Village agreed with Robb Evans that Robb Evans should
turn over all funds and property to China Village because the
Bankruptcy Court declined to excuse compliance with the turnover
requirements of Bankruptcy Code § 543. 	Jacobson also advised that
China Village wanted to keep the property management company in
place and asked for contact information to reach the property
manager directly.
On January 11, 2011, Cosentino emailed Jacobson inquiring
whether China Village was ready “to do this turnover” and requested
wiring instructions. 	Jacobson responded with bank information
about 4:45 p.m. on Friday afternoon, January 14, 2011. 	Cosentino
replied a few minutes later, stating that Robb Evans would arrange
for the transfer of money “ASAP,” and guessing that the transfer
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would be the following Tuesday (January 18) because that Monday was
a Federal holiday. 	Cosentino also advised that he would tell the
property manager to contact Jacobson so the property manager could
arrange to start taking instructions from China Village as of the
date of transfer.
On January 18, 2011, however, Cosentino emailed Jacobson to
advise that the property manager had been trying to reach Jacobson
to arrange the transfer of the management services pursuant to
written contract. 	Cosentino stated that the receiver was agreeable
to proceeding with the turnover either via an interim property
management contract between the property manager and China Village
or via the receiver’s termination of the property manager’s
services with China Village’s assumption of day to day
responsibility for the property. 	Cosentino requested instruction
on how China Village wanted to proceed and relayed the receiver’s
desire to complete the turnover as soon as possible but also to
ensure coordination.
On February 1, 2011, L&G again emailed debtor’s counsel asking
whether the property management contract had been approved and
urging, “can we conclude this turnover?”
On February 7, 2011, the receiver filed a notice that it was
retaining Fennell as bankruptcy counsel to assist in the turnover
of estate property to debtor and other bankruptcy issues. 	On
February 11, 2011, Fennell filed an ex parte request to shorten
time for hearing on a motion to compel debtor’s receipt of turnover
of the receivership property. 	Shortened time was denied, and the
Court indicated that scheduling of the motion to compel receipt of
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turnover would be discussed at a disclosure statement hearing set
for February 18, 2011.
On February 15, 2011, China Village filed a status conference
statement summarizing the status of the turnover. 	China Village
conceded that Robb Evans was “ready and desirous of completing the
turnover,” but that the process had been delayed by what China
Village characterized as a “minor procedural dispute” regarding
China Village’s intent to engage the continued services of the
receiver’s property manager. 	China Village believed that the
property manager’s continued services would provide comfort to the
secured creditors and eliminate the need for lengthy and costly
cash collateral litigation. 	China Village reported that after
China Village had negotiated an agreement with the property manager
and a corresponding cash collateral stipulation, Redwood expressed
reservations concerning the specific property manager. 	China
Village informed the Court that China Village was in the process of
resolving Redwood’s concerns.
A day before the scheduled disclosure statement hearing,
Jacobson emailed L&G, Fennell, as well as counsel for Cathay and
Redwood. 	Jacobson advised that Redwood had approved the
appointment of the property manager and the cash collateral
stipulation. 	Jacobson concluded that “I presume that the receiver
and property manager can accomplish the turnover promptly after the
Court approval of the stipulation and application to appoint.”
On February 25, 2011, Jacobson emailed the signed cash
collateral order and the executed property management agreement to
Robb Evans, Redwood and Cathay. 	His email stated, “I presume that
this should allow for completion of the turnover.”
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The turnover was completed March 1, 2011, two business days
later.
C. 	LEGAL ANALYSIS
1. 	Receiver’s Final Account and Fee Application
As a state court receiver, Robb Evans is a “custodian” within
the meaning of § 101(11)(C) of the Bankruptcy Code. 	In re Snergy
Properties, Inc., 130 B.R. 700, 703 (Bankr. S.D.N.Y. 1991). 	Under
§ 543 of the Bankruptcy Code, when a custodian acquires knowledge
of a bankruptcy case involving property in the custodian’s
possession, three obligations arise. 	First, the custodian must
refrain from making any disbursement of, or otherwise
administering, any property of debtor “except such action as is
necessary to preserve such property.” 	11 U.S.C. § 543(a). 	Second,
the custodian must deliver to the “trustee” any property of debtor
that is in the custodian’s possession at the time that the
custodian learned of the bankruptcy. Id. § 543(b)(1). 	Third, the
custodian must promptly file an accounting of any property that was
ever in the custodian’s control. 	Id. § 543(b)(2) and Fed. R.
Bankr. P. 6002(a).
Once a superseded custodian files its accounting, Bankruptcy
Code § 543(c) authorizes the Court to review the actions and the
accounting of the custodian. 	As part of its review, the Court must
protect all entities to which the custodian has become obligated
and provide the custodian with reasonable compensation for services
rendered as well as expenses incurred. 	Id. § 543(c)(1)-(2). 	The
Court also has an obligation to surcharge the custodian for any
improper or excessive disbursement (other than a disbursement that
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has been made in accordance with applicable law or that has been
approved by a court of competent jurisdiction before the
commencement of the bankruptcy). 	Id. § 543(c)(3). 	In short,
receivership property becomes property of debtor’s bankruptcy
estate upon the filing of the petition, and decisions affecting the
property fall under the domain of this Court. In re Sundance Corp.,
Inc., 149 B.R. 641, 650 (Bankr. E.D. Wash. 1993).
In this case, Robb Evans completed delivery of the receivership
property to China Village on March 1, 2011. 	Its May 25, 2011 final
report, accounting and request for fees, as supplemented through
June 17, 2011, is before this Court. 	China Village and Fremont
raised a variety of objections to the final report/account and the
fee application based on vagueness, lack of time records and the
inclusion of an estimated request for future fees. 	Robb Evans’
time records through June 17, 2011, as well as a supplemental
declaration of the deputy receiver adequately explain the tasks
performed by the receiver and differentiate the role played by the
property manager. 	As a result, the Court overrules the objections
based on vagueness and lack of time records. 	Three objections
remain: 1) whether Robb Evans should be surcharged for $17,875.24
in real estate tax penalties and interest paid by the receivership
estate in April 2010; 2) whether the Court should deny all fees
incurred following this Court’s December 7, 2010 order denying the
request to excuse Robb Evans from its turnover obligations under
§ 543; and 3) whether the amount of fees that Robb Evans has
requested is excessive and unreasonable, including the request for
$7,132 in estimated fees and expenses that have been or will be
incurred since June 17, 2011.
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At the hearing on June 23, 2011, this Court recognized that
under California law, “Ordinarily, a receiver is not individually
liable for acts reasonably carried out within the authorized scope
of the receiver’s appointment.” 	11 Miller & Starr, Cal. Real
Estate (3d ed. 2009, Supp. 2011), §33:18. 	The Court directed the
parties to submit additional declarations or other evidence to
flesh out whether the late payment of taxes, even if negligent, was
an act that fell within this general rule. 	Further research,
however, reveals that California courts also recognize an exception
to the general rule and will hold a receiver personally liable for
misconduct or mismanagement of the receivership estate. 	See
Credit Managers Ass’n of Southern California v. Kennesaw Life and
Acc. Ins. Co., 25 F.3d 743, 751 (9 th Cir. 1994)(discussing cases
supporting both the rule and the exception).
To determine whether the rule or the exception is applicable to
a particular set of circumstances, the California courts look to
the relationship between the claim asserted and the receivership
estate. 	When the cause of action is independent of any interest in
the estate and could be asserted by a stranger to the receivership
estate, the general rule applies. 	See, e.g., Chiesur v. Superior
Court in and for Los Angeles County, 76 Cal. App. 2d 198, 201
(1946)(third party sought permission to sue a receiver of an
apartment building for personal injuries caused by failure to
maintain the premises); Sealite, Inc. v. Finster, 149 Cal. App. 2d
612, 618 (1957)(“a receiver is liable to persons not beneficially
interested in his receivership, in his official capacity only”),
citing McNulta v. Lochridge, 141 U.S. 327, 12 S. Ct. 11 (1891) and
Chiesur, 76 Cal. App. 2d at 201. 	However, when an injury or claim
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arises because the receivership estate, in which the claimant has a
beneficial interest, has been diminished, California courts have
found that a receiver can be held personally liable for losses due
to the receiver’s mismanagement. 	Rochat v. Gee, 137 Cal. 497
(1902)(in action by two partners for dissolution of partnership,
receiver surcharged for creditors’ seizure of partnership assets
during the receivership); 	MacMorris Sales Corp. v. Kozak, 249 Cal.
App. 2d 998 (1967)(used automobile sales business stated claim
against its receiver for allegedly liquidating cars at unreasonably
low prices, but company failed to provide sufficient evidence that
a better price could have been obtained). 	In State Through State
Bd. of Equalization v. Stewart, 272 Cal. App. 2d 345 (1969) a
receiver, who operated a hotel and restaurant, collected sales tax
from customers and withheld unemployment disability taxes from
employees’ paychecks. 	The receiver failed, however, to segregate
the collected amounts for the benefit of the state and instead,
paid all receivership assets to other creditors. 	In settling the
receiver’s final account, the court held the receiver individually
liable for the unpaid taxes stating, “A court-appointed fiduciary
may be surcharged for failure to pay taxes due in operating the
business of an estate.” 	In Aviation Brake Sys., Ltd. v. Voorhis,
133 Cal. App. 3d 230, 235 (1982), the court similarly recognized
that a receiver may be personally responsible for losses to a
receivership estate. 	There, a company sued its former receiver for
failing to discharge his duties faithfully based on a variety of
misconduct. 	Although the appellate court upheld dismissal of the
complaint, it did so only on res judicata grounds because the
company first raised the claims after the final account had been
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approved and the receiver discharged. 	The court specifically
accepted that if the claims had been addressed during the
proceedings on the receiver’s final account, the receiver could
have been surcharged for losses to the receivership estate based
upon the receiver’s misconduct or mismanagement.
In the case before the Court, there is no doubt that China
Village and Fremont, as the debtor and the holder of the second
deed of trust against the property, were interested in preserving
the receivership estate. 	The question then is whether Robb Evans’
failure to pay taxes on a timely basis constitutes mismanagement of
the receivership estate. 	If the accrual and payment of penalties
and interest resulted from the receiver’s mismanagement, then Robb
Evans should be surcharged with the loss resulting from its
mishandling of the tax payment. 	Based on the evidence submitted,
the Court concludes that Robb Evans erred when it did not ensure
that the taxes were paid on time.
Robb Evans was aware that Redwood had paid delinquent amounts
related to the 2008-2009 property taxes and wanted to avoid future
duplicate payments. 	Nevertheless, Robb Evans has conceded that it
generally believed Robb Evans was responsible for paying real
estate taxes. 	Robb Evans also knew that the receiver, not Redwood,
had paid the first installment of the 2009-2010 taxes. 	Emails
provide further evidence that, at one point, Robb Evans explicitly
requested Cathay’s concurrence with Robb Evans’ intent to pay the
second 2009-2010 installment.
Confusion ensued after Cathay suggested that Redwood might be
responsible for the taxes. 	With hindsight, Robb Evans asserts that
Redwood caused the confusion because Redwood never affirmatively
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stated that Redwood would not pay the taxes. 	Nevertheless, just
three days before the taxes were due, in an email sent only to
Cathay, Robb Evans acknowledged that Redwood believed that the
receiver, not Redwood was responsible for paying the taxes. 	In
light of Redwood’s known position, it was unreasonable for Robb
Evans, the fiduciary of the receivership estate, to simply conclude
that Redwood had paid the taxes, especially without providing
Redwood with notice of, and an opportunity to object to, the
receiver’s assumption.
Current real estate taxes are ordinary expenses of operating
property. 	Schreiber v. Ditch Road Investors, 105 Cal. App. 3d 675,
680-81 (1980). 	Because Robb Evans was the receiver responsible for
operating the property, Robb Evans had a fiduciary obligation to
pay the second installment of the 2009-2010 real estate taxes. 	Id.
(“Receivers are obligated to pay all taxes on real property in
their possession which fall due during the time they are in
possession as receivers.”). 	As a result, Robb Evans had a duty
either to obtain confirmation of Redwood’s intent to pay or to pay
the taxes timely to avoid the accrual of interest and penalties.
It did neither. 	For this lapse, the receiver will be surcharged
the amount of $17,875.24, which represents the amount of interest
and penalties that accrued when the taxes were not paid timely.
Turning to the next issue, the Court is not inclined to deny
all fees subsequent to the December 7, 2010 denial of Cathay’s
motion to excuse compliance with the turnover requirement of § 543
of the Bankruptcy Code.
Fremont and China Village assert that once Cathay’s motion to
excuse turnover was denied in open court, Robb Evans had no
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authority to do anything except to turn over the property to China
Village. 	They further contend that turning over property is a
simple task and should not have required significant work on the
part of either Robb Evans or its counsel. 	Robb Evans responds that
it acted promptly to arrange for the transfer of the property but
was frustrated by China Village’s lack of cooperation. 	As a
result, Robb Evans and its counsel incurred significant fees both
to operate and protect the property pending the turnover and to
obtain China Village’s cooperation to ensure a smooth transition.
Bankruptcy Code § 543(b)(1), provides that a custodian, unless
otherwise excused, shall:
deliver to the trustee any property of the debtor held by or
transferred to such custodian, or proceeds, product, offspring,
rents, or profits of such property, that is in such custodian’s
possession, custody, or control on the date that such custodian
acquired knowledge of the commencement of the [bankruptcy]
case.
11 U.S.C. § 543(B)(1). 	Despite the apparent automatic nature of
the turnover obligation, one leading bankruptcy treatise explains
that,
courts have recognized that this provision contains no time
limit in which property must be turned over. 	As a practical
matter, most custodians retain the property until requested or
ordered to turn it over to the trustee or debtor-in-possession.
4 Norton Bankruptcy Law and Practice (3d ed. 2008), § 62.10. 	On
one hand, efforts expended by a state court receiver resisting an
involuntary bankruptcy have been found to be non-compensable
because they provided no benefit to the estate. 	In re Lake Region
Operating Corp., 238 B.R. 99, 102 (Bankr. M.D. Pa 1999). 	On the
other hand, reasonable compensation for expenses incurred in
preparation for or in effectuating a turnover is allowable under
Code § 543(c)(2), which mandates that the court “shall provide for
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the payment of reasonable compensation for services rendered and
cost and expenses incurred” by a superseded custodian. 	11 U.S.C.
§ 543(c)(2); In re Posadas Associates, 127 B.R. 278, 280 (Bankr. D.
N. M. 1991). 	The question then is whether the fees that Robb Evans
incurred were reasonably necessary to preserve the receivership
estate or to effectuate the turnover.
On December 7, 2010, this Court denied Cathay’s motion to
excuse Robb Evan’s turnover obligations ruling that Robb Evans had
to comply with the turnover requirements of Bankruptcy Code § 543.
The day after that ruling, Robb Evans’ counsel emailed China
Village’s counsel to begin a smooth and coordinated return of the
property to debtor. 	On December 21, 2010, China Village’s counsel
advised Robb Evans’ counsel that it wanted to retain the property
manager that the receiver had been using. 	As later reported in a
February 15, 2011 status conference statement, China Village
believed that the property manager’s continued services would
comfort the secured creditors and prevent expensive cash collateral
disputes. 	Thereafter, all parties began working toward a
coordinated turnover with both the property manager and an approved
cash collateral stipulation in place.
There is no evidence that Robb Evans ever resisted turning over
the property. 	To the contrary, emails from late December 2010
through early February 2011 evidence Robb Evans’ growing
frustration with the sluggishness of the process. 	Robb Evans’
counsel repeatedly inquired as to whether China Village was ready
to conclude the turnover. 	By early February, Robb Evans hired
bankruptcy counsel to assist in the turnover, and bankruptcy
counsel immediately attempted to schedule a motion to compel China
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Village to accept receipt of the turnover. 	While the Court denied
a request to hear the motion on shortened time, the Court indicated
that a schedule for the motion would be discussed at an already
scheduled disclosure statement hearing set for February 18. 	On
February 15, China Village reported to the Court that Robb Evans
was “ready and desirous of completing the turnover,” but that
Redwood’s concerns over the property manager had resulted in a
“procedural dispute” that had delayed the process. 	By February 18,
China Village had reached an agreement with Redwood, and on
February 25, 2011, China Village’s counsel notified the parties
that it had an executed property management agreement in place and
that the Court had signed an order approving the parties’ cash
collateral stipulation, which “should allow for completion of the
turnover.” 	Robb Evans turned over the property two business days
later.
This evidence indicates that Robb Evans’s efforts were directed
at facilitating the turnover, not opposing it. 	The contemporaneous
emails and court documents indicate that all parties believed that
the turnover should occur only after debtor retained the property
manager and had a cash collateral stipulation in place. 	Under
these circumstances, there is no basis for a wholesale denial of
all fees and costs associated with the services of the receiver
following the denial of Cathay Bank’s motion to excuse turnover.
The better question under § 543(c) is whether the tasks that the
receiver performed were necessary and whether the fees incurred
were reasonable. 	The Court addresses those issues below in
conjunction with the Court’s discussion of the fee requests of Robb
Evans and its counsel.
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2. 	Reasonableness and Necessity of Requested Fees and
Expenses
Bankruptcy Code § 503(b) governs the award of compensation to
both the receiver and its counsel. 	Under § 503(b)(3)(E), the
actual and necessary expenses of a custodian superseded under § 543
of the Bankruptcy Code are entitled to treatment as an
administrative expense. 	As discussed above, those expenses include
post-petition fees and expenses that were reasonably incurred in
effectuating the turnover. 	Further, fees and expenses of
attorneys retained by a superseded custodian are paid as an
administrative expense under § 503(b)(4) which provides,
reasonable compensation for professional services rendered by
an attorney or an accountant of an entity whose expense is
allowable under subparagraph (A), (B), (C), (D), or (E) of
paragraph (3) of this subsection.
11 U.S.C. § 503(b)(4).
Robb Evans’ fee request and that of its counsel have been
submitted in piecemeal fashion. 	The original applications, filed
May 25, 2011, included estimated amounts for fees expected to be
incurred to close the receivership. 	Since that time, there have
been two rounds of supplemental declarations. 	Robb Evans’
supplement provides actual time through June 17, 2011 and requests
$7,132 in estimated fees and expenses to close. 	Counsel for Robb
Evans have each provided declarations establishing actual time
incurred through August 29, 2011. 	Based on the applicants’
submissions, the following requests are before the Court:
1. 	The receiver seeks a total award for fees and expenses of
$89,636.55 of which $44,433.95 remains unpaid. 	Of the unpaid
amount, $13,686.68 of the request is related to actual and
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estimated fees or expenses incurred after the receiver’s final
report and request for compensation.
2. 	L&G, the receiver’s state court counsel, seeks a total award
for fees and expenses of $43,520.79 of which $40,047.48 is unpaid
($23,441.63 in the original application plus $16,605.85 incurred
after the application period). 	L&G incurred $24,055.58 of the
total fees and expenses after the receiver turned over possession
of the receivership property.
3. 	Fennell, the receiver’s bankruptcy counsel, seeks a total award
for unpaid fees and expenses of $26,984.37 ($15,397.91 in the
original application plus $11,586.46 incurred after the application
period). 	Fennell incurred $17,428.23 of the total fees and
expenses after the receiver turned over possession of the
receivership property.
The Court turns first to Robb Evans’ fee request. 	Fremont and
China Village assert that the receiver’s fees incurred after
December 7, 2010 are unreasonable and excessive in relation to the
simple task of turning over the property to debtor. 	As discussed
above, despite Robb Evans’ immediate efforts to turn over the
receivership property, the turnover process was not as simple as
anticipated. 	While the receiver promptly initiated discussions to
arrange for the turnover, all the parties believed that the
turnover should take place in a coordinated fashion. 	While the
parties worked toward that end, the receiver properly continued to
operate and protect the property. 	The receiver’s time records from
December 2010 through May 6, 2011 demonstrate that Robb Evans’
activities were limited to communicating with its counsel regarding
arrangements for the turnover, overseeing the property manager’s
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work and, following the turnover, preparing the receiver’s final
report and account. 	There is no evidence before the Court that the
receiver performed any tasks beyond what was necessary to preserve
the property for ultimate turnover to debtor. 	The Court overrules
the objection that the receiver’s actual time up through its final
account was excessive or unnecessary.
Robb Evans’ original fee request included estimated fees and
expenses that Robb Evans expected to incur after May 6, 2011. 	In
July 2011, when Robb Evans submitted its time records, it updated
its request to include actual time through June 17, 2011. 	However,
Robb Evans’ request still includes estimated fees and expenses of
$7,132 for tasks performed or expected to be performed after June
17. 	In the period between May 6, 2011 and June 17, 2011, Robb
Evans’ time records reflect that the receiver spent time revising
and finalizing the final report and account. 	Robb Evans also
gathered information for its counsel to use in responding to the
objections to the final report and account. 	This time incurred to
prepare and defend its fee application is compensable.
With respect to the post June 17 time period, however, the
receiver continues to estimate its fees. 	Robb Evans’ reliance on
estimated fees even after this Court explained that it needed
evidence to evaluate the reasonableness of any fee request is,
quite simply, indefensible. 	Because there is no evidence to
support the reasonableness of the estimated fees, Robb Evans’
request for $7,132 in estimated fees and expenses will be
disallowed.
Turning next to the applications of L&G and Fennell, China
Village first contends that L&G is not entitled to any compensation
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at all because a conflict of interest arose when L&G assisted with
a declaration in support of Cathay’s motion for relief from stay.
However, as discussed above, the receiver’s counsel is entitled to
reasonable compensation under § 503(b)(4) of the Bankruptcy Code.
There is no requirement that a superseded receiver’s counsel be
either appointed by the court or disinterested under Bankruptcy
Code § 327 to be entitled to compensation for post-petition
services. 	In re 245 Associates, LLC, 188 B.R. 743, 748 (Bankr.
S.D.N.Y. 1995); Snergy Properties, 130 B.R. at 704-05.
China Village and Fremont also urge that counsels’ applications
are duplicative, that L&G, as receivership counsel, should not have
incurred any time related to the bankruptcy case, that Fennel’s
time was almost entirely related to an unnecessary motion to compel
China Village to accept turnover of the receivership property, that
the time incurred in both applications is generally excessive, and
that the post-application time spent defending the fee applications
is especially unreasonable.
The fact that Robb Evans had two sets of counsel is not, by
itself, unreasonable. 	Each had its own area of expertise and under
the circumstances of this case, there was a need to have
coordinated advice with both counsel providing advice on Robb
Evans’ course of action. 	Nevertheless, when two sets of counsel
are present, it is important to review the tasks performed to weed
out unnecessary duplication in the work performed.
From December 2010, when the Court directed Robb Evans to
comply with the turnover requirements of Bankruptcy Code § 543,
through March 1, 2011, when the turnover took place, L&G’s time
records disclose that L&G spent its time communicating with the
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receiver, debtor’s counsel and the property manager to coordinate
the turnover and address some insurance issues regarding the
property. 	In late January and February, L&G began speaking with
Fennell to obtain specialized bankruptcy advice to facilitate the
turnover. 	L&G spent some time communicating with the property
manager on property-related issues and small amounts of time
reviewing materials in connection with the motion to compel
turnover that bankruptcy counsel prepared. 	Finally, L&G incurred
approximately an hour of time related to the receiver’s limited
opposition to debtor’s disclosure statement.
During the same time period, Fennell spent time providing
advice on how to facilitate turnover of the receivership property
through the bankruptcy case. 	Fennell communicated with both Robb
Evans and L&G regarding the turnover. 	Fennell prepared a motion to
compel turnover and a limited opposition to debtor’s disclosure
statement. 	Fennell also appeared before the Bankruptcy Court at a
disclosure statement hearing. 	Finally, Fennell requests $1,080
related to time spent traveling from San Diego to San Jose for a
hearing before this Court. 	Time spent on air travel is not
compensable unless those hours actually were spent working.
Because the time records indicate that Fennell’s travel time was
not spent working, the request for $1,080 will be disallowed.
There is no indication that the efforts of L&G and Fennell were
duplicative during this time period. 	Instead, the time records
suggest that counsel complemented each other’s work, each
contributing its own expertise to the issues at hand. 	Further,
the Court overrules the objection to compensating Fennell for work
on the motion to compel acceptance of the turnover. 	While the
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motion was never heard, the receiver’s motion encouraged debtor to
finalize the cash collateral stipulation and the property
management agreement which ultimately led to the receiver’s
turnover. 	Under the circumstances, it was not unreasonable for
Fennell to prepare the receiver’s motion to compel turnover.
Following the completion of the turnover but prior to its fee
application, L&G counseled Robb Evans with respect to a property
tax payment that the Court authorized Robb Evans to pay. 	L&G also
assisted Robb Evans with preparation of its final report, account
and fee application. 	Further, L&G spent several hours related to
its own fee application and 2.3 hours related to debtor’s plan and
disclosure statement in the bankruptcy case. 	As receivership
counsel, there is no apparent reason for L&G’s review of the plan
and disclosure statement. 	The $690 associated with that task will
be disallowed. 	Additionally, L&G requests 3.1 hours for the
clerical task of categorizing its time records. 	Because clerical
time is overhead rather than compensable professional time, the
$930 related to this clerical task also will be disallowed.
During the same two month period from March 1, 2011 through
early May, Fennell remained involved in this bankruptcy case to
ensure that debtor’s plan did not preclude payment of the fees and
expenses of the receiver or its counsel. 	Fennell also spent
approximately three hours assisting Robb Evans and L&G with the
final report and account, as well as their fee applications. 	The
Court concludes that this time was reasonable to help the receiver
and its state court counsel with filing their applications in the
Bankruptcy Court.
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The final issue with respect to the applications of L&G and
Fennell is the time that they have incurred since their
applications were filed. 	The post-application period fees raise
several concerns. 	First, the amounts listed in the notice that
went out to creditors regarding counsels’ fee requests reflected
the amount requested in their original fee applications plus an
estimated reserve of $1,000 for each counsel to cover fees for any
follow-up matters subsequent to the time covered by the fee
application. 	Both L&G and Fennell now request fees significantly
in excess of the amounts that were noticed out to creditors. 	For
that reason alone, the fees beyond the estimated $1,000 must be
denied.
Even if the requested fees did not exceed the amounts noticed
to creditors, a review of the time records regarding those post-
application fees reveals that both sets of counsel collaborated
with Robb Evans on two rounds of briefing in support of the final
report and the fee applications. 	Although joint briefs were filed,
the collaboration led to over $28,000 in counsel fees that were
incurred after the final account and fee applications were filed.
This sum is unreasonable in light of the size of the briefs and the
issues addressed. 	While there was one substantial declaration
relating the facts surrounding the late payment of taxes, other
declarations merely authenticated time records or invoices that
were attached to the declarations. 	As a result, all attorneys fees
related to work performed in the post-application period in excess
of the $1,000 specifically reserved for follow-up matters are
denied without prejudice to a supplemental application supported by
appropriate evidence.
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D. 	CONCLUSION
For the reasons explained, the Court finds as follows:
1. 	Subject to a surcharge of $17,875.24 for the penalties and
interest associated with the late payment of the second installment
of the 2009-2010 property taxes, Robb Evan’s final account is
approved, and Robb Evans is discharged as the receiver for China
Village.
2. 	Robb Evans’ request for fees and expenses is approved in the
total amount of $82,504.55, of which $37,301.95 remains unpaid.
After application of the surcharge of $17,875.24, Robb Evans is
entitled to a net award of $19,426.71.
3. 	L&G’s application is approved in the total amount of $26,294.94
for fees and costs. 	After application 	of prior payments,
$22,821.63 remains unpaid.
4. 	Fennell’s application is approved in the amount of $15,317.91
for unpaid fees and costs.
*** END OF ORDER***
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Case No. 10-60373
Court Service List
William P. Fennell
Tracy L. Schimelfenig
LAW OFFICE OF WILLIAM P. FENNELL ,
APLC
1111 Sixth Ave., Suite 404
San Diego, CA 92101
Victor J. Cosentino
L ARSON & GASTON , LLP
200 S. Los Robles Ave.
Suite 530
Pasadena, CA 91101
Dennis D. Miller
Eugene Chang
STEIN & LUBIN LLP
600 Montgomery St.
14 th Floor
San Francisco, CA 94111
Lawrence A. Jacobson
Sean M. Jacobson
C OHEN AND JACOBSON , LLP
900 Veterans Blvd., Suite 600
Redwood City, CA 94063
Bernard R. Given II
FRANDZEL ROBINS B LOOM & CSATO , LC
6500 Wilshire Blvd., 17 th Floor
Los Angeles, CA 90048-4920
Nanette Dumas
O FFICE OF THE UNITED STATES T RUSTEE
280 S. First St.
San Jose, CA 95113
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