In re: Stephen Law

FILED
JUL 29 2014
1 NO FO PUBL A IO
T R IC T N
2 SUSAN M. SPRAUL, CLERK
U.S. BKCY. APP. PANEL
OF THE NINTH CIRCUIT
3 UNITED STATES BANKRUPTCY APPELLATE PANEL
4 OF THE NINTH CIRCUIT
5 In re: ) BAP No. CC-13-1344-DKiTa
)
6 STEPHEN LAW, ) Bk. No. 04-10052-TD
)
7 Debtor. )
______________________________)
8 )
STEPHEN LAW, )
9 )
Appellant, )
10 )
v. ) M E M O R A N D U M1
11 )
ALFRED H. SIEGEL, Chapter 7 )
12 Trustee, )
)
13 Appellee. )
______________________________)
14
Submitted on the Briefs
15 on June 26, 2014
16 Filed - July 29, 2014
17 Appeal from the United States Bankruptcy Court
for the Central District of California
18
Honorable Thomas B. Donovan, Bankruptcy Judge, Presiding
19
20 Appearances: Appellant Stephen Law pro se on brief; Steven T.
Gubner and Jessica L. Bagdanov of Ezra Brutzkus
21 Gubner LLP on brief for Appellee Alfred H. Siegel,
chapter 7 trustee.
22
23 Before: DUNN, KIRSCHER and TAYLOR, Bankruptcy Judges.
24
25
26 1
This disposition is not appropriate for publication.
27 Although it may be cited for whatever persuasive value it may
have (see Fed. R. App. P. 32.1), it has no precedential value.
28 See 9th Cir. BAP Rule 8013-1.
1 The pro se debtor, Stephen Law (“Debtor”), following a well-
2 traveled path, comes before us once more, this time appealing the
3 bankruptcy court’s order allowing and authorizing pro rata
4 payment of the chapter 7 trustee’s (“Trustee”) professionals’
5 fees pursuant to the Trustee’s amended final report.2 What the
6 Debtor really wants is his $75,000 homestead exemption that the
7 Supreme Court held could not be surcharged to pay administrative
8 expenses in bankruptcy consistent with the provisions of the
9 Bankruptcy Code. As the bankruptcy court advised the Debtor at
10 the time the matter before us was considered, if the Supreme
11 Court so held, the issue of the Debtor’s entitlement to homestead
12 exemption funds would be resolved in separate further proceedings
13 before the bankruptcy court, not in the instant proceeding. For
14 the reasons set forth below, we AFFIRM.
15
16 FACTS
17 The Debtor filed his chapter 7 bankruptcy petition over ten
18 years ago, on January 5, 2004. Alfred H. Siegel has been the
19 Trustee since the inception of the Debtor’s bankruptcy case. The
20 case has had a long and convoluted history that included the
21 Debtor’s numerous appeals of many of the bankruptcy court’s
22 rulings concerning his former residence in Hacienda Heights,
23 California (“Property”).
24
2
25 Unless otherwise indicated, all chapter and section
references are to the federal Bankruptcy Code, 11 U.S.C.
26 §§ 101-1532, and all “Rule” references are to the Federal Rules
27 of Bankruptcy Procedure, Rules 1001-9037. All “Local Rule”
references are to the Local Bankruptcy Rules of the U.S.
28 Bankruptcy Court for the Central District of California.
2
1 As we noted in one of our prior decisions, “The history [of
2 this bankruptcy case] reflects that [the Debtor] has opposed the
3 Trustee’s administration of the bankruptcy estate at every step.”
4 Law v. Siegel (In re Law), 2012 WL 603773 at *1 (9th Cir. BAP
5 2012)(“In re Law”). This appeal is but another instance of the
6 Debtor’s opposition to the Trustee’s administration of the
7 estate.
8 We have taken many of our facts from our prior disposition
9 in In re Law. That decision addressed the Debtor’s appeal of the
10 bankruptcy court’s previous order (“Original Fee Order”)
11 approving the Trustee Final Report (“Original Final Report”) and
12 allowing and authorizing payment of the fees of the Trustee and
13 his professionals: his accountants, Grobstein Horwath & Co. LLP
14 (“Trustee Accountant”), and his attorneys, Ezra Brutzkus
15 Gubner LLP (“Trustee Attorney”).
16 In In re Law, we vacated and remanded the bankruptcy court’s
17 Original Fee Order with respect to the Trustee’s fees only. But
18 we affirmed the bankruptcy court’s Original Fee Order with
19 respect to the fees awarded to the Trustee Attorney and the
20 Trustee Accountant. We describe our prior disposition in more
21 detail below, relating only those facts relevant to this appeal.
22 A. Overview of the Debtor’s Bankruptcy Case
23 The numerous disputes between the Debtor and the Trustee
24 have revolved around the Property and the proceeds from its sale.
25 See id. at *1. The Debtor scheduled the Property’s value at
26 approximately $363,000 as of the petition date. He also
27 scheduled two liens against the Property: a first trust deed lien
28 in favor of Washington Mutual Bank and a second trust deed lien
3
1 in favor of Lin’s Mortgage & Associates (“Lin Lien”). The Debtor
2 claimed a $75,000 homestead exemption in the Property, to which
3 the Trustee did not object.
4 Based on his exemption claim and the liens against the
5 Property, the Debtor contended that the Property had no value to
6 the bankruptcy estate. The bankruptcy court nonetheless ordered
7 the Debtor to turn over the Property to the Trustee and
8 authorized the Trustee to sell it. The Trustee ultimately sold
9 the Property for $680,000 (“Sale Proceeds”).
10 As part of his efforts to sell the Property, the Trustee
11 initiated an adversary proceeding alleging that the Lin Lien was
12 fraudulent. After highly contentious and lengthy litigation,
13 including several appeals, the bankruptcy court determined that
14 the loan underlying the Lin Lien was “a fiction, meant to
15 preserve Debtor’s equity in his residence beyond what he was
16 entitled to exempt as a homeowner, and a fraud on his creditors
17 and the court.” In re Law, 401 B.R. 447, 453 (Bankr. C.D. Cal.
18 2009).3
19 The Trustee incurred more than $500,000 in attorney’s fees
20 to overcome the Debtor’s fraud regarding the purported Lin Lien.
21 To help defray the Trustee’s attorney’s fees, the bankruptcy
22 court granted the Trustee’s motion to surcharge the entirety of
23 the Debtor’s homestead exemption (“Surcharge Order”).
24
25
3
The Supreme Court ultimately determined that the Debtor’s
26 homestead exemption could not be surcharged for his fraud. Law
27 v. Siegel, 134 S. Ct. 1188 (2014). However, the Supreme Court
did not disturb the bankruptcy court’s fact finding that the Lin
28 Lien was fraudulent. Id.4
1 The Debtor appealed the Surcharge Order, and this Panel and
2 the Ninth Circuit affirmed. In re Law, 2009 WL 7751415 (9th Cir.
3 BAP 2009), aff’d, 435 F. App’x. 697 (9th Cir. 2011). However, in
4 Law v. Siegel, 134 S. Ct. 1188, 1198 (2014), the Supreme Court
5 reversed.
6 The Supreme Court reasoned that, although a bankruptcy court
7 has statutory and inherent authority to issue any order to carry
8 out the Bankruptcy Code’s provisions and to sanction abusive
9 litigation practices, it cannot take any action expressly
10 prohibited by or otherwise in contravention of the provisions of
11 the Bankruptcy Code. Id. at 1194-97. The Supreme Court found
12 that the bankruptcy court exceeded its authority in surcharging
13 the Debtor’s homestead exemption because such surcharge
14 contravened a specific provision of the Bankruptcy Code:
15 § 522(k).4 Id. at 1194. It reversed the ruling of the Ninth
16 Circuit Court of Appeals and remanded the matter for further
17 proceedings consistent with its opinion. Id. at 1198.
18 On April 23, 2014, the Ninth Circuit entered an order
19 vacating its ruling. It also reversed this Panel’s and the
20 bankruptcy court’s decisions and remanded with instructions to
21 the bankruptcy court to conduct further proceedings consistent
22 with the Supreme Court’s ruling.
23 B. Trustee’s Final Report
24 Meanwhile, on October 20, 2009, the Trustee had filed and
25 served notice of his intent to file his Final Report and Account,
26
4
27 Section 522(k) provides in relevant part: “Property that
the Debtor exempts under this section is not liable for payment
28 of any administrative expense . . . .”
5
1 advising professionals to file their applications for
2 compensation (“Fee Applications”). Accordingly, the Trustee
3 Attorney filed its final fee application (“Final Attorney Fee
4 Application”)(docket no. 379) on November 11, 2009. The Trustee
5 Accountant filed its first and final fee application (“Accountant
6 Fee Application”)(docket no. 388) on March 22, 2010.
7 Before filing the Final Attorney Fee Application, the
8 Trustee Attorney had filed its first interim fee application on
9 March 10, 2008 (“First Attorney Fee Application”)(docket no.
10 247). In its First Attorney Fee Application, the Trustee
11 Attorney sought $683,592 in total fees and $38,532.19 in total
12 expenses for services rendered from April 21, 2004 through
13 January 31, 2008.
14 The Debtor opposed the First Attorney Fee Application.
15 After a hearing on April 3, 2008, the bankruptcy court overruled
16 the Debtor’s opposition and granted the First Attorney Fee
17 Application. It entered an order on April 22, 2008 (“Interim Fee
18 Order”)(docket no. 261), allowing the Trustee Attorney
19 $211,467.81 in interim fees and $38,532.19 in costs, for a total
20 of $250,000. The bankruptcy court also authorized the Trustee to
21 disburse $250,000 to the Trustee Attorney from funds on hand at
22 that time.
23 In the Final Attorney Fee Application, the Trustee Attorney
24 referenced its prior request for fees and costs. It disclosed
25 that it had been paid $211,467.81 in fees and all of its costs
26 pursuant to the First Attorney Fee Application, leaving a balance
27 of $472,124.19 in unpaid interim fees.
28 The Trustee Attorney reported in its Final Attorney Fee
6
1 Application that it incurred additional fees of $263,410.50 and
2 additional expenses of $15,327.04 since its First Attorney Fee
3 Application. But, it acknowledged that the bankruptcy estate was
4 administratively insolvent.
5 The Trustee Attorney therefore sought approval and payment
6 of its additional expenses of $15,327.04 and the balance of its
7 fees from its First Attorney Fee Application only. That is, it
8 sought final approval of the fees and costs set forth in its
9 First Attorney Fee Application and its additional costs set forth
10 in the Final Attorney Fee Application. The Trustee Attorney
11 requested that the Trustee be authorized to pay its allowed fees
12 on a pro rata basis from available funds.
13 The Trustee Accountant had made no prior request for fees
14 and costs. It sought in the Accountant Fee Application a total
15 of $8,569 in fees for services rendered from March 16, 2006
16 through December 7, 2008. The Trustee Accountant did not seek
17 reimbursement of any costs.
18 The Debtor did not oppose the Final Attorney Fee
19 Application. However, he opposed the Accountant Fee Application
20 (“Accountant Fee Opposition”)(docket no. 388) on the grounds that
21 it violated Local Rule 2016(a)(2) because the Trustee Accountant
22 failed to: 1) set a hearing on the Accountant Fee Application;
23 2) provide 45 days notice of the date and time of the hearing;
24 3) include in a notice of hearing the specific language set forth
25 in Local Rule 2016(a)(2); and 4) serve the United States Trustee,
26 20 largest unsecured creditors and other parties in interest, as
27 provided for in Local Rule 2016(a)(2).
28 The Debtor also challenged the amount of fees incurred by
7
1 the Trustee Accountant, claiming that its fees were unreasonably
2 high. He argued that the Trustee Accountant overcharged for
3 preparing the bankruptcy estate’s tax returns. He also contended
4 that the Trustee Accountant should not have charged so much for
5 its services, given that it only needed to safeguard the Sale
6 Proceeds.
7 The Debtor moreover claimed he had never seen any of the
8 bankruptcy estate’s tax returns. He further contended that the
9 Bankruptcy Code did not require the bankruptcy estate to file any
10 tax returns.
11 On September 14, 2010, the Trustee filed the Trustee’s Final
12 Report (“Original Final Report”)(docket no. 389). As part of his
13 Original Final Report, the Trustee sought $25,298.45 in fees
14 under §§ 326(a) and 330(a) for his services in administering the
15 Debtor’s estate.
16 Concurrently with the Original Final Report, the Trustee
17 filed the Notice of Trustee’s Final Report and Applications for
18 Compensation and Deadline to Object (“Original Notice”)(docket
19 no. 390). The Trustee served the Original Notice on the Debtor.
20 The Original Notice contained a summary (“Original Summary”)
21 of the Original Final Report and of the fee applications filed by
22 the Trustee’s professionals. The Original Summary disclosed that
23 the Trustee sought $25,298.45 in fees but no expenses. The
24 Original Summary identified the Trustee Attorney and the Trustee
25 Accountant as the only professionals applying for fees and
26 expenses.
27 The Debtor opposed the Original Final Report and the Fee
28 Applications (“First Opposition”)(docket no. 392). He argued
8
1 that the Trustee’s fees were unreasonable because the Trustee
2 appeared in court “two or three times” only. He further claimed
3 that the Trustee’s fees exceeded the statutory maximum allowed
4 under § 326(a) because, by his reckoning, the Trustee only
5 collected $500,000 on the bankruptcy estate’s behalf, not
6 $1 million plus in gross receipts. The Debtor also alleged that
7 the Trustee gave inadequate notice of the Original Final Report
8 and the Fee Applications because the Trustee should have served
9 the entire Original Final Report and the Fee Applications on all
10 creditors and interested parties, including himself. However,
11 the Debtor admitted that he received the Original Notice.
12 The Debtor moreover argued that the bankruptcy court lacked
13 authority to make any determination on the Original Final Report,
14 the Accountant Fee Application and the Final Attorney Fee
15 Application until his appeal of the Surcharge Order was resolved.
16 The Debtor also contested payment of the Trustee’s fees and
17 the Trustee Attorney’s fees, arguing that neither he nor the
18 unsecured creditors obtained any benefit from the bankruptcy
19 case, though the Trustee and Trustee Attorney did by getting
20 their fees. He raised no other arguments against the Trustee
21 Attorney’s fees. The Debtor also challenged the Trustee
22 Accountant’s fees, repeating the same arguments he made in his
23 Accountant Fee Opposition.
24 The bankruptcy court held a hearing on the First Opposition
25 on November 3, 2010 (“First Opposition Hearing”). It rejected
26 the Debtor’s claims. The bankruptcy court specifically rejected
27 the Debtor’s complaint that he did not receive copies of the
28 Original Final Report and the Fee Applications. In so ruling, it
9
1 relied on the Debtor’s admission that he had received the
2 Original Notice. The bankruptcy court further noted that the
3 Debtor was aware that the Original Final Report and the Fee
4 Applications were available online or upon request from the
5 Trustee.
6 The bankruptcy court moreover rejected the Debtor’s
7 contention that it should refrain from ruling on the Original
8 Final Report and the Fee Applications until all of his appeals
9 had been fully resolved. It pointed out that it did not need to
10 wait for all of the Debtor’s appeals to run their course because
11 the Debtor had not obtained any stays pending appeal.
12 The bankruptcy court did not make any express findings
13 concerning the Trustee’s fee request. However, with respect to
14 the fees requested by the Trustee Attorney, the bankruptcy court
15 noted that
16 [The Trustee Attorney] filed a complete
application for fees for all the work that had been
17 done, none of which had been paid for up to that point,
as [the bankruptcy court] recall[ed]. The fees were
18 quite substantial. They were well over half a million
dollars. There was about a half a million dollars in
19 the estate at that time, and the decision that I came
to at that time was to allow all the fees because I
20 found them to be reasonable and appropriate under the
circumstances of this case, and I further allowed that
21 [the Trustee Attorney] be paid at that time $250,000.
There were other things that happened in that
22 period about two years ago. All of those things were
done on an interim basis, and now we’re at the final
23 stage of this case where the Trustee has determined,
but it doesn’t alter the decision [the bankruptcy
24 court] made two years ago that the total fees incurred
were appropriate on the part of [the Trustee Attorney].
25 [Moreover], there is no evidence before [the
bankruptcy court] today to allow [it] to revisit the
26 decision [it] made two years ago. So the fees stand as
approved, and [the Debtor’s] objection must be
27 overruled for that reason.
28 Tr. of Nov. 3, 2010 hr’g, 4:24-25, 5:1-21.
10
1 The bankruptcy court further noted that
2 [i]n the applications that are pending before [it]
today, [the Trustee Attorney had] said that [it] was
3 not seeking any additional compensation over the
compensation that was allowed to [it] two years ago by
4 [the bankruptcy court’s] order. That’s simply a
reflection of the fact that there is no money in this
5 estate sufficient to cover all the time and expenses
that [the Trustee Attorney’s] firm has gone through in
6 dealing with [the Debtor’s] allegations, your claims,
your bankruptcy case.
7 . . .
So there really is nothing more in this estate for
8 the Trustee to administer, and his election to treat
this case as fully administered would seem to be
9 correct and appropriate. Nobody’s going to make any
money on this case, certainly not [the Trustee
10 Attorney]. [The Trustee Attorney] has done this out of
a sense of loyalty to [its client, i.e., the Trustee],
11 out of [its] professional obligations to the
[bankruptcy court], and [it is] – whatever money [the
12 Trustee Attorney] receive[s] in this case would seem to
be grossly inadequate for all the work that [the
13 Trustee Attorney has] gone through.
14 Tr. of Nov. 3, 2010 hr’g, 13:13-25, 14:1-13.
15 Accordingly, the bankruptcy court overruled the Debtor’s
16 First Opposition and approved the Original Final Report and
17 granted the Fee Applications. It entered an order (“Original Fee
18 Order”)(docket no. 393) on November 19, 2010, allowing the fees
19 of the Trustee and his professionals.
20 The Original Fee Order allowed fees and expenses in amounts
21 greater than those set forth in the Original Notice, as 1) the
22 Original Notice only referenced those amounts that the Trustee
23 anticipated actually distributing to the professionals, and
24 2) the bankruptcy estate had insufficient funds to pay any more
25 to the professionals beyond the amounts noticed.
26 Specifically, with respect to the Trustee Attorney’s fees,
27 the bankruptcy court allowed a total of $683,592 in fees and
28 $68,623.47 in expenses. The Trustee Attorney had been paid
11
1 $211,467.81 in fees to date, leaving a $472,124.19 balance.
2 On June 30, 2011, the Trustee filed his final account and
3 distribution report (“Final Account”)(docket no. 404), which
4 showed that the Trustee Attorney received a total of $317,959.56
5 in fees ($106,491.75 plus $211,467.81 previously paid on account
6 of the First Attorney Fee Application) and $38,532.19 in expense
7 reimbursements. The amounts generally were consistent with those
8 set forth in the Original Notice. In re Law, 2012 WL 603773 at
9 *3 n.6. The Final Account further showed that the Trustee was
10 entitled to receive a total of $54,394.92 in fees only. (The
11 Trustee did not seek reimbursement of any expenses.)
12 C. Appeal of the Original Fee Order
13 Several months before the Trustee filed the Final Account,
14 the Debtor appealed the Original Fee Order, challenging the
15 Trustee’s fees on the ground of reasonableness under § 330(a).
16 On appeal, we determined that the Trustee did not bear his
17 burden of establishing that his requested fees were reasonable
18 under § 330(a) because he failed to submit a fee application
19 complying with the requirements of Local Rule 2016. Local
20 Rule 2016 required the Trustee to file an application setting
21 forth a detailed statement of the services rendered, time
22 expended and expenses incurred and the amounts requested.
23 We pointed out that the Trustee merely provided in the
24 Original Final Report a narrative summary of the entire case
25 history. We determined that the Trustee’s narrative summary
26 neither identified his services nor gave any indication of the
27 amount of time he spent undertaking those services. We thus
28 concluded that the Trustee’s Original Final Report was
12
1 insufficient to satisfy Local Rule 2016.
2 We noted that the bankruptcy court made no findings as to
3 the reasonableness of the Trustee’s requested fees. We moreover
4 determined that the record was insufficient for us to state that
5 it afforded us “with a complete understanding of the basis for
6 the [bankruptcy] court’s ruling on the Trustee’s fee request.”
7 In re Law, 2012 WL 603773 at *8. We therefore concluded that the
8 bankruptcy court erred in allowing the Trustee’s fees.5
9 The Debtor also contested the Trustee Attorney’s fees. He
10 argued that, at the First Opposition Hearing, the Trustee
11 Attorney made false statements regarding the amount of fees
12 allowed on account of its First Attorney Fee Application. He
13 contended that, because it made these false statements, the
14 Trustee Attorney’s fees should not have been allowed.
15 Reviewing the record, we determined that “it [was] far from
16 clear that there was anything false or misleading about the
17 [Trustee Attorney’s] statements . . . made at the [First
18 Opposition Hearing].” In re Law, 2012 WL 603773 at *8. It was
19 the bankruptcy court that recollected that the Trustee Attorney
20 sought more than half a million dollars in fees in its First
21 Attorney Fee Application. We noted that the bankruptcy court
22 also stated that it allowed the fees because it “found them to be
23
24 5
The Debtor also raised the argument that the bankruptcy
25 court erred in approving the Final Report and granting the fee
applications before all of his pending appeals had been resolved.
26 We determined that we could give the Debtor no meaningful relief
27 given that his position on appeal “hinge[d] on his prevailing in
two prior appeals that the Court of Appeals [had] decided against
28 him.” In re Law, 2012 WL 603773 at *8.
13
1 reasonable and appropriate,” though it authorized the Trustee to
2 pay the Trustee Attorney only $250,000 in fees and expenses due
3 to the amount available in the bankruptcy estate.
4 We construed the Debtor’s argument as a challenge to the
5 bankruptcy court’s recollection. But we concluded that, even if
6 we agreed with the Debtor that the bankruptcy court’s
7 recollection was erroneous, the Debtor simply “pointed us to what
8 is, at most, harmless error.” Id. We noted that, without
9 relying on its prior ruling on the First Attorney Fee
10 Application, the bankruptcy court found reasonable the total
11 amount of fees to be paid to the Trustee Attorney for the
12 services it rendered throughout the entire bankruptcy case. Id.13 We moreover pointed out that the Debtor did not argue on
14 appeal that the bankruptcy court erred when it determined the
15 fees of the Trustee Attorney were reasonable. We thus concluded
16 that the Debtor waived that argument.
17 In the end, we vacated and remanded that part of the
18 Original Fee Order allowing the Trustee’s fees but affirmed the
19 remainder of the Original Fee Order (“Remand Order”).
20 The Debtor appealed the Remand Order to the Ninth Circuit
21 Court of Appeals (“Remand Appeal”). It dismissed the Debtor’s
22 Remand Appeal for lack of jurisdiction, as the Remand Order was
23 not final or appealable.
24 D. Trustee’s Amended Final Report
25 In response to the Remand Order, the Trustee filed an
26 amended Trustee’s Final Report (“Amended Final Report”)(docket
27 no. 416) on June 10, 2013. He filed the Amended Final Report
28 because he had additional funds to distribute once he decided to
14
1 forgo seeking an award of fees for himself. Tr. of July 18, 2013
2 hr’g, 4:17-21.
3 The Trustee also filed the Notice of Amended Trustee’s Final
4 Report and Applications for Compensation and Deadline to Object
5 (“Amended Notice”)(docket no. 417). He served the Amended Notice
6 on the Debtor (docket no. 418).
7 The Amended Notice contained a summary (“Amended Summary”)
8 showing receipts of $981,643.19 and approved disbursements of
9 $956,380.97, which left a balance of $25,262.22. The Amended
10 Notice did not include a fee request from the Trustee. The
11 Amended Notice indicated that a total of $25,262.22 was available
12 to pay chapter 7 administrative expenses.
13 The Trustee Accountant sought a total of $8,569 in fees and
14 disclosed that it already had received an interim payment of
15 $3,985.70. The Trustee proposed that the Trustee Accountant be
16 paid $312.75. The Trustee Attorney sought a total of $683,592 in
17 fees and disclosed that it already had received interim payments
18 totaling $317,959.56. The Trustee proposed that the Trustee
19 Attorney be paid $24,949.47.
20 The Debtor did not file a written opposition to the Amended
21 Final Report. Instead, he appeared at the July 18, 2013 hearing
22 on the Amended Final Report.
23 At the hearing, the Debtor referenced Local Rule 2016(a)(2),
24 which he construed as requiring the Trustee to schedule a hearing
25 on fee applications “at least within 120 days apart.” Tr. of
26 July 18, 2013 hr’g, 3:18. He argued that the Trustee violated
27 Local Rule 2016(a)(2) by setting the hearing only 35 days out
28 from the date on which he served the Amended Notice. He also
15
1 alleged that the Trustee Attorney had failed to serve its fee
2 application on him. The Debtor urged the bankruptcy court to
3 “deny” the Amended Final Report until the Supreme Court issued a
4 final ruling regarding the Surcharge Order.
5 At the hearing, the bankruptcy court pointed out that,
6 contrary to the Debtor’s assertion, the Amended Final Report had
7 been timely served on the Debtor. Tr. of July 18, 2013 hr’g,
8 11:20-22. It further pointed out that the Debtor failed to
9 submit a timely opposition pursuant to local bankruptcy court
10 procedures. Tr. of July 18, 2013 hr’g, 6:20-21, 11:23-24.
11 The bankruptcy court acknowledged that if the Debtor
12 prevailed before the Supreme Court, he would be entitled to more
13 than $25,000. Tr. of July 18, 2013 hr’g, 6:8-10. It also
14 acknowledged that parties who had received distributions of
15 bankruptcy estate funds might have to disgorge funds. Tr. of
16 July 18, 2013 hr’g, 6:12-14. It noted that if the Debtor
17 prevailed before the Supreme Court, the bankruptcy court itself
18 would address the issue of disgorgement. Tr. of July 18, 2013
19 hr’g, 6:8-12. However, the bankruptcy court stressed that the
20 Debtor did not obtain a stay barring the Trustee’s proposed
21 distribution of the remaining funds to the Trustee Attorney to
22 pay its already approved fees. Tr. of July 18, 2013 hr’g,
23 6:17-19, 12:2. Because the Debtor did not obtain a stay, there
24 was “nothing to establish that [the Debtor was] entitled to
25 anything.” Tr. of July 18, 2013 hr’g, 6:15-16.
26 The bankruptcy court therefore approved the Amended Final
27 Report. It entered its order on the Amended Final Report
28 (“Amended Fee Order”) on August 15, 2013.
16
1 The Debtor timely appealed.
2
3 JURISDICTION
4 The bankruptcy court had jurisdiction under 28 U.S.C.
5 §§ 1334 and 157. We have jurisdiction under 28 U.S.C. § 158.
6
7 ISSUES
8 (1) Does the Debtor have standing to challenge the Trustee
9 Attorney’s fees at the end of an insolvent chapter 7 case?
10 (2) Did the bankruptcy court abuse its discretion in
11 approving the Amended Final Report?
12
13 STANDARDS OF REVIEW
14 We are required sua sponte to examine jurisdictional issues,
15 including standing. Bernhardt v. Cnty. of Los Angeles, 279 F.3d
16 862, 868 (9th Cir. 2002)(“[F]ederal courts are required sua
17 sponte to examine jurisdictional issues such as standing.”)
18 (quoting B.C. v. Plumas Unified Sch. Dist., 192 F.3d 1260, 1264
19 (9th Cir. 1999)). “Standing is an issue of law which we review
20 de novo.” Palmdale Hills Prop., LLC v. Lehman Commercial Paper,
21 Inc. (In re Palmdale Hills Prop., LLC), 654 F.3d 868, 872 (9th
22 Cir. 2011).
23 We will not disturb a bankruptcy court’s award of attorneys’
24 fees on appeal “absent an abuse of discretion or an erroneous
25 application of the law.” In re Nucorp Energy, Inc., 764 F.2d
26 655, 657 (9th Cir. 1985). We apply a two-part test to determine
27 objectively whether the bankruptcy court abused its discretion.
28 United States v. Hinkson, 585 F.3d 1247, 1261-62 (9th Cir.
17
1 2009)(en banc). First, we “determine de novo whether the
2 bankruptcy court identified the correct legal rule to apply to
3 the relief requested.” Id. Second, we examine the bankruptcy
4 court’s factual findings under the clearly erroneous standard.
5 Id. at 1252 & n.20. A bankruptcy court abuses its discretion if
6 it applied the wrong legal standard or its factual findings were
7 illogical, implausible or without support in the record.
8 Trafficschool.com, Inc. v. Edriver Inc., 653 F.3d 820, 832 (9th
9 Cir. 2011).
10 We do not disturb a bankruptcy court’s factual findings made
11 in the course of awarding fees unless they are clearly erroneous.
12 See Friedman Enters. v. B.U.M. Int’l, Inc. (In re B.U.M. Int’l,
13 Inc.), 229 F.3d 824, 830 (9th Cir. 2000). Factual findings are
14 clearly erroneous if they are “illogical, implausible or without
15 support in the record.” Retz v. Samson (In re Retz), 606 F.3d
16 1189, 1196 (9th Cir. 2010)(citing Hinkson, 585 F.3d at 1261-62 &
17 n.21).
18 We may affirm on any basis supported by the record. Shanks
19 v. Dressel, 540 F.3d 1082, 1086 (9th Cir. 2008).
20
21 DISCUSSION
22 A. Standing
23 As mentioned earlier, we must address the issue of the
24 Debtor’s standing to appeal, even though neither the Debtor nor
25 Trustee has raised it. See Bernhardt, 279 F.3d at 868. To have
26 standing to appeal, the Debtor must be a “person aggrieved” by
27 the order appealed. Id. at 874. A “person aggrieved” is one who
28 is “directly and adversely affected pecuniarily by an order of
18
1 the bankruptcy court.” Fondiller v. Robertson (In re Fondiller),
2 707 F.2d 441, 442 (9th Cir. 1983). “[A] hopelessly insolvent
3 Debtor does not have standing to appeal orders affecting the size
4 of the estate” because such orders “would not diminish the
5 Debtor’s property, increase his burdens, or detrimentally affect
6 his rights.” Id.7 “Accordingly, ‘[u]nless the estate is solvent and the excess
8 will eventually go to the Debtor, or unless the matter involves
9 rights unique to the Debtor, the Debtor is not a party aggrieved
10 by orders affecting the administration of the bankruptcy
11 estate.’” C.W. Mining Co. v. Aquila, Inc. (In re C.W. Mining
12 Co.), 636 F.3d 1257, 1260 (10th Cir. 2011)(quoting In re Weston,
13 18 F.3d 860, 863-64 (10th Cir. 1994)). In other words, a Debtor
14 ordinarily “cannot challenge a bankruptcy court’s order unless
15 there is likely to be a surplus after bankruptcy.” Duckor
16 Spralding & Metzger v. Baum Trust (In re P.R.T.C., Inc.),
17 177 F.3d 774, 778 n.2 (9th Cir. 1999)(citing Fondiller, 707 F.2d
18 at 442)).
19 In this instance, now that the Supreme Court has issued a
20 ruling in the Debtor’s favor on the Surcharge Order, we cannot
21 conclude that the Debtor has no standing to contest further
22 administration of his bankruptcy estate. He does have a
23 financial stake in the administration of his estate until his
24 allowed $75,000 homestead exemption claim is paid even though his
25 bankruptcy estate clearly is insolvent. Accordingly, we conclude
26 that the Debtor has standing in this appeal.
27 B. Approval of the Amended Final Report
28 The Debtor advances various arguments challenging the
19
1 Amended Fee Order. But the essence of the Debtor’s arguments is
2 this: He is seeking payment of his homestead exemption now that
3 the Supreme Court has ruled that it cannot be surcharged. We
4 address each of the Debtor’s arguments, but ultimately determine
5 that this appeal is not the appropriate vehicle to pursue his
6 right to payment.
7 1. Compliance with Service Requirements
8 The Debtor repeats here an argument he made in his appeal of
9 the Original Fee Order: the Trustee Attorney failed to serve him
10 with the Final Attorney Fee Application as required under Local
11 Rule 2016-1(a)(2). However, he misreads the Local Rule.
12 Local Rule 2016-1(a)(2) does not apply to final fee
13 applications but to interim fee applications only.6 Local Rule
14
15 6
Local Rule 2016 provides in relevant part:
16
(a) Interim Fee Applications.
17 . . .
(2) Notice of Interim Fee Application and Hearing.
18 (A) In all cases where the employment of more than one
19 professional person has been authorized by the court, a
professional person who files an application for
20 interim fees must give other professional persons
employed in the case not less than 45 days notice of
21 the date and time of the hearing. The notice of the
22 hearing must further state:
23 “Other professional persons retained pursuant to
court approval may also seek approval of interim
24
fees at this hearing, provided that they file and
25 serve their applications in a timely manner.
Unless otherwise ordered by the court, hearings on
26 interim fee applications will not be scheduled
27 less than 120 days apart.”
28 continue...
20
1 2016-1(c) actually pertains to final fee applications. But it
2 does not say what the Debtor claims it does.
3 Local Rule 2016-1(c) provides, in relevant part:
4 c) Final Fee Application.
5 (1) Who Must File. The trustee, if any, and each
professional person employed in the case must file
6 a final fee application.
(2) Contents. An application for allowance and
7 payment of final fees and expenses must contain
the information required of an interim fee
8 application under LBR 2016-1(a)(1).
. . .
9
10
11
6
12 ...continue
(B) Applicant must serve not less than 21 days notice
13 of the hearing on the Debtor or Debtor in possession,
14 the trustee (if any), the creditors’ committee or the
20 largest unsecured creditors if no committee has been
15 appointed, any other committee appointed in the case,
counsel for any of the foregoing, the United States
16
trustee, and any other party in interest entitled to
17 notice under FRBP 2002. The notice must identify the
professional person requesting fees, the period covered
18 by the interim application, the specific amounts
19 requested for fees and reimbursement of expenses, the
date, time and place of the hearing, and the deadline
20 for filing and serving a written opposition.
(C) In addition to the notice, a copy of the
21 application, together with all supporting documents,
22 must be served on the Debtor or the Debtor in
possession, the trustee (if any), any committee
23 appointed in the case, counsel for any of the
foregoing, and the United States trustee. A copy of
24
the complete application must also be promptly
25 furnished upon specific request to any other party in
interest.
26 (3) Objections. Any opposition or other responsive document
27 by the United States trustee or any other party in interest
must be served and filed at least 14 days prior to the
28 hearing in the form required by LBR 9013-1(f).
21
1 (4) When Filed; Notice Required in Chapter 7
Cases.
2 (A) A chapter 7 trustee must give at least 30
days written notice of intent to file a final
3 report and account to the attorney for the
Debtor, the trustee’s attorney and
4 accountant, if any, and any other entity
entitled to claim payment payable as an
5 administrative expense of the estate.
(B) A professional person seeking compensation
6 must file and serve an application for allowance
and payment of final fees and expenses on the
7 trustee within 21 days of the date of the mailing
of the trustee’s notice. The failure to timely
8 file an application may be deemed a waiver of
compensation.
9 (C) All final fee applications by professional
persons must be set for hearing with the chapter 7
10 trustee’s final application for allowance and
payment of fees and expenses. Notice of a final
11 fee application must be given by the chapter 7
trustee as part of the notice of the hearing on
12 the trustee’s request for compensation. A
separate notice by the applicant is not required.
13 (5) Objections. Any opposition or other
responsive document by the United States trustee
14 or other party in interest must be served and
filed at least 14 days prior to the hearing in the
15 form required by LBR 9013-1(f).
16 Nothing in the language of Local Rule 2016-1(c) required the
17 Trustee Attorney to serve the Debtor with a copy of the Final
18 Attorney Fee Application. As we noted in our prior disposition
19 concerning the Original Fee Order, we were “not aware of any rule
20 requiring the trustee or his professionals to serve their full
21 final fee applications on the Debtor in a chapter 7 case.”
22 In re Law, 2012 WL 603773 at *5. Based on our review of the
23 Local Rules, the Debtor’s argument is without merit.
24 2. Compliance with Prior Panel Orders7
25
26 7
The Debtor challenges the Trustee’s fees again in this
27 appeal. He argues that the Trustee failed to meet the
requirements we set forth in our prior disposition. He further
28 continue...
22
1 The Debtor references two of our prior dispositions, one
2 issued on December 29, 2006, in Lin v. Siegel (In re Law), 2006
3 WL 6810960 (9th Cir. BAP 2006)(BAP No. 06-1180)(“Lin”), and the
4 other issued on October 5, 2007, in Law v. Siegel (In re Law),
5 2007 WL 7545164 (9th Cir. BAP 2007)(BAP No. CC-07-1127)(“Law I”).
6 He claims that in both of these dispositions, we reversed the
7 Surcharge Order. The Debtor contends that paying the Trustee
8 Attorney its fees before his homestead exemption, which has
9 “priority” over the Trustee Attorney’s fees, would contravene
10 these prior dispositions.
11 The Debtor is correct that in both dispositions, we reversed
12 bankruptcy court rulings with respect to the surcharge of his
13 homestead exemption. In Lin, we determined that no extraordinary
14 circumstances were shown to justify an equitable surcharge of the
15 Debtor’s entire homestead exemption, as required under then-
16 current Ninth Circuit case law. Lin, 2006 WL 6810960 at *8.
17 However, we also stated in Lin that “[w]e express no opinion
18 whether specific instances of mischief by the [Debtor] in the
19 past might support further monetary sanctions in the future,
20 including a surcharge against his exemption.” Id. at *8
21 (emphasis added).
22 In Law I, we dealt with the Debtor’s motion for an order
23
24 7
...continue
25 contends that the Trustee failed to follow the requirements under
§ 330(a) and Local Rule 2016-1. The Debtor then accuses the
26 Trustee and the Trustee Attorney of “conspiring” together to take
27 bankruptcy estate funds. However, we conclude the Debtor’s
challenge to the Trustee’s fees is moot, as the Trustee has
28 decided to forgo fees as indicated in the Amended Final Report.
23
1 directing the Trustee to pay him his claimed homestead exemption
2 (“Homestead Payment Motion”). The bankruptcy court had denied
3 the Homestead Payment Motion because it concluded that a pending
4 appeal of the Surcharge Order before the Ninth Circuit divested
5 it of jurisdiction. Law I, 2007 WL 7545164 at *3. We determined
6 that because the Trustee failed to challenge the validity of the
7 Debtor’s claimed homestead exemption, the Debtor’s right to the
8 homestead exemption became final. Id. at *4. Because the
9 Debtor’s claimed homestead exemption was final, we concluded that
10 the bankruptcy court had authority to act on the Homestead
11 Payment Motion and to issue an appropriate order, notwithstanding
12 the appeal of the Surcharge Order. Id. We therefore reversed
13 and remanded to the bankruptcy court for further proceedings and
14 to issue an appropriate order under the circumstances of the
15 case. Id. But we further noted that “the trustee may renew his
16 motion to surcharge the [Debtor’s] claimed homestead exemption,
17 as long as appropriate factual and legal bases exist to justify
18 such a surcharge . . . .” Id.
19 The Debtor seems to believe that these two prior
20 dispositions directed the Trustee to pay him the homestead
21 exemption. But we gave no such directive in our dispositions.
22 We reversed the bankruptcy court’s first ruling in Lin on the
23 ground that surcharging the Debtor’s entire homestead exemption
24 was unwarranted under Ninth Circuit authority at that time. We
25 reversed and remanded the bankruptcy court’s ruling in Law I on
26 the ground that the bankruptcy court had jurisdiction to make a
27 determination as to whether the Trustee should pay the Debtor his
28 homestead exemption. Neither Lin nor Law I required payment of
24
1 the Debtor’s homestead exemption to him.
2 The landscape of homestead exemption law has changed since
3 we issued Law and Lin; of course, we now recognize that the
4 Supreme Court has overruled prior Ninth Circuit and BAP
5 precedent. Still, the Debtor’s reading of Law and Lin is
6 incorrect.
7 3. Debtor’s Homestead Exemption
8 The Debtor echoes the Supreme Court’s reasoning by arguing
9 that his homestead exemption should not be surcharged to pay the
10 Trustee Attorney’s fees. He demands that, in light of the
11 Supreme Court’s ruling, the Trustee Attorney should disgorge its
12 fees to pay his homestead exemption.
13 Reviewing the bankruptcy case docket, we have discovered
14 that no arrangements have been made subsequent to the Supreme
15 Court’s decision, to pay the Debtor his homestead exemption. See
16 O’Rourke v. Seaboard Sur. Co. (In re E.R. Fegert, Inc.), 887 F.2d
17 955, 957-58 (9th Cir. 1988)(taking judicial notice of underlying
18 bankruptcy records); Atwood v. Chase Manhattan Mortg. Co.
19 (In re Atwood), 293 B.R. 227, 233 n.9 (9th Cir. BAP 2003)(citing
20 E.R. Fegert, Inc., 887 F.2d at 957-58, for this same point)). We
21 note that, in the past, the Debtor unsuccessfully has sought
22 payment of his homestead exemption three times; on February 5,
23 2007, October 11, 2007, and April 10, 2008, the Debtor filed
24 motions for orders requiring the Trustee to pay the Debtor his
25 homestead exemption, which were denied by the bankruptcy court.
26 See docket nos. 193, 204, 225, 239, 259, 325 and 338.
27 We do not question that the Debtor is entitled to homestead
28 exemption funds. Under California law, once a Debtor is allowed
25
1 his claimed homestead exemption, a property right to $75,000 of
2 the proceeds of the sale of his home revests in the Debtor and is
3 no longer part of the bankruptcy estate. Schwaber v. Reed
4 (In re Reed), 940 F.2d 1317, 1321 (9th Cir. 1991)(citing Cal.
5 Civ. Proc. Code §§ 704.720 and 704.730). As we reasoned in
6 Law I, an unopposed homestead exemption claim is analogous to a
7 judgment. Law I, 2007 WL 7545164 at *3. “In the absence of an
8 order granting an extension of time, once the period to object to
9 a claimed exemption expires, a party-in-interest is time-barred
10 from challenging the validity of the exemption claim, and the
11 property claimed as exempt is exempt.” Id. “Similar to an
12 unstayed judgment, an unopposed homestead exemption claim stands
13 final.” Id. As we noted in Law I, the Debtor’s homestead
14 exemption is final because no party in interest challenged its
15 validity.
16 But the Debtor cannot use this appeal of the Amended Fee
17 Order to obtain payment on his homestead exemption claim. The
18 issue before us involves only a determination as to whether the
19 bankruptcy court erred in approving the Amended Final Report.
20 Among the criteria the bankruptcy court must consider in
21 determining the amount of reasonable compensation to be awarded a
22 trustee’s attorney, see § 330(a)(3)(A)-(E), it must look to
23 whether the services were necessary to the administration of or
24 beneficial toward the completion of a bankruptcy case. See Stasz
25 v. Gonzalez (In re Stasz), 2011 WL 6934442 at *4 (9th Cir. BAP
26 2011). The trustee bears the burden of establishing entitlement
27 to fees requested from the estate. Id.28 The Debtor did not oppose the Final Attorney Fee
26
1 Application. He also did not oppose timely the Amended Final
2 Report. The Debtor further did not submit any evidence showing
3 that the services of the Trustee Attorney did not benefit the
4 estate or were unnecessary to its administration. (In fact,
5 through numerous actions over a lengthy period of time, the
6 Debtor hindered the administration of the estate, generating much
7 work for the Trustee Attorney.) Based on the record before us,
8 we cannot conclude that the bankruptcy court abused its
9 discretion in approving the Amended Final Report.
10 We point out that the bankruptcy court acknowledged that if
11 the Debtor prevailed before the Supreme Court, he would be
12 entitled to more than $25,000 (i.e., his claimed homestead
13 exemption). It further acknowledged that it may need to order
14 parties who received distributions of bankruptcy estate funds to
15 disgorge them to cover the Debtor’s homestead exemption. The
16 Debtor therefore must return to the bankruptcy court and seek
17 relief there in further proceedings, as contemplated by the
18 Supreme Court. This appeal is not the appropriate vehicle for
19 such relief.
20
21 CONCLUSION
22 Based on the foregoing, we AFFIRM.
23
24
25
26
27
28
27