- BAP No. NV-14-1532-DJuKi (BAP 9th Cir. Feb. 23, 2016) (unpublished)
- The BAP for the 9th Circuit affirmed the ruling of bankruptcy court (D. Nev.), allowing fees for debtor's second bankruptcy counsel in the amount of $513k, notwithstanding confirmation of the lead creditor's competing plan of reorganization. The BAP agreed with the bankruptcy court that debtor's counsel's fees were reasonable and benefitted the estate, even though the case was largely a three party dispute between a single creditor and the two equity holders of the debtor. Creditor, who was obligated to pay administrative fees under its own proposed confirmed plan, sought to disallow fees as unreasonable, arguing that "true client" was the equity holders, and estate did not benefit from fees incurred. BAP rejected argument that fees incurred after court determined that assets were worth less than creditors' claims meant that debtor had no stake in further disputes, and fees after that point were unreasonable. BAP agreed that fees incurred in pursuing rejected plan were still reasonably like to benefit the estate at the time provided. BAP agreed that fees incurred by debtor in litigation with creditor were reasonable and in response to litigation mutually engaged in and escalated by creditor and debtor.
- Procedural context:
- After bankruptcy court confirmed chapter 11 plan, debtor's counsel sought approval of fees. Creditor, who was obligated to pay fees under chapter 11 plan, objected. Bankruptcy court allowed fees, and creditor appealed to BAP for 9th Circuit.
- Debtor "Horizon Ridge" was owner and operator of a medical center in Nevada. Bank was largest creditor with $4 million claim; three other creditors' claims totaled $9k. A relatively minor dispute arose with Bank regarding tenant improvement deposits at the medical center (apparently totaling $90k). In a move the bankruptcy court later described as "improvident," Horizon Ridge filed chapter 11 case, seeking to resolve dispute with Bank. Debtor's counsel's work was abysmal--ignoring the exclusivity deadline and failing to communicate with the client. After the exclusivity period expired, the Bank proposed its own plan of liquidation, which proposed selling the Medical Center, paying the Bank and other creditors from the proceeds, with any surplus to the equity holders of the debtor. Debtor engaged substitute counsel and countered with a reorganization plan of its own providing for payment of the Bank's claim over time, and also filed motions to disallow the Bank's secured claim, strip its lien from the Medical Center, and seeking to dismiss the case. After rejecting the adequacy of the debtor's disclosure statement, the bankruptcy court confirmed the Bank's plan subject to the Bank's agreement to pay administrative claims if sale proceeds were insufficient to pay administrative claims. Bank agreed. Following confirmation, the Bank obtained the Medical Center through its credit bid, outbidding cash bids that would have paid the Bank's claim in full, and bidding an amount materially higher than the value that had been previously determined by the court. Debtor appealed a total of five orders related to confirmation, all of which were dismissed. Debtor's second bankruptcy counsel then applied for fees of approximately $513k, which the bankruptcy court allowed over the Bank's objection. The Bank appealed.
- Dunn, Jury, Kirscher
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