Opinion
Case No. 13-33264-H4-11
08-21-2015
In re: Digerati Technologies, Inc., Debtor.
Chapter 11
MEMORANDUM OPINION REGARDING THIRD AND FINAL APPLICATION OF DEBTOR'S COUNSEL HOOVER SLOVACEK LLP FOR ALLOWANCE OF COMPENSATION FOR SERVICES AND REIMBURSEMENT OF EXPENSES FOR THE PERIOD BEGINNING MAY 30 , 2013 THROUGH APRIL 4, 2014
[Doc. No. 831]
I. INTRODUCTION
The Court issues this opinion in the wake of the Fifth Circuit's issuance of In re Woerner, 783 F.3d 266 (5th Cir. 2015), a watershed case because of its rejection of the 17-year-old holding of Matter of Pro-Snax Distributors, Inc., 157 F.3d 414 (5th Cir. 1998). Now, the law in the Fifth Circuit is that bankruptcy courts should evaluate fee applications under a "good gamble" approach rather than the "identifiable, tangible, material benefit" retrospective standard. The debtors' bar is breathing a sigh of relief in the wake of this change in the law. However, as this opinion shows, merely because Pro-Snax is gone does not necessarily mean that fee applications will more easily be approved in their entirety.
On May 2, 2014, Hoover Slovacek, LLP (the "Applicant"), counsel for Digerati Technologies, Inc. (the "Debtor"), filed the Third and Final Application of Debtor's Counsel Hoover Slovacek LLP for Allowance of Compensation for Services and Reimbursement of Expenses for the Period Beginning May 30, 2013 Through April 4, 2014 (the "Fee Application"). [Doc. No. 831]. In the Fee Application, the Applicant requests this Court's approval of fees in the amount of $1,155,321.50, reimbursable expenses in the amount of $97,406.66, and fees and expenses for the preparation of the Fee Application in the amount of $10,000.00, for a total sum of $1,262,728.16. The Court notes that during the pendency of the case, it awarded fees and expenses to the Applicant on an interim basis under the then-prevailing Pro-Snax standard. However, because Woerner has since replaced Pro-Snax, this Court now reviews all of the services rendered, and the expenses incurred, under the new standard articulated in Woerner.
On May 22, 2014, Hunter Carr; Rhodes Holdings, LLC; Robert Rhodes ("Rhodes"); American Equity Fund, LLC; WEM Equity Investments, Ltd.; Recap Marketing & Consulting, LLC; Rainmaker Ventures II, Ltd.; William McIlwain; and Scott Hepford, John Howell, Robert L. Sonfield, Jr. and Robert L. Sonfield, P.C. d/b/a Sonfield & Sonfield (collectively, the "Objectors") filed an Amended Objection to the Fee Application (the "Amended Objection"). [Doc. No. 849], On May 23, 2014, the Applicant filed a response to the Amended Objection. [Doc. No. 855].
This Court held a multi-day hearing on the Fee Application on May 27, 2014, July 8, 2014, August 19, 2014, August 28, 2014, September 23, 2014, January 9, 2015, January 16, 2015, and January 30, 2015, on which date the Applicant concluded its case-in-chief. At this point, the Objectors orally moved for a judgment on partial findings pursuant to Federal Rule of Bankruptcy Procedure 7052, arguing that the Applicant's evidence was insufficient to show entitlement to any fee award. The Court granted the parties time to submit briefing on the motion for judgment on partial findings, and both sides did so. [See Doc. Nos. 1129 & 1130]. On May 1, 2015, after considering this briefing, the Court denied the oral motion and ordered the Objectors to submit a witness list and an estimate of the amount of time their case in chief would require. [Doc. No. 1132]. The Objectors declined to present a case in chief, but rather requested a hearing solely to make closing arguments based upon the existing trial record. The Court granted this request, and on May 22, 2015, heard closing arguments on the Fee Application. The Court then took the matter under advisement.
Any reference to "the Rules" refers to the Federal Rules of Bankruptcy Procedure. Further, any reference to "the Code" refers to the United States Bankruptcy Code, and reference to any section (i.e., §) refers to a section in 11 U.S.C., which is the United States Bankruptcy Code, unless otherwise noted.
The Court now approves the Fee Application in part and denies it in part, and in accordance with Rules 9014 and 7052, issues the following Findings of Fact and Conclusions of Law explaining its decision. To the extent that any Finding of Fact is construed to be a Conclusion of Law, it is adopted as such. To the extent that any Conclusion of Law is construed to be a Finding of Fact, it is adopted as such. The Court reserves the right to make any additional Findings and Conclusions as may be necessary or as requested by any party. For the reasons set forth herein, the Court approves $845,014.57 of the requested fees (including the fees for preparing the Fee Application), and $31,849.22 of the requested expenses; and disapproves $320,306.93 of the requested fees and $65,557.44 of the requested expenses.
II. FINDINGS OF FACT
This Chapter 11 case was extremely acrimonious. Indeed, from the very outset of the case, there was a dispute about whether the board of directors that authorized the filing of the Chapter 11 petition was a legitimately constituted board. [See Doc. No. 318, pp. 6-8, ¶10-14]. Moreover, there was a dispute about whether the individual who signed the petition—i.e., Arthur Smith ("Smith")—was actually the duly authorized president of the Debtor who had the power to sign the petition. [Doc. No. 318, pp. 6-8, ¶10-13]. The Applicant was certainly aware of this very bitter dispute, which became even more pronounced after the failed mediation session that occurred a few months after the Chapter 11 petition was filed. Given these circumstances, this Court assesses the Fee Application with one eye constantly cocked on how the Applicant dealt with those "frozen out" parties who believed that they were the properly constituted board of directors, or who believed the board which authorized the Chapter 11 filing was illegitimately constituted. This Court's analysis of the Fee Application also focuses closely on the myriad pleadings that the Applicant filed on behalf of the Debtor, many of which were opposed by those individuals who believed that they were the properly constituted board of directors or that the board which authorized the bankruptcy filing was illegitimately formed. The findings of fact relevant to the Fee Application given these—and other relevant—circumstances are as follows:
1. On May 30, 2013, the Debtor—a publicly-held company with approximately 6,000 shareholders—filed a voluntary Chapter 11 petition. [Doc. No. 1]. At the time of the filing of this petition, the Debtor was a holding company, and its primary and most valuable assets were the stock of two subsidiaries named Hurley Enterprises, Inc. and Dishon Disposal, Inc. [Doc. No. 831, 4¶9]. These two entities were very successful oilfield service companies. The Debtor acquired the stock of these two companies by executing and delivering promissory notes for $60 million payable to the former owners of these entities. [Doc. No. 41, p. 10 of 25]. These former owners therefore became the largest secured creditors of the Debtor. These owners were very unsophisticated individuals who spent most of their waking hours toiling in the oil patch to make these businesses successful.
2. On June 24, 2013, the Applicant, on behalf of the Debtor, filed its Emergency Motion for Authority to Incur Debt under 11 U.S.C. § 364(c) and § 105 (the "Motion for Authority to Incur Debt"). [Doc. No. 48]. The Court held a hearing on the Motion for Authority to Incur Debt on June 27, 2013. On June 28, 2013, this Court issued an Order Denying the Motion for Authority to Incur Debt for three separate and independent reasons: (1) the
Debtor failed to satisfy the requirement imposed by § 364(d)(1)(A) that the Debtor "is unable to obtain such credit otherwise"; (2) the Debtor failed to demonstrate that the proposed loans were necessary to avoid immediate and irreparable harm to the estate; and (3) the Debtor failed to show how it was beneficial to the estate to pay the proposed salaries of the three individuals—i.e., Smith, Antonio Estrada ("Estrada"), and Katie Keller ("Keller")—referenced in the Motion for Authority to Incur Debt. [Doc. No. 63].
3. On June 24, 2013, the Applicant, on behalf of the Debtor, filed its Motion for Leave to File Official Form 26 Under Seal (the "Motion to Seal"). [Doc. No. 47]. The Court held a hearing on the Motion to Seal on July 23, 2013. On this same day, this Court issued an Order Denying the Motion to Seal because the Applicant, on behalf of the Debtor, woefully failed to prove that the financial information of its subsidiaries deserved protection under § 107(b) and also failed to show any compelling reason to justify nondisclosure. [Doc. No. 130].
4. On July 3, 2013, the Applicant, on behalf of the Debtor, filed its Motion for Authority to Incur Debt Under 11 U.S.C. §§ 364(c)(1), 503(b)(1), and 507 (the "Second Motion for Authority to Incur Debt"). [Doc. No. 74]. The Court held a hearing on the Second Motion for Authority to Incur Debt on July 22, 2013. On July 30, 2013, the Court issued an Order Denying the Second Motion for Authority to Incur Debt because the Debtor: (1) failed to meet its burden to demonstrate that the proposed loan proceeds were necessary to pay certain line item expenses; and (2) failed to convince this Court that the Debtor needed the services of two individuals (Smith and Estrada) who were each receiving $5,000.00 per month. [Doc. No. 156].
5. On July 8, 2013, the Applicant filed its Motion for Order Establishing Procedure for Interim Compensation of Professionals (the "Motion for Procedures"). [Doc. No. 79]. This Court held a hearing on the Motion for Procedures on September 12, 2013. On September 13, 2013, the Court issued an Order granting in part and denying in part the Motion for Procedures based on the oral ruling made at the hearing. [Doc. No. 280]. The Court denied this request in part because the unusually acrimonious nature of this case made the Applicant's request for automatic periodic fee disbursements inappropriate. [Hr'g held on Sept. 12, 2013, at 3:17-3:21 P.M.].
6. On July 18, 2013, the Applicant, on behalf of the Debtor, filed its Application to Approve Employment of Public Accountant for a Limited Purpose (the "Application to Employ Public Accountant") seeking to employ Carlos Lopez and LBB & Associates, Ltd., LLP. [Doc. No. 107]. This Court held a hearing on the Application to Employ Public Accountant on September 20, 2013. On this same day, the Court issued an Order Denying the Application to Employ Public Accountant because the Debtor failed to adduce testimony in support of the Application to Employ Public Accountant. [Doc. No. 296]. The Debtor failed to adduce testimony because the Applicant, who was representing the Debtor, failed to bring any witnesses to adduce testimony in support of the Application to Employ Public Accountant. [Hr'g Minutes for Hr'g held on Sept. 20, 2013].
7. On August 16, 2013, the Applicant, on behalf of the Debtor, filed its Motion to Clarify the Court's Order Granting Defendant Robert L. Sonfield, Jr. P.C. d/b/a Sonfield & Sonfield and Robert L. Sonfield Jr.'s Motion to Remand Adversary Proceeding (the "Motion to Clarify"). [Adv. No. 13-03118, Doc. No. 48]. On August 26, 2013, this
Court issued an Order Denying the Motion to Clarify because the Court's order of August 9, 2013, [Adv. No. 13-03118, Doc. No. 43], was unambiguous and did not need clarification. [Adv. No. 13-03118, Doc. No. 49].
8. On August 28, 2013, the Applicant, on behalf of the Debtor, filed its Application to Approve Employment of Special Corporate and Securities Counsel (the "Application to Employ SEC Counsel") seeking to employ David M. Loev ("Loev") and the Loev Law Firm. [Doc. No. 254]. On August 30, 2013, the Applicant, on behalf of the Debtor, withdrew the Application to Employ SEC Counsel. [Doc. No. 260].
9. On September 9, 2013, the Applicant, on behalf of the Debtor, filed its Emergency Motion to Extend the Deadline to Provide Proof of Filing 2012 Federal Income Tax Return (the "Emergency Motion to Extend Deadline"). [Doc. No. 274]. On September 19, 2013, this Court held a hearing on the Emergency Motion to Extend Deadline. On the same day, the Court issued an Order Denying the Emergency Motion to Extend Deadline because there was insufficient cause to grant the relief requested on an emergency basis. [Doc. No. 291].
10. On September 23, 2013, the Applicant filed its First Interim Fee Application of Debtor's Counsel Hoover Slovacek LLP for Allowance of Compensation for Services and Reimbursement of Expenses for the Period Beginning May 30, 2013 Through August 31, 2013 and Request for Hearing Within 7 Days (the "First Interim Fee Application"). [Doc. No. 302]. On October 18, 2013, this Court held a hearing on the First Interim Fee Application. On October 23, 2013, the Court issued an Order Approving in Part and Denying in Part the First Interim Fee Application (the "Order on the First Interim Fee Application"). [Doc. No. 406]. Specifically, the Court authorized the Debtor to pay the
Applicant attorneys' fees in the amount of $264,357.50 and expenses in the amount of $24,943.20, for a total of $289,300.70. [Id. at p. 3]. The Court denied all other requested fees, which totaled $37,094.50. [Id.]. As of the date of the filing of the Fee Application, the Applicant had received sufficient funds to pay the entire amount of the $289,300.70 that this Court had approved. [Doc. No. 831, 36 ¶ 32].
11. On September 27, 2013, the Applicant, on behalf of the Debtor, filed its proposed Chapter 11 Plan of Reorganization (the "Proposed Plan"). [Doc. No. 313]. On the same day, the Applicant, on behalf of the Debtor, filed a proposed disclosure statement in support of the Proposed Plan (the "Proposed Disclosure Statement"). [Doc. No. 314]. On October 25, 2013, the Applicant, on behalf of the Debtor, filed a Supplemental Exhibit "2" to the Proposed Plan. [Doc. No. 427]. On the same day, the Applicant, on behalf of the Debtor, filed a supplement to the Proposed Disclosure Statement. [Doc. No. 428]. On October 29, 2013, the Applicant, on behalf of the Debtor, filed an amended supplement to the Proposed Disclosure Statement. [Doc. No. 434].
12. On November 4, 2013, the Applicant, on behalf of the Debtor, filed its Notice of Issuance of Subpoenas for Rule 2004 Examinations to Jennifer Abney, Robert L. Sonfield, Jr., and Martha Tessier a/k/a Mardy Tessier. [Doc. No. 447]. On November 5, 2013, this Court issued an Order Quashing Subpoena for Rule 2004 Examination of Robert L. Sonfield, Jr. because the Applicant (in its representation of the Debtor) had disregarded the Court's determination at a prior status conference that the 2004 Examination of Robert L. Sonfield, Jr. would take place on December 6, 2013. [Doc. No. 450].
13. On November 20, 2013, the Applicant filed its Second Interim Fee Application of Debtor's Counsel Hoover Slovacek LLP for Allowance of Compensation for Services
and Reimbursement of Expenses for the Period Beginning September 1, 2013 Through October 31, 2013 and Request for Hearing Within 7 Days (the "Second Interim Fee Application"). [Doc. No. 497]. This Court held a hearing on the Second Interim Fee Application on January 6, 2014. On January 8, 2014, the Court issued an Order Approving the Second Interim Fee Application (the "Order on the Second Interim Fee Application"), approving attorneys' fees in the amount of $240,869.00 and expenses in the amount of $19,017.27, for a total of $259,886.27. [Doc. No. 658]. As of the date of the filing of the Fee Application, the Applicant had received funds totaling $132,620.78 against the approved amount of $259,886.27. [Doc. No. 831, 36 ¶ 32]. Thus, as of the date of the filing of the Fee Application, the Applicant had received total funds of $421,921.48—representing payments to retire the entire amount awarded under the First Interim Fee Application (i.e., $289,300.70), plus payments of $132,620.78 to retire a portion of the entire amount awarded under the Second Interim Fee Application (i.e., $259,886.27).
14. On December 4, 2013, this Court held a hearing on a discovery dispute. Specifically, pursuant to this Court's order of November 5, 2013, [Doc. No. 451], a 2004 examination was to take place on December 2, 2013 of David Gorham ("Gorham"). A question had been posed to Gorham to which his attorney, Joe Luce ("Luce"), instructed him not to answer due to the alleged existence of a non-disclosure agreement. The Court therefore reviewed information received from Luce in his effort to convince this Court that Gorham should not be required to answer the question posed to him. At the conclusion of the hearing held on December 4, 2013, the Court found that there was no non-
disclosure agreement in existence, and therefore ordered that Gorham answer the question posed to him. [Hr'g held on Dec. 4, 2013 at 11:07:43 A.M.-11:07:49 A.M.].
15. On December 7, 2013, the Applicant, on behalf of the Debtor, filed an addendum (the "Addendum"), [Doc. No. 563-1], to an amended settlement agreement (the "Amended Settlement Agreement") that it had asked this Court to approve in a motion to compromise that the Applicant (on behalf of the Debtor) had already filed on September 27, 2013, [Doc. No. 312]. On December 9, 2013, Scott Hepford; the Lunaria Heritage Trust; Robert Rhodes, Rhodes Holdings, LLC; William McIlwain; Recap Marketing & Consulting, LLP; American Equity Fund, LLP; and WEM Equity Fund, LLC filed the Emergency Motion to Continue Hearing on Motion to Compromise, asserting that the Addendum substantially modified the Amended Settlement Agreement and "creates substantial prejudice and hardship on the objecting parties" (the "Emergency Motion to Continue Hearing"). [Doc. No. 576], On the same day, the Applicant, on behalf of the Debtor, filed a response to the Emergency Motion to Continue Hearing. [Doc. No. 577]. The Applicant, on behalf of the Debtor, also filed a Notice of Corrected Exhibit B to the Debtor's Response to the Emergency Motion to Continue Hearing. [Doc. No. 579]. The Court held a hearing on December 11, 2013, and orally ruled that the Addendum should be stricken because it was prejudicial to those parties who filed the Emergency Motion to Continue Hearing. On the same day, this Court issued an Order Striking Addendum to Amended Settlement Agreement. [Doc. No. 594].
16. On January 10, 2014, the Applicant, on behalf of the Debtor, filed an amended Proposed Plan (the "Proposed First Amended Plan"). [Doc. No. 665].
17. On January 13, 2014, the Applicant, on behalf of Gilbert Herrera ("Herrera") and Herrera Partners, filed the First Interim Fee Application of Debtor's Investment Bank[er] Gilbert A. Herrera and Herrera Partners for Allowance of Compensation for Services and Reimbursement of Expenses for Period Beginning July 1, 2013 Through December 31, 2013 and Request for Hearing Within 7 Days (the "Herrera Fee Application"). [Doc. No. 669]. On the same day, the Applicant amended the Herrera Fee Application (the "Amended Herrera Fee Application"). [Doc. No. 670], and Notice of the Herrera Fee Application, [Doc. No. 671]. On May 2, 2014, the Applicant, once again on behalf of Herrera, filed a Final Fee Application of Debtor's Investment Banker Gilbert A. Herrera and Herrera Partners for Allowance of Compensation for Services and Reimbursement of Expenses for the Period Beginning July 1, 2013 Through April 4, 2014 (the "Herrera Final Fee Application"). [Doc. No. 826]. On May 7, 2014, the Applicant, on behalf of Herrera, filed a Notice of Withdrawal, withdrawing the Amended Herrera Fee Application because the fees and expenses sought were included in the Herrera Final Fee Application. [Doc. No. 842]. This Court held a multi-day hearing on the Herrera Final Fee Application on July 22, 2014; August 18, 2014; August 20, 2014; September 9, 2014; October 1, 2014; October 14, 2014; and November 7, 2014. On January 12, 2015, the Court denied the Herrera Final Fee Application in its entirety. [Doc. No. 1057]. The Court issued a memorandum opinion explaining its ruling that Herrera provided no benefit to the estate under either the Pro-Snax standard or the more flexible prospective approach already adopted by several other circuits. [Doc. No. 1056]; In re Digerati Technologies, Inc., 524 B.R. 666, 673 (Bankr. S.D. Tex. 2015).
18. On January 21, 2014, the Applicant, on behalf of the Debtor, amended the Proposed First Amended Plan (the "Proposed Second Amended Plan"), [Doc. No. 684], and amended the Proposed Disclosure Statement (the "First Amended Disclosure Statement"), [Doc. No. 685]. On the same day, this Court signed an Order Conditionally Approving the First Amended Disclosure Statement, Authorizing Debtor to Solicit Votes and Setting Confirmation Hearing. [Doc. No. 687].
19. On January 30, 2014, the Applicant, on behalf of the Debtor, filed its Non-Material Modifications to the Second Amended Plan and First Amended Disclosure Statement Dated January 21, 2014 Pursuant to Section 1127 of the Bankruptcy Code (the "Non-Material Modifications"). [Doc. No. 700]. On the same day, the Applicant, on behalf of the Debtor, filed the Emergency Motion to Approve the Non-Material Modifications (the "Emergency Motion to Approve"), [Doc. No. 701], and the Tabulation of Balloting on the Second Amended Plan, [Doc. No. 702]. The Court held a multi-day hearing on the Proposed Second Amended Plan, the First Amended Disclosure Statement, and the Emergency Motion to Approve. At the close of the hearing on January 31, 2014, the Court ordered the Debtor's counsel (i.e., the Applicant) to incorporate the Non-Material Modifications by redlining the Proposed Second Amended Plan.
20. On February 3, 2014, the Applicant, on behalf of the Debtor, filed a redlined version of the Proposed Second Amended Plan. [Doc. No. 708]. On February 4, 2014, the Applicant, on behalf of the Debtor, amended the Non-Material Modifications (the "Amended Non-Material Modifications"). [Doc. No. 713]. On the same day, the Applicant, on behalf of the Debtor, filed the Second Amended & Restated Chapter 11 Plan of Reorganization Dated January 21, 2014, Including Amended Modifications Filed
on February 4, 2014, and Corrections to Typographical Errors (the "Second Amended Plan with Amended Modifications"). [Doc. No. 714]. Later that day, the Applicant, on behalf of the Debtor, filed a Notice of Filing with a redlined version of the Second Amended Plan with Amended Modifications. [Doc. No. 715].
21. On February 4, 2014, the Applicant, on behalf of the Debtor, amended the Amended Non-Material Modifications (the "Second Amended Non-Material Modifications"). [Doc. No. 722]. On the same day, the Applicant, on behalf of the Debtor, amended the Emergency Motion to Approve. [Doc. No. 723]. On February 5, 2014, the Applicant, on behalf of the Debtor, filed a Second Amended & Restated Chapter 11 Plan of Reorganization Dated January 21, 2014, Including All Modifications and Corrections to Typographical Errors (the "Second Amended Plan with All Modifications"). [Doc. No. 726]. On the same day, the Applicant, on behalf of the Debtor, filed a Notice of Filing with a redlined version of the Second Amended Plan with All Modifications attached as Exhibit A. [Doc. No. 727].
22. On February 6, 2014, the Applicant, on behalf of the Debtor, filed a Second Amended & Restated Chapter 11 Plan of Reorganization Dated January 21, 2014, Including All Modifications and Corrections to Typographical Errors Dated February 6, 2014 (the "Plan"). [Doc. No. 731]. On the same day, the Applicant, on behalf of the Debtor, filed a Notice of Filing with a redlined version of the Plan attached as Exhibit A. [Doc. No. 732]. On February 11, 2014, the Court issued an Order Denying Confirmation of the Plan (the "Order Denying Confirmation of the Plan"). [Doc. No. 739]. Specifically, the Court denied confirmation of the Plan because the Debtor failed to satisfy the requirement of § 1129(a)(5)(A)(ii) that the appointment or continuance in office of all
proposed officers and directors be "consistent with the interests of creditors and equity security holders and with public policy." [Id.].
23. On February 18, 2014, the Applicant, on behalf of the Debtor, filed the Motion to Approve Selection Process for Independent Director(s) of Debtor and/or Independent Directors of Reorganized Debtor Pursuant to an Amended Plan (the "Motion to Approve Selection Process for Independent Director"). [Doc. No. 749]. On March 10, 2014, the Applicant, on behalf of the Debtor, filed a Notice of Withdrawal, withdrawing the Motion to Approve Selection Process for Independent Director. [Doc. No. 781].
24. On February 25, 2014, the Applicant, on behalf of the Debtor, filed a Notice of Appeal (the "Notice of Appeal"), [Doc. No. 765], intending to appeal the Order Denying Confirmation of the Plan. On February 27, 2014, the Court issued an order putting the Applicant on notice that it would not be "disposed to approve any fees for services rendered relating to this appeal" because the Debtor's conduct—prosecuting an appeal of the Order Denying Confirmation of the Plan, while simultaneously negotiating and working on filing a joint plan—was questionable given that existing Fifth Circuit law suggested that an order denying confirmation of a plan is not a final order that can be appealed. [Doc. No. 767]. On February 28, 2014, the Applicant, on behalf of the Debtor, filed a Notice of Withdrawal, withdrawing the Notice of Appeal. [Doc. Nos. 771 & 791].
25. On February 27, 2014, a joint plan (the "Joint Plan") and a disclosure statement (the "Final Disclosure Statement") was filed by certain parties-in-interest, creditors, and the
Debtor. [Doc. Nos. 768 & 769]. On March 3, 2014, the Court signed an Order Conditionally Approving the Final Disclosure Statement. [Doc. No. 774]. On April 4, 2014, the Court held a hearing on the Joint Plan. At this hearing, Craig Power, counsel for the largest secured creditors in this case, took the lead in prosecuting the Joint Plan, including making an opening statement and then proffering the testimony of several witnesses in support of the Joint Plan. On the same day, this Court signed an Agreed Order Confirming the Joint Plan. [Doc. No. 795].
26. On May 2, 2014, the Applicant filed the Fee Application. [Doc. No. 831]. On May 9, 2014, the Objectors filed their Objection to Third and Final Application of Debtor's Counsel for Allowance of Compensation for Services and Reimbursement of Expenses (the "Objection"). [Doc. No. 843]. On May 22, 2014, the Objectors filed their Amended Objection to Fee Application (already defined as the Amended Objection). [Doc. No. 849]. On May 23, 2014, the Applicant filed a response to the Objection and the Amended Objection. [Doc. No. 855].
27. On May 26, 2014, the Applicant filed its Expedited/Emergency Motion to Strike the Objection and the Amended Objection (the "Motion to Strike"). [Doc. No. 863]. On the same day, the Applicant filed a Corrected Exhibit B, [Doc. No. 864], and amended the Motion to Strike (the "Amended Motion to Strike"), [Doc. No. 865]. On May 27, 2014, this Court held a hearing on the Amended Motion to Strike. On the same day, this Court issued an Order Denying the Amended Motion to Strike because the Applicant should have timely filed a motion to strike after the Objection was filed, but instead the Applicant waited until the eleventh hour before the hearing on the Fee Application. [Doc. No. 868].
The Court intended to begin the hearing on May 27, 2014, but because exhibits had not been timely exchanged under the applicable local rule, the Court actually began hearing testimony and admitting exhibits on July 22, 2014.
This Court subsequently issued a memorandum opinion discussing its reasons for denying confirmation of the Plan. In re Digerati Technologies, Inc., 2014 WL 2203895 (Bankr. S.D. Tex. May 27, 2014).
It is worth noting that the Supreme Court has since issued an opinion holding that denial of a proposed Chapter 13 plan is not a final order that can be appealed. Bullard v. Blue Hills Bank, 135 S.Ct. 1686 (2015). This Court sees no reason why Bullard would not apply to Chapter 11 plans as well.
III. CREDIBILITY OF WITNESSES
Three witnesses testified during the multi-day hearing on the Fee Application: Edward Rothberg ("ELR" or "Rothberg"), a partner at Hoover Slovacek, LLP; Deirdre Carey Brown ("DCB" or "Brown"), of counsel at Hoover Slovacek, LLP; and Johnie Patterson, of Walker & Patterson PC, who represents some of the Objectors. The Court finds that all witnesses were credible and accords their testimony equal weight. Having made this finding, however, the Court notes that the testimony from Rothberg and Brown (two of the attorneys from the Applicant who provided extensive services in this case) was lacking with respect to describing why many of the services set forth in the Applicant's timesheets were either necessary to the administration of the case or beneficial to the estate. This deficiency in their testimony has led this Court to find that in numerous instances, as discussed herein, the Applicant has failed to satisfy its burden of proving that the fees requested for certain services are reasonable or necessary. See Matter of Evangeline Ref. Co., 890 F.2d 1312, 1326 (5th Cir. 1989) (holding that "[t]he applicant bears the burden of proof in a fee application case . . . [and a fee] application must be sufficiently detailed and accurate that, in conjunction with any proceeding in connection therewith and the record in the case, a court can make an independent evaluation as to what level of fees are actual, necessary and reasonable.").
IV. CONCLUSIONS OF LAW
A. Jurisdiction, Venue, and Constitutional Authority to Enter a Final Order
1. Jurisdiction
The Court has jurisdiction over this contested matter pursuant to 28 U.S.C. §§ 1334(b). This dispute is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A) because it concerns the administration of this Chapter 11 estate. Further, it is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(B) because it involves the allowance or disallowance of claims against the estate—namely, the Applicant's claim for fees and expenses. Additionally, this contested matter is core pursuant to 28 U.S.C. § 157(b)(2)(0) because it involves the adjustment of the debtor-creditor relationship insofar as the fee and expense reimbursement request of the Applicant—a creditor of the Debtor's estate—is being granted in part and denied in part. Finally, it is core pursuant to the general "catch-all" language of 28 U.S.C. § 157(b)(2). See In re Southmark Corp., 163 F.3d 925, 930 (5th Cir. 1999) ("[A] proceeding is core under §157 if it invokes a substantive right provided by title 11 or if it is a proceeding that, by its nature, could arise only in the context of a bankruptcy case."); De Montaigu v. Ginther (In re Ginther Trusts), Adv. No. 06-3556, 2006 WL 3805670, at *19 (Bankr. S.D. Tex. Dec. 22, 2006) (holding that a matter may constitute a core proceeding under 28 U.S.C. § 157(b)(2) "even though the laundry list of core proceedings under § 157(b)(2) does not specifically name this particular circumstance.").
2. Venue
Venue is proper pursuant to 28 U.S.C. § 1408(1) for the reasons set forth in this Court's Findings of Fact and Conclusions of Law entered on the docket on September 30, 2013. [Doc. No. 318].
3. Constitutional Authority to Enter a Final Order
In the wake of the Supreme Court's issuance of Stern v. Marshall, 131 S. Ct. 2594 (2011), this Court is required to determine whether it has the constitutional authority to enter a final order in any dispute brought before it. In Stern, which involved a core proceeding brought by the debtor under 28 U.S.C. § 157(b)(2)(C), the Supreme Court held that a bankruptcy court "lacked the constitutional authority to enter a final judgment on a state law counterclaim that is not resolved in the process of ruling on a creditor's proof of claim." Id. at 2620. The pending dispute before this Court is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A), (B), and (O). Because Stern is replete with language emphasizing that the ruling is limited to the one specific type of core proceeding involved in that dispute, this Court concludes that the limitation imposed by Stern does not prohibit this Court from entering a final order here. A core proceeding under § 157(b)(2)(A), (B), and (O) is entirely different than a core proceeding under § 157(b)(2)(C). See, e.g., Badami v. Sears (In re AFY, Inc.), 461 B.R. 541, 547-48 (8th Cir. B.A.P. 2012) ("Unless and until the Supreme Court visits other provisions of Section 157(b)(2), we take the Supreme Court at its word and hold that the balance of the authority granted to bankruptcy judges by Congress in 28 U.S.C. § 157(b)(2) is constitutional."); see also In re Davis, 538 F. App'x 440, 443 (5th Cir. 2013) cert. denied sub nom. Tanguy v. W., 134 S. Ct. 1002 (2014) ("[W]hile it is true that Stern invalidated 28 U.S.C. § 157(b)(2)(C) with respect to 'counterclaims by the estate against persons filing claims against the estate,' Stern expressly provides that its limited holding applies only in that 'one isolated respect.' . . . We decline to extend Stern's limited holding herein.").
Alternatively, even if Stern applies to all of the categories of core proceedings brought under § 157(b)(2), see In re Renaissance Hosp. Grand Prairie Inc., 713 F.3d 285, 294 n.12 (5th Cir. 2013) ("Stern's 'in one isolated respect' language may understate the totality of the encroachment upon the Judicial Branch posed by Section 157(b)(2) . . ."), this Court still concludes that the limitation imposed by Stern does not prohibit this Court from entering a final order in the dispute at bar. In Stern, the debtor filed a counterclaim based solely on state law; whereas, here, the claim brought by the Applicant is based solely on an express Code provision (§ 330) and judicially-created bankruptcy law interpreting this provision. This Court is therefore constitutionally authorized to enter a final order on the Fee Application. See In re Airhart, 473 B.R. 178, 181 (Bankr. S.D. Tex. 2012) (noting that the court has constitutional authority to enter a final order when the dispute is based upon an express provision of the Code and no state law is involved).
Finally, in the alternative, this Court has the constitutional authority to enter a final order because all of the parties in this contested matter have consented, impliedly if not explicitly, to adjudication of this dispute by this Court. Wellness Int'l Network, Ltd. v. Sharif, 135 S. Ct. 1932, 1947 (2015) ("Sharif contends that to the extent litigants may validly consent to adjudication by a bankruptcy court, such consent must be expressed. We disagree. Nothing in the Constitution requires that consent to adjudication by a bankruptcy court be expressed. Nor does the relevant statute, 28 U.S.C. § 157, mandate express consent. . . ."). Indeed, the Applicant filed its Fee Application in this Court, [Finding of Fact No. 26]; the Objectors filed an initial objection and then thereafter filed the Amended Objection, [Id.]; the Applicant then filed its response to the Amended Objection, [Id.], and also filed its Motion to Strike the Amended Objection, [Finding of Fact No. 27], which this Court denied, [Id.]; and the parties proceeded to make a record in a multi-day hearing without ever objecting to this Court's constitutional authority to enter a final order on the Fee Application. If these circumstances do not constitute implied consent, nothing does.
B. Standard for Professional Compensation
Section 330 of the Code governs compensation for a debtor's counsel. In re MSB Energy, Inc., 450 B.R. 659, 661 (Bankr. S.D. Tex. 2011). A court may award "reasonable compensation for actual, necessary services rendered" by debtor's counsel and "reimbursement for actual, necessary expenses." 11 U.S.C. § 330(a)(l)(A)-(B). Section 330(a)(3) instructs courts, "[i]n determining the amount of reasonable compensation," to "take into account all relevant factors, including":
(A) the time spent on such services;Furthermore, § 330 mandates that "the court shall not allow any compensation for—"
(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 under 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.
(i) Unnecessary duplication of services; or
(ii) Services that were not—
(I) Reasonably likely to benefit the debtor's estate; or
(II) Necessary to the administration of the case.
This Court has an independent duty to examine the reasonableness of the fees in the Fee Application. See In re WNS, Inc., 150 B.R. 663, 664 (Bankr. S.D. Tex. 1993) ("Even if no objections are raised to a fee application, the Court is not bound to award the fees sought, and it has the duty to independently examine the reasonableness of the fees."). The leading Fifth Circuit decision regarding § 330 is Woerner. In Woerner, the Fifth Circuit joined the majority of circuits in adopting a prospective test for determining whether professional services are compensable, as suggested by the third factor that courts must consider under § 330: "whether the services were necessary . . . or beneficial at the time at which the service was rendered." Id. at 268, 273-74 (emphasis added). Additionally, the Fifth Circuit provided the following list of factors that bankruptcy courts "ordinarily consider" when weighing this factor:
the probability of success at the time the services were rendered, the reasonable costs of pursuing the action, what services a reasonable lawyer or legal firm would have performed in the same circumstances, whether the attorney's services could have been rendered by the Trustee and his or her staff, and any potential benefits to the estate (rather than to the individual debtor).Id. at 276.
Woerner reversed the Fifth Circuit's prior retrospective test, under which professionals could only be compensated for services that actually resulted in a tangible, identifiable, and material benefit to the estate. See Pro-Snax, 157 F.3d at 426. Instead, under the new, prospective test, "[w]hether the services were ultimately successful is relevant to, but not dispositive of, attorney compensation." Woerner, 783 F.3d at 276 (emphasis added). In sum, the Fifth Circuit held that when read in its entirety, § 330 "permits a court to compensate an attorney not only for activities that were 'necessary,' but also for good gambles—that is, services that were objectively reasonable at the time they were made—even when those gambles do not subsequently (or eventually) produce an 'identifiable, tangible, and material benefit.'" Id. at 273-74. If professional services were either "'necessary to the administration' of a bankruptcy case or 'reasonably likely to benefit' the bankruptcy estate 'at the time at which [they were] rendered,' see 11 U.S.C. § 330(a)(3)(C), (4)(A), then the services are compensable." Id. at 276. However, the Fifth Circuit emphasized that its Woerner ruling "is not intended to limit courts' broad discretion to award or curtail attorney's fees under § 330, 'taking into account all relevant factors.'" Id. at 277 (quoting § 330) (emphasis added).
Hereinafter, in this Opinion, when this Court uses the word "necessary," it will usually be shorthand for "necessary to the administration of this Chapter 11 case." Further, when this Court uses the word "reasonable," it will usually be shorthand for "reasonably likely to benefit this Chapter 11 estate at the time the services were rendered."
While Woerner overturned Pro-Snax, it did not disturb the lodestar approach used in assessing fee applications. Indeed, courts within the Fifth Circuit have ordinarily used the lodestar method to calculate the amount of reasonable attorneys' fees. In re Cahill, 428 F.3d 536, 539-40 (5th Cir. 2005) (citation omitted). Under the lodestar method, a court first calculates the compensable hours billed, and then calculates a reasonable hourly rate for the compensable services. Id. at 540. The court arrives at the final amount of compensable fees by multiplying the two resulting figures. Id. The Supreme Court has emphasized the importance of the lodestar approach in calculating the reasonableness of attorneys' fees, noting that because the method is readily administrable and objective, it "cabins the discretion of trial judges, permits meaningful judicial review, and produces reasonably predictable results." Perdue v. Kenny, 559 U.S. 542, 552 (2010).
Finally, this Court, after determining the lodestar fee, may consider, in its discretion, whether the resulting lodestar amount should be adjusted upward or downward to account for factors not considered during the lodestar calculation. In re Pilgrim's Pride Corp., 690 F.3d 650, 655 (5th Cir. 2012). In assessing whether an adjustment is appropriate, the Court may consider, among other factors, the twelve factors articulated in Johnson v. Georgia Highway Exp., Inc., 488 F.2d 714 (5th Cir. 1974). These factors are: "(1) The time and labor required; (2) The novelty and difficulty of the questions; (3) The skill requisite to perform the legal service properly; (4) The preclusion of other employment by the attorney due to acceptance of the case; (5) The customary fee; (6) Whether the fee is fixed or contingent; (7) Time limitations imposed by the client or other circumstances; (8) The amount involved and the results obtained; (9) The experience, reputation, and ability of the attorneys; (10) The "undesirability" of the case; (11) The nature and length of the professional relationship with the client; (12) Awards in similar cases." Id. at 716. Aside from the twelve Johnson factors, the Court may also "consider all relevant factors" in making any adjustment to the lodestar fee. Woerner, 783 F.3d at 277.
C. Step No. 1 under the Lodestar Approach: Determining Whether all the Hours Billed by the Applicant are Compensable
The first step in the lodestar method is to evaluate the time entries submitted by the Applicant and determine which are allowable. This step involves considering whether the services which the Applicant billed were reasonable or necessary. Because of the prominence of this factor in § 330 and in Woerner, the Court weighs this factor most heavily.
1. Whether the Services Were Reasonable or Necessary
This Court has carefully reviewed the timesheets attached to the Fee Application. Having identified the services for which the Applicant intends to charge the estate, the Court will now address whether these services were either reasonable or necessary with regard to this Chapter 11 case.
a. The Applicant's Timesheets Contain Vague Time Entries and Lumped Time Entries that Lead this Court to Disallow the Fees Associated with These Entries
The Court finds that several of the entries in the Fee Application are vague, are incomplete, contain insufficient detail, or are "lumped," preventing this Court from determining whether the services were either reasonable or necessary. The Court will therefore deduct these entries, amounting to 253.9 hours and $71,460.50 in billings, from the total amount that the Applicant requests.
i. Vague Time Entries
Set forth below are a few examples of vague entries. Attached hereto is a chart labeled Exhibit A setting forth all of the vague entries, the billings for which this Court disallows. The far right column of Exhibit A sets forth all of this Court's findings as to why the entries are vague or incomplete. The Court notes that many of these entries assume—incorrectly—that this Court knows the backgrounds and roles of all of the individuals whose names are referenced in the entries. The result of this incorrect assumption is this Court's denial of all of the requested fees associated with these entries, as this Court simply cannot make a finding that the services described therein were necessary or reasonable. Stated differently, the Court cannot divine who these individuals are and what relationship they have to this Chapter 11 case; the Applicant has the burden of educating this Court about this information, and the Applicant has failed to do so. Matter of Evangeline, 890 F.2d at 1326 (explaining that "[t]he applicant bears the burden of proof in a fee application case. The reviewing court should not venture guesses nor undertake extensive investigation to justify a fee for an attorney [] who has not done so himself. It is not an overly burdensome task to enlighten the court as to the work undertaken.").
Time entries that do not provide sufficient detail to determine whether the services described are compensable may be disallowed due to vagueness. La. Power & Light Co. v. Kellstrom, 50 F.3d 319, 324 (5th Cir. 1995). Several of the Applicant's time entries are vague. For example, on June 28, 2013, DCB billed 0.7 hours for "Confer with Mr. Rothberg regarding research issues.(.2) Correspondence with Mr. Smith regarding research issues.(.2) Telephone conference with Mr. Smith.(.3)." [Doc. No. 831-1, p. 11]. On September 27, 2013, Harold May (HNM or "May"), an attorney employed by the Applicant, billed 1.8 hours for "Discussion regarding disclosure statement items." [Doc. No. 831-3, p. 89]. Without further information identifying the "research issues" or "disclosure statement items" at issue, this Court cannot determine if these services are reasonable or necessary. Nor can this Court determine if the services are reasonable or necessary where DCB fails to set forth what the subject of her conference with Smith was and where May fails to identify with whom he discussed the disclosure statement issues.
Moreover, there are some time entries relating to "review emails" and "exchange emails" without any reference to the recipient or the sender of the emails or what issues the emails concern. For example, on December 9, 2013, HNM billed 0.8 hours for "Discussions and reviewed emails." To merit compensation for time spent on an email, a professional must "identify the participants, describe the substance of the communication, explain its outcome and justify its necessity." In re Fibermark, Inc., 349 B.R. 385, 396 (Bankr. D. Vt. 2006). In other entries, the individual billing for the services set forth either the subject or the participants, but not both. These entries therefore fail to provide the information required to establish that the services were reasonable or necessary.
Nor did the Applicant provide any testimony at the Fee Application hearing about these entries that would assist this Court in determining whether the services were reasonable or necessary. For example, if Rothberg had testified that the emails that HNM reviewed concerned the Debtor's NOL carryforward and that Rothberg used this information to negotiate the Joint Plan, then this Court might well be able to determine that HNM's services were reasonable or necessary. Unfortunately for the Applicant, no such testimony was adduced. See, e.g., In re Advanced Microbial Solutions, L.L.C., 306 B.R. 915, 920 (E.D. Tex. 2004) ("Surprisingly, although witnesses were listed . . . no testimony . . . was presented to the bankruptcy court . . . [p]resentation of such evidence in the form of an affidavit or live testimony is fundamental in presenting an attorney's fee application to a court."); In re First State Bancorporation, 2014 WL 1203141, *37 (Bankr. N.M. 2014) ("[The law firm] presented no testimony in support of the [its] Fee Application, instead choosing to rely solely on the [law firm's] Fee Application itself to establish the reasonableness and necessity of its requested compensation. Absent evidence of how and why [the law firm] divided tasks among its attorneys, why it was appropriate for one partner to routinely review and revise another partner's work, and why it was necessary for both partners to attend and bill for their appearance at hearings, the Court finds that a portion of the requested fees must be disallowed."). Thus, the Applicant has failed to meet its burden of establishing that the services described in Exhibit A was either reasonable or necessary.
In total, the Court excludes 42.1 hours, amounting to $13,332.50 in billings, for vague entries. As already noted, Exhibit A sets forth all of the vague entries and this Court's findings as to why they are vague.
ii. Lumped Time Entries
In addition to vague entries, the Fee Application contains several time entries that lump together multiple services without providing the time spent on each discrete task. Like vague entries, lumped entries prevent a court from accurately determining how many hours were reasonably billed. See In re 900 Corp., 327 B.R. 585, 598 (Bankr. N.D. Tex. 2005) ("When time entries are vague or lumped together, such that the Court cannot determine how much time was spent on particular services, then the Applicant has not met its burden to show that its fees are reasonable."); In re Saunders, 124 B.R. 234, 237 n.1 (Bankr. W.D. Tex. 1991) ("In order for the court to determine whether time spent on an activity was reasonable, multiple services cannot be 'lumped' together under one time entry."). Indeed, lumping activities on fee statements violates the U.S. Trustee's Fee Guidelines, and this Court has repeatedly made it known in prior opinions over the past several years that it adheres to these Guidelines and expects the practicing bar to follow them. See, e.g., In re Ritchey, 512 B.R. 847, 870-72 (Bankr. S.D. Tex. 2014); In re Jack Kline Co., Inc., 440 B.R. 712, 752-53 (Bankr. S.D. Tex. 2010); In re Energy Partners, Ltd., 422 B.R. 68, 89 (Bankr. S.D. Tex. 2009).
U.S. DEP'T OF JUSTICE, Guidelines for Reviewing Applications for Compensation (Fee Guidelines), JUSTICE.GOV (Feb. 21, 2013 4:50 PM), http://www.justice.gov/ust/eo/rules_regulations/guidelines/docs/feeguide.htm. The U.S. Trustee Guidelines expressly state that:
Time entries should be kept contemporaneously with the services rendered in time periods of tenths of an hour. Services should be noted in detail and not combined or "lumped" together, with each service showing a separate time entry; however, tasks performed in a project which total a de minimis amount of time can be combined or lumped together if they do not exceed .5 hours on a daily aggregate.
At least 118 time entries in the Fee Application contain "lumped" activities. For example, on July 18, 2013, DCB billed 6.0 hours for performing five separate tasks: "Draft response to motion to transfer venue and assemble multiple exhibits, revise, research case law and file." [Doc. No. 831-2, p. 17]. What DCB should have done was to record the amount of time she spent on each of these discrete tasks so that this Court could assess whether the time spent on each task was reasonable.
DCB was not the only attorney who entered lumped entries on the timesheets. On January 11, 2014, ELR billed the Debtor 3.0 hours for the following services: "Numerous telephone conferences with Art Smith, D. Brown, and C. Power to discuss revised settlement terms. Draft extensive email with comments on structure of the revised proposed settlement." [Id. at p. 129]. Again, on January 20, 2014, ELR billed 2.5 hours for four discrete services: "Review email from C. Power with comments on plan and disclosure statement. Telephone conference with C. Power regarding same. Revise plan and disclosure statement. Draft email transmitting same to Mr. Power." [Doc. No. 831-3, p. 103 of 165]. Once again, this Court reiterates that, as with DCB, ELR needed to break out his time on each of the above-described discrete tasks for this Court to assess reasonableness. His failure to do so results in this Court disallowing the fees associated with these entries.
The Court finds the Applicant's lumping particularly egregious considering that Rothberg and Brown are both experienced, board-certified bankruptcy attorneys who should have known that lumping violates the U.S. Trustee's Fee Guidelines. Both are—or should be—familiar with this Court's stance on lumping. See Ritchey, 512 B.R. at 872 (holding a bankruptcy professional to a higher standard due to professional's board certification). Indeed, both Rothberg and Brown know how to bill their time correctly—i.e., break out the time spent on each discrete task—because they did so in several instances as evidenced by the timesheet themselves. [See, e.g., Doc. No. 831-1, p. 23 of 50; Doc. No. 831-2, p. 7 of 160] (DCB's time entries stating: "Review objection to DIP Motion.(.1) Assemble rebuttal documents.(.3) Confer with Mr. Rothberg.(.1)"; and "Internet research for general background on Debtor and other parties in litigation (1.0). Continue overview of various pleadings and matters pending in various courts (2.0)." and ELR's time entry stating: "Review objection to DIP loan filed by Rhodes (.3). Prepare for and attend interim DIP Loan hearing.(4.7)."; and subsequent time entries of February 18, 2014 where he broke out his time for one discrete task as taking 0.4 hours and another discrete task taking 1.5 hours).
In sum, the Applicant's lumped entries in the Fee Application amount to 211.8 hours and $58,128.00 in billings. This Court will deduct these time entries because, due to the lumping, the Applicant has not met its burden of proving that the services described therein were reasonable or necessary. Attached hereto is a chart labeled Exhibit B setting forth all of the lumped entries, the billings for which this Court completely disallows.
b. The 20 Project Categories of Services Described in the Fee Application Contain Certain Entries that are Disallowed, Resulting in this Court's Disapproval of the Fees Associated Therewith
With regard to the remaining time entries, the Court has examined whether the services rendered were reasonable or necessary according to the twenty project categories into which the Applicant has grouped its services in the Fee Application. Attached hereto as Exhibit C is a one-page chart setting forth for each category: (1) the number of hours billed; (2) the amount of fees requested; (3) the number of hours disallowed; and (4) the amount of fees disallowed. In total, the services that are disallowed—because they were neither necessary to case administration nor reasonably likely to benefit the estate at the time they were performed—amount to 246.70 hours and $93,132.23 in billings. Attached hereto is a chart labeled Exhibit D which breaks out the disallowed time entries for each of the categories that are summarized in Exhibit C and discussed immediately below. The far right column of Exhibit D sets forth all of this Court's comments and findings as to why the Court is completely disallowing the requested fee associated with each entry.
Of the $93,132.23, $67,143.50 represents actual hours billed that this Court is disapproving, and the remaining $25,988.73 represents the percentage reductions that this Court made due to (a) the Applicant's prosecution of the Plan which, as discussed under the "Plan and Disclosure Statements" category, was not a "good gamble;" (b) the reduction relating to the Motion for Procedures (see Exhibit E); and (c) the reduction relating to the First Interim Fee Application (see Exhibit F).
Exhibit d does not contain the disallowed time entries for two categories: (1) Recap Marketing v. Jaclin Litigation; and (2) Arrayit. The disallowed time entries associated with these two categories are, however, discussed in the main body of this Memorandum Opinion. --------
i. Project Category #1: "General, Miscellaneous Services"
With respect to the services listed in the "General, Miscellaneous" category, the Court finds that these services, with certain exceptions set forth below, were reasonable and necessary.
The Court finds that some of the time entries in the "General, Miscellaneous Services" category involve services that were not necessary to case administration, nor were they reasonably likely to benefit the estate at the time they were performed. The Court notes once again that the Applicant provided no testimony at the Fee Application hearing explaining how the services described therein were necessary or reasonable. First State Bancorporation, 2014 WL 1203141, at *37 ("[The law firm] presented no testimony in support of the [its] Fee Application, instead choosing to rely solely on the [law firm's] Fee Application itself to establish the reasonableness and necessity of its requested compensation."); Advanced Microbial Solutions, 306 B.R. at 920.
The Court discusses all of the infirmities in the time entries from the "General, Miscellaneous Services" category on pages 1-28 of Exhibit D. A few are discussed below to provide context.
First, on June 27, 2013, DCB billed 4.0 hours for "Meet with Debtor representatives.(1.0) Attend Status Conference to provide litigation strategy update, and hearing on [debtor-in-possession] lending motion(3.)." [Doc. No. 831-2, p. 11 of 160]. For the same reasons this Court denied the Debtor's request for post-petition financing, [Finding of Fact No. 2], this Court finds that the services associated with this request were not necessary to case administration, nor were they reasonably likely to benefit the estate at the time they were performed. Specifically, the Applicant's services were not reasonably likely to benefit the estate when performed because the Applicant, as Debtor's counsel prosecuting the motion, did not come close to introducing sufficient evidence for the Debtor to meet its burden of proof on the two issues required to obtain this particular post-petition financing: (1) that the debtor was unable to obtain financing on less onerous terms than those proposed; and (2) that the financing was required to avoid irreparable harm. [Doc. No. 63, pp. 3-4 of 9]. While this Court recognizes that the new standard articulated in Woerner is "good gamble"—and no longer an actual, tangible, identifiable, material benefit—this Court concludes that the Applicant cannot satisfy the "good gamble" standard because its courtroom performance at this hearing was woeful. Stated differently, the attempt to obtain financing was not a "good gamble" given the poor preparation and paucity of relevant and convincing testimony that the Applicant adduced at the hearing.