United States District Court, C.D. California, Los Angeles Division
ORDER RE: THE BANKRUPTCY COURT'S ORDER
MICHAEL W. FITZGERALD UNITED STATES DISTRICT JUDGE.
the Court is an appeal from the United States Bankruptcy
Court (the Honorable Sheri L. Bluebond, United States
Bankruptcy Judge). Appellant Clifton Capital Group, LLC
(“Clifton Capital”) appeals from the Bankruptcy
Court's Order granting the Trustee's Fourth and Final
Application for Compensation and Reimbursement of Fees and
Expenses (the “Final Fee Application”) in the
amount of $1, 155, 944.71. The Order was issued on November
Capital submitted its Opening Brief (“OB”) on
March 6, 2019. (Docket No. 11). On May 22, 2019, Appellee
Bradley D. Sharp, Chapter 11 Trustee, submitted his Brief
(“AB”). (Docket No. 16). On July 1, 2019,
Appellant submitted its Reply Brief (“RB”).
(Docket No. 23). The Court has read and considered the papers
filed in this appeal, and held a hearing on November 6, 2019.
Order is AFFIRMED in part, REVERSED in
part, and REMANDED for further
proceedings. The Bankruptcy Court did not make the required
findings to determine that the Trustee is entitled to a fee
award that exceeds the lodestar figure. However, the
Bankruptcy Court did not abuse its discretion in awarding
compensation for services performed by Development
Specialists, Inc. (“DSI”).
March 25, 2016, East Coast Foods, Inc. (the
“Debtor”) filed for bankruptcy under Chapter 11.
(Appellant's Excerpts of Record (“ER”) 60
(Docket No. 11)). On April 29, 2016, the Office of United
States Trustee (the “U.S. Trustee”) appointed the
Official Committee of Unsecured Creditors (the
“Committee”). (ER 84). Clifton Capital is a
member of the Committee. (Id.).
September 28, 2016, the Bankruptcy Court appointed Bradley D.
Sharp as the Chapter 11 Trustee (the “Trustee”).
(ER 90). The Trustee handled numerous issues during his
appointment, including state court actions, tax disputes,
landlord disputes, accounting practices, and return of
intellectual property assets. (ER 967-70; AB 10-14). The
Trustee employed his company, DSI, to help him perform some
of his duties as the Trustee. (ER 102, 258, 331, 879).
3, 2018, the Bankruptcy Court entered an order confirming a
joint Plan of Reorganization (the “Plan”). (ER
715-26). On September 10, 2018, the court granted
non-material modifications to the Plan, and on September 14,
2018, the Plan became effective. (ER 715-34).
Trustee filed four fee applications during the bankruptcy
case. In the first three applications, the Trustee sought
approval of fees and costs on an interim basis. (ER 102
et seq., ER 258 et seq., ER 331 et
seq.). In the fourth and final application, the Trustee
sought final approval of his fees and costs. (ER 879 et
Fee Application, the Trustee sought fees incurred by himself
as well as by DSI personnel. Specifically, each Application
contained the disclosure: “This Application includes
the time records for employees of [DSI] . . . who assisted
the trustee in the performance of his duties of this
case.” (ER 102, 258, 331, 879).
Committee filed an objection to the First Fee Application,
arguing that the court never authorized DSI's employment,
and therefore, fees to DSI totaling $202, 767.59 should be
disallowed. (ER 189). The Bankruptcy Court overruled the
Committee's objection and approved the First Fee
Application in full. (SER 41). The Committee did not object
to DSI's fees in the second and third applications, and
the Bankruptcy Court approved both Fee Applications in full.
(SER 43-44; ER 52-53; AB 20).
Trustee filed the Final Fee Application in October 2018. The
Final Fee Application disclosed that the Trustee and his
staff at DSI had worked 1, 692.2 hours during the case, which
would equate to $758, 955.50 if billed at normal hourly
rates. (ER 885). However, the Trustee requested a fee of $1,
155, 844.71, which is the maximum fee permitted under 11
U.S.C. § 326(a) (“§ 326(a)”).
Capital filed an objection to the Final Fee Application. (ER
936 et seq.). It did not object to the Trustee's
request for fees associated with work performed by his staff
at DSI. However, Clifton Capital argued that the Trustee
should not be paid the maximum amount under § 326(a),
which is a limit and not a presumption of reasonableness. (ER
942-44). Clifton Capital argued that the Trustee had the
burden of establishing his requested compensation was
reasonable under 11 U.S.C. § 330(a) (“§
330(a)”), and that the proper way to establish
reasonable compensation is by applying the lodestar method.
Bankruptcy Court granted the Trustee's Final Fee
Application and entered an order granting the Final Fee
Application (the “Final Fee Order”). (ER 58). The
court provided two alternative grounds for granting the Fee
Application. First, the court determined that the requested
fee was reasonable because it equaled the amount set forth
under § 326(a). The court explained: “Congress has
really tried to be pretty clear that trustee compensation,
it's really more in the nature of a commission” and