United States Bankruptcy Court Central District of...

United States Bankruptcy CourtCentral District of California

Judge Ernest Robles, PresidingCourtroom 1568 Calendar

Los Angeles

Tuesday, August 4, 2020 1568 Hearing Room

10:00 AMRolando Leon and Maria Cecilia Leon2:12-13558 Chapter 7

#1.00 APPLICANT: Trustee - Howard Ehrenberg

Hearing re [42] Applications for chapter 7 fees and administrative expenses

0Docket

8/3/2020

Note: Telephonic Appearances Only. The Courtroom will be unavailable for in-court appearances. If you wish to make a telephonic appearance, contact Court Call at 888-882-6878, ext. 188 no later than one hour before the hearing. The cost for persons representing themselves has been waived.

No objection has been filed in response to the Trustee’s Final Report. This court approves the fees and expenses, and payment, as requested by the Trustee, as follows (amounts previously paid on an interim basis, if any, are now deemed final):

Total Fees: $7,100 [see Doc. No. 41]

Total Expenses: $228.55 [see id.]

No appearance is required if submitting on the court’s tentative ruling. If you intend to submit on the tentative ruling, please contact Daniel Koontz or Carlos Nevarez at 213-894-1522. If you intend to contest the tentative ruling and appear, please first contact opposing counsel to inform them of your intention to do so. Should an opposing party file a late opposition or appear at the hearing, the court will determine whether further hearing is required. If you wish to make a telephonic appearance, contact Court Call at 888-882-6878, no later than one hour before the hearing.

The chapter 7 trustee shall submit a conforming order within seven days of the hearing.

Tentative Ruling:

Party Information

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10:00 AMRolando Leon and Maria Cecilia LeonCONT... Chapter 7

Debtor(s):

Rolando Leon Represented ByHovig J Abassian

Joint Debtor(s):

Maria Cecilia Leon Represented ByHovig J Abassian

Trustee(s):

Howard M Ehrenberg (TR) Pro Se

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10:00 AMRolando Leon and Maria Cecilia Leon2:12-13558 Chapter 7

#2.00 APPLICANT: Accountant for Trustee ( Other Firm) - Hahn Fife & Company

Hearing re [42] Applications for chapter 7 fees and administrative expenses

0Docket

8/3/2020

Proposed tentative (in Law Clerk Notes):


Having reviewed the first and final application for fees and expenses filed by this applicant, the court approves the application and awards the fees and expenses set forth below.

Fees: $1,672 approved [See Doc. No. 39] [Note 1]

Expenses: $282.90 approved [Id.]


Applicant shall submit a conforming order within seven days of the hearing.

Tentative Ruling:

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10:00 AMRolando Leon and Maria Cecilia LeonCONT... Chapter 7

Note 1: The Court notes that the trustee’s final report indicates that the Applicant seeks fees totaling $1,892, not $1,672 as actually requested by the Applicant. The Court deems the dollar figure sought by the Applicant to be correct fee amount, which is further supported by Applicant’s billing records.

Party Information

Debtor(s):

Rolando Leon Represented ByHovig J Abassian

Joint Debtor(s):

Maria Cecilia Leon Represented ByHovig J Abassian

Trustee(s):

Howard M Ehrenberg (TR) Pro Se

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10:00 AMHillcrest Holiday Holdings LLC, California Limited2:20-15619 Chapter 7

#3.00 Status HearingRE: [1] Chapter 7 Involuntary Petition Against a Non-Individual. Thomas McKillen, Stephanie Younger . (Collins, Kim S.)

1Docket

8/3/2020


The involuntary petition is DISMISSED for the reasons set forth below.

Pleadings Filed and Reviewed:1) Involuntary Petition Against a Non-Individual [Doc. No. 1]2) Summons and Notice of Status Conference in an Involuntary Bankruptcy Case

[Doc. No. 3]

The Petitioning Creditors have failed to file a proof of service establishing that the Summons, Notice of Status Conference, and Involuntary Petition were served upon the Alleged Debtor. The Summons issued to the Petitioning Creditors clearly informs the Petitioning Creditors of the obligation to serve the Summons, Notice of Status Conference, and Involuntary Petition upon the Alleged Debtor. The Summons further advises the Petitioning Creditors that failure to properly effectuate service may result in dismissal of the involuntary petition.

Local Bankruptcy Rule 1010-1 provides in relevant part: "The court may dismiss an involuntary petition without further notice and hearing if the petitioner fails to … (c) serve the summons and petition within the time allowed by FRBP 7004; (d) file a proof of service of the summons and petition with the court; or (e) appear at the status conference set by the court."

Based upon the foregoing, the involuntary petition is DISMISSED.The Court will prepare and enter an appropriate order.

Tentative Ruling:

Party InformationPage 5 of 298/3/2020 11:11:53 AM



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10:00 AMHillcrest Holiday Holdings LLC, California LimitedCONT... Chapter 7

Debtor(s):

Hillcrest Holiday Holdings LLC, Pro Se

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11:00 AMMaria Del Carmen Linares2:15-21374 Chapter 7

#100.00 HearingRE: [83] Application for Compensation Application for Payment of (First) Interim Fees and/or Expenses (11 U.S.C. § 331) for H.Y.P. LAW GROUP, Special Counsel, Period: 3/1/2019 to 6/15/2020, Fee: $2500.00, Expenses: $0.00. (Blumenfeld, Ori)

fr. 7-8-20

83Docket

8/3/2020


For the reasons set forth below, the Motion is DENIED as moot and the Fee Applications are GRANTED IN PART as follows:

(1) The MLF Fee Application is GRANTED in the total amount of $243,462.63 (less the voluntary expense reduction of $2,867.41 for the litigation funding interest), on an interim basis, subject to the conditions set forth below.

(2) The HYP Fee Application is DENIED in full.

(3) The BBK Fee Application is GRANTED in the total amount of $29,102.21 (less a fee reduction of $2,000), on an interim basis.

Pleadings Filed and Reviewed:

1. Joint Supplemental Brief in Response to the Court’s July 8, 2020 Tentative Ruling on First Interim Applications of Best Best & Krieger LLP and the McElfish Law Firm for Allowance of Fees and Reimbursement of Costs [Doc. No. 98] (the

Tentative Ruling:

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11:00 AMMaria Del Carmen LinaresCONT... Chapter 7

“Joint Supplemental Brief”)

2. Supplemental Brief in Support of First Interim Application of H.Y.P. Law Group for Allowance of Fees and/or Expenses (11 U.S.C. § 330) [Doc. No. 97] (the “HYP Supplement”)

3. Declaration of David M. Goodrich in Support of First Interim Application of H.Y.P. Law Group For Allowance of Fees and/or Expenses (11 U.S.C. § 330) [Doc. No. 89]

4. Declaration of David M. Goodrich in Support of First Interim Application of Best Best & Krieger LLP For Allowance of Fees And Reimbursement of Costs [Doc. No. 88]

5. First Interim Application of H.Y.P. Law Group for Allowance of Fees and Reimbursement of Costs [Doc. No. 73]

6. First Interim Application of Best Best & Krieger LLP for Allowance of Fees and Reimbursement of Costs [Doc. No. 70] (“First Interim Application of BBK”)

7. First Interim Application of McElfish Law Group for Allowance of Fees and Reimbursement of Costs [Doc. No. 71]

8. Application for Payment of Interim Fees and/or Expenses (11 U.S.C. § 331) for H.Y.P. Law Group [Doc. No. 83]

9. Chapter 7 Trustee’s Limited Objection to Interim Fee Application of McElfish Law Firm [Doc. No. 87]

10. Application by Chapter 7 Trustee for Authority to Employ McElfish Law Firm Corporation as Special Counsel [Doc. No. 24]

11. Order Approving Chapter 7 Trustee’s Application for Authority to Employ McElfish Law Firm Corporation as Special Counsel [Doc. No. 30]

I. Facts and Summary of Pleadings

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A. Introduction

On July 20, 2015, Maria del Carmen Linares (the “Debtor”) filed a voluntary chapter 7 petition. David M. Goodrich was appointed as chapter 7 trustee (the “Trustee”). The case was initially closed on November 3, 2015 and reopened on May 31, 2018, on the request of the United States Trustee in order to administer a previously undisclosed asset—a personal injury action initiated by the Debtor against Safeway, Inc. among other parties (the “Personal Injury Action”). See Doc. No. 16. The Trustee’s general bankruptcy counsel is Best Best & Krieger LLP (“BBK”). On August 6, 2018 and October 22, 2019, the Trustee obtained orders to employ the McElfish Law Firm (“MLF”) and H.Y.P. Law Group (“HYP”) (collectively with MLF and BBK, the “Applicants”), respectively, as special litigation counsel. See Doc. Nos. 30 and 48.

The instant hearing is to consider interim applications for fees and reimbursement of costs filed by the Applicants [Doc. Nos. 70, 71, 83] (the “Fee Applications”), as well as the Trustee’s Motion to Pay Claims Free and Clear of Purported Medical Liens [Doc. No. 59] (the “Motion”). The Fee Applications were initially set to be heard on July 8, 2020, but the Court continued the hearings to afford the Applicants an opportunity to address the issues further discussed below.

B. Summary of Papers Filed in Connection with the Motion

Summary of the Motion

To provide context for the conclusions set forth herein, the Court summarizes the events leading up to the filing of the Motion and the Fee Applications as described in the Trustee’s brief:

After the closing of the case, the Debtor commenced the Personal Injury Action on October 7, 2015, seeking damages for a pre-petition injury sustained by the Debtor at a Vons grocery store on November 4, 2013. MLF, who was working on the action, informed the Trustee of the pending lawsuit and the bankruptcy case was reopened subsequently. The complaint on the Personal Injury Action was amended to formally supplant the Debtor for the Trustee as the real party in interest. On or about August 6, 2018, the Trustee retained Joseph Faccone of MLF to assist him with the Personal Injury Action [Doc. No. 30]. Following an unsuccessful mediation session, and

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continued negotiation discussions, the Trustee and Vons’ counsel reached a settlement agreement on or about November 15, 2018 (the "Settlement Agreement"). It was also at this time that the Trustee became aware that the Debtor had retained HYP as counsel, and that, in turn HYP had retained MLF as trial co-counsel.

Between November 15, 2018 and the October 8, 2019, BBK repeatedly communicated with HYP about finalizing the Settlement Agreement, which was conditioned on the Debtor’s approval and execution. Throughout that yearlong period, Hamed Yazdanpanah ("Yazdanpanah"), owner of HYP, steadfastly delayed efforts to consummate the Settlement Agreement by, inter alia, instructing Vons’ counsel to deliver the settlement proceeds to HYP or MLF only, or by asserting that the Debtor would not execute the settlement until she had an opportunity to review BBK’s and Trustee’s fees. See Declaration of Caroline R. Djang ("Djang Decl."), Ex. B (copy of email correspondences between Yazdanpanah and the Trustee).

On or about January 11, 2019, HYP notified the Trustee that the Debtor had accrued approximately $274,712 in medical liens (the "Medical Liens") in connection with the Debtor’s injury at the Vons store, which were to be satisfied from the settlement proceeds. To ensure the prompt disposition of the Medical Liens, the Trustee proposed to employ HYP on a limited basis as special counsel to broker a negotiated payout with the Debtor’s healthcare providers in or about February 2019. Through a series of emails exchanged during this time, the Trustee’s counsel also clarified basic bankruptcy procedure to Yazdanpanah, a non-bankruptcy practitioner:

To be absolutely clear, the monies that are being paid from Vons do not belong to your client personally. They are property of her bankruptcy estate. I’ve spoken to Joe Faccone and Kathy Lerner, both of whom understand this concept…Only [MLF] has been employed by the bankruptcy trustee, and thus, your firm cannot receive payments directly from the bankruptcy estate.

Djang Decl., Ex. A (December 13, 2018 email) (emphasis in original).

Ms. Linares does not have authority to approve or disapprove my firm’s fees and costs. Only the bankruptcy trustee and the bankruptcy court have the authority to approve my firm’s fees.

Id. (December 13, 2018 email)

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The funds belong to Ms. Linares’ bankruptcy estate, and should be paid to the Trustee. If you are confused about this, please give me a call.

Id. (December 13, 2018 email)

[MLF] is the only law firm whose employment has been approved by the bankruptcy court. The trustee has offered to employ [HYP] but received no response to my questions from February 20 regarding proposed terms of employment and compensation…you cannot receive a check from the Trustee unless you are employed by the estate.

Id., Ex. D (March 4, 2019 email)

Yazdanpanah and HYP rejected the Trustee’s proposal for months, positing that HYP was not required to be employed by the estate because the firm co-counseled the Debtor with MLF. See Djang Decl., Ex. D. Nevertheless, HYP eventually accepted the Trustee’s employment offer, and, after another lengthy delay attributed to HYP, the Court approved its employment application on October 22, 2019 [Doc. No 48]. The Debtor executed the Settlement Agreement on or about October 8, 2019. The Court entered an order granting a Rule 9019 motion regarding the Settlement Agreement on December 4, 2019 [Doc. No. 57].

Even after it became an estate professional, HYP continually failed to cooperate with the Trustee by neglecting to provide information about the outstanding total of the Medical Liens and the identity of the lienholders. Accordingly, the Trustee emailed Yazdanpanah written requests on five different occasions between December 2019 and April 2020. See Djang Decl., Ex. H. Based on HYP’s steadfast refusal to give a clear response concerning the outstanding Medical Liens, the Trustee filed the Motion on May 6, 2020 [Doc. No. 60], through which he seeks to pay off all administrative expenses and claims against the estate, free and clear of the Medical Liens, from the settlement proceeds. The Trustee argues that lacking any specific information on the Medical Liens impeded his efforts to administer the settlement funds and close the case. To that extent, the Trustee asks to be released of the responsibility to pay the Medical Liens, leaving that task in the Debtor’s hands. Furthermore, the Trustee anticipates that the settlement proceeds will be sufficient to pay administrative expenses, all filed claims, and the professionals’ fees and expenses, leaving the Debtor with a sizeable surplus north of $395,000 to pay the Medical Liens

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in their totality [Note 1].

As of the preparation of this tentative ruling, no objection to the Motion is on file. However, in their joint supplemental brief in response to the Court’s July 8, 2020 tentative ruling [Doc. No. 98], the Trustee asserts that HYP finally turned over the long-requested information and further motion practice is unnecessary.

C. Summary of Papers Filed in Connection with The Fee Applications

Summary of the Fee Applications

Following attempts to resolve issues concerning fees and expenses, the Applicants determined to file separate fee applications. BBK Fee Application at 5. BBK, the Trustee’s general bankruptcy counsel, applies for the allowance of fees in the sum of $30,801 and costs in the sum of $301.21on an interim basis. MLF, as special litigation counsel, applies for the allowance of fees in the sum of $225,000 and costs in the sum of $21,330.04 on an interim basis. The legal fees that MLF requests constitute 45% of the settlement proceeds, based on the contingency fee stipulated in the Debtor’s retainer agreement with HYP. See MLF Fee Application, Ex. 1. HYP, as Trustee’s limited scope counsel, applies for the allowance of fees in the sum of $2,500 on an interim basis; HYP does not request reimbursement of any costs. As of the filing of the Fee Applications, the estate holds approximately $497,743.99. At a prior hearing on the Fee Applications, the Court determined it was not in a position to approve the Applicants’ requested compensation due to the following concerns:

First, the Court notes that the Personal Injury Lawsuit was settled on or about October 31, 2018, but a settlement agreement was not signed by all the parties until June 2019. First Interim Application of BBK [Doc. No. 70] at 4. The Trustee’s general bankruptcy counsel explains that this protracted delay and the attendant legal costs incurred were the result of certain demands made by H.Y.P. The Trustee must explain why the unnecessary expense and delay caused by H.Y.P. could not be expeditiously resolved by motion practice, and why the applicants’ fees and costs requested herein should not be reduced accordingly. Second, the applicants must explain their decision in filing applications for interim fees and costs, as opposed to final applications. The Court is perplexed as to what additional legal services must be rendered by each applicant to bring this chapter 7 case to a close. Last, the Court notes that

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11:00 AMMaria Del Carmen LinaresCONT... Chapter 7the order to employ H.Y.P. as special counsel to the trustee was entered on October 22, 2019, with an effective date of March 1, 2019. However, the fee application submitted by H.Y.P. consists of 6 thinly described work entries billed between March 5, 2020 and May 8, 2020. H.Y.P. broadly seeks $2,500 for communicating with 10 different parties concerning medical liens against the Debtor’s estate. Pursuant to LBR 2016, H.Y.P.’s fee application fails to supply an adequate description of services rendered for the benefit of the estate. The Court does not understand why the Trustee sought H.Y.P. to be employed nunc pro tunc to March 1, 2019, when it appears that the applicant did not render any services until March 2020. Additionally, the Court notes that H.Y.P.’s inability to cooperate with the Trustee has continued to be a problem, even after the Court approved its employment. Motion to Pay Claims Free and Clear of Purported Medical Liens [Doc. No. 59] at 7 ("the Trustee has requested of Mr. Yazdanpanah, in writing, a status and itemization of the Medical Liens no less than five times, on December 30, 2019, February 11, 2020, March 11, 2020, April 13, 2020, and April 29, 2020."). In sum, H.Y.P. must explain to the Court why it is entitled to any fees when it has consistently caused the estate unnecessary administrative costs and delays.

See Doc. No. 91. With respect to the MLF Fee Application, the Court remarked that:

The Court notes that the application to employ to [MLF] (the “Employment Application”) does not disclose the contingency fee figure contemplated in the Fee Application, nor contains the retainer agreement supplied in the Fee Application. In addition, the Employment Application states that [MLF’s] fees and expenses would be subject to the provisions under § 328, while the order approving the Employment Application asserts that compensation would be reviewed under § 330 [Doc. No. 30]. The Fee Application does not address such discrepancy.

See Doc. No. 92. (together with Doc. No. 91, the “July 8 Ruling”).

In addition, the Trustee lodged an untimely opposition [Doc. No. 87] to the MLF Fee Application, objecting to the reimbursement of a specific item cost—$2,867.41 for “funding interest” as an unauthorized request for post-petition credit.

Summary of the Joint Supplemental Brief

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On July 24, 2020, BBK and MLF filed the Joint Supplemental Brief [Doc. No. 98] in response to the Court’s inquiries, asserting the following principal arguments and representations:

While careful to minimize administrative expense, the Trustee and BBK expended considerable effort to collaborate with HYP, despite Yazdanpanah’s lack of familiarity with bankruptcy law and inability to follow the Trustee’s instructions. On more than one occasion, the Trustee strongly considered filing a motion to secure HYP’s cooperation but reconsidered once HYP and the Debtor acceded to the Trustee’s instructions. The Trustee even solicited the assistance of bankruptcy attorneys Ori Blumenfeld (who acts as an intermediary between HYP and BBK) and Michael Berger. Although Yazdanpanah accepted the assistance of Mr. Blumenfeld and Mr. Berger, he would “forget” and not act on such advice. BBK and the Trustee further attempted to resolve any delays in connection with HYP by (a) asking Vons to proceed with the Settlement Agreement without Debtor’s signature, (b) drafting HYP’s interim fee application (never filed), (c) reminding HYP to deliver the necessary documentation in support of its employment application, and (d) requesting regular updates on the Medical Liens.

The Applicants filed interim fee applications, instead final fee applications, because this case is approximately 3 to 4 months away from closing. Before the case is closed, the Trustee must still oversee the completion of the estate’s tax returns, a task that was delayed in connection with the long-awaited Medical Liens settlement amounts. HYP and MLF are not expected to incur any additional fees, while BBK only expects to bill a nominal fee in connection with the Trustee’s final report.

Finally, the Trustee reports that MLF has agreed to waive “funding interest” fees of $2,867.41, thereby resolving the Trustee’s limited objection.

Summary of the HYP Supplement

Mr. Blumenfeld, on behalf of HYP, responded to the Court’s inquiries, asserting the following principal arguments and representations:

First, HYP apologizes to the Court for the poor communication with the Trustee and the “unintentional delay.” The yearlong delay was the result of a “non-learned bankruptcy lawyer” not associating with a bankruptcy attorney to receive proper

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assistance, as well the time and continued efforts expended to negotiate the claims asserted by the medical lienholders. While HYP ensured that the Debtor was updated “75-100 times regarding her settled personal injury case,” the firm acknowledges that it failed to communicate effectively with the Trustee due to Yazdanpanah’s lack of bankruptcy knowledge. More specifically, HYP was under the impression that it only owed a duty to the Debtor, as its client, and not to the Trustee. However, HYP’s limited scope services reduced the Medical Liens from $274,712.36 to $96,101, providing a “massive” benefit to the Debtor’s estate. However, given HYP’s prior experience working on contingency basis, the firm’s billing records are limited to the information provided in HYP Fee Application and the Supplement. HYP did not understand that it had to keep detailed billing records as part of its employment application. Finally, the HYP Fee Application should be construed as a “final,” rather than “interim,” application as it does not expect to seek additional compensation.

II. Findings of Fact and Conclusions of Law

As a preliminary matter, the Court acknowledges the long-postponed delivery of critical information concerning the Medical Liens to the Trustee. The information in question consists of a listing of all medical lienholders and their specified settled claim amounts, which will permit the Trustee to prepare a final report and close the case as expeditiously as possible. Given that the Trustee has the information that precipitated the filing of the Motion, the Court considers that the relief sought in the Motion is moot.

A. The Fee Applications

Section 330(a)(1) allows the Court to award “reasonable compensation for actual, necessary services rendered” by a professional. In determining the amount of compensation to award, the Court considers the nature, the extent, and the value of such services, taking into account all relevant factors, including—

(A) the time spent on such services;

(B) the rates charged for such services;

(C) whether the services were necessary to the administration of, or beneficial at the time at which the service was rendered toward the completion of, a case

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11:00 AMMaria Del Carmen LinaresCONT... Chapter 7under this title;

(D) whether the services were performed within a reasonable amount of time commensurate with the complexity, importance, and nature of the problem, issue, or task addressed;

(E) with respect to a professional person, whether the person is board certified or otherwise has demonstrated skill and experience in the bankruptcy field; and

(F) whether the compensation is reasonable based on the customary compensation charged by comparably skilled practitioners in cases other than cases under this title.

§ 330 (a)(3).

Alternatively, § 328(a) permits bankruptcy courts to award estate professionals compensation “on any reasonable terms and conditions of employment, including on a retainer, on an hourly basis, on a fixed or percentage fee basis, or on a contingent fee basis.” However, this section also authorizes courts to award compensation that differs from the employment terms, “if such terms and conditions prove to have been improvident in light of developments not capable of being anticipated at the time of the fixing of such terms and conditions.”

MLF Fee Application

There is still the lingering issue as to whether MLF’s requested fees and expenses are to be reviewed under § 328 or § 330(a). MLF seeks fees totaling $225,000, based on a 45% contingency fee, which it claims is subject to the employment terms that this Court approved under § 328. The Court raised concerns over an apparent discrepancy in MLF’s compensation scheme in the July 8 Ruling [Doc. No. 92], but unfortunately neither the Trustee nor MLF took the opportunity to brief the issue in their Joint Supplemental Brief.

Local Bankruptcy Rule (“LBR”) 2014-1(b)(1)(A) states that an employment application “must specify unambiguously whether the professional seeks compensation pursuant to 11 U.S.C. § 328 or 11 U.S.C. § 330.” If the professional fails to “unambiguously” indicate as such in its retention application, the

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professional’s compensation will be reviewed under § 330. In re Circle K Corp., 279 F.3d 669, 671 (9th Cir. 2002). This is the case here. The application to employ MLF as special counsel sought compensation under both §§ 328 and 330, citing to both sections interchangeably. MLF Employment Application [Doc. No. 24-1] at 4 (“The Firm intends to apply to the Court, in conformity with sections 328 and 331 of the Bankruptcy Code…”); Declaration of Joseph Faccone Jr. [Doc. No. 24-1], ¶ 10 (“The Firm understands that its compensation in this case is subject to approval of this Court pursuant to 11 U.S.C. §§327, 330 and 331.”). Apart from the careless drafting of the application, the Court’s inquiry is further clouded as the application omits reference to either the 45% contingency arrangement or the underlying retainer agreement. The contingency terms were only recently disclosed to the Court as evidence supporting the MLF Fee Application. In fact, the Court learned through the MLF Fee Application, not the retention application, that the contingency terms come from the retainer agreement between the Debtor and HYP. See MLF Fee Application, Ex. 1.

Controlling authority produced by the Ninth Circuit holds that the compensation scheme applicable to an estate professional is governed by the order approving the employment application of the professional. In In re B.U.M. Int'l, Inc., the Ninth Circuit found that the express approval of a professional’s employment under § 330 indicated an intention by the bankruptcy court to “to reserve the power to conduct an 11 U.S.C. § 330 ‘reasonableness and benefit to the estate’ review.” 229 F.3d 824, 830 (9th Cir. 2000). In reaching its determination, the court disapproved of the more permissive approach adopted by the Fifth Circuit in Donaldson Lufkin & Jenrette Sec. Corp. v. National Gypsum Co. (In re National Gypsum Co.), 123 F.3d 861 (5th Cir. 1997). In contrast, the Ninth Circuit reasoned that the bankruptcy court’s order “specifically and in writing put all interested parties on notice that all of [the applicant’s] fees were subject to court approval down the road.” See id. at 829.

On August 6, 2018, the Court entered an order approving MLF’s employment [Doc. No. 30], specifying that “[a]ll compensation and expense reimbursement of counsel in this case is subject to the approval of this Court pursuant to 11 U.S.C. § 330.” This order was not subsequently challenged by any party. Moreover, the Court could not have approved MLF’s compensation under § 328 because the terms of the contingency arrangement were not disclosed until recently. Accordingly, the Court will review MLF’s requested compensation under the reasonableness standard set forth in § 330(a).

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Notwithstanding, based on its review of MLF Fee Application, the Court understands that MLF expended substantial expense and effort in securing the estate’s only asset. Further, any undue delay in the closing of this case was not caused by MLF. The Court is prepared to fully approve MLF’s fees and expenses, on an interim basis, with the condition that MLF shall submit adequate evidence supporting the requested compensation by no later than August 25, 2020. In support of its fee application, MLF may proffer evidence in the form of a detailed declaration under penalty of perjury and/or adequate billing records. Upon consideration of such supporting evidence under § 330(a), the Court will enter an order approving MLF’s fees and expenses, partially or in full, on a final basis without further notice or hearing.

HYP Fee Application

Section 328(c) authorizes the Court to disqualify an estate professional employed under § 327, or limit or fully deny its requested compensation, if “such professional is not a disinterested person, or represents or holds an interest adverse to the interest of the estate… .” The employment of HYP as special litigation counsel required court approval under § 327(a).

Section 327(a) further mandates that all estate professionals disclose, at the outset of the retention application and on a recurring basis, “all facts which might bear on the professional's qualification for retention under § 327(a).” In re Diamond Mortg. Corp. of Illinois, 135 B.R. 78, 89 (Bankr. N.D. Ill. 1990) (“The purpose of this disclosure requirement is to allow the court…to evaluate the possibility of conflicts of interest and the potential for sanctions under §§ 327(a) and 328(c).”). Professionals must also “live up to all requirements of appropriate professional codes of conduct on a continuous basis.” Id.

“To hold an interest adverse to the estate is either (1) to possess or assert an economic interest that would tend to decrease the value of the estate or create an actual or potential dispute with the estate or (2) to possess a predisposition that would amount to a bias against the estate.” In re Kobra Properties, 406 B.R. 396, 403 (Bankr. E.D. Cal. 2009) (citing to Tevis v. Wilke, Fleury, Hoffelt, Gould & Birney (In re Tevis), 347 B.R. 679, 693-94 (B.A.P. 9th Cir. 2006)). To represent an adverse interest is to serve as an attorney for an entity holding such an interest. Tevis, 347 B.R. at 688. "Adversity" is not defined in the Bankruptcy Code, but federal trial courts

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"normally apply ethical rules of the state in which the court is located," akin to the imposition of attorney discipline. In re Kobra Properties, 406 B.R. 396 at 403. Through local rule 83-3.1.2, the Central District of California has adopted the Rules of Professional Conduct (“RPC”) approved by the California Supreme Court; local rule 83-3.1.2 has been incorporated through LBR 2090-2.

RPC 1.1(c) provides in relevant part:

If a lawyer does not have sufficient learning and skill when the legal services are undertaken, the lawyer nonetheless may provide competent representation by (i) associating with or, where appropriate, professionally consulting another lawyer whom the lawyer reasonably believes to be competent, (ii) acquiring sufficient learning and skill before performance is required, or (iii) referring the matter to another lawyer whom the lawyer reasonably believes to be competent.

RPC 1.3, which addresses the level of diligence expected from attorneys, provides:

(a) A lawyer shall not intentionally, repeatedly, recklessly or with gross negligence fail to act with reasonable diligence in representing a client.

(b) For purposes of this rule, “reasonable diligence” shall mean that a lawyer acts with commitment and dedication to the interests of the client and does not neglect or disregard, or unduly delay a legal matter entrusted to the lawyer.

Following the approval of its employment as special litigation counsel, HYP failed to live up to the standards prescribed by § 327(a). As discussed above, the conduct exhibited by HYP as an estate professional resulted in the delay of this case for months, substantially increasing administrative expense to the estate and the Debtor. The justification proffered by HYP that its principal is a non-learned bankruptcy attorney is weak. HYP could have easily moved the Debtor’s case forward by simply cooperating with the Trustee with respect to the negotiation of the Medical Liens. HYP’s failure to comply with the RPC does not stem from a poor understanding of bankruptcy procedure. Any limitations in Yazdanpanah's legal abilities could have

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been timely remedied if he had followed the advice of Mr. Berger, Mr. Blumenfeld, or the Trustee’s counsel. Nevertheless, the recalcitrant behavior of HYP persisted until the Trustee was pressured to file the Motion in May 2020.

Further, in its role of special litigation counsel, the Court finds that HYP held and/or represented an interest adverse to the estate: “…I believed that a bigger equal duty was owed to the Debtor, rather only to the Trustee, because I believed that the Debtor was my client, not the Trustee….” Declaration of Yazdanpanah in support of HYP Supplement [Doc. No. 97], ¶ 5. If Yazdanpanah was unwilling to serve, or did not understand, its role as Trustee’s special counsel, he should have disclosed as much at the outset of the employment offer. Yazdanpanah’s failure to do so meant that HYP concurrently represented an interest, which he believed was owed a “bigger equal duty” than the estate. Here, Yazdanpanah’s belief had an actual detrimental impact on the estate as HYP failed to update the Trustee on the Medical Liens for months. Again, claiming ignorance is unpersuasive because HYP had ample resources to enable Yazdanpanah to become readily competent. In failing to uphold its duty, HYP prevented this case from closing, thereby harming the interests of the creditors and denying Debtor her long-awaited fresh start. In re Kobra Properties, 406 B.R. 396, 403 (holding an adverse interest is “to possess a predisposition that would amount to a bias against the estate.”).

“Section 328(c) vests the court with authority to deny fee requests in whole or in part.” In re Diamond Mortg. Corp. of Illinois, 135 B.R. 78 at 98; see also Neben & Starrett, Inc. v. Chartwell Fin. Corp. (In re Park–Helena Corp.), 63 F.3d 877, 880-81 (9th Cir.1995) (Disclosure that later turns out to be incomplete can be remedied by denial of fees.).

In its discretion, the Court has ample justification to deny HYP’s requested compensation in full. HYP failed to disclose its adverse bias against the estate, at the start of his employment or at any time thereafter, causing harm to the creditors and Debtor. Any benefit that the services of HYP might have conferred on the estate are cancelled out by the time and resources required to compel HYP’s compliance. Trustee’s counsel incurred no less than $4,343 in preparing the Motion and attempting to confer with HYP on the status of the Medical Liens. See BBK Fee Application, Ex. 2. Therefore, HYP is not entitled to any of its fees in the amount of $2,500.

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The BBK Fee Application

Section 704(a)(1) requires that the chapter 7 trustee “collect and reduce to money the property of the estate…and close such estate as expeditiously as is compatible with the best interests of parties in interest.” By accepting employment as counsel to the Trustee, BBK acknowledged its responsibility to “[a]ssist and advise the Trustee with the recovery of property of the Estate…[a]ssist the Trustee in legal action or otherwise to recover other assets for the benefit of the creditors…[and] [g]ive the Trustee legal advice with respect to his duties and powers in this matter.” See BBK Employment Application [Doc. No. 20] at 3-4.

As the recitation of the background facts set forth above illustrates, BBK failed to adequately counsel the Trustee on his duties to collect estate assets and expeditiously close this case. While the energy expended on educating Yazdanpanah on bankruptcy procedure is laudable, such energy would have been more fruitfully invested in ensuring HYP’s compliance, or discipline, through appropriate motion practice. The decision to delay the filing of any kind of motion against HYP until May 2020 proved difficult not only to the ability of the Trustee to oversee this case, but to the interests of creditors, whose expected distribution was unnecessarily prolonged. The court finds the administration of this bankruptcy case was unjustifiably delayed because of:

1. The failure to take proper action to ensure the consummation of the Settlement Agreement for nearly a year;

2. The decision to wait approximately 6 months for HYP to deliver the requisite documentation for its employment application;

3. The decision to delay the filing of the Motion until May 2020, even after HYP had long proved itself uncooperative and repeatedly declined to update the Trustee on the status of the Medical Liens for months; and

4. The preparation and submission of pleadings with critical errors, discrepancies, and omissions, prompting the request for supplemental briefing. See, e.g., Doc. No. 24-1.

In view of the above-referenced events, the Court finds that BBK’s requested fees

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should be reduced by $2,000.

Based upon the foregoing, the Court finds that BBK is entitled to fees in the amount of $28,801 and expenses in the amount of $301.21, on an interim basis.

III. Conclusion

For the reasons set forth above, the Motion is DENIED as moot and the Fee Applications are GRANTED IN PART as follows:

(1) The MLF Fee Application is GRANTED in the total amount of $243,462.63 (less the voluntary expense reduction of $2,867.41 for the litigation funding interest), on an interim basis, subject to the conditions set forth above.

(2) The HYP Fee Application is DENIED in full.

(3) The BBK Fee Application is GRANTED in the total amount of $29,102.21 (less a fee reduction of $2,000), on an interim basis.

The Trustee shall lodge conforming proposed orders within 7 days of the hearing.

No appearance is required if submitting on the court’s tentative ruling. If you intend to submit on the tentative ruling, please contact Carlos Nevarez or Daniel Koontz at 213-894-1522. If you intend to contest the tentative ruling and appear, please first contact opposing counsel to inform them of your intention to do so. Should an opposing party file a late opposition or appear at the hearing, the court will determine whether further hearing is required. If you wish to make a telephonic appearance, contact Court Call at 888-882-6878, no later than one hour before the hearing.

Note 1: The figures stated on page 7 of the Motion are inconsistent with the fees and expenses, totaling $250,000, requested by MLF on its interim fee application [Doc. No. 71].

Party Information

Debtor(s):

Maria Del Carmen Linares Represented By

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Caroline Djang

Trustee(s):

David M Goodrich (TR) Represented ByCaroline Djang

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#101.00 HearingRE: [70] Application for Compensation (First Interim) for BEST BEST & KRIEGER LLP Period: 6/4/2018 to 6/11/2020, Fee: $30801.00, Expenses: $301.21.

fr. 7-8-20

70Docket

8/3/2020

See Cal. No. 100, incorporated in full by reference.

Tentative Ruling:

Party Information

Debtor(s):

Maria Del Carmen Linares Represented ByCaroline Djang

Trustee(s):


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#102.00 HearingRE: [71] Application for Compensation (First Interim) for McElfish Law Firm, Special Counsel, Period: 8/8/2018 to 12/31/2019, Fee: $225000.00, Expenses: $21330.04.

fr. 7-8-20

71Docket

8/3/2020


Tentative Ruling:

Party Information

Debtor(s):


Trustee(s):


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#103.00 HearingRE: [59] Motion to Pay Claims Free and Clear of Purported Medical Liens; Declarations of David M. Goodrich and Caroline R. Djang (Djang, Caroline)

FR. 6-2-20

59Docket

8/3/2020


Tentative Ruling:

Party Information

Debtor(s):


Trustee(s):


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11:00 AMC & F Sturm, LLC2:19-21593 Chapter 11

#104.00 HearingRE: [52] Application for Compensation Supplement, Declarations of Stella Havkin and Christina M. De Musee for Stella A Havkin, Debtor's Attorney, Period: 10/1/2019 to 7/9/2020, Fee: $22,055.00, Expenses: $2,068.15.

52Docket

8/3/2020


Having reviewed the first interim application for fees and expenses filed by this applicant, the court approves the application and awards the fees and expenses set forth below.

Fees: $22,055 [Doc. No. 52]

Expenses: $2,068.15


The applicant shall submit a conforming order within seven days of the hearing.

Tentative Ruling:

Party Information

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11:00 AMC & F Sturm, LLCCONT... Chapter 11

Debtor(s):

C & F Sturm, LLC Represented ByStella A Havkin

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11:00 AMC & F Sturm, LLC2:19-21593 Chapter 11

#105.00 Hearing re [45] interim fee applications filed by Havkin & Shrago.

0Docket

8/3/2020


Tentative Ruling:

Party Information

Debtor(s):

C & F Sturm, LLC Represented ByStella A Havkin

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