Opinion
NOT FOR PUBLICATION
ORDER ON WALDEN FAMILY PARTNERSHIP MOTION TO COMPEL DISTRIBUTION OF RENT PROCEEDS
PETER W. BOWIE, Chief Judge United States Bankruptcy Court
This matter came on regularly for hearing on the motion by the Walden Family Partnership, through its assignee David Walden, to compel the trustee to distribute accumulated rent proceeds.
The Court has subject matter jurisdiction over this proceeding pursuant to 28 U.S.C. § 1334 and General Order No. 312-D of the United States District Court for the Southern District of California. This is a core proceeding pursuant to 28 U.S.C. § 157(b).
Discussion
Prior to the filing of the present case, Joel Forral and the Walden Family Partnership co-owned a commercial property, with a tenant occupying approximately one-half of the property. After the filing, the trustee took over the collection of rents and payment of the property's expenses. The property has since been sold. In the interim, the Walden Family Partnership has sought payment of its portion of the accumulated net rents.
At the hearing, the parties agreed that the gross rent proceeds are $66,543.22 and, for purposes of this motion they agreed that operating expenses, not including attorney fees, are $30,648. The dispute boiled down to disagreement over whether two categories of attorneys' fees, earned by and awarded to trustee's counsel could properly be charged against the Walden Family Partnership's portion of the rent proceeds.
The first category of fees are those incurred in negotiating a cash collateral agreement with Union Bank. Those fees total $7,455. In the Court's view, the fees were necessarily incurred by the trustee in his management of the bankruptcy estate. However, following the reasoning of the Ninth Circuit in In re Flynn, 418 F.3d 1005 (2005), the Court concludes that while the fees were a necessary expense of the bankruptcy estate they are not chargeable against the co-owner's portion of the rents, even though the co-owner may have benefitted from the protection bankruptcy afforded the property, as well as from management by the trustee. The co-owner did not seek any of that, and should not be charged for it.
The second category of fees involve those incurred in dealing with the tenant, which was late in paying rent, utilities, and in holding over possession of the property. Those fees total $5,812, and in the Court's view are properly chargeable pro rata to the co-owner's share of the rent proceeds because those proceeds might not exist without those efforts.
At the hearing, Mr. Walden noted a seeming inconsistency between a charge for three tenths of an hour (.3) on 4/23/08 concerning delinquent rent, and the trustee's cash receipts record showing that the April 2008 rent was paid on April 4. Trustee's counsel testified that she believed that entry actually related to delinquent payment of utilities, not rent. The Court is persuaded that the attorneys' fees incurred by the trustee in dealing with the tenant were both reasonable and reasonably necessary.
Conclusion
For the foregoing reasons, the Court finds and concludes that the gross rents of $66,543.22, less agreed operating expenses of $30,648, yields net rents of $35,895.22. The Court further finds and concludes that the net rents are properly chargeable for the attorneys' fees expended in helping create the rent proceeds. Those fees are $5,823 which, when subtracted from the net rents yields $30,083. Divided equally with the bankruptcy estate, the Walden Family Partnership is entitled to distribution of $15,041.61.
The trustee reports that he has been served with a lien notice. The Court expresses no opinion about such purported lien notice. When this Order becomes final, the trustee is required to make distribution of $15,041.61, whether directly to the Walden Family Partnership, into a court registry in conjunction with ah interpleader, or otherwise by agreement or stipulation.
IT IS SO ORDERED.