United States District Court, C.D. California
ORDER AFFIRMING THE BANKRUPTCY COURT'S
MICHAEL W. FITZGERALD, United States District Judge.
the Court is a joint appeal from the United States Bankruptcy
Court (the Honorable Scott C. Clarkson, United States
Bankruptcy Judge). Reid & Hellyer, APC
(“R&H”) and Walter Wilhelm Law Group, a
Professional Corporation (“WWLG”) (together, the
“Appellants”) appeal from the bankruptcy
court's Order Granting Trustee's Motion for an Order
Authorizing a Surcharge Under 11 U.S.C. § 506(c) in the
Amount of $350, 000, which issued on April 4, 2017 (the
submitted Appellants' Joint Opening Brief on November 6,
2017 in Case No. ED CV 17-895 MWF. (Docket No. 20). On
December 6, 2017, Appellee Richard J. Laski Lt., Chapter 11
Trustee, submitted an Answering Brief and Request that the
Appeals be Dismissed for Lack of Standing. (Docket No. 21).
On December 27, 2017, Appellants submitted their Joint Reply
Brief. (Docket No. 22). Unless otherwise noted, throughout
this Order, all citations are to the docket in Case No. ED CV
17-895 MWF, though identical briefs have been filed in Case
No. ED CV 17-947.
Court has reviewed the papers filed in this appeal, and
determined that it is appropriate for decision without oral
argument. See Fed. R. Civ. P. 78(b); Local Rule
7-15. Accordingly, the hearing set for February 26, 2018, was
vacated. Appellant WWLG's request for leave to appear
telephonically (Docket No. 24) is therefore
DENIED as moot.
Order is AFFIRMED. The bankruptcy court
correctly applied binding Ninth Circuit authority when it
granted the requested relief in the Trustee's Motion for
an Order Authorizing a Surcharge.
August 5, 2016, the bankruptcy court issue an Order Granting
Chapter 11 Trustee's Motion for Order Approving
Settlement Agreement Between the Trustee and Greenlake Real
Estate Fund, LLC Pursuant to Bankruptcy Rule 9019 (the
“Settlement Order”). (Supplement Excerpt of
Record (“SER”) 1 (Docket No. 21-2)). Among other
things, the Settlement between the Trustee and secured
creditor Greenlake capped any future surcharge at $350, 000.
(Answering Br. at 2). Appellants filed notices of appeal
regarding the Settlement Order, and the appeals were
consolidated before this Court as Case No. EDCV 16-1768-MWF.
(Docket No. 10, In re Wrightwood Guest Ranch, LLC,
No. EDCV 16-1768-MWF). In this Court's Order re Chapter
11 Trustee and Appellee's Motion to Dismiss Consolidated
Bankruptcy Appeals (“Dismissal Order”) dated
December 7, 2016, this Court dismissed the appeal of the
Settlement Order for lack of standing and mootness. (Docket
No. 32, In re Wrightwood Guest Ranch, LLC, No. EDCV
16-1768-MWF). Appellants then appealed this Court's
Dismissal Order to the Ninth Circuit. (Docket No. 35, In
re Wrightwood Guest Ranch, LLC, No. EDCV 16-1768-MWF).
That appeal is currently pending before the Ninth Circuit.
on March 14, 2017, the Trustee filed in bankruptcy court a
Motion for Order Authorizing a Surcharge Under 11 U.S.C.
§ 506(c) in the Amount of $350, 000 (the
“Surcharge Motion”). (SER 2 (Docket No. 21-3)).
The Surcharge Motion documented over $449, 035 in fees and
costs incurred by the Trustee's accountant and counsel
(the “Trustee Professionals”) in preserving and
disposing of the property located in Wrightwood, California
(the “Property”) in a manner that benefitted
Greenlake. (Id.). However, the Motion sought a
§ 506(c) surcharge in only the agreed-upon capped amount
of $350, 000. (Id.). Appellant R&H filed an
Opposition to the Surcharge Motion on behalf of its client,
the Official Committee of Unsecured Creditors, as well as
itself as a purported administrative creditor. (SER 3 (Docket
No. 21-4). Appellant WWLG joined in that Opposition.
(Id.). After a hearing, the bankruptcy court granted
the Surcharge Motion. (Appellants' Joint Excerpts of
Record (“ER”) at 12, 28 (Docket No. 20-1)).
Appellants filed these appeals.
STANDARD OF REVIEW
bankruptcy court's conclusions of law are reviewed de
novo and findings of fact are reviewed for clear error.
Zurich Am. Ins. Co. v. Int'l Fibercom, Inc., 503
F.3d 933, 940 (9th Cir. 2007). In the context of this appeal,
the bankruptcy court's conclusion regarding whether
§ 506(c) permits the Trustee and his professionals to
surcharge a secured creditor is a question of law subject to
de novo review. In re Debbie Reynolds Hotel & Casino,
Inc., 255 F.3d 1061, 1065 (9th Cir. 2001); In re
Anderson, 66 B.R. 97, 99 (9th Cir. BAP 1986). However,
the bankruptcy court's conclusions regarding whether the
expenses incurred by the Trustee Professionals were
reasonable and necessary costs of preserving or disposing of
the Property are reviewed only for abuse of discretion.
See, e.g., In re Anderson, 66 B.R. at 99
(holding that bankruptcy court's finding that expenses
incurred under § 506(c) were reasonable, necessary, and
beneficial to the secured creditor were “reversible
only if clearly erroneous”).
bankruptcy court's reasoning behind the Surcharge Order
(as set forth in the hearing on the Surcharge Motion) and the
parties' arguments in the briefs rest almost entirely on
the Ninth Circuit's interpretation of 11 U.S.C. §
506(c), as set forth in In re Debbie Reynolds, 255
F.3d 1061 (9th Cir. 2001). Both Appellants and the Trustee
acknowledge that Debbie Reynolds is currently the
law in the Ninth Circuit. (Opening Br. at 2; Answering Br. at
6). Moreover, all parties acknowledge that, in light of the
circumstances of this action, Debbie Reynolds
controls. (Opening Br. at 3; Answering Br. at 7).
Debbie Reynolds, the bankruptcy court entered an
order permitting the sale through public auction of the
assets of debtor Debbie Reynolds Hotel and Casino. 255 F.3d
at 1064. The debtor's counsel sought payment out of a
secured creditor's collateral pursuant to § 506(c),
which provides that the “trustee may recover from
property securing an allowed secured claim the reasonable,
necessary costs and expenses of preserving, or disposing of,
such property to the extent of any benefit to the holder of
such claim.” Id. (quoting 11 U.S.C. §
506(c)). The payment of those expenses out of a
creditor's secured property is known as a
secured creditor entered into a settlement agreement with the
debtor's counsel that provided for a $50, 000 payment
from the secured creditor to the debtor's counsel
pursuant to § 506(c). Id. Another creditor,
Calstar, objected to the settlement agreement for, among
other reasons, violating Calstar's rights as a
“superpriority” creditor. Id. The
bankruptcy court approved the agreement, and the Bankruptcy