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The Security National Bank of Sioux City, IA v. Vera T. Welte Testamentary Trust

Summarizing by Amir Shachmurove

In re Reynolds

Case Type:
Case Status:
19-4150 (10th Circuit, Jan 06,2021) Not Published
Pursuant to 28 U.S.C. § 1291, the U.S. Court of Appeals for the Tenth Circuit (Circuit) affirmed the order of the U.S. Bankruptcy Court for the District of Utah (BC), itself previously confirmed by the U.S. District Court (DC) of which the BC is a part, that granted in part and denied in part the request for compensation under § 330 of the U.S. Code’s eleventh title (Code or Bankruptcy Code), submitted by the special counsel (SC) to the trustee (TR), for services performed in the course of a Chapter 7 case initiated by two debtors, neither a party to the appeal.
Procedural context:
Exercising its powers under § 330, the BC had deemed the supplemental fee application by the SC to be unjustified. This application sought compensation for attorneys’ fees and costs in the amount of $12,646 instead of $23,074.94, as the SC had initially done, before the court had raised pointed questions as to the latter’s bases at a December 2017 hearing; this sum was in addition to the $4,484.72, plus costs of $35, which the TR pursued as compensation for the SC’s work. In its order, the BC instead allowed all of the fees and costs requested by the TR (totaling $4,519.00) and all of the costs ($853.44) and $2,896.00 in attorney fees requested by SC. The SC and TR appealed to the DC, contending this award was too low. The DC affirmed the judgment of the bankruptcy court. Thereupon, the SC appealed.
On March 16, 2016 (Petition Date), Ronald Jay and Charolett Kay Reynolds (collectively, DRs) filed a voluntary petition for relief under Chapter 7 of the Code. At that time, the DRs seemingly owned two contiguous parcels of recreational land in central Utah: Lot #9 and Lot #11. However, as this duo disclosed in their actual petition (Petition), they no longer owned Lot #9. Instead, they had sold it to Gary Black (Black), a realtor who, pre-petition, unsuccessfully attempted to sell both lots for $80,000, for only $1,000 just before the Petition Date. Subsequently filed schedules pegged the purported value of Lot #11 at $25,000—but subject to a lien for $35,550. Upon review of the DRs’ papers, J. Kevin Bird, in his capacity as the TR, went to work. Suspecting three things—(1) that the sale to Black was an avoidable transfer; (2) that the DRs may have undervalued Lot #11; and (3) that there may be grounds to object to their discharge—he obtained leave to hire Prince Yeates Geldzahler as SC to assist in his investigation and representation in connection with these matters. Ultimately, the TR negotiated the repurchase of Lot #9 from Black for $1,000 and sold both lots for $60,500 in August 2017. The sale netted $15,846.34, after deducting sale closing costs, taxes, and associated fees, and thus satisfied not only the lien on Lot #11 but also the $1,000 owed to Black. Coupled with recovery of the DRs’ tax refund, but minus the requisite bank fees, the total balance of the estate after the sale was $18,019.72. Thereafter, the issue of remuneration emerged. The SC requested compensation of $23,075.94; the TR sought to award him an additional commission of $4,484.72, plus costs of $35. If fully honored, the entreaties would have rendered the estate administratively insolvent to the tune of $9,574.94. Pursuant to § 330, the BC twice weighed as to this issue. At a hearing held on December 11, 2017, the BC raised sundry concerns regarding the size of SC’s fee request, including a lack of evidence of billing judgment on the SC’s part and the TR’s failure to weigh the estimated benefits to the unsecured creditors of attempted recovery prior to the SC’s retention. In response, the SC reduced its fee request to $12,646. The TR changed nothing. Ultimately, the BC allowed all of the fees and costs requested by the TR (totaling $4,519.00) and all of the costs ($853.44) and $2,896.00 in attorney fees requested by SC, resulting in a net distribution to the unsecured creditors of $9,750.56. In exhaustive detail, the BC had laid out its reasons in the order that awarded this sum and that the TR (once) and the SC (twice) appealed. The reduction itself, it concluded, could not have been made in good faith and did not show good billing judgment, for it simply represented the difference between the funds available and the fees requested. As for the request more broadly, the litigation for which the SC had been hired involved issues that “were neither novel nor difficult, the tasks did not require extraordinary legal skill, they did not involve undesirable work, and there were no time limitations, other than the motion to extend the objection to discharge deadline”; perusal of the submitted bills revealed penchants for duplication, exorbitance, and extraneousness. The TR also earned the BC’s ire, the court faulting this officer for not realizing, as he should have based on publicly available documents, that any likely recovery by the SC would be dwarfed by their fees. Having requested evidence of budgeting of this kind before, the BC could not avoid but emphasizing its dearth by the case’s end.
Carlos F. Lucero; Jerome A. Holmes; and Allison H. Eid

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