APJL Consulting, LLC v. Treasures, Inc. (in re Treasures, Inc.)

Nos. SC-13-1304-JuKiKu and SC-13-1464-JuKiKu (related) (9th Cir. BAP March 3, 2015) Unpublished
In the unpublished decision, the Ninth Circuit Bankruptcy Appellate Panel held that APJL Consulting, LLC ("APJL") was not disinterested and failed to meet its duty of full disclosure, APJL could not have relied on the order authorizing its employment regarding approval of its auctioneer fees since the order was entered after the conclusion of the auction. Therefore, the bankruptcy court's order denying APJL's fees as an auctioneer was affirmed. APJL knew the automatic stay was applicable and intended the actions that violated the injunction; therefore, the BAP affirmed the bankruptcy decision to award damages; however, remanded the matter to the bankruptcy court to determine the appropriate amount of damages.
Procedural context:
The bankruptcy court for the Southern District of California held entered orders (i) denying APJL's compenation as an auctioneer and (ii) found in contempt for willful violation of the automatic stay. APJL appealed both orders entered by bankruptcy court.
The Debtor was a small retail furniture store. APJL provides financially distressed furniture stores augmentation services by helping the store acquire inventory. The Debtor and APJL entered into an agreement pre-bankruptcy to address the Debtor's financial struggles. APJL utilized its own credit line to order new inventory in the Debtor's name. APJL also served as a consultant to the Debtor to assist with liquidating both the Debtor's inventory and new inventory acquired through APJL. A separate bank account was created for the new inventory sales, APJL would take a commission from the new inventory sales as well as hold a security interest in the new inventory. However, the cash flow from this agreement and service were insufficient to pay the Debtor's expenses. The Debtor commenced a voluntary Chapter 11, and APJL continued to operate under the terms of the pre-petition agreement, post-petition. The Debtor ultimately decided to close one of its locations, and sought expedited approval of an auction, using APJL as the auctioneer, of the remaining inventory at this location. The bankruptcy court requested a supplemental declaration detailing the necessity of an expedited hearing on approval of the auction. However, in the interim, the APJL concluded the auction on behalf of the Debtor. Therefore, the Debtor sought nunc pro tunc approval of the auction. The bankruptcy court orally granted approval of the auction, and the same day the Debtor filed an application to employ APJL. The bankruptcy court approved employment of APJL nunc pro tunc; two weeks after the entry of the order authorizing employment, the Debtor then requested approval of APJL's auction fees. The remaining locations ultimately closed, and the Debtor requested the final audit of the distributions it believed were due from APJL. APJL did not respond to the informal request on behalf of the Debtor; therefore, the Debtor filed an application for order to show cause why APJL should not be held in contempt for violating the automatic stay. In relation to this dispute, the Debtor filed an objection to its own application seeking approval of APJL's auctioneer fees. The Debtor sought to have the case dismissed; however, the bankruptcy court converted the case to Chapter 7. The Chapter 7 Trustee continued the litigation regarding the order to show case and stay violation. APJL failed to replenish the augmentation account associated with the Debtor as instructed by the bankruptcy court. The bankruptcy court held that APJL had violated the automatic stay and awarded damages in favor of the Chapter 7 Trustee.
JURY, KIRSCHER, and KURTZ, Bankruptcy Judges.

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