Opinion
Case No. 14–57104
12-28-2017
IN RE: John Joseph Louis JOHNSON, III, Debtor.
Daniel A. DeMarco, Rocco I. Debitetto, Cleveland, OH, Marc J. Kessler, Hahn Loeser & Parks LLP, Columbus, OH, for Debtor.
Daniel A. DeMarco, Rocco I. Debitetto, Cleveland, OH, Marc J. Kessler, Hahn Loeser & Parks LLP, Columbus, OH, for Debtor.
OPINION AND ORDER AWARDING HAHN LOESER & PARKS LLP COMPENSATION FOR SERVICES RENDERED AND REIMBURSEMENT FOR EXPENSES (DOC. 788)
John E. Hoffman, Jr., United States Bankruptcy Judge
I. Introduction
This matter is before the Court in the Chapter 11 case of John Joseph Louis Johnson, III (the "Debtor") on the request of Hahn Loeser & Parks LLP ("Hahn Loeser") for an award of compensation for services rendered, and reimbursement for expenses incurred, during the more than two-year period the Debtor was a debtor in possession (the "Compensation Period"). Cobalt Sports Capital LLC ("Cobalt"), Pro Player Funding LLC ("Pro Player") and RFF Family Partnership, LP ("RFF" and, together with Cobalt and Pro Player, the "Objectors") oppose Hahn Loeser's request for an award of fees and expenses totaling $2,538,189.28 on multiple grounds. For the reasons set forth below, Hahn Loeser is awarded final compensation for services rendered during the Compensation Period in the amount of $1,860,619.44 and final reimbursement of expenses incurred during the Compensation Period in the amount of $49,497.74, for a total of $1,910,117.18.
II. Jurisdiction and Constitutional Authority
The Court has jurisdiction to hear and determine this contested matter under 28 U.S.C. §§ 157 and 1334 and the general order of reference entered in this district. This is a core proceeding. See 28 U.S.C. § 157(b)(2)(A) and (O) ; Saker v. Luper (In re Holiday Towers) , No. 91–3854, 1992 WL 107063, at *2 (6th Cir. May 15, 1992) ("Determinations of attorney's fees are core proceedings because such determinations are obviously matters concerning the administration of the estate."). And because the award of compensation and reimbursement of expenses under § 330 of the Bankruptcy Code"stems from the bankruptcy itself," Stern v. Marshall , 564 U.S. 462, 499, 131 S.Ct. 2594, 180 L.Ed.2d 475 (2011), the Court also has the constitutional authority to enter a final order on requests for those fees and expenses, as the Sixth Circuit recognized long before Stern . See Holiday Towers , 1992 WL 107063, at *2 (rejecting argument that the bankruptcy court did not have constitutional authority to enter a final order on the fee application of Chapter 11 debtor's counsel).
III. Background
Many of the facts relevant to the adjudication of this dispute are set forth in detail in the Court's prior opinions on various contested matters, and the findings in those opinions are incorporated by reference. See In re Johnson , 546 B.R. 83 (Bankr. S.D. Ohio 2016) (opinion and order denying the Debtor's motion to convert his Chapter 11 case to Chapter 7) (the " Conversion Opinion "); In re Johnson , 548 B.R. 770 (Bankr. S.D. Ohio 2016) (opinion and order holding that RFF violated the automatic stay) (the " Stay Opinion "), appeal dismissed for lack of jurisdiction , No. 16–8016 (6th Cir. BAP Jan. 17, 2017); Johnson v. RFF Family P'ship, LP (In re Johnson) , 554 B.R. 448 (Bankr. S.D. Ohio 2016) (opinion and order holding that RFF does not have a security interest in the Debtor's NHL player contract) (the " Security Interest Opinion "), aff'd , No. 16–8035, 2017 WL 2399453 (6th Cir. BAP June 2, 2017) ; In re Johnson , No. 14–57104, 2016 WL 8853601 (Bankr. S.D. Ohio Nov. 10, 2016) (bench decision confirming the Debtor's Chapter 11 plan) (the " Confirmation Decision "). In brief, the Debtor is a professional hockey player with the Columbus Blue Jackets, playing under a seven-year $30.5 million contract (the "Player Contract") that extends through the 2017–18 season. See Conversion Op. , 546 B.R. at 100. Following the Debtor's filing of a voluntary Chapter 11 petition for relief on October 7, 2014 (the "Petition Date"), some $21 million in claims—many disputed—were filed against his estate. See id. at 101 & n. 18. Over $14 million of these claims were held by a group of eight creditors, colloquially referred to by the parties in this case as the "Big Eight," which includes the Objectors, as well as Capital Financial Holdings, LLC ("Capital Financial"), Capital Holdings Enterprises, LLC ("Capital Holdings"), CapStar Bank ("CapStar"), EOT Advisors, LLC ("EOT") and Rodney Blum ("Blum"). Following more than two years of extensive legal battles, the Debtor settled with all but one of the Big Eight and obtained confirmation of his Third Amended Chapter 11 Plan of Reorganization (the "Plan") (Doc. 657) on November 23, 2016. Confirmation Decision , 2016 WL 8853601, at *2 ; Doc. 757 (order confirming Plan). The Compensation Period spans the roughly 26 months from the Petition Date to the effective date of the Plan, which occurred on December 8, 2016. Doc. 770 (notice of effective date).
A. The Fee Applications
Hahn Loeser has filed six interim fee applications (Docs. 307, 408, 487, 664, 733 & 788) and, together with the sixth interim, a final fee application (the "Final Application") (Doc. 788) (collectively, the "Fee Applications"). The following chart shows the amount of fees and expenses incurred during the Compensation Period:
The Court will refer to the interim applications individually as the "[Ordinal] Application."
Application Period Covered Fees Incurred Expenses Incurred First (Doc. 307) 10/7/14-5/31/15 $724,244.50 $18,549.61 Second (Doc. 408) 6/1/15-9/30/15 $639,138.75 $31,915.56 Third (Doc. 487) 10/1/15-1/31/16 $305,909.50 $3,776.78 Fourth (Doc. 664) 2/1/16-5/31/16 $550,199.00 $4,421.49 Fifth (Doc. 733) 6/1/16-9/30/16 $483,055.50 $8,147.64 Sixth (Doc. 788) 10/1/16-12/8/16 $149,751.00 $716.53 Final (Doc. 788) 10/7/14-12/8/16 $2,852,298.25 $67,527.61
Although the total amount of the fees incurred is $2,852,298.25, Hahn Loeser does not seek allowance of that amount. As detailed in its interim applications, Hahn Loeser made certain reductions to its fees—first deducting the fees attributable to particular time entries or reducing fees relating to certain categories of services, and then applying an across-the-board 10% reduction to the remaining amounts for each interim Fee Application except for the First Application. The voluntary reductions were taken to "help moderate the impact of fees on the chapter 11 estate ... as well as take into account any actual or potential inefficiencies attendant to representing clients in complex matters such as [the] Debtor's case." Doc. 408 at 2. The chart below summarizes the amounts of the voluntary reductions—which total $314,108.97, or approximately an 11% discount to the total fees incurred:
Total App. Fees Incurred Itemized 10% Voluntary Net Fees Reductions Reduction Reduction Sought First $724,244.50 $5,944.00 $0.00 $5,944.00 $718,300.50 Second $639,138.75 $17,067.00 $62,207.18 $79,274.18 $559,864.57 Third $305,909.50 $29,236.00 $27,667.35 $56,903.35 $249,006.15 Fourth $550,199.00 $20,803.40 $52,939.56 $73,742.96 $476,456.04 Fifth $483,055.50 $23,068.80 $45,998.67 $69,067.47 $413,988.03 Sixth $149,751.00 $15,779.90 $13,397.11 $29,177.01 $120,573.99 Final $2,852,298.25 $111,899.10 $202,209.87 $314,108.97 $2,538,189.28
Thus, the net amount of fees sought by Hahn Loeser is $2,538,189.28. Doc. 809 at 2.
The Court carefully reviewed the voluntary reductions, particularly those that were itemized, to ensure that the further reductions, which are detailed below, deduct only the amount of fees Hahn Loeser is actually seeking. For example, if a $1,000 charge in the "HLP Retention/Fee Application" category was subject to disallowance, the Court would only reduce Hahn Loeser's total fees sought by $180. This is because Hahn Loeser already discounted the fees incurred in the "HLP Retention/Fee Application" category by 80% (leaving only $200 of the $1,000 entry) and then discounted the remainder by 10% pursuant to its across-the-board fee reduction (subtracting an additional $20). So, of the $1,000 entry, Hahn Loeser would only be seeking allowance of $180.
Most of the itemized reductions are for fees incurred in defending or preparing the prior fee application(s) and for travel time. In the First Application, Hahn Loeser halved its fees for travel time. See Doc. 307 at 19. In the Second Application, Hahn Loeser deducted the $17,067 of fees incurred in defending the First Application. Doc. 408 at 2. Of course, these fees would not have been recoverable in any event under the Supreme Court's decision in Baker Botts L.L.P. v. ASARCO LLC , ––– U.S. ––––, 135 S.Ct. 2158, 2169, 192 L.Ed.2d 208 (2015). As for the Third Application, Hahn Loeser reduced its fees by the $6,680 incurred in defending the Second Application, by $2,372 for the preparation of a motion for leave to file the Third Application early, and then by 80% of the fees remaining in the "HLP Retention/Fee Application" category (or $18,672). See Doc. 487 at 2, 15. The Court could not account for the additional $1,512 reduction. The itemized reductions that Hahn Loeser made in the Fourth Application include: $818 for defending prior interim applications; $3,106.40, or 80% of the fees incurred in preparing the Third Application; and $16,879 in travel time. Doc. 664 at 2. In the Fifth Application, Hahn Loeser deducted $8,312.80 as 80% of the fees incurred in preparing the prior application and $7,823.50 for travel time, and made other reductions totaling $6,932.50 in the following categories: "Litigation/Adversary Proceeding" ($714), Doc. 733 at 11 & n. 5; "Plan of Reorganization" ($2,916), id. at 13 & n. 8; and "HLP Retention/Fee Application" (either $2,128 or $3,302.50—the numbers in the text and a footnote contained in the Fifth Application conflict, but it appears Hahn Loeser deducted the larger $3,302.50 amount), id. at 12 & n. 6. Hahn Loeser reduced the fees in the Sixth Application by $9,246.40 (80% of the fees in the "HLP Retention/Fee Application" category) and $6,533.50 for travel time. Doc. 788 at 3–4.
B. The Objections and the Fee Hearing
The objections to the Fee Applications and Hahn Loeser's replies are listed below for reference:
Application Objections/Replies First (Doc. 307) Cobalt, RFF, Pro Player, Capital Financial, Capital Holdings, EOT & Blum Objection (Doc. 333), CapStar Objection (Doc. 334), Hahn Loeser Reply (Doc. 344) Second (Doc. 408) Cobalt, RFF, Pro Player, Capital Financial, Capital Holdings, EOT & Blum Objection (Doc. 424), CapStar Objection (Doc. 425), Hahn Loeser Reply (Doc. 434) Third (Doc. 487) CapStar Objection (Doc. 524), RFF Objection (Doc. 525), Hahn Loeser Reply (Doc. 532) Fourth (Doc. 664) RFF Objection (Doc. 692), Cobalt Objection (Doc. 694), Pro Player Objection (Doc. 695), Hahn Loeser Reply (Doc. 713) Fifth (Doc. 733) Cobalt Objection (Doc. 763), RFF Objection (Doc. 764), Pro Player Objection (Doc. 765), Hahn Loeser Reply (Doc. 769) Sixth & Final (Doc. 788) RFF Objection (Doc. 804), Cobalt Objection (Doc. 805), Pro Player Objection (Doc. 806), Hahn Loeser Reply (Doc. 809)
Although each of the Big Eight objected to the First and Second Applications (and CapStar also objected to the Third), only the three Objectors objected to the subsequent Fee Applications and continued to prosecute their objections.
Pro Player simply joined in the objections asserted by Cobalt. See Docs. 695, 765 & 806.
Hahn Loeser has received a total of $1,007,656.84 in fees and expenses on an interim basis. Of this amount, $299,009.72 in fees and $8,647.12 in expenses were received under an agreed interim compensation order (Doc. 78) providing for the payment of 90% of undisputed fees and 100% of undisputed expenses on a monthly basis. See Doc. 344 at 3–4; Doc. 434 at 3–4. And the Court approved additional interim compensation of $641,836.04 in fees and $58,163.96 in expenses, for a total of $700,000, following a postconfirmation status conference held on December 14, 2016. Doc. 778. Because the Court is awarding fees and expenses totaling $1,910,117.18—more than the interim amounts allowed—Hahn Loeser is entitled to receive further payment. But as Daniel DeMarco, the Hahn Loeser partner who appeared on behalf of the firm at the hearing on the Final Application (the "Fee Hearing") explained, Hahn Loeser's actual monetary recovery is capped.
The transcript of the Fee Hearing (the "Transcript") is located at Doc. 936.
This is true for two reasons. First, Hahn Loeser is limited in the amount it can receive under the Plan. The Plan established an "Administrative Holdback," to be used to pay allowed administrative claims, priority tax claims and—despite its name—certain general unsecured claims. See Plan at 2. Hahn Loeser reported that, as of the Fee Hearing, $737,761.60 remained in the Administrative Holdback, and the claim of Frank Khulusi is the only remaining claim payable from it. See Tr. at 4–5. Khulusi's $321,250 claim (Claim 27–1) is currently subject to an objection by the Debtor. Doc. 790; see also Doc. 815 (Khulusi's response). If that claim were allowed in full, Khulusi, under the terms of the Plan, would be entitled to a 35% distribution, or $112,437.50. Plan at 16. Thus, the maximum amount available to be distributed to Hahn Loeser under the Plan would be between $625,324.10 ($737,761.60—$112,437.50) if Khulusi's claim were allowed in full and $737,761.60 if Khulusi's claim were disallowed in its entirety. Second, even if Hahn Loeser's fees and expenses were allowed in an amount greater than the maximum amount of funds available from the Administrative Holdback plus the amount Hahn Loeser has already received in interim compensation (i.e., between $1,632,980.94 and $1,745,418.44, depending on the resolution of Khulusi's claim), Hahn Loeser has reached an agreement with the Debtor that it would not look to him for payment of any allowed amount not recoverable under the Plan. See Tr. at 14 (DeMarco stating that the firm has "no intention of asking Mr. Johnson to, at some future date or time, pay any shortfall between what the Court might award and what [it's] able to be paid" and that Hahn Loeser "agreed with Mr. Johnson that [it] would be limited to what [it] had been paid and the [amount] in that administrative holdback").
In July 2017, the Court held a telephonic status conference on the Final Application, the objections, and the omnibus reply (Doc. 809) filed by the Debtor's counsel. At the conference, the parties agreed to participate in mediation to resolve the objections. Three full days of mediation produced no resolution, and the Court therefore set the Fee Hearing for November 1, 2017, at which time it heard the arguments of Hahn Loeser, RFF and Pro Player. Cobalt did not appear, opting instead to stand on its written objections.
During the Fee Hearing, the Court noted that many of the objections were stated generally, without identifying particular entries to aid the Court in its review. The Court reminded the Objectors that, according to their papers, they were prepared to supplement their objections to identify objectionable entries—in particular "vague" or "meaningless" ones. See Doc. 333 at 9–10. In light of this offer and the case law requiring a fee application objector to set forth clearly and specifically the grounds for its objection, the Court requested that RFF and Pro Player supplement their objections. See Tr. at 50 ("I'm going to ... take you up on your offer to specifically identify each time entry ... where you believe that the Court should not award compensation."). But RFF and Pro Player failed to do so.
See In re Quigley Co. , 500 B.R. 347, 369 (Bankr. S.D.N.Y. 2013) ("The Court has an independent duty to review the fee application, but it does not have the duty to search for evidence to support [a] general objection."); see also Interfaith Cmty. Org. v. Honeywell Int'l, Inc. , 426 F.3d 694, 713 (3d Cir. 2005) ("This is a voluminous and protracted case, and we are not unmindful of the difficult job the [trial court] faces in reviewing the fee application. In performing this task, the [trial court] is entitled to help from the fee objector."), as amended (Nov. 10, 2005); Abernathy v. United States (In re Abernathy) , 158 B.R. 749, 755 (Bankr. N.D. Ill. 1993) ("[The objections] are simply stated generally, leaving it to the court to try to figure out to which specific entries the [objector] is referring. It is the [objector's] responsibility to make its objections clear. Thus, the court will require [it] to file a supplemental brief in which it applies these general objections to specific line items so that the court may properly evaluate their validity.").
IV. Legal Analysis
A. Standards for Compensation of Counsel for Debtors in Possession
Section 330 of the Bankruptcy Code governs the compensation of a professional employed by the estate, including counsel for a debtor in possession in a Chapter 11 case, and provides that the Court may award "reasonable compensation for actual, necessary services rendered." 11 U.S.C. § 330(a)(1)(A). In calculating what constitutes reasonable compensation in a particular case, bankruptcy courts in the Sixth Circuit must employ the lodestar method. Boddy v. U.S. Bankr. Court (In re Boddy) , 950 F.2d 334, 334 (6th Cir. 1991). "The lodestar method directs a court to multiply the reasonable hourly rate by the hours reasonably expended in performance of actual and necessary services." In re Holder , 207 B.R. 574, 581 (Bankr. M.D. Tenn. 1997).
In determining the reasonableness of compensation to be awarded, courts are to consider "the nature, the extent, and the value of such services," taking into account various factors, including:
(A) the time spent on such services;
(B) the rates charged for such services;
(C) whether the services were necessary to the administration of, or beneficial at the time at which the service was rendered toward the completion of, a case under this title;
(D) whether the services were performed within a reasonable amount of time commensurate with the complexity, importance, and nature of the problem, issue, or task addressed;
(E) with respect to a professional person, whether the person is board certified or otherwise has demonstrated skill and experience in the bankruptcy field; and
(F) whether the compensation is reasonable based on the customary compensation charged by comparably skilled practitioners in cases other than cases under this title.
"The Code prohibits a court from awarding fees, however, for: '(i) unnecessary duplication of services; or (ii) services that were not—(I) reasonably likely to benefit the debtor's estate; or (II) necessary to the administration of the case.' " Kemp, Klein, Umphrey, Endelman & May v. Bankr. Estate of Veltri Metal Prods., Inc. (In re Veltri Metal Prods., Inc.) , 189 Fed.Appx 385, 389 (6th Cir. 2006) (quoting 11 U.S.C. § 330(a)(4)(A) ).
Even in the absence of an objection, the Court has an independent duty to review the fees sought by debtor's counsel and to reduce them if any are noncompensable under the standards set forth in § 330. See In re 5900 Assocs., Inc. , 468 F.3d 326, 330 (6th Cir. 2006) ("The Bankruptcy Code assigns to courts a comprehensive duty to review fees in a particular case[.]"); In re Peterson , 566 B.R. 179, 188 (Bankr. M.D. Tenn. 2017) (" Section 330 charges the Court with an independent duty to review all fee applications presented in all bankruptcy cases ... to ensure that the requested fees are reasonable, necessary, and justified.").
B. The Court's Independent Review
The Court began its independent review of the nearly 1,400 pages of invoices that make up Hahn Loeser's applications prior to the Fee Hearing. In its initial review, the Court identified a handful of minor but problematic time entries—all within the "HLP Retention/Fee Application" category—and during the Fee Hearing brought them to the attention of DeMarco. The first was a June 23, 2015 entry by "MJK" for 0.20 hours ($104) stating "[r]eview of objection correspondence from C. Winter to attorneys' fees." Doc. 408 (Second App.), Ex. C–1 at 39; Tr. at 23–24. At that point, no interim fee application was on file, and DeMarco stated that Hahn Loeser would voluntarily withdraw this entry. Tr. at 45. Second, on June 8, 2016, "CMB" billed $216 for "Communications with RI Debitetto regarding additional exhibits (0.10); attention to preparing additional exhibits—plan, disclosure statement, amended budget and Ferrari Sale Order (0.40); preparation of Notice of Filing Amended Witness and Exhibit List (0.30); circulate exhibits and Notice to RI Debitetto (0.10)." Doc. 733 (Fifth App.), Ex. C at 86; Tr. at 24. While the fees attributable to the services listed in this entry would appear to be compensable, DeMarco admitted this entry was "certainly misplaced," Tr. at 24, and he stated that the firm would voluntarily withdraw it, id. at 45. Because Hahn Loeser already reduced its fees in the HLP Retention/Fee Application category by 80% (and then voluntarily reduced 10% of its remaining fees sought), the Court will deduct on account of these two withdrawn entries $57.60 (90% of 20% of $320) from Hahn Loeser's total fees.
Finally, the Court pointed out an October 5, 2016 entry by "CMB" for time billed preparing a response to creditor objections to one of the Fee Applications and noted that such time would not be compensable under the Supreme Court's ASARCO decision, which held that § 330(a)(1)"does not permit bankruptcy courts to award compensation for [fee-defense] litigation." Baker Botts L.L.P. v. ASARCO LLC , ––– U.S. ––––, 135 S.Ct. 2158, 2169, 192 L.Ed.2d 208 (2015). Agreeing that compensation for such services would be barred by ASARCO , Hahn Loeser withdrew the entry. Tr. at 25, 45. The Court has located several other entries that relate to fee-defense litigation. In October and December 2016, Hahn Loeser billed $4,886 in researching and preparing its reply to the objections to the Fifth Application, including the entry noted at the Fee Hearing. See Doc. 788 (Sixth App.) at 79, 144–45. Accordingly, $4,886 is subject to disallowance. But because Hahn Loeser only seeks $879.48 of this amount (after the 80% and 10% voluntary reductions, see id. at 3), the Court will deduct this reduced amount from Hahn Loeser's total allowed fees.
Based on its thorough review of the Fee Applications the Court finds that, with the exception of the items identified in this opinion, the fees and expenses sought by Hahn Loeser were actually incurred, are reasonable and necessary, and were either reasonably likely to benefit the Debtor's estate or were necessary to the administration of the case. The Court also finds—and there is no dispute from the Objectors—that the hourly rates charged by Hahn Loeser professionals are reasonable and that the time was actually expended. See Tr. at 26 (counsel for RFF stating he had "no quibble with the rates that Hahn Loeser charges—they're certainly very well-qualified attorneys—nor that the time that they've recorded was actually spent"). Certain of Hahn Loeser's fees, however, were incurred for services that were not reasonably likely to benefit the Debtor's estate—specifically, the fees incurred in connection with the Debtor's motion to convert his case (the "Conversion Motion") (Doc. 167) and those relating to the Debtor's property in Ann Arbor, Michigan (the "Ann Arbor Property"), where the Debtor's parents and, at times, younger brother lived. The Court will address these independent concerns before turning to the objections.
Though the Objectors seek disallowance of Hahn Loeser's fees incurred in connection with the Conversion Motion and fees relating to the Ann Arbor Property, they do so solely on the basis of the Court's extensive findings in the 150–page Conversion Opinion. Thus, in its Conversion Opinion, the Court independently questioned the allowability of the fees discussed in this section of the opinion nearly a year before the Objectors asserted their objections to the Final Application.
1. The Conversion Motion
In the Conversion Opinion, the Court found that the Debtor's conduct early in the case constituted bad faith and that, were he allowed to convert to Chapter 7, his case would be subject to dismissal under § 707(a). Conversion Op. , 546 B.R. at 156. Among other things, the Debtor continued to spend excessively postpetition, made no effort to object to claims he deemed to be illegitimate, and failed to negotiate with his creditors in good faith. The Debtor thus "neglected his fiduciary duties" and "failed to administer his case in a manner that might have resulted in a significant distribution to his creditors." Id. at 90. And by pursuing the conversion of his case the Debtor sought "to keep for himself millions of dollars of post-bankruptcy income, while leaving his creditors with a small recovery (if any) from his unencumbered, non-exempt assets." Id. Based on these findings, the Court concluded that the Debtor's attempt to convert his case was solely for his own personal benefit. See id. at 129 ("[T]he Debtor does not wish to spend his postpetition income objecting to the claims of the Objecting Creditors if doing so would only benefit the creditors whose claims he deems to be legitimate, not himself. Rather, as long as he is going to litigate with the Objecting Creditors anyway, he would prefer to do it in a Chapter 7 case where, if he were to prevail, the benefit would inure to him in the form of a Chapter 7 discharge and the retention of millions of dollars of future income.").
As set forth in the Conversion Opinion, Hahn Loeser spent a great deal of time on the effort to convert the Debtor's case—1,692.90 hours, amounting to $657,826.50 in fees. Id. at 128. And in the Fourth Application, which had not been filed at the time the Conversion Opinion was issued, the Court located three additional entries relating to the Conversion Motion totaling 1.40 hours of time and $598 in fees. Doc. 408 (Second App.), Ex. C at 29, 46. Those services were not "reasonably likely to benefit the [D]ebtor's estate," 11 U.S.C. § 330(a)(4)(A) ; instead, they were intended to benefit the Debtor. The fees related to the Conversion Motion in the amount of $658,424.50 are therefore noncompensable. Yet because Hahn Loeser is only seeking to recover a certain percentage of these fees by virtue of its 10% voluntary reduction to the Second, Third and Fourth Applications, the Court will deduct $611,211.15 from Hahn Loeser's allowable compensation.
The Court notes, however, that it is possible that the litigation over the Conversion Motion indirectly benefited the estate by spurring the negotiations—and ultimately the settlements with seven of the Big Eight—that enabled the Debtor to achieve confirmation of his Plan. As the Court stated during the Fee Hearing:
[T]here were some aspects of [the Conversion Motion] that the Court may have had to address anyway, regardless of whether it was addressed in that context or another context. And what I'm focusing on there is the [§] 707(b) analysis the Court had to go through.... [A]t some point in time, whether it was through the plan process or otherwise, the creditors needed to be convinced that that pathway to Chapter 7 relief wasn't a roadblock or wasn't a dead end.... [T]o that extent, I think the conversion proceedings may have had some beneficial effect in paving the way to confirmation because ... the creditors learned that ... they had a little less leverage than they thought they had[.] Because ... if Mr. Johnson later sought conversion, that [request] ... wouldn't [have been] denied based on [his asserted ineligibility for Chapter 7 relief under] [§] 707(b).
Tr. at 16–18. Indeed, RFF concedes that the conversion litigation is ultimately what led to a confirmable plan: "[T]he reality is that this Court's order denying the Debtor's [C]onversion [M]otion and show cause order with respect to the appointment of a chapter 11 trustee was the primary driver of the plan that was confirmed in this case." Doc. 804 at 12. But even if the outcome of the Conversion Motion helped pave the way to a confirmable Chapter 11 plan, such indirect, unintended benefit is insufficient to satisfy the statutory requirements of § 330. This is in large part because, under § 330, services must be "beneficial [to the estate] at the time at which the service[s] [were] rendered ." 11 U.S.C. § 330(a)(3)(C) (emphasis added). The Court's findings in the Conversion Opinion show that Hahn Loeser's services in seeking to convert the Debtor's case to one under Chapter 7 were not intended to benefit to anyone but the Debtor. See Conversion Op. , 546 B.R. at 129.
The Conversion Opinion apparently caused Hahn Loeser to come to the realization that the Court did not intend to award it fees and expenses attributable to the effort to convert the case to Chapter 7. During the July 2017 status conference, DeMarco acknowledged that the Court strongly signaled in the Conversion Opinion that it had a concern with the conversion-related fees it had identified, and he stated that Hahn Loeser did not desire to relitigate those issues.
The conversion-related fees spanned multiple applications. Hahn Loeser applied its 10% across-the-board voluntary reduction only to the Second through Sixth Applications. With the exception of the itemized deductions described above, supra note 2, Hahn Loeser is seeking to recover 100% of the fees incurred during the First Application period, while it seeks an award of only 90% of the fees covered by the subsequent Fee Applications. The First Application accounts for $186,291 of the conversion-related fees, and the remaining $472,133.50 were incurred afterward. The Court thus calculated the total reduction of $611,211.15 by adding $186,291 and 90% of $472,133.50, or $424,920.15.
2. The Ann Arbor Property
The Court also will disallow nearly all of the fees incurred with respect to the Ann Arbor Property. See Conversion Op. , 546 B.R. at 143. A significant amount of fees relating to the Ann Arbor Property—over $76,000—were incurred in opposing relief from stay so the Debtor could conduct his own sale of the property and in addressing various other issues that arose with the property. Opposing a motion for relief from stay may, in some cases, benefit the estate, see In re Taylor , 66 B.R. 390, 396 (Bankr. W.D. Pa. 1986), and selling estate assets frequently does so. For the reasons explained below, however, that was not the case here. With the exception of a certain amount of fees that would have been necessarily incurred for the administration of the Debtor's estate, Hahn Loeser's services relating to the Ann Arbor Property were not reasonably likely to benefit the estate, and $65,421.61 of the fees sought are accordingly disallowed.
Hahn Loeser asserts that the Debtor "initially believed there was equity in the [Ann Arbor] Property" above the mortgage held by TCF Bank ("TCF"), suggesting that it was only after the property sustained severe water damage in late February 2016 that it lost its value. It was at that point in time, Hahn Loeser contends, that the Debtor concluded that it was appropriate to consent to relief from stay and abandonment. Doc. 664 (Fourth App.) at 9–10. But even before then, it should have been apparent to Hahn Loeser that the Ann Arbor Property had little, if any, value to the estate.
As of the Petition Date, there may have been equity in the Ann Arbor Property that would have benefitted the estate: the Debtor had estimated its value as somewhere between $550,000 and $575,000, and it was encumbered by a mortgage with a balance of approximately $514,300. Conversion Op. , 546 B.R. at 145. But a year into the case, despite paying large sums for insurance premiums, maintenance and upkeep, the Debtor had made no attempt to sell the Ann Arbor Property for the benefit of his creditors. Nonetheless, when TCF filed a motion for relief from stay to obtain possession of the Ann Arbor Property (the "TCF Motion") (Doc. 393), the Debtor opposed it, arguing that there was equity in the property and that it was necessary to an effective reorganization. See Doc. 414 at 6; Conversion Op. , 546 B.R. at 144. About three months later, and less than a week before the hearing on the TCF Motion, the Debtor filed his own motion to sell the Ann Arbor Property (the "Sale Motion") (Doc. 463), along with a motion to retain a broker (Doc. 465), who would charge 6% commission on the first $300,000 of the sale price and 4% on any amounts above $300,000. Doc. 465 at 2–3. According to the Sale Motion, the Debtor had not entered into a contract to sell the Ann Arbor Property, but he expected to list it for $575,000 and estimated that "the sale of the [Ann Arbor] Property within 2% of its listing price [would] result in approximately $15,000.00 for unsecured creditors holding allowed Claims." Sale Mot. at 4.
Though no appraisal has been filed with the Court, the Fee Applications indicate that Hahn Loeser did in fact obtain an appraisal of the Ann Arbor Property and received it sometime in late December 2015. See, e.g. , Doc. 487 (Third App.), Ex. C–2 at 36 (time entry by DeMarco stating "Review appraisal of Lowell Rd. from Affinity Valuation Group"). The Debtor's schedules listed the value of the property as $550,000. Doc. 251 at 3. In the Debtor's motion to sell the Ann Arbor Property, the Debtor stated that the proposed sale price of $575,000 was "based upon valuations and based upon discussions with [the proposed real estate broker]," Doc. 463 at 3 n. 1, but again, the Debtor never filed an appraisal—and no appraisal value was ever provided to the Court.
The Court later found in the Conversion Opinion that, in light of these costs, "the Debtor's failure to attempt to sell [the Ann Arbor Property] early in the case constitute[d] another violation of his fiduciary duty to preserve funds belonging to the bankruptcy estate." Id. at 144.
Yet even if the sale of the Ann Arbor Property could have netted $15,000—an assumption called into question in the Conversion Opinion—the sizeable amount of fees Hahn Loeser billed for legal services relating to the property certainly would have negated any benefit to the estate. Hahn Loeser should have known that it was going to bill a substantial amount of time, the fees for which it would (and now does) seek to have paid out of estate assets. Conversion Op. , 546 B.R. at 146. Indeed, Hahn Loeser's fees relating to the TCF Motion alone total over $20,000 between the time the motion was filed on October 6, 2015 and the time it was heard on January 20, 2016. See Doc. 487 (Third App.), Ex. C–1 at 10–18, 48–62, Ex. C–2 at 27–37 & Ex. C–3 at 2–15. And Hahn Loeser also should have known that in attempting to sell the Ann Arbor Property, the Debtor would need to incur even more fees: The Debtor knew by mid-December 2015—about a month before filing the Sale Motion and two months after the filing of the TCF Motion—that his parents were asserting a leasehold interest in the Ann Arbor Property. See Doc. 487 (Third App.), Ex. C–2 at 34–35. And Hahn Loeser then billed approximately $8,300 in fees over the next two months to assess the alleged lease and pursue an eviction of the Debtor's parents, a step TCF could have dealt with had the Debtor simply consented to relief from stay. See, e.g. , id. at 34–36; Doc. 664 (Fourth App.), Ex. C at 29–31.
The fact that Hahn Loeser believed there was a small amount of equity in the Ann Arbor Property accordingly does not justify the time it spent or provide a basis for the firm's recovery of the fees incurred. In re New Boston Coke Corp. , 299 B.R. 432, 441 (Bankr. E.D. Mich. 2003) ("With respect to the amount of the resources expended ... to effectuate the sale of the Debtor's assets, the Court also finds that [counsel] did not exercise sufficient judgment.... [Counsel] should have moved quickly to sell or abandon the Debtor's assets and made an effort to limit the amount of funds expended in doing so."). Under the circumstances, Hahn Loeser could have, and should have, agreed to TCF's request for relief from stay, leaving it to TCF to effectuate a sale of the property and return any surplus proceeds to the Debtor. See Catalano v. C.I.R. , 279 F.3d 682, 686 (9th Cir. 2002) ("Relief from an automatic stay entitles the creditor to realize its security interest ... in the property, but all proceeds in excess of the creditor's interest must be returned to the trustee." (quoting Nebel v. Richardson (In re Nebel), 175 B.R. 306, 312 (Bankr. Neb. 1994) ) ); Drown v. JPMorgan Chase Bank, N.A. (In re Barnhart) , 447 B.R. 551, 557 n. 8 (Bankr. S.D. Ohio 2011) ("Despite obtaining relief from the automatic stay, [the creditor] would be obligated to return the proceeds of a sale of the Property to the [estate] to the extent that they exceed the amount to which [the creditor] is entitled.").
In all, Hahn Loeser billed $76,516.50 for legal services relating to the Ann Arbor Property. Five percent of this, or $3,825.83, constitutes an amount that would have been reasonably necessary for the administration of the estate, for services such as obtaining an appraisal and negotiating an agreed order granting TCF relief from stay. Other than that, the services Hahn Loeser provided with respect to the Ann Arbor Property were neither beneficial to the Debtor's estate nor necessary to its administration. Instead, as the Court found in the Conversion Opinion, Hahn Loeser's services assisted the Debtor in his "transparent attempt to retain the Ann Arbor Property as long as possible for the benefit of one or more of his nondependent family members." Conversion Op. , 546 B.R. at 146. Thus, $72,690.68 in fees for services relating to the Ann Arbor Property are noncompensable. But because Hahn Loeser has already reduced these fees by 10%, the Court will reduce Hahn Loeser's allowable fees by the net amount sought—$65,421.61.
These fees were categorized primarily under "Use/Sale/Lease of Assets" and "Automatic Stay/Adequate Protection," but time entries totaling about $2,500 in fees relating to the Ann Arbor Property are found in various other categories.
In sum, as a result of its independent review, the Court will reduce Hahn Loeser's fees by $677,569.84. Based on its line-by-line review of the Fee Applications, the Court concludes that the remainder of the fees sought by Hahn Loeser—$1,860,619.44—were reasonably and necessarily incurred.
C. The Objections
1. The Alleged Simplicity of the Debtor's Case
RFF contends that the fees sought by Hahn Loeser are unreasonable because the Debtor's case was "an individual chapter 11 case [in which] the Debtor never had an operating business, significant investments, significant real properties with equity or other assets (other than a simple professional contract)." Doc. 804 at 1. Cobalt, joined by Pro Player, makes essentially the same argument. Doc. 805 at 1. This facile argument lacks merit for several reasons.
First, given that the Debtor is a highly-compensated professional athlete with significant debt owed to creditors who took a very active role in this case, the amount being awarded is not unusually large. See, e.g. , In re Vick , No. 08–50775–FJS (Bankr. E.D. Va. Mar. 22, 2010) (order approving fees and expenses of lead bankruptcy counsel for Michael Vick in approximate amount of $1.6 million—a substantial reduction of the fees and expenses actually incurred during the 16–month compensation period—in a contentious case in which the court also approved the application of debtor's local counsel in an amount exceeding $500,000).
Second, by arguing that this was a simple case because the Debtor does not operate a business or own certain kinds of assets, the Objectors have failed to acknowledge that individual Chapter 11 cases can be complex for other reasons—and that this is such a case. Indeed, the Debtor's financial affairs on the Petition Date were so complicated that attempting to sort out just one aspect of those affairs—the manner in which the Debtor and his parents used his earnings and loan proceeds before the Petition Date—necessitated the preparation of a report by a forensic accountant that is over 300 pages long (Doc. 716). Confirmation Decision , 2016 WL 8853601, at *9. Further, the Debtor's understanding of his finances on the Petition Date was limited because he had allowed his parents "to exercise total control over his financial affairs," Conversion Op. , 546 B.R. at 100, meaning that the Debtor "had no books, records, or other financial information that otherwise would ease the burden in preparing the Schedules and Statement of Financial Affairs," Doc. 809 at 16. In addition, "[a]s of the Petition Date, the Debtor had accumulated total indebtedness of $21,343,723.64," Conversion Op. , 546 B.R. at 101, much more than the typical individual Chapter 11 debtor. And he was alleging that most of that amount was incurred "[a]s a result of ... predatory lending and investment schemes." Id. at 123 (quoting Doc. 4 at 5). Because of these complexities, Hahn Loeser, among other things, spent more time preparing original and amended schedules of assets and liabilities and statements of financial affairs than would be expended in an ordinary individual Chapter 11 case. Much of that time, of course, was spent conducting a proper investigation so that Hahn Loeser knew what information to place on the schedules. Thus, RFF's argument that all of this merely "necessitat[ed] a few added numbers and a checkmark on the schedules and some additional explanation," Doc. 804 at 14, borders on frivolous.
Third, several of the Objecting Creditors commenced adversary proceedings asserting that the debts the Debtor owed them were fraudulently incurred and excepted from discharge under § 523(a)(2). This not only increased litigation costs, but it also provided the creditors with leverage in their negotiations with the Debtor, thereby making those negotiations more difficult. The Debtor, however, used the nondischargeability proceedings to object to these creditors' claims, and ultimately, each of these creditors, other than RFF, settled with the Debtor. Thus, contrary to Cobalt's suggestion, Doc. 805 at 2, Hahn Loeser's fees related to the claims litigation and adversary proceeding categories are reasonable.
Indeed, if the other creditors had—like RFF—adopted an unyielding approach in this litigation, then Hahn Loeser's fees in those categories undoubtedly would have been even higher.
Fourth, issues relating to the Debtor's real estate and personal property required Hahn Loeser to perform services that would be unnecessary in many individual Chapter 11 cases. Those services include, among others, those related to:
• The real property located at 48 Malaga Way, Manhattan Beach, California (the "Malaga Way Property"). After preparing an application to employ a real estate broker (Doc. 39), Hahn Loeser also prepared a motion to sell the Malaga Way Property free and clear of all interests (Doc. 239), addressed an objection to that motion by a homeowners' association (Doc. 245), negotiated a stipulation with the association (Doc. 264), and filed an amended motion to sell the Malaga Way Property for $1.3 million (Doc. 281). U.S. Bank, N.A. and the homeowners' association consented to the sale and to distributions of $1,168,795 and over $37,000, respectively, on their secured claims, Doc.
322, and the Debtor anticipated surplus proceeds for distribution to his unsecured creditors, Doc. 281 at 3.
• The real property located at 8 Stratford Road, Manhattan Beach, California (the "Stratford Property"). The Stratford Property was sold in a nonjudicial foreclosure sale conducted before the Petition Date in accordance with a deed of trust under which Fidelity National Title Company was the trustee. Fidelity held net sale proceeds in excess of $432,741 on the Petition Date. Hahn Loeser filed a joint motion with Fidelity under which most of the proceeds were to be remitted to the Debtor's estate (Doc. 158). The motion drew an objection by CapStar Bank (Doc. 174), which required a response by the Debtor (Doc. 177). The matter was eventually resolved by an agreed order (Doc. 729) providing for the transfer of approximately $400,000 to the Debtor's estate, and that amount was used to pay unsecured creditors under the Plan. Doc. 658 at 82.
• The Debtor's interest in Barwis Methods Training Center of Southeast Michigan, LLC ("Barwis"). Hahn Loeser prepared a motion to approve a settlement (Doc. 271) under which Barwis paid $74,125 to the Debtor's estate, another amount that was used to repay unsecured creditors. Doc. 658 at 82.
In sum, these three motions alone resulted in the distribution of over $450,000 to the Debtor's unsecured creditors.
Fifth, the notion that this case should have been simple because the Debtor's primary asset is the Player Contract disregards the vast amount of time spent addressing numerous disputes that arose as a result of asserted interests in the salary payable under the contract. The first of these disputes arose early in the case when the Debtor filed a motion for an order authorizing the maintenance of his existing bank accounts (Doc. 16) and a motion for an order establishing procedures for monthly compensation (Doc. 20). RFF filed objections to both motions based on its purported security interest in the Player Contract (Doc. 34). The objections went to hearing, and Hahn Loeser negotiated agreed orders with RFF resolving the objections and reserving the parties' rights on the issue of whether RFF had a lien on any of the Debtor's income (Docs. 77, 78 & 102). Then, as a result of RFF's actions described in the Stay Opinion, Hahn Loeser prepared a motion to enforce the automatic stay (the "Stay Motion") (Doc. 382), which was hotly contested. See generally Stay Op. , 548 B.R. 770.
In addition, because the amount that the Debtor earns under the Player Contract enabled him to spend significantly more than the typical individual Chapter 11 debtor, Hahn Loeser negotiated an agreed budget (Doc. 510) and a revised agreed budget (Doc. 567) with the creditors after the Conversion Opinion called certain of the Debtor's expenses into question. Negotiations leading to the Plan began after the Conversion Opinion was issued in February 2016. Within a few months, Hahn Loeser had assisted the Debtor in reaching an agreement on the major economic terms of a Chapter 11 plan with Capital Financial, Blum, Capital Holdings and CapStar, which together held claims aggregating more than $8 million. And by the time of the confirmation hearing in October 2016, Hahn Loeser had settled the confirmation objections of two more creditors—Pro Player and Cobalt—that collectively asserted more than $3 million of claims. The Court approved these settlements (Docs. 721 & 727) at the time it issued the Confirmation Decision.The settlements imposed caps on the recoveries of the creditors that settled with the Debtor. In the case of the four initial settling lenders, the cap was 35% of the full face amount of their proofs of claim (except that, if the Debtor's post-Player Contract gross earnings exceed $4.5 million, they would be entitled to 10% of those earnings net of all taxes, dues, escrows, other withholdings and living expenses). Plan at 3–4, 8. Cobalt and Pro Player agreed to caps on their recoveries of $775,000 and $1,650,000 respectively—amounts that could result in Cobalt and Pro Player receiving distributions of approximately 58% on the full face amount of their claims. Confirmation Decision , 2016 WL 8853601, at *5. The Plan provided for these recoveries to be realized using the net proceeds of the asset sales discussed above as well as the Debtor's salary under the Player Contract—both the cash the Debtor had accumulated during the two years the case had been pending and the millions more that he anticipated receiving under the Player Contract going forward. Doc. 658 at 80. "Taking into consideration the cash, the proceeds of assets sales, and the earnings under the Player Contract that the Debtor is providing to fund the Plan, the Debtor is distributing approximately $7.3 million under the Plan in years one and two alone." Confirmation Decision , 2016 WL 8853601, at *16. Neither this amount nor the structural complexity of the Plan itself is typical of an individual Chapter 11 debtor's case. And the negotiations leading to the Plan were no doubt extensive and hard fought.
During the negotiations, RFF and EOT were asserting security interests in the Player Contract. Before confirmation of the Plan, the Debtor had obtained judgments declaring that neither RFF nor EOT had a security interest in the Player Contract. Security Interest Op. , 554 B.R. 448 ; Adv. Doc. 15 in Adv. Pro. No. 16–2099. RFF vigorously contested the issue, and after the Debtor prevailed Hahn Loeser successfully defended RFF's appeal of the Security Interest Opinion before the Sixth Circuit Bankruptcy Appellate Panel.
After the judgment was issued holding that EOT did not have a security interest in the Player Contract, Hahn Loeser negotiated a settlement with EOT, which the Court approved, as to the amount of its allowed claim, the cap on its recovery, and its nondischargeability action against the Debtor. Docs. 848 & 862.
On top of this, RFF asserted numerous objections to confirmation, none of which the Court found to be meritorious. As the Court stated in the Confirmation Decision, RFF
believes that it and it alone should have access to the Debtor's earnings until it is paid in full ... RFF argues that it should be paid first out of the Player Contract because it has a secured claim. But—again—the Court has ruled that it does not have a claim secured by the Player Contract. Similarly, RFF's argument that it will be entitled to payments earmarked for other creditors if it turns out to have a nondischargeable claim is contrary to the law.
Confirmation Decision , 2016 WL 8853601, at *14.
So this case clearly was not a simple one. Yet RFF suggests that it could have been because "[a]t the end of the day, this case involved merely dividing up the Debtor's income, a task that hardly warrants more than a few hundred thousand dollars in fees." Doc. 804 at 14. There is no reason, however, to think that the Big Eight creditors would have made it that easy on the Debtor before the Conversion Opinion was issued. Before that time, the Objecting Creditors were arguing that the Debtor's bankruptcy case would be subject to dismissal for substantial abuse under § 707(b) if it were converted to Chapter 7 because, they argued, the Debtor had "primarily consumer debts." The creditors who settled with the Debtor might not have done so without the ruling in the Conversion Opinion that the Debtor's debts were not primarily consumer debts, rendering § 707(b) inapplicable. As the Court noted during the Fee Hearing, "the process that [the Court and the parties] went through with the conversion litigation did perhaps in some respects pave the way to plan confirmation, when creditors realized, based upon the Court's ruling on 707(b), that they didn't ... hold all the cards that they thought they held." Tr. at 18.
Finally, the suggestion that this case should have been a relatively easy one is particularly galling coming from RFF. While the other major creditors eventually resolved their objections to confirmation by agreeing to either a 35% or 58% recovery on their claims, RFF has shown no sign that it ever would have agreed to a plan that paid it anything less than 100% on its asserted $1.7 million prepetition claim, which includes interest at 36% per annum. And given that RFF did not have a secured claim, a plan proposing to pay RFF on those terms would have been unconfirmable. In short, in a case marked by aggressive lawyering on all sides—by the Debtor's counsel and by the attorneys representing certain creditors—RFF stands apart. Cf. In re Macco Props., Inc. , 540 B.R. 793, 801 (Bankr. W.D. Okla. 2015) ("[I]t is apparent that the magnitude of the fee requests are directly related to the level of disruption and obstruction to the orderly administration of the estate perpetrated by the very parties who are objecting to the allowance of the fees."). Thus, given its litigious history, RFF's argument that Hahn Loeser's fees are excessive because this should have been nothing more than a simple, straightforward individual Chapter 11 case rings especially hollow.
In sum, in light of the circumstances of this case, Hahn Loeser's allowed fees were reasonably and necessarily incurred.
2. Staffing and Billing Practices
The Objectors argue that Hahn Loeser "overstaff[ed] this case both as to the number and the nature of the professionals involved," Doc. 804 at 5, and that "too much work was performed by Debtor's counsel at the partner level and not the associate attorney level," Doc. 805 at 8. Based on a review of the breakdowns of the time and amount billed by Hahn Loeser professionals, particularly in light of the circumstances of this case, neither point is well taken.
While the Objectors correctly point out that 26 professionals at Hahn Loeser billed time to this case, they ignore the fact that only a fraction of them had any significant involvement in the case. Ten Hahn Loeser professionals (four partners, four associates and two paralegals) account for 6,969.20 (or over 95%) of the 7,323.10 total hours billed. Furthermore, the fact that a large number of professionals worked on the case in some capacity does not establish unnecessary overstaffing. See Burns v. Anderson , No. 1:02CV1326 JCC, 2006 WL 2456372, at *5 (E.D. Va. Aug. 22, 2006) ("[T]he mere fact that seventy-six individuals worked on this matter is not, in and of itself, sufficient to prove overstaffing.... There is nothing inherently unreasonable about having multiple attorneys perform the work on this case[.]"). A review of the services performed by the case's 13 lowest billers (who make up under 2% of the time billed) shows that they tended to work on discrete projects. For example, Douglas Carlson, a tax and business law partner, spent 4.50 hours throughout the entire case providing guidance on tax matters. Doc. 307 (First App.), Ex. C–4 at 56; Doc. 664 (Fourth App.), Ex. C at 110; Doc. 733 (Fifth App.), Ex. C at 253. It almost certainly was more efficient for Hahn Loeser's bankruptcy attorneys to consult Carlson on a tax issue than to research the matter themselves. Of course, the "addition of extra personnel" can lead to increased time spent "acquainting new attorneys with the facts of the case" and "coordinating and managing the activities of the larger group." Burns , 2006 WL 2456372, at *6. But to the extent that this "natural consequence," id. , is present here, Hahn Loeser's 10% voluntary fee reduction more than makes up for any additional fees incurred as a result of its staffing practices.
Nor was the staffing of the case overly "top-heavy." True, partners made up approximately 62.7% of the time and 76% of the amount billed, but this distribution was appropriate, especially given the circumstances. As laid out above, this case was prolonged and complex, and the Debtor's adversaries—in particular the Big Eight, who were actively involved throughout the case—were represented by competent and experienced bankruptcy and litigation partners. Indeed, in hearings held in this case the Debtor's counsel was regularly opposite between seven and 11 attorneys representing his creditors, and it was not uncommon for more than one attorney to make an appearance on behalf of some of the creditors. With all this in mind, the Court finds that Hahn Loeser's staffing of the Debtor's case was appropriate and will make no reductions based on this objection.
In the Final Application, Hahn Loeser attaches a breakdown of the professionals involved in the case and the time and amounts they billed. Doc. 788 at 59. Partners accounted for 4,590 of the total 7,323.10 hours and $2,099,321.29 of the $2,763,799.29 (after the discounts listed in the table) billed. Id.
Opposing counsel for the Big Eight included: Paul J. Battista of Genovese Joblove & Battista, P.A.; Sean D. Malloy of McDonald Hopkins LLC; Christian D. Donovan and Kenneth M. Richards of Luper Neidenthal & Logan; Jeremy R. Mason of Mason, Schilling & Mason Co., L.P.A.; Quintin F. Lindsmith and David M. Whittaker of Bricker & Eckler; John F. Young of Markus Williams Young & Zimmermann LLC; M. Colette Gibbons of Ice Miller; Jennifer L. Maffett–Nickelman of Thompson Hine LLP; Christopher M. Winter of Duane Morris LLP; Jeffrey Mark Levinson of Levinson LLP; Craig W. Relman of Craig W. Relman Co., L.P.A.; and James H. Gordon of Gordon Law Co., LPA.
Finally, Cobalt and Pro Player argue that certain work was performed at the partner level that "could have more appropriately been performed by an associate attorney or paralegal." Doc. 805 at 8. They do not provide a single example of this, and the Court in its independent review of the Fee Applications found nothing to suggest an overuse of partner time. This objection is accordingly overruled.
3. Intra–Office Conferences
The Objectors argue that one of the issues with Hahn Loeser's "excessive staffing" is that it "invariably leads to burdensome and often unproductive inter-office conferences among the various attorneys staffing the case." Doc. 333 at 11; see also Doc. 694 at 6. Therefore, the Objectors contend, "[t]he compensation allocated for these inter-office conferences should be disallowed or substantially reduced." Doc. 333 at 11.
Office conferences among the attorneys staffing a complex bankruptcy case are often a necessity. See In re Klika , No. 05–10707 (MFW), 2008 WL 576244, at *5 (Bankr. D. Del. Feb. 29, 2008) ("It is appropriate for attorneys in a firm to consult each other in the handling of a bankruptcy case."); see also Apple Corps Ltd. v. Int'l Collectors Soc. , 25 F.Supp.2d 480, 488 (D.N.J. 1998) (noting that such conferences are valuable and can "result in greater efficiency and less duplication of effort, thus requiring fewer hours overall" (quoting Stacy v. B.Q. Stroud , 845 F.Supp. 1135, 1144 (S.D. W. Va. 1993) ) ). Of course, such conferences must be necessary and reasonable. See In re Bennett Funding Grp., Inc. , 213 B.R. 234, 245 (Bankr. N.D.N.Y. 1997). In general, fees for intra-office conferences are allowed if: "(1) 'the fee application contains sufficient information to permit the court to evaluate the necessity of the service provided, the reasonableness of the time spent on the service, and the reasonableness of the fee charged for the service—including the need for a conference;' and (2) 'the court finds that such conferences were necessary and benefited the estate.' " In re Nicole Gas Prod., Ltd. , 542 B.R. 204, 229–30 (Bankr. S.D. Ohio 2015) (quoting In re Moss , 320 B.R. 143, 158 (Bankr. E.D. Mich. 2005) ). Time entries for conferences are sufficiently detailed when they "indicate the participants and the nature and purpose of the conference." Bennett Funding , 213 B.R. at 245 ; see also Moss , 320 B.R. at 158 (finding that such time entries "contain sufficient detail for the Court to determine that they were necessary and beneficial to the administration of the bankruptcy case" when "[t]hey contain the names of the attorney[s] involved in the conference ... and the specific issue(s) discussed"). As to whether these conferences were necessary, the Court may employ a "case-by-case, if not item-by-item analysis." In re Gunboat Int'l, Ltd. , No. 15–06271–5–DMW, 2016 WL 4272238, at *15 (Bankr. E.D.N.C. Aug. 11, 2016) (quoting In re Aztec Co., 113 B.R. 414, 415–416 (Bankr. M.D. Tenn. 1990) ).
In Nicole Gas Productions , the Court dealt with a similar objection to allegedly excessive intra-office conferences. Nicole Gas Prod. , 542 B.R. at 229–30. In that case, the conferring attorneys for the most part did not both bill for the time, thereby avoiding double billing. Certain time was billed by two or more attorneys, but because it added up to such a small amount, no reduction was made. Id. So too here. It was frequently the case that only one attorney would bill for the time, thus minimizing the cost of these conferences. Further, the meetings tended to be short, the descriptions included the "nature and purpose of the conference," Bennett Funding , 213 B.R. at 245, and the amount of time spent was necessary and not excessive, especially given the complexity of this case. For example, a review of the First Application shows that Hahn Loeser attorneys and paralegals had frequent meetings to discuss various matters, but these meetings were relatively short—averaging out to about three tenths of an hour—and made up only approximately 6% of the total time and 7.4% of the total fees incurred in the First Application, which is not excessive. See Klika , 2008 WL 576244, at *6 (finding that time spent on intra-office conferences which totaled about 15% of the total time and 19% of the total fees sought was not excessive, "particularly given the difficult nature of the Debtor and this case").
The Court located about 340 conferences between Hahn Loeser professionals during the nearly eight months comprising the First Application period, which added up to only 116.80 of the total 1,935.30 hours billed and only $53,882 of the total $724,244.50 in fees charged for that period.
There are instances of more than one attorney billing for the same meeting—for example, approximately 15.20 hours of conference time ($6,522) during the First Application period. If this time is halved to represent the time that would have been billed by a single attorney, the amount of duplicative time due to intra-office conferences makes up less than one-half of one percent of the total time and fees incurred. Given the minimal amount of conference time and the voluntary reductions that Hahn Loeser took to help minimize the cost attributable to it, no specific reduction for intra-office conferences is warranted. See Nicole Gas Prod. , 542 B.R. at 230 (declining to make a reduction of fees when approximately 5% of the total time billed was the result of multiple attorneys billing for the same conference).
4. Ministerial Tasks
RFF objects to Hahn Loeser's fees in the "General Administration" category as excessive, arguing that the average hourly rate charged ($346.39) is not warranted by the ministerial tasks performed. This objection would be well taken if it were true that the only services performed in the "General Administration" category were those tasks RFF cites—"maintain[ing] electronic pleading bibles," "assur[ing] insurance coverage was comprehensive and current," "manag[ing] expenses," "attend[ing] to various requirements of the [UST]," and "monitor[ing] the docket." Doc. 804 at 6. But a review of the entries in "General Administration" show that the services that make up this category are not limited to those tasks. Rather, as Hahn Loeser describes in the Fee Applications, the "General Administration" category included tasks such as meeting with the Debtor, analyzing loan documents, addressing budget issues, and preparing for Court-ordered status conferences. If RFF has located instances in which a Hahn Loeser attorney billed for routine, ministerial tasks, such as reviewing the docket and updating deadlines, it has not identified them, and the Court did not find any in its independent review.
5. Vague Time Entries
The Objectors assert that certain of Hahn Loeser's time entries as "vague," citing in particular to descriptions such as "attention to __," "review __," or "consideration of __." See Doc. 333 at 9–10. They argue that, because of this lack of detail, they cannot tell if the entries are reasonable or provided any benefit to the estate. Id. As noted above, the Objectors offered to supplement their objections to specifically identify the impermissibly vague time entries, see id. , but they failed to follow through after the Court requested that they do so.
A line-by-line review of Hahn Loeser's invoices shows that they do include numerous "attention to" time entries. See, e.g. , Doc. 307 (First App.), Ex. C–4 at 32 ("Attention to draft of Reply to Objection filed by CapStar to application for Nesser."); id. at 54 ("Attention to electronic filing of April monthly Operating Report"). But the great majority of these entries are not vague. First, Hahn Loeser's descriptions of the task being performed are sufficiently detailed to determine the reasonableness of the time spent. See In re Dimas, LLC , 357 B.R. 563, 577 (Bankr. N.D. Cal. 2006) (holding that time entries such as "attention to" are compensable where they "specifically identif[y] the activity"), aff'd in part, rev'd in part on other grounds sub nom. Rakitin v. Cohen (In re Dimas, LLC), No. NC–08–1073–DJuMK, 2009 WL 7809032 (9th Cir. BAP Feb. 25, 2009). Second, the phrase "attention to" often appears to be extraneous. For example, "attention to docketing of hearing and response deadlines," Doc. 408 (Second App.), Ex. C–1 at 75, could have been recorded as "docketed hearing and response deadlines." The mere presence of the "attention to" language does not make the entry vague.
Finally, those entries in which "attention to" is unaccompanied by another word describing some sort of action (e.g., "serving," "filing," "preparation for") are not impermissibly vague. For example, in "[a]ttention to correspondence from J. Gordon regarding discovery and scheduling of T. Johnson and J. Johnson, II for depositions," Doc. 408 (Second App.), Ex. C–3 at 13, "attention to" could mean "read," "review" or "consider." In that sense, it is somewhat vague. But any reasonable reading of the entry leads to the inescapable conclusion that the service described is compensable. There is more than enough detail in the rest of the entry for the Court to understand the activity being performed.
In sum, Hahn Loeser's time entries regularly detail the task being performed, and its voluntary 10% fee reduction will more than account for those few that do not. The Court accordingly will make no reductions based on this objection.
In its review of all the Fee Applications, the Court identified only a handful of entries in which the use of "attention to" resulted in an arguably vague interpretation. The hours and amount billed for these entries, however, make up a miniscule part of the Fee Applications.
6. Time Spent on the Plan
RFF suggests that the time the Debtor spent on the Plan following the Conversion Opinion was unreasonable and unnecessary and should be reduced because the creditors themselves spent "a fair amount of time ... fashioning that plan." Doc. 804 at 14. The fact that creditors were involved in the plan process does not alone suggest that the amount of time Hahn Loeser spent on the Plan was unreasonable and thus noncompensable. As Cobalt and Pro Player acknowledge, "it is only reasonable and necessary that [Hahn Loeser] be awarded the specific fees incurred in actually proposing, negotiating and confirming the [P]lan." Doc. 805 at 6. And after carefully reviewing the Fee Applications and considering the circumstances of this case, the Court finds that the fees incurred in connection with the Plan—as well as the earlier versions of the Plan that the Debtor amended—were reasonable and necessary.
7. Sale of Estate Property
RFF objects to Hahn Loeser's "$92,516.50 ... in fees for the 208.00 hours in services relating to sales (or in the case of the Ferrari California, failed sales) of property in which the estate had little, if any interest." Doc. 804 at 11. While the Court agrees with RFF as to the Ann Arbor Property, it disagrees that the entire amount of fees charged in the Use/Sale/Lease of Assets category (the "Asset Sales Category")—$92,516.50—should be disallowed. Fees relating to the Ann Arbor Property make up $45,001.50 of the Asset Sales Category, leaving $47,515 incurred in connection with the use, sale, or lease of other assets. RFF suggests that fees relating to the sale of the 2011 Ferrari California should be denied because the sale was unsuccessful. Doc. 525 at 6; Doc. 804 at 11. And Cobalt and Pro Player generally argue that "the disposition of [the Debtor's] assets does not appear to have resulted in monies being available to distribute to unsecured creditors" and that the fees should only be allowed if "[Hahn Loeser] can establish that [they] resulted in a net benefit to unsecured creditors and the estate." Doc. 694 at 4.
The Objectors are off base for two reasons. First, contrary to Cobalt's and Pro Player's assertion, Hahn Loeser's services in the Asset Sales Category clearly did result in "monies being available to distribute to unsecured creditors." Id. As detailed above in Section IV.C.1, the disposition of the Stratford Property and the Debtor's interest in Barwis resulted in nearly $475,000 for the benefit of the Debtor's unsecured creditors. Second, counsel's services do not have to actually result in a benefit to the estate—what matters is that, at the time rendered, the services were "reasonably calculated to produce a benefit to the estate." In re Hunt , 124 B.R. 263, 267 (Bankr. S.D. Ohio 1990) ; see also In re Kitts Dev., LLC , 474 B.R. 712, 722 (Bankr. D.N.M. 2012) ("Benefit to the estate does not require that the debtor actually achieve success."); In re Kennedy Mfg. , 331 B.R. 744, 748 (Bankr. N.D. Ohio 2005). Thus, the fact that the sale of the 2011 Ferrari California fell through does not mean that the fees incurred in attempting to sell it were unreasonable. And the sale of the Malaga Way Property was at least reasonably likely to result in a distribution to unsecured creditors, even if it ultimately did not do so. In short, Hahn Loeser's services in the Asset Sales Category (other than those related to the Ann Arbor Property) provided a benefit to the estate or were necessary to the administration of the estate, and the fees incurred therein were reasonable.
The trustee of the creditor trust established by the Plan filed a motion to sell the Debtor's 2011 Ferrari California (Doc. 911), and an order granting the motion (Doc. 930) has been entered.
The Debtor anticipated that the sale of the Malaga Way Property would result in a distribution to unsecured creditors after payment of the secured creditors' claims, see Docs. 281 & 322, but the Court does not have information on the final outcome of the sale.
8. RFF's Automatic Stay Violation
RFF maintains that the fees incurred in prosecuting the Stay Motion against it are "excessive and unreasonable." Doc. 804 at 8. RFF argues that these fees are unreasonable because: (1) the Debtor was not harmed by the stay violation so there is no amount in controversy; and (2) the Debtor is not entitled to punitive damages. Doc. 804 at 8–11. RFF generally seems to confuse whether Hahn Loeser should be able to recover its fees from the estate under § 330 with whether the Debtor should be able to recover attorneys' fees from RFF under § 362(k), and the latter question is not the subject of this opinion. Perhaps tellingly, no other creditor objected to these fees.
The fees awarded in this opinion have no bearing on what fees, if any, the Court decides to award to the Debtor for RFF's violation of the automatic stay, or vice versa.
If RFF is arguing that the time Hahn Loeser spent on the Stay Motion is disproportionately high compared to the possible benefit to the estate because there was no injury to the estate and because there is no chance of a punitive damages award, its argument falls flat. As the Court explained in the Stay Opinion, what was at stake here was the Debtor's Player Contract and the millions of dollars in salary he receives in performance of it. See Stay Op. , 548 B.R. at 791.
Hahn Loeser's purpose in pursuing the Stay Motion was in part to protect and preserve the Debtor's salary under the Player Contract for the benefit of the estate. And the compensability of the fees incurred in this endeavor does not turn on whether the Debtor is ultimately successful in recovering damages against RFF for violating the stay—including the Debtor's claim for punitive damages. What matters for purposes of § 330 is whether those services were reasonably likely to benefit the estate at the time they were rendered. And they undoubtedly were.
The Court has held that RFF violated the stay, but its opinion is not a final appealable order until the Court decides what, if any, damages it will award.
9. Nondischargeability Adversary Proceedings
The Objectors argue that fees incurred in defending nondischargeability claims "do not enhance the estate and are not a required expense of estate administration" and thus should be denied. Doc. 424 at 4. Under the circumstances of this case, the Court disagrees. True, defending nondischargeability actions benefits the Debtor personally, but the fact that these services benefited the Debtor does not mean they did not also benefit the estate. See Rose Hill Bank v. Lazzo (In re Schupbach Invs., LLC) , 521 B.R. 449 (10th Cir. BAP 2014) (holding that the bankruptcy court did not err in allowing Chapter 11 counsel's fees for work on nondischargeability action brought against principals of the corporate debtor, finding that the time spent benefited the estate), aff'd , 808 F.3d 1215 (10th Cir. 2015) ; FDIC v. Grimm (In re Grimm) , 156 B.R. 958, 962 (E.D. Va. 1993) ("[T]here is no warrant in the statute or policy for concluding that fees and expenses incurred in discharge proceedings may never be awarded."). Given the facts of this case, the services Hahn Loeser provided in connection with the nondischargeability actions either were reasonably likely to benefit the Debtor's estate or were necessary to the administration of the estate, and the resulting fees are thus compensable.
Four of the Big Eight creditors brought nondischargeability actions against the Debtor. See Adv. Pro. Nos. 15–2107 (Capital Financial), 15–2108 (EOT), 15–2117 (RFF) & 15–2186 (Pro Player). In each case, the Debtor filed both an answer and counterclaims, challenging not only the nondischargeability of the debt, but also the validity of the claim itself. The Debtor's defenses—and his bases for disallowing the creditors' claims—included, among other things, fraud, usury and unconscionability. As a practical matter, the Debtor could not successfully object to the creditors' claims without also defending against their own allegations of fraud against him. Thus, the services attributable to defending the nondischargeability actions were intertwined with services that fall squarely within the ambit of § 330(a). See In re Murray , 132 B.R. 808, 809–10 (Bankr. D. Mass. 1991) ("Under the peculiar circumstances of this case, the Court finds that the fees attributed to defense of the dischargeability aspects of the case are so connected to the legal services which are appropriately charged to the account of the estate that it is both impossible and unwise to attempt a severance.").
Objecting to these creditors' claims and defending against their nondischargeability proceedings also played a crucial role in the negotiation of the settlements that the Debtor ultimately entered into with all of his primary creditors (RFF aside) and to obtaining confirmation of the Plan. Indeed, in its Conversion Opinion the Court pointed out that "seeking to disallow the claims of the Objecting Creditors would ... facilitate[ ] the Debtor's proposal of a Chapter 11 plan." Conversion Op. , 546 B.R. at 127.
In sum, the services Hahn Loeser rendered in connection with the nondischargeability actions against the Debtor benefited the Debtor's estate and are therefore compensable.
10. Overly Aggressive Lawyering
Finally, Cobalt and Pro Player allege that Hahn Loeser's fees should be reduced because the Debtor and Hahn Loeser exhibited "unproductive animosity" towards them and engaged in bad faith efforts to undermine their recovery, including by filing the Conversion Motion, opposing nondischargeability of debts, and pursuing allegedly meritless claim objections. Doc. 805 at 8–9. As previously stated, Hahn Loeser should not be compensated for its services performed in connection with the Debtor's effort to convert his case. But it should be compensated for the negotiations that ensued, which led to a confirmed plan. The Court agrees with Cobalt and Pro Player that there was an "acrimonious dynamic" among the parties in this case, id. at 9, but the blame for it cannot be laid solely at the feet of Hahn Loeser.
Following the issuance of the Conversion Opinion, "the Debtor finally engaged in the negotiations that should have taken place all along" and "[a]s a result, six creditors holding more than $12 million of debt support[ed] the Plan." Confirmation Decision , 2016 WL 8853601, at *2. Given this result, the Court will not penalize Hahn Loeser merely because this was a contentious case.
D. Expenses
Based on its review of the Fee Applications, the Court finds that all of Hahn Loeser's expenses were reasonably, actually and necessarily incurred, except those relating to fees that are subject to disallowance. It appears that Hahn Loeser invoices substantially all of its expenses under the "General Administration" category. The Court thus has no way of assessing which expenses were associated with particular legal services rendered by Hahn Loeser. It is reasonable to assume, however, that Hahn Loeser incurred a portion of the $67,527.61 in expenses while performing noncompensable services, such as those related to the Conversion Motion (which involved a two-day trial) and the Ann Arbor Property. Hahn Loeser's allowable expenses accordingly will be reduced using the same percentage by which its fees were reduced (approximately 26.7%), or by $18,029.87. See Nicole Gas Prod. , 542 B.R. at 218 ("The Court has not been provided the information that would allow it to determine which of the expenses ... relate to the reimbursable fees and what part of those expenses relate to non-reimbursable fees. The Court therefore will reduce the remaining [expenses] using the same percentage by which it is reducing [the] fees[.]"); see also In re Keene Corp. , 205 B.R. 690, 706 (Bankr. S.D.N.Y. 1997) ("I have disallowed substantial portions of the fees sought in these categories because the services were unnecessary, and logic dictates that I also disallow the corresponding expenses. I cannot conceive of any fair way to do this except to disallow the same percentage of expenses in each category."), as corrected (Mar. 12, 1997). Accordingly, Hahn Loeser is entitled to actual and necessary expenses in the amount of $49,497.74. This amount is eminently reasonable under the circumstances of this case.
This percentage was calculated by dividing the total amount of fees being disallowed ($677,569.84) by the total amount of fees sought ($2,538,189.28).
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V. Conclusion
For the reasons stated above, the Court awards Hahn Loeser reasonable and necessary compensation in the amount of $1,860,619.44 and reimbursement of expenses in the amount of $49,497.74, for a total of $1,910,117.18.