Cupps & Garrison, LLC v. Rhiel (In re Two Gales, Inc.)

Summarized by Laura Bartell , Wayne State University Law School
14 years 7 months ago

Citation:

2011 Fed. App. 0009P (6th Cir. BAP July 14, 2011)

Tag(s):

6th Circuit

Ruling:

Court vacated orders denying fees to counsel to debtor in possession and ordering disgorgement of fees and expenses applied from prepetition retainer on ripeness grounds, and remanded for consideration of whether counsel had valid retaining lien under Ohio state law, in which case section 726(b) would not prevent award of fees. Court affirmed award of fees to trustee's counsel.

Procedural context:

Consolidated appeals from final orders of bankruptcy court in S.D. Ohio denying fee application filed by debtor's lawyers, granting fees to trustee's counsel, and ordering disgorgement of prepetition retainer

Facts:

Two Gales, Inc. filed for bankruptcy under chapter 11. Cupps & Garrison, LLC (C&G) filed an application for retention as counsel to the debtor in possession in which it disclosed that it had received a $10,000 retainer prior to the filing. The court approved the retention and authorized C&G to draw on the retainer for 80% of its documented fees and 100% of its documented expenses prior to approval of any fee application. The court order stated that any funds so applied would be subject to repayment and final approval by the court. Before any fee application was determined by the court, the debtor's case was converted to chapter 7. The court then denied the fee application in full on the grounds that under section 726(b) the chapter 7 administrative expenses and outstanding trustee fees had priority over chapter 11 attorneys' fees. C&G appealed the denial. The bankruptcy court then entered an order approving the application of the trustee's counsel for compensation and expenses. C&G appealed this order. Finally, because the debtor was administratively insolvent, the court set a hearing at which C&G was directed to appear and show cause why all compensation and funds received from the debtor under the retainer should not be disgorged. Following the show cause hearing the bankruptcy court ordered disgorgement, and C&G appealed this order.

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