In re: Island Indus. Inc.
- Case Type:
- Business
- Case Status:
- Reversed and Remanded
- Citation:
- 23-8007 (6th Circuit, Aug 23,2023) Not Published
- Tag(s):
-
- Ruling:
- A bankruptcy court cannot reduce the amount of fees requested by a debtor's counsel without giving the lawyers notice and an opportunity for hearing if the rationale for the fee reduction is in the nature of sanctions rather than a section 330(a) reduction for results obtained.
- Procedural context:
- The bankruptcy court reduced the debtor's counsel's fees and expenses by 25% without giving counsel prior notice that it would consider the fee application.
The firm timely appealed the bankruptcy court's order.
- Facts:
- Glankler Brown, PLLC (the "Firm") filed a subchapter V petition for Island Industries, Inc. ("Island") and acted as counsel for Island during the bankruptcy case.
After the subchapter V case was commenced, Sigma Corporation filed an adversary proceeding against Island, seeking $40 million for alleged violations of various trade secrets acts (the "Trade Secrets Litigation"). The district court withdrew the reference of the Trade Secrets Litigation, and Sigma moved to have Island's bankruptcy case dismissed as a bad faith filing. Specifically, Sigma asserted that the filing was a litigation tactic. After conducting an evidentiary hearing, the bankruptcy court dismissed the bankruptcy case. Island did not appeal the dismissal.
The Firm submitted its final fee application, seeking slightly more than $250,000. The Firm asserted that about $100,000 was related to bankruptcy work, and the remaining amount (about $150,000) was related to defending Island from trade secrets claims asserted by Sigma before and after Sigma filed the Trade Secrets Litigation.
The bankruptcy court issued a Notice of Hearing that provided that a hearing would be held only if an objection to the final fee petition was filed. The notice also stated that, if no objection was timely filed, the Firm should filed a certificate of compliance that complied with the L.B.R. 9013-1 and a proposed order.
No objection was filed, and the Firm filed a certificate of compliance.
Sigma, however, filed a motion for sanctions before the deadline for objecting to the Firm's fees. The motion did not seek sanctions against the Firm, but against Island and its president. The Firm objected to the sanctions motion and the bankruptcy court set a hearing on the sanctions motion. Sua sponte, and without notice, the bankruptcy court held a hearing on the Firm's fee application on the day set for the hearing on the sanctions motion. While unprepared, a lawyer at the Firm fielded the court's questions. The court concluded the hearing without mentioning the possibility of sanctions against the Firm.
The bankruptcy court later entered orders on Sigma's motion for sanctions against Island and Island's president and on the Firm's fee application. In the fee application order, the court reduced the Firm's fees by 25%. The opinion indicated that the bankruptcy court's reduction of the Firm's fees was in the nature of a sanction rather than a section 330(a) reduction in fees arising from the results obtained.
- Judge(s):
- BAUKNIGHT, DALES, and MASHBURN
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