Opinion
Case No: 1-02-17966-dem.
July 31, 2006
Beth E. Spickler, Esq., Stein Riso Mantel, LLP New City, New York, Attorneys for Debtor.
Linda A. Riffkin, Esq., Brooklyn, New York, Office of the U.S. Trustee
Paul I. Krohn, Esq., Brooklyn, NY, Attorney for the Receiver Douglas Rosenberg
DECISION ON APPLICATION FOR COMPENSATION OF THE RECEIVER AND COUNSEL FOR THE RECEIVER
In this chapter 11 proceeding, Douglas Rosenberg, the Successor Interim Receiver ("Receiver"), acting as custodian of certain properties, and Paul I. Krohn, Esq. ("Krohn") have filed an application (the "Application") for an Order: (1) settling the Receiver's account and allowing him compensation for his professional services and reimbursement of expenses, pursuant to Sections 105(a), 327, 328, 329, 330, 503(a) and 543 of Title 11 of the United States Code (the "Bankruptcy Code") and (2) awarding Krohn compensation for his professional services and reimbursement of expenses. In opposition, the debtor Benjamin Hirsch ("Hirsch") argued that the Receiver's application should be directed to state court because the properties in question are not under this Court's jurisdiction, and that Krohn's application should be denied because Krohn's presence and services were not related to the property of the debtor Hirsch in this case.
For the reasons set forth below, the Application is granted as follows. The Court awards the Receiver fees in the amount of $6,636.00 and reimbursement of expenses in the amount of $700.00. The Court awards Krohn compensation in the amount of $10,000.00 for professional services rendered as attorney for the Receiver but denies that portion of the Application which seeks reimbursement of expenses in the amount of $300.00 due to a lack of documentation. This denial is without prejudice to renew upon submission of the documentation of expenses for which reimbursement is sought.
JURISDICTION
This Court has subject matter jurisdiction over this controversy pursuant to 28 U.S.C. §§ 1334(b) and 157(b)(2) and the Eastern District of New York standing Order of reference dated August 28, 1986. This decision constitutes the Court's findings of facts and conclusions of law to the extent Fed.R.Bank.P. 7052 requires.
FACTUAL BACKGROUND
This Application arises out of the appointment of the Receiver during the divorce action of Mr. and Mrs. Benjamin Hirsch. On June 12, 1997, Mrs. Hirsch commenced divorce proceedings against Hirsch in the Supreme Court of New York (the "State Court"). On October 30, 2000, the Honorable Virginia E. Yancey ("Justice Yancey") granted the application for divorce but stayed entry of the judgment of divorce pending resolution of ancillary issues, including the equitable distribution of marital property. On May 22, 2001, Justice Yancey found Hirsch in contempt of Court for repeated violations of court orders to preserve the marital properties. By Order dated May 31, 2001, the State Court appointed Jeffrey Goldstein as temporary receiver for the marital properties. On December 21, 2001, the temporary receivership ended and the State Court appointed the current Receiver. On October 16, 2001, a trial commenced on the outstanding issues. On June 21, 2002, before the state court entered any judgment, Hirsch and Coney Island Land Co., LLC, Fiduciary Holdings, LLC, Digby Apartments, Inc., and Sheldrake Holding Company, LP (collectively, the "Entity Debtors") filed separate chapter 11 petitions.
The state appointed Rosenberg as Receiver for the following properties:
(1) Twenty-four cooperative Apartments at 2265 Gerritsen Avenue, Brooklyn, New York, part of the Digby Apartments, Inc. estate.
(2) 900-902 Coney Island Avenue, Brooklyn, New York, part of the Coney Island Avenue, LLC estate.
(3) 2098 East 7th Street, Brooklyn, New York, part of the Fiduciary Holdings, LLC ("Fiduciary") estate.
(4) 945 East 7th Street, Brooklyn, New York, part of the Fiduciary estate.
(5) 976 East 29th Street, Brooklyn, New York, part of the Fiduciary estate.
(6) Cooperative unit Apartments 1-F and 2-J at 1350 Ocean Parkway, Brooklyn, New York.
(7) 2513 Avenue I, Brooklyn, New York, titled in Mrs. Hirsch's name, but for which Hirsch claimed an equitable marital interest in the property on his schedules.
(8) 2115 Avenue I, Brooklyn, New York, titled in Hirsch's name.
(9) 941 East 27th Street, Brooklyn, New York, titled in Mrs. Hirsch's name, but for which Hirsch claimed an equitable marital interest in the property on his schedules.
See Justice Yancey Order dated December 21, 2002.
On July 3, 2002, Mrs. Hirsch moved this Court for an order directing Hirsch and the Entity Debtors to show cause why an Order should not be entered maintaining the properties in receivership with the Receiver in place (the "Receivership Application"). By Order dated July 3, 2002, this Court continued the Receiver's management and control over the marital properties, pending resolution of the Receivership Application. On June 9, 2003, Krohn presented an Order to the Court allowing his retention as counsel to the Receiver in the Hirsch and Entity Debtors's respective bankruptcies, pursuant to Bankruptcy Code Section 327 (the "Retention Application"). The Court signed that Order (the "Order of Retention"), on a nunc pro tunc basis, without objection from the Office of the United States Trustee.
On June 19, 2003, the Entity Debtors and Hirsch filed Motions to Vacate the Order of Retention. On September 23, 2003, after a hearing, the Court denied the motions and issued a written decision. The Court found that Section 327 of the Bankruptcy Code governed the retention of counsel for a receiver maintained in possession, and that retention on a nunc pro tunc basis was appropriate.
The Receiver remains in control of the properties to which the debtor Hirsch holds title as well as the properties located at 2513 Avenue I, Brooklyn, New York, 941 East 27th Street, Brooklyn, New York, and 1350 Ocean Parkway, Apartment 2J, Brooklyn, New York. On February 27, 2006, Krohn filed the Application. On March 22, 2006, counsel for Hirsch filed an Affirmation in response to the Application. On March 28, 2006, the Court held a hearing on the Application and reserved decision.
The Receiver's control over the properties in the Entity Debtor's Case ended when this Court confirmed the Entity Debtors' plans on December 15, 2004, and the Order of confirmation became a non-appealable order on December 28, 2004.
Courts that have allowed a receiver maintained in possession of property to retain counsel under Bankruptcy Code Section 327 consider the receiver to have similar responsibilities and to be acting in the same fiduciary capacity to the estate as a trustee.See In re 245 Associates LLC, 188 B.R. 743 (Bankr. S.D.N.Y. 1995); In re Uno Broadcasting Corp., 167 B.R. 189 (Bankr. D. Ariz. 1994) (considering the "excused custodian" to be the functional equivalent of a trustee, with obligations to all creditors of the estate); In re Posadas Associates, 127 B.R. 278 (Bankr. D.N.M. 1991). See also In re Rimsat, Ltd., 193 B.R. 499, 502 n. 2 (Bankr. N.D. Ind. 1996). In its Decision and Order dated September 23, 2003, which allowed the Receiver to retain Krohn as counsel pursuant to Section 327 of the Bankruptcy Code, this Court stated that the Receiver, as custodian of the properties, was the functional equivalent of a trustee. In its Decision and Order, this Court further stated that the Receiver's retention of Krohn under Bankruptcy Code Section 327(a) was appropriate. See In re Posada Associates, 127 B.R. 278 (Bankr. D.N.M. 1991).
Section 330 of the Bankruptcy Code governs the award of compensation to the Receiver and counsel for the Receiver. Section 330(a) provides in pertinent part:
(1) After notice to the parties in interest and the United States trustee and a hearing . . . the court may award to a trustee, an examiner, a professional person employed under section 327 . . .
(A) reasonable compensation for actual, necessary services rendered by the trustee, examiner, professional person, or attorney and by any paraprofessional employed by any such person; and
(B) reimbursement for actual, necessary expenses.
Section 330(a) also sets forth factors which the Court must consider in determining the amount of reasonable compensation:
(3)(A) In determining the amount of reasonable compensation to be awarded, the court shall consider 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 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; and
(E) whether the compensation is reasonable, based on the customary compensation charged by comparably skilled practitioner in cases other than cases under this title.
The court may also consider other factors. In Johnson v. Georgia Highway Express, Inc., 488 F.2d 714, 717-19 (5th Cir. 1974), the Fifth Circuit Court of Appeals announced several factors that a court should look to in evaluating a fee application. These include:
(1) the time and labor required;
(2) the novelty and difficulty of the questions;
(3) the skill required to perform the legal services properly;
(4) the preclusion of other employment by the attorney due to the acceptance of the case;
(5) the customary fee;
(6) whether the fee is fixed or contingent;
(7) time limitations imposed by the client or the 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 the length of the professional relationship with the client; and
(12) Awards in similar cases.
Id. at 717-19. See also In re Drexel Burnham Lambert Group, Inc., 133 B.R. 13, 15-24 (Bankr. S.D.N.Y. 1991).
A. The Award of Commissions and Reimbursement of Expenses to the Receiver
The Order of this Court dated July 3, 2002, maintaining the Receiver in possession of the properties, required the Receiver to continue performing his duties under the state court receivership Order. The state court receivership Order provided that "compensation of the temporary receiver herein including fees for the Management of the specific properties (whether by him or a management company) herein shall not exceed five (5%) percent of the sums received by him, and shall be paid only upon further Order of this Court." Order dated December 21, 2001 at 12-13, Ex. C. to the Opposition. The Receiver submitted an accounting as of December 21, 2005 which showed total rental income collected of $132,720.00.
The Receiver seeks commissions in the amount of $6,636.00, which represents five per cent of the total income he collected from the following properties: (1) 2513 Avenue I, Brooklyn, New York, a property titled in Nachama Hirsch's ("Mrs. Hirsch") name, but for which Hirsch claimed an equitable marital interest in on his schedule A; (2) 841 East 27th Street, Brooklyn, New York, a property titled in Mrs. Hirsch name, but for which Hirsch claimed an equitable marital interest in on his schedule A; and (3) 1350 Ocean Parkway, Apartment 2J, a property which appears to be held in the name of a third party for the benefit of Mr. and Mrs. Hirsch's children.
In opposition, Hirsch argued that the application of the Receiver should be directed to state court because the properties in question are not under this Court's jurisdiction, and that the application of Krohn should be denied because Krohn's presence and services were not related to the property of the debtor Hirsch in this case. Hirsch's arguments are disingenuous at best. They ignore the factual and legal findings of a prior Decision and Order of this Court on the fee application of the Receiver and Krohn in a related case (the "Entity Debtors' Case") concerning corporate entities in which the debtor was the principal officer. See Amended Decision and Order on Application for Compensation of the Receiver and Counsel for the Receiver (April 15, 2005), In re Coney Island Land Company, LLC, at al., Case Nos:1-021-7969-dem, 1-02-17970-dem, 1-02-17972-dem, 1-02-7973-dem (Jointly Administered) ("Amended Decision").
In the Amended Decision dated April 15, 2005, the Court reduced the Receiver's fee in the amount of $6,018.50, the Receiver's expenses in the amount of $652.00 and Krohn's fees in the amount of $5,982.34 The Court offered the following rationale for this reduction:
"The Court must also reduce Krohn's fees for time spent on the properties that were not property of the Entity Debtors' estates. . . . The Court reduced the Receiver's fees by approximately 13.05% for incomes collected on the properties which did not belong to the entity debtors' cases. The Court shall also reduce Krohn's fees by the same percentage, and subtracts approximately 13.05%, or $5,982.34 from the request for counsel fees[.]. . . ."
Amended Decision at 13. The Court explicitly noted that these reductions were without prejudice to the Receiver's and Krohn's rights to seek such payments in this case. Id.
The Court finds that a five per cent (5%) commission on the income the Receiver received is reasonable compensation, as defined by Bankruptcy Code Section 330, because the Receiver's collection of rents and other income as required by court order was necessary to (1) the preservation of the properties which the debtor claimed were part of his estate in the first instance, and (2) maintenance of the status quo after the Court determined which properties were rightfully part of the debtor's estate in this and the Entity Debtors' Case. The Receiver's existence gave the Court confidence that the properties would not be lost, to foreclosure or otherwise. The Receiver's conduct in filing timely operating reports and providing information to the Court during status conferences proved helpful to the United States Trustee and the Court.
The Court has also previously stated on the record at the hearing on November 30, 2004, that it found no mismanagement by the Receiver and no breach or violation of any of his fiduciary responsibilities.
The Receiver also sought $700.00 for reimbursement of expenses. The Court finds the expenses sought were actual and necessary to the preservation of the estate, consisting of photocopying charges for the operating reports and postage for the mailing of the operating reports. Accordingly, the Court awards the Receiver fees in the amount of $6,636.00 and reimbursement of expenses in the amount of $700.00.
B. The Award of Fees to Counsel for the Receiver
Krohn has sought legal fees in this case in the amount of $10,000.00 for professional services as counsel to the Receiver. The supporting documentation reflected that Krohn had worked approximately sixty hours at a reduced hourly rate of $300.00 per hour for a total of $17,952.34 in legal fees. Of this total amount, Krohn sought an award in the reduced amount of $10,000.00. The United States Trustee had no objection to the fees and expenses Krohn requested.
Section 330 of the Bankruptcy Code governs the award of attorney's fees in this case, and the Court shall determine the applications for attorney's fees for the Receiver's counsel pursuant to its reasonableness standard. Krohn's time sheets reflected that he reviewed operating reports with the Receiver every month. Krohn also appeared at many Court hearings and provided updated status reports on the properties. From July 2, 2002 until December 14, 2004, the Court repeatedly adjourned Mrs. Hirsch's Application for the Appointment of a Receiver and the United States Trustee's Motion to Appoint a Chapter 11 trustee or convert the case to a chapter 7 case, on the request of both Hirsch and Mrs. Hirsch primarily based upon the Receiver's and Krohn's presence and actions in these cases. The Receiver, with Krohn's assistance, acted as the functional equivalent of a trustee. During the period of time when it was unclear whether the properties belonged to the estate of the debtor Hirsch, the Entity Debtors or Mrs. Hirsch, Krohn's diligence in a difficult and demanding case helped the properties to survive until the Court resolved those issues.
Krohn has submitted detailed time records that appear to have been kept contemporaneously. These time records indicate the time spent and the nature of the services rendered. The Court also notes that the $300.00 an hour billed is less than Krohn's usual billing rate of $350.00 an hour. Krohn is an experienced bankruptcy litigator with more than thirty years of experience. Accordingly, the award of legal fees in the reduced amount of $10,000.00 is appropriate. However, Krohn has not produced adequate documentation to support an award of reimbursement of expenses in the amount of $300.00.
CONCLUSION
For the reasons set forth below, the Application is granted as follows. The Court awards the Receiver fees in the amount of $6,636.00 and reimbursement of expenses in the amount of $700.00. The Court awards Krohn compensation in the amount of $10,000.00 but denies that portion of the Application which seeks reimbursement of expenses in the amount of $300.00 due to a lack of documentation. This denial is without prejudice to renew upon