388 Route 22 Readington Holdings, LLC

NOT FOR PUBLICATION

UNITED STATES BANKRUPTCY COURT

DISTRICT OF NEW JERSEY

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In re: Bankruptcy Case No. 18-30155

388 Route 22 Readington Holdings, LLC Chapter 7

Debtor

MEMORANDUM OPINION

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APPEARANCES

Bunce D. Atkinson, Esquire

Coast Capital Building

1011 Highway 71, Suite 200

Spring Lake, New Jersey 07762

Bunce D. Atkinson, Chapter 7 Trustee

Andrew J. Kelly, Esquire

The Kelly Firm P.C.

1011 Highway 71, Suite 200

Spring Lake, New Jersey 07762

Special Counsel / Attorneys for Chapter 7 Trustee, Bunce D. Atkinson

Jay L. Lubetkin, Esquire

Rabinowitz, Lubetkin & Tully, LLC

293 Eisenhower Parkway, Suite 100

Livingston, New Jersey 07039

Counsel to SB Building Associates Limited Partnership

Lawrence S. Berger, Esquire

Berger & Bornstein

237 South Street

PO Box 2049

Morristown, New Jersey 07962

Memorandum Opinion

On November 5, 2020, the court took oral argument on three applications for

compensation: 1) Chapter 7 trustee’s request for a commission under § 326(a)1; 2)

Second Application for Compensation for trustee’s attorney Atkinson & DeBartolo,

P.C.2; and 3) First Application for Compensation for trustee’s attorney The Kelly

Firm, P.C.3 SB Building Associates Limited Partnership4 filed numerous objections

to the Second Application for Compensation.5 Those objections were joined by

Lawrence Berger, Esq.6 On October 16, 2020, SB Building filed a combined

objection7 to all three fee applications, which also included an objection to fees8

previously awarded to Atkinson and DeBartolo on September 26, 2019. On October

30, 2020, Bunce Atkinson filed a response to the objections on behalf of his former

firm and himself as trustee,9 and Andrew Kelly filed a response on behalf of The

Kelly Firm.10 Lawrence Berger filed a reply on November 3, 2020.11 At the close of

oral argument, the court reserved decision.

1 Doc 209; Doc 211 (corrected application)

2 Doc 187; Doc 189 (corrected application); Doc 204 (further corrected application)

3 Doc 208

4 SB Building Associates Limited Partnership is the 100% equity owner of the Debtor

5 Doc 203; 214; 216; 220

6 Doc 217. Lawrence Berger is the manager member of the Debtor. He is also the President

of United States Realty Resources, Inc., the general partner of United States Land

Resources, L.P., which, according to Mr. Berger, “directly or indirectly” owns and controls

SB Building Associates Limited Partnership. Mr. Berger also served as special counsel to

the Trustee in this case.

7 Doc 216

8 Doc 76 (First Interim Application for Compensation)

9 Doc 219

10 Doc 218

11 Doc 220

Trustee commission

The court will first consider the chapter 7 trustee’s request to be paid his

statutory commission under § 326(a). In the application, the chapter 7 trustee seeks

an award of trustee fees pursuant to 11 U.S.C. 330(a)(7) and 11 U.S.C. 326(a) in the

amount of $116,737.45 together with costs of $49.85. SB Building Associates

Limited Partnership, joined by Lawrence Berger, (collectively “Objectors”) objected

as part of the combined objection filed on October 16, 2020.12

The objections to the payment of the Trustee’s full statutory commission are

intertwined with the objections to the Trustee’s law firm’s fee application and the

Objectors maintain that the two must be considered in tandem. Nonetheless, there

are certain purely legal issues that underly the objections to the Trustee’s

commission; therefore, the court will attempt to isolate the legal issues and address

those first.

The Objectors specific objection to the Trustee’s commission request is that

the “Trustee’s commissions should be based upon the time actually spent….”13 In

other words, the Objectors want the court to disregard the commission established

by Congress in 11 U.S.C. § 326(a) and instead apply a lodestar approach.14

The Bankruptcy Code authorizes the court to award a chapter 7 trustee

reasonable compensation for actual, necessary services and reimbursement of

12 Doc 216

13 Objection at 11 [Doc 216]

14 , 223 F.3d 190, 199 (3d Cir. 2000) (a court determines

the lodestar by multiplying the number of hours counsel reasonably worked on a client's

case by a reasonable hourly billing rate for such services in a given geographical area

provided by a lawyer of comparable experience.”)

actual and necessary expenses.15 Historically, chapter 7 trustee compensation was

determined by a lodestar analysis and applying the § 330(a)(3) factors; however, in

2005, the Bankruptcy Abuse Prevention and Consumer Protection Act (“BACPA”)

amended § 330 in a way that challenged the application of the lodestar analysis

when determining reasonable compensation for a chapter 7 trustee. Specifically,

BACPA added § 330(a)(7), which states: “In determining the amount of reasonable

compensation to be paid to a trustee, the court shall treat such compensation as a

commission, based on § 326.”

Many courts, including all of the Circuit Courts of Appeals to have considered

the issue, have found that this additional language, combined with the

corresponding removal of chapter 7 trustees from the list of professionals identified

in § 330(a)(3), indicated a Congressional intent to remove chapter 7 trustee

compensation from the traditional lodestar analysis, and convert it to a straight

commission as set forth in § 326. ,

880 F.3d 747 (5th Cir. 2018); , 522 B.R. 594,

, 796 F.3d 818 (7th Cir. 2015); , 750 F.3d 392

(4th Cir. 2014); , 473 B.R.

911 (9th Cir. BAP 2012). This Court agrees with the reasoning in those cases and,

for the reasons that will be discussed, holds that under § 330(a)(7), the graduated

percentage commission of § 326 must be considered a presumptively reasonable

15 11 U.S.C. § 330(a)(1)

compensation for a chapter 7 trustee and, in all but the most extraordinary cases,

courts should not apply an hourly rate lodestar analysis.

The Objectors arguments are not wholly consistent. The arguments vacillate

between advocating for the position that even after the addition of new

subparagraph (7) courts have substantial discretion to deviate from the formula in §

326, to seemingly acknowledging that § 326 controls and that courts may only

adjust a trustee commission in exceptional cases. In their reply dated November 3rd,

the Objectors urge the court to adopt the position taken by the District Court in

16 In that case, the court held:

Unlike the Trustee, I believe that, even post-BAPCPA, bankruptcy

courts retain substantial discretion to make a “reasonableness”

determination taking into account relevant factors including not

just the maximum allowable award under § 326(a), but also—in

appropriate cases—the time and effort expended by the trustee on

the case. Unlike the Trustee, I do not believe that this discretion is

limited to only the most exceptional cases, nor do I believe that the

types of considerations enumerated in § 330(a)(3) can never be taken

into account.17

This court finds the holding in unpersuasive for several reasons.

Preliminarily, it is important to note that was largely premised on the

reasoning in which was abrogated by the

Fifth Circuit.19 Second, the holding in has not been followed in more recent

cases.20 Finally, and most importantly, imposing a reasonableness analysis on the

16 418 B.R. 667 (W.D. Pa. 2009)

17 at 678

18 400 B.R. 84, 95 (Bankr. N.D. Tx 2009)

19 , 880 F.3d 747 (5th Cir. 2018)

20 , 612 B.R. 246, 249–50 (Bankr. D.N.H. 2020)

commission set forth in § 326 renders the addition of § 330(a)(7) a nullity: It makes

§ 330(a)(3) the starting point of an analysis of a trustee’s commission rather than §

326(a). The plain language of § 330(a)(7) permits no such interpretation; it states

that the court “shall” treat chapter 7 trustee compensation as a commission “based

on section 326.” A commission by its very nature is not tethered to the number of

hours expended. In another case relied on by the Objectors, , the

court held that even after the addition of § 330(a)(7) a court still needs to determine

the amount of that ‘commission’ and should do so by applying the lodestar approach

for deciding reasonableness. For the reasons already stated, this court finds that

superimposing a loadstar analysis on § 326 is improper. The court also finds it

telling that in reaching its conclusion, the court admitted it “is aware that

its holding may mean that the terms of § 330(a)(7) have a small impact on pre-

BAPCPA practice in awarding Trustees fees [and] [t]o some extent this might

conflict with the general rule of statutory interpretation that a Court should avoid

surplusage.” at 731.

That does not mean that this court takes the position that reasonableness

has no role; rather, that the percentage commission set forth in § 326 must be the

starting point. The changes to trustee compensation brought about by BAPCPA did

not write reasonableness out of the Code. At the end of the day, whatever

commission is awarded to a trustee must be reasonable because that word is

contained in §§ 330(a)(1), 330(a)(7) and 326. But the way reasonableness comes into

21 349 B.R. 725 (Bankr. D. Utah 2006)

play is not by ignoring the express terms of § 330(a)(7), but rather by deviating from

the commission only in the rare cases when the amount of the commission is

offensive based on the particular circumstances of a case. Indeed, the presumption

that the § 326 commission is reasonable is not a guarantee, and courts retain the

right under § 330(a)(2) to reduce the commission to less than the statutory

maximum in extraordinary circumstances. As noted by the Fourth Circuit in ,

Ҥ 330(a)(7) creates a presumption, but not a right, to a statutory maximum

commission-based fee for Chapter 7 trustees. But still, the starting point for

deciding Chapter 7 trustee compensation is always the commission rate to which

the trustee would normally be entitled had no extraordinary circumstances

existed.”22

The Objectors argue that the “Trustee now asks the Court to give him a

“bonus” without establishing any rare and exceptional performance.”23 That is

incorrect; the Trustee is not seeking a “bonus,” he is seeking the commission

provided for in § 326. The court will now, accordingly, address the allegations that

this is one of the rare cases in which extraordinary circumstances justify deviating

from the statutory commission. The Fifth Circuit has noted that “[w]hile we

recognize that Section 330 still allows a reduction or denial of compensation, this

should be a rare event. We acknowledge that exceptional circumstances can alter

the compensation, but “exceptional” is the key.”24

22 , 750 F.3d 392, 398 (4th Cir. 2014)

23 at 4 [Doc 216]

24 , 880 F.3d 747, 756 (5th Cir. 2018)

In a recent case, parties urged the court to find that the case was a “rare and

unusual” one that justified a downward deviation from the maximum commission

because virtually all of the funds available for distribution were the proceeds of a

personal injury claim that was litigated and settled by special counsel, and not by

the trustee.25 The court rejected that argument noting that such a situation

was not rare or unusual in a chapter 7 case. The court explained that were it to

adopt the position that proceeds resulting from legal services provided by a

professional retained by the trustee should be excluded from a trustee’s commission

“it would undermine the presumption of reasonableness that § 326 affords.”26

The Objectors make a similar argument here27 and the court rejects it for the

same reasons expressed in ; that is, that the Trustee’s actions in this case

were neither rare nor unusual. The Trustee retained a broker to market the

property, but when the broker failed to produce a reliable contract for sale the

Trustee retained an auctioneer to sell the property. Those actions are precisely what

section 704 of the Bankruptcy Code envisions when it states that a trustee shall

“reduce to money the property of the estate for which such trustee serves.”28 The

Objectors displeasure with the auction results does not transform this case into an

exceptional one.

25 , 612 B.R. 246 (Bankr. D.N.H. 2020)

26 at 251

27 “In the matter before the Court, the Trustee simply employed an auctioneer (and paid it

over $200,000 to sell the Property) and let the chips fall where they may.”

at 23 [Doc 216]

28 11 U.S.C. § 704(a)(1)

By comparison, the Fifth Circuit, in , affirmed the bankruptcy

court’s reduction of a trustee’s commission.29 In that case, the bankruptcy court

found that exceptional circumstances existed based on its express finding that the

trustee had violated his fiduciary duty to the estate by allowing his firm to seek

illegitimate fees from the estate.30 Here, the court has not been presented with any

evidence of that nature. The Objectors are merely presenting the court with recycled

arguments it has heard and rejected in other contexts. For example, the Objectors

once again argue that the Trustee acted improperly by failing to act on a $5.1

million offer, but as part of approving the sale motion this court has already found

that offer was illusory because of its myriad contingencies. Similarly, the Objectors

once again put forward their opinion that holding the auction in December chilled

the bidding, but this court has already found that not to be the case.

The court is also unpersuaded by the Objectors belief that the Trustee’s

commission should be reduced because it is too high in comparison to the work

performed by the Trustee. As the court in noted, a focus on

disproportionality is misguided because:

other than the formula in § 326, the Code contains no guidance as

to what constitutes “proportionate” compensation. Thus, when a

judge reduces a commission that he or she deems disproportionate

for some reason, the judge necessarily applies his or her own

conception of how trustees should be compensated rather than any

policy adopted by Congress. The better approach is for a court to

simply apply the formula in § 326 and leave it to Congress to amend

the statute if it decides that the current system results in over-

29 802 F. App'x 133 (5th Cir. 2020)

30 at 137

compensation of Chapter 7 trustees.31

The court also explained that by use of the word “commission” Congress was

obviously aware that a trustee commission under § 326 would not be directly tied to

the hours expended. Moreover, allowing commissions was at least, in part, intended

to compensate trustees for the work performed in no asset cases thus attracting a

talented and experienced pool of trustees which benefits all creditors. That

understanding of the commission construct is shared by other courts. As explained

in :

While it is axiomatic that chapter 7 trustee compensation for no-

asset cases ($60 per case under § 330(b)) was never intended to be

“reasonable” compensation for no-asset cases, Congress designed

compensation for asset cases under § 330(a) to be sufficiently

generous so as to fill the gap by subsidizing no-asset cases. The

theory is that the U.S. trustee, who selects, assigns, and supervises

trustees, will assign a portfolio of asset and no-asset cases that will

on average reasonably compensate a trustee.32

Overall, the court finds that nothing about this case, the trustee’s actions, or

the auction results make this case extraordinary. The Objectors have presented no

new information that would lead this court to conclude that the trustee in this case

deviated from the professional standards of a trustee thereby justifying the court

reducing his statutory commission.

The only arguably extraordinary thing about this case is the Objectors’

unrelenting adherence to their false, self-serving narrative. Apparently it must be

said again that the property that was sold by the Trustee, that they imagine to be

31 , 522 B.R. 594, 601 (E.D. Wis.), , 796

F.3d 818 (7th Cir. 2015)

32 517 B.R. 206, 218 (Bankr. E.D. Cal. 2014) (footnote omitted)

worth $12 million dollars,33 was not fully in the Debtor’s control when this

bankruptcy case was filed. The Objectors would like the court to believe that they

are writing on a blank slate. They are not. The long history began more than 11

years ago when SB Building Associates first defaulted on its mortgage payments to

Iron Mountain. Iron Mountain initiated a foreclosure proceeding as far back as

2009. Iron Mountain has had a final foreclosure judgment since as far back as 2011.

The only reason the property was not sold at a foreclosure sale was because the

Debtor filed its first bankruptcy on the day of the sale. The Debtor confirmed a plan

of reorganization in that case34 that provided for $2,200,000 in total payments to

Iron Mountain for its secured claim, including a $1,325,000 lump sum payment due

before January 15, 2016. The Plan also provided that, if the Debtor failed to make

that lump sum payment, the Debtor must make a balloon payment before January

1, 2018 of all outstanding principal and interest. The Debtor failed to make either

the lump sum or the balloon payment. Of vital importance to understanding this

case, and the self-serving narrative that the Objectors are advancing, are the

consequences included in the confirmation order if the Debtor failed to make

payments in accordance with the terms of its plan of reorganization. The

Confirmation Order provided that in the event of default, “(i) . . . all obligations

owing to [Iron Mountain], including principal and all accrued and unpaid interest,

fees, costs, charges and attorney’s fees, shall accelerate and become immediately

33 The Objectors put forth as “evidence” of the Trustee’s subpar results in the case the fact

that 7 months after the auction sale the property is listed for $12 million. A mere listing

price is not probative evidence of actual value.

34 13-26699 MBK

due and payable; and (ii) [Iron Mountain] shall be permitted (a) to proceed with any

and all legal rights and remedies in accordance with the Judgments, the secured

lien, the Plan and the law.”35 The Confirmation Order further provided that in the

event of default the Debtor “shall consent to, relief from any automatic stay imposed

by § 362 of the Bankruptcy Code ….” When the Debtor filed its second Chapter 11

petition in 2017, Iron Mountain immediately filed a motion seeking prospective

relief from the automatic stay based on the continued chicanery of the Debtor, SB

Building, and associated entities. Despite agreeing in its previous bankruptcy to

consent to stay relief in any future bankruptcy, the Debtor opposed Iron Mountain’s

request for stay relief in the second bankruptcy filing.36 At the hearing on the

motion, Lawrence Berger argued to Judge Kaplan37 that he should not have to abide

by what he agreed to in his first bankruptcy case because it amounts to an

unenforceable clause. Judge Kaplan disagreed stating that he had no

doubt that the waiver of the automatic stay was an integral part of why Iron

Mountain consented to the Plan. Moreover, Judge Kaplan found that enforcing that

waiver in the second bankruptcy filing would not violate public policy and was

appropriate on numerous grounds including res judicata and judicial estoppel.38

35 Order Confirming Second Modified Plan of Reorganization [Doc 158] in case 13-26699

36 The Debtor also failed to comply with other provisions of the confirmation order in the

first case, such as cooperating with Iron Mountain in the state court.

37 The case was reassigned to Judge Ferguson on 6/5/19

38 Transcript of November 19, 2018 hearing at 30 – 32 [Doc 58]

Judge Kaplan entered orders that granted stay relief effective 60-days from the date

of the order, and converted the case to chapter 7.39

This long history is necessary to make the point that this property was only

able to be sold by the chapter 7 trustee because Judge Kaplan allowed a 60-day

window in which it would hold Iron Mountain’s stay relief in abeyance so that the

newly appointed chapter 7 trustee could familiarize himself with the case and

decide if the property had any value for the bankruptcy estate. Further agreements

between the Trustee and Iron Mountain to extend the automatic stay are what

ultimately led to the auction sale of the property in December 2019 and produced

the pot of money to pay creditors in full and produce a small return for the Debtor.

Because this Debtor had agreed to future stay relief back in 2015, the auction of

this property (as opposed to a sheriff’s sale, which would have resulted in a return

to no one but Iron Mountain) was a gift to the Debtor. Yet, the Objectors want to

use the Trustee’s alleged mismanagement of this sale (that essentially created

something from nothing) as the basis for denying the Trustee his statutory

commission. The court is aware that SB Building Associates Limited Partnership

has filed an appeal of the sale order with the Third Circuit, but no stay pending

appeal of the sale was granted40 and this court must view the facts as they are

presently and not how the Objectors fervently wish them to be.

The objections are overruled. The court grants the Trustee the full statutory

39 The Debtor appealed both orders and the District Court dismissed the appeal of the order

granting stay relief [Doc 82, 83]

40 A request for a stay pending appeal was denied by the Bankruptcy Court, District Court

and Third Circuit Court of Appeals.

commission and expenses as requested. The Objectors argument that some of the

services the Trustee has included in his request for attorney fees should be

considered trustee functions and thus part of his commission will be considered as

part of the objection to the fee applications of the trustee’s attorney Atkinson &

DeBartolo, P.C..

Trustee’s request for future commission

In addition to commission already addressed, the Trustee is “also seeking

that the Order provide that without further order of the Court I am entitled to

receive and authorized to pay a commission of 3% of the disbursements made for the

administrative expenses awarded to Atkinson & DeBartolo, P.C. and The Kelly

Firm, P.C. for attorney fees and costs, and for the distribution to W.J . Casey

Trucking & Rigging Co.”41 The order dismissing this case required that the Trustee

hold $70,000 in escrow for the unsecured creditor W.J. Casey Trucking & Rigging

Co., Inc., to be disbursed as set forth in the Order.

Section 326 provides that a trustee is entitled to a commission “upon all

moneys disbursed or turned over in the case by the trustee to parties in interest ….”

11 U.S.C. § 326(a). W.J. Casey Trucking & Rigging Co. is an unsecured creditor of

this estate and is indisputably a party in interest, thus, any distribution to it would

fall within § 326.42 The term “party in interest” is not defined in the Code. The term

is used in § 1109, regarding the right to be heard in Chapter 11 cases, and the

41 Doc 209 at para. 17

42 Although the case was dismissed prior to the distribution to W.J. Casey, the court

retained jurisdiction over all requests for commissions, fees, and expenses in the Order

Dismissing Chapter 7 Case. [Doc 202]

section lists numerous examples of parties in interest, but that list does not include

an attorney representing a trustee. The Third Circuit has defined a “party in

interest” as one who “has a sufficient stake in the proceeding so as to require

representation.”43 The Third Circuit has also adopted the definition of a “party in

interest” expressed by the United States Court of Appeals for the Seventh Circuit as

“anyone who has a legally protected interest that could be affected by a bankruptcy

proceeding.”44 An attorney representing a trustee does not fall within the ambit of

either definition. The Trustee has not cited the court to any case in which the basis

for a commission included fees paid to a trustee’s professionals. Even if he had, the

court would reject such cases as inconsistent with the Third Circuit’s understanding

of a party in interest in bankruptcy and as inappropriate double-dipping.45

The request for a 3% commission on any funds ultimately disbursed to W.J.

Casey Trucking & Rigging Co., Inc. is granted. The request for a 3% commission on

any funds distributed to the trustee’s professionals is denied.

Atkinson & DeBartolo’s requests for compensation

Atkinson & DeBartolo, P.C. filed a Second Application for Compensation for

the trustee’s attorney in the amount of $56,900.00 and expenses in the amount of

$247.25.46 The Objectors sought reduction of that request, and additionally asked

43 , 755 F.2d 1034, 1042 (3d Cir.1985)

44 , 645 F.3d 201, 210 (3d Cir. 2011) (

, 965 F.2d 160, 169 (7th Cir.1992))

45 In this case, the Trustee hired his former law firm, Atkinson & DeBartolo, P.C., as his

attorney and he hired his current law firm, The Kelly Firm, P.C., as his special counsel.

46 Doc 187; Doc 189 (corrected fee application); Doc 204 (further corrected fee application)

the court to reconsider fees and expenses previously awarded to Atkinson &

DeBartolo. The court will first consider the current application.

Second Application for Interim Compensation

While this court ruled that a trustee is entitled to a presumption of the

reasonableness of his commission, his counsel is not entitled to the same

presumption. Section 330(a)(1) provides that a professional retained by the estate is

entitled to “reasonable compensation for actual, necessary services” and

“reimbursement for actual, necessary expenses.”47 The applicant bears the burden

of proving the necessity of its services and the reasonableness of its fees.48 The

Bankruptcy Code itself provides the standard for determining reasonableness.

Section 330(a)(3) of the Bankruptcy Code provides that:

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;

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.330(a)(3).

47 11 U.S.C. § 330(a)(1)(A) and (B)

48 50 F.3d 253, 260 (3d Cir. 1995);

, 2020 WL 4060178 (D.N.J.

July 20, 2020)

The failure of an applicant to sustain the burden of proof as to the reasonableness of

the compensation may result in the denial of the request.49 Because administrative

claims go to the front of the line, courts narrowly construe such allowances to

protect other creditors.50 The court reviewed the time detail submitted and the

objections filed against this backdrop.

When reviewing a fee application for an attorney representing a trustee, the

court must be careful to ensure that no purely trustee duties51 are billed as attorney

work. It is firmly established that “[a]n attorney is never entitled to professional

compensation for performing duties which the statute imposes upon the trustee.”52

It is “[o]nly when unique difficulties arise may compensation be provided for

services which coincide or overlap with the trustee's duties....”53

In the Second Application for Compensation, there are numerous examples of

work billed by the attorney that are properly characterized as trustee work rather

than attorney for the trustee work. For example, there is considerable time billed to

49 , 841 F.2d 365 (11th Cir. 1988)

50 ., 200 B.R. 558 (Bankr. D.N.J. 1996)

51 The following services are generally considered trustee duties for which attorney's fees

are not allowed: “Services relating to the sale of the debtor's assets; Collection of accounts

due; Examination of the debtor's papers; Preparation of notices and advertisements for the

sales of the debtor's assets, and license renewals; Routine telephone calls and

correspondence with information seekers; Reduction of the estate to money; Payment of

routine bills, including taxes; Arranging insurance coverage; Arranging for appraisals of

the estate; Corresponding with creditors re documentation of claims; Reviewing title

reports; Preparing and filing objections to claims; Preparing application for employment of

professional; Acting as liaison with special counsel.” , 93 B.R. 238, 241

(Bankr. E.D. Cal. 1988)

52 , 317 B.R. 810, 816 (Bankr. S.D. Cal. 2004), , 335

B.R. 717 (B.A.P. 9th Cir. 2005) (quoting In re Shades of Beauty, Inc., 56 B.R. 946, 949

(Bankr. E.D.N.Y. 1986), , 95 B.R. 17 (E.D.N.Y. 1988))

53 , 32 F.3d 1370, 1373 (9th Cir. 1994) (citations omitted)

communicating with creditors and review of claims. While some of these

communications may have related to litigation and required attorney attention, the

lack of detail in most of those time entries does not enable the court to draw that

conclusion. Since communication with creditors and review of claims are

quintessentially a trustee function, and since it is the burden of the applicant to

prove these time entries were lawyer functions rather than trustee functions, an

adjustment of $5,958 on that basis is appropriate. Likewise, there are numerous

entries for time billed after the retention of the Kelly firm as attorneys for the

trustee. The court can only assume that these services were trustee functions, since

to assume otherwise is to assume inappropriate duplication of services. A trustee is

certainly allowed to communicate with counsel, but that is a trustee function rather

than a lawyer service. The court will make an additional adjustment of $399 on that

basis. Finally, there are multiple time entries that contain insufficient detail to

permit the court to conclude that the services were beneficial to the estate, billed at

a reasonable rate or not duplicative. The court will make an additional downward

adjustment of $1,427 on that basis.

In a letter filed September 17, 2020, the Objectors raised the issue that there

are mathematical errors in the application for compensation and that the individual

time entries add up to approximately $6,000 less than is being requested.54 The

next day, the Trustee filed a corrected fee application presumably to address that

problem.55 The corrected application suffers the same problem – the total at the end

54 Doc 203

55 Doc 204

of the time records states a total balance due of $50,793.15 for attorney fees and

$156.15 for expenses; however, the application seeks $56,900 for attorney fees and

$247.25 for expenses. As previously noted, the applicant bears the burden of

establishing the propriety of its request for compensation.56 The Trustee has not

satisfied his burden in this regard, so the court must further reduce the fee

application by $6,106.85 for attorney fees and $91.10 for expenses.

These reductions result in a total downward adjustment of the Second

Application for Compensation of $13,890.85 and $91.10 for expenses. Fees will be

allowed in the amount of $43,009.15 and expenses will be allowed in the amount of

$156.15.

First Interim Application for Compensation

In September 2019, this court approved Atkinson & DeBartolo’s first interim

application for compensation awarding $27,049.00 in fees and $254.82 in

expenses.57 The court notes that no objections to that application were filed. But,

because this case has been dismissed, the Second Application for Compensation,

although not so designated, must be considered the final fee application. As a result,

the court can reevaluate interim fees that have been awarded in light of the totality

of the circumstances of the case.

Bankruptcy professionals are not required to wait until the end of a case to

be paid. Section 331 of the Code, titled “Interim compensation,” provides that a

56 50 F.3d 253, 260 (3d Cir. 1995);

, 2020 WL 4060178 (D.N.J.

July 20, 2020)

57 Doc 84

professional may apply for and be awarded compensation “not more than once every

120 days.” An order granting interim compensation is not a final order.58 Interim

allowances are interlocutory in nature, and are “always subject to the court's re-

examination and adjustment during the course of the case.”59 Awarding “interim”

compensation under § 331 allows the court “to judge the propriety of the fees under

§ 330 with facts that may come to light after the payments are rendered.”60 The

purpose behind making interim fee awards not final orders is to provide an

enforcement mechanism for the § 330 limitations on compensation. In other words,

a bankruptcy judge must ensure not only that each individual fee application it

approves is reasonable, but also that the total fees awarded in the case are

reasonable. As explained by the bankruptcy court in ,

The policy behind allowing “interim” compensation to professionals

employed under § 327 is to provide for a compromise between the

§ 330 policy that a professional has properly earned the fees and

has not taken advantage of the bankruptcy process, and the policy

of allowing professionals to be paid at least timely enough that they

can reasonably undertake the case. That is, because many of the factors

to be considered in a § 330 fee award may not come to light until after

such time as a professional would require compensation to be able to

fund his or her own operations, the § 331 mechanism was developed to

provide for both goals. Thus, a professional can be paid on a fairly

timely basis, and reasonably expect to be able to retain those fees as

58

, 890 F.2d 1312 (5th Cir. 1989) (interim fee awards are not final

and are subject to review at the conclusion of the case); , 170 B.R. 1

(Bankr. D.D.C. 1994)

59 , 673 F.2d 305, 307 (10th Cir. 1982) (quoting 2 Collier on Bankruptcy ¶

331.03 (15th ed. 1981)); , , 26 B.R. 905,

909 (Bankr. D. Vt. 1983) (noting that payment of interim compensation is subject to the

court's re-examination and adjustment during the course of the case)

60 , 214 B.R. 992, 1002 (Bankr. N.D. Ohio 1997), , 219 B.R. 741

(B.A.P. 6th Cir. 1998)

long as he or she has not acted in the manner proscribed by § 33061

Although a review of interim fees at the end of a case was always permitted,

changes made to the Bankruptcy Code in 1994 created a specific enforcement

mechanism for situations in which a court finds that the interim fees awarded

exceed the total amount of fees the court finds to be reasonable compensation.

Section 330(a)(5) provides: “[t]he court shall reduce the amount of compensation

awarded under this section by the amount of any interim compensation awarded

under section 331, and, if the amount of such interim compensation exceeds the

amount of compensation awarded under this section, may order the return of the

excess to the estate.”

Two aspects of this case lead the court to conclude that review of the

previously granted fees is appropriate. One is that the Trustee in this case was

awarded his full trustee commission, so it is important to ensure that no trustee

activities were inadvertently compensated as attorney functions. The other is that

Mr. Atkinson billed at the top end of the range of generally accepted hourly rates,62

so the court must ensure that no amounts were billed at that rate that could or

should have been performed by clerical staff or an attorney at a lower hourly rate.

The objection to the first interim application is a mixed bag. At the outset,

the court notes that the elaborate numeration of specific objections to specific time

entries fell out of sync at several points, making review of the extensive objection

61

62 See later in the opinion for a full discussion of the hourly rates for the Trustee’s

professionals.

more arduous than was strictly necessary. Nonetheless, the court reviewed each

entry and attempted to ascertain the nature of the objection to each entry, based on

loosely grouped categories that are themes in the objection.

Some whole categories of the objection are overruled. The objection that

review of legal documents is a trustee function assumes that a trustee is a lawyer.

While that happens to be the case here, that is not the standard for whether legal

services are compensable. The objection that counsel for the trustee need not

concern himself with litigation outside the bankruptcy court is likewise overruled. A

lawyer in a case as complex and litigious as this one cannot be expected to provide

services while wearing blinkers.

The objection to services relating to attempts to settle that were unsuccessful

is categorically overruled because it applies an incorrect legal standard. The

standard is not whether the services, in retrospect, did not benefit the estate, but

whether a reasonable attorney would have undertaken them.63 Although the Third

Circuit has not expressly ruled on this issue, the leading bankruptcy treatise notes

that “[t]he majority of courts have determined the ‘necessity’ of particular services

from the perspective of the time that the services were rendered rather than based

on hindsight after the services had been performed.”64 Since 1994, that concept has

codified in § 330(a)(3)(C) (“whether the services were … beneficial at the time at

which the service was rendered”). The settlement efforts here were reasonably

63 , 317 F.3d 918, 926 (9th Cir. 2002) (“services that are reasonably likely to

provide an identifiable, tangible and material benefit to the debtor's estate can be

compensated, even if they do not actually provide such a benefit”)

64 3 ¶ 330.04[1] [b][iii] at 330–32 (1998)

undertaken at the time and not excessive. More to the point, it is bad policy and

inconsistent with the policies underlying the Bankruptcy Code to punish an

attorney for undertaking reasonable efforts to settle litigation.65

The Objectors argument that there were “wasteful, unnecessary

communications by the Trustee and the Atkinson Firm with counsel for Readington

and counsel for Bellemead, relating to the sewer capacity state court litigation”66 is

but one example of the inconsistent positions taken by the Objectors. It is if the

sewer capacity litigation were successfully concluded in the Debtor’s favor that the

Property could possibly be sold for the $5 million or above value that the Objectors

claim it had and which formed the basis of the Objectors’ belief that the Trustee was

derelict in his duties by selling the Property at auction for $3 million. It is one of the

many examples of the principals of the Debtor wanting to have their cake and eat it

too.

Some other categories of objection are well taken. There is a wide-ranging

failure to include enough detail to enable the court to determine whether services

were trustee services or were reasonably rendered. There are many, many examples

of time entries billing .1 hours for “left message” or “review” of perfunctory

documents. There are some entries, such as review of claims, that are clearly

trustee functions. There is attorney time that should have been billed at a lower

rate. These shortfalls require a reduction of $4,798. In addition, there is time billed

65 , 91 F.3d 389 (3d Cir. 1996) (holding that settlements are

favored in bankruptcy cases)

66 Doc 216 at 7

at a full rate for travel, requiring a further reduction of $750. That leaves us with a

total reduction of $5,548 off the previously awarded fee of $27,303.82. To the extent

those fees have already been received by Atkinson & DeBartolo, the firm is directed

to either refund those funds to the estate or reduce its total fees awarded by that

amount pursuant to § 330(a)(5).

The Kelly Firm’s request for compensation

The Kelly Firm, attorney for the Trustee, seeks fees totaling $54,240 and

expenses in the amount of $1,552.85.67 The Objectors take issue with both specific

time entries, and, more generally, object on the grounds that the services went

beyond the scope of the retention order and that some services did not benefit the

bankruptcy estate. Again, the court has reviewed the time detail and overrules the

objection to these fees in its entirety.

Prior to the order of July 25, 2020 expanding the scope of retention, the

overwhelming majority of the time entries relate directly to defending the appeals

in the District Court and Third Circuit Court of Appeals. The other entries relate to

closing on the sale and the impact of a lis pendens, both of which relate directly to

the concept of equitable mootness. Moreover, this was an extensively litigated case,

and the parties appeared to have engaged in settlement efforts during the appeal

process. An appellate lawyer must be fully versed with not only the history of the

case, but all pending activity that may possibly be relevant to settlement efforts.

67 Doc 208

The objection that certain of counsel’s services did not benefit the estate

applies the wrong standard. As previously discussed, litigation services for

professionals retained on an hourly basis is not actual benefit to the estate, but

whether those services were reasonably undertaken. Determining whether

compensation is necessary and reasonable, “requires only that the services in

question had a reasonable likelihood of benefiting the estate at the time they were

provided, not that they actually did provide a benefit.”68 Court are remarkably

consistent in holding that a determination as to whether professionals services are

necessary to the administration of the estate is made “in light of the facts known at

the time the services were performed, and not on an after-the-fact basis using the

benefit of hindsight”.69 As stated by the bankruptcy court in

[T]he appropriate perspective for determining the necessity

of the activity should be prospective: hours for an activity or

project should be disallowed only where a Court is convinced

it is readily apparent that no reasonable attorney should have

undertaken that activity or project or where the time devoted

was excessive. [ ] The Court’s benefit of ‘20/20 hindsight’ should

not penalize professionals.71

68 , 382 B.R. 533, 545 (Bankr. M.D. Fla. 2007) (citing In re American

Metallurgical Products, Inc., 228 B.R. 146, 159 (Bankr. W.D. Pa. 1998))

69 , 273 B.R. 250, 259 (Bankr. M.D. Ala. 2002); ,

., 234 B.R. 121, 130 (Bankr. W.D. Okla. 1999) (courts should not

engage in an analysis, “[r]ather the test is that the services must have

appeared to have been reasonable at the time they were performed”) (citing Grant v.

Martinez, 973 F.2d 96, 99 (2nd Cir. 1992))

70 133 B.R. 13 (Bankr. S.D.N.Y. 1991)

71 at 23

Thus, courts are charged with conducting an objective inquiry with respect to a fee

application, “‘based upon what services a reasonable lawyer or law firm would have

performed in the same circumstances.’”72 The objection on this basis is a thinly

veiled argument that SB did not agree with the litigation decisions of the Trustee.

There is not a single entry in the application of the Kelly Firm that suggests

that the services were rendered without a reasonable basis in fact or law or with the

intent to advance the interests of anyone other than the creditors of this estate. For

example, this court declined to adopt the Trustee’s position on Norris

McLaughlin’s motion to dismiss, but the Trustee’s position was worthy of the

serious consideration this court gave it.

Finally, the Objectors argue that neither the Kelly Firm nor Atkinson &

DeBartolo have established that their hourly rates are reasonable. During the

course of this case, Mr. Atkinson billed at an hourly rate of $550 in 2018; $570 in

2019; and $590 in 2020. Mr. Kelly billed at an hourly rate of $450. It is curious what

kind of non-hearsay evidence the Objectors believe might be presented on this issue.

It is possible that the applicants could certify that they are familiar with hourly

rates for the type of work that they did in the geographical area that they did, but it

is not clear that certification would be more valuable than this court’s familiarity

with both of those factors. This court reviews hundreds of fee applications for

services in the Trenton vicinage a year and is well aware of the hourly rates

72 ., 304 B.R. 85, 89 (Bankr. D. Del. 2003) (quoting

, 76 F.3d 66, 72 (2d Cir. 1996)); , 421 B.R. 115 (Bankr.

S.D.N.Y. 2009) (same)

charged by bankruptcy professionals. This court is also quite familiar with the

complexity and quality of the work done by these professionals in this case. This

court (unlike, say, fee applicants) has no reason to inflate its perception of

reasonable hourly rates. While it is true that it is the burden of fee applicants to

establish that the hourly rates sought are reasonable, historically that has been

done by disclosing the number of years the professional has been admitted and

other professional accomplishments. These applicants have done that.73 Those

disclosures, along with the court’s own knowledge of hourly rates in this area and

the type of work done, are enough to meet that burden.74 The Bankruptcy Appellate

Panel for the First Circuit has noted that when evaluating an hourly rate a

bankruptcy court may rely on its own knowledge and experience of prevailing fees

in a particular market.75

Just by way of example, the court notes that Jay Lubetkin, who filed these

objections on behalf of the Debtor’s sole equity owner SB Building Associates

Limited Partnership, has been admitted to the bar seven years fewer than Mr.

Atkinson and bills at an hourly rate of $525. In his 2019 application to have his firm

Rabinowitz, Lubetkin & Tully appointed as the attorney for the debtor in SB

Building’s own chapter 11 case,76 one of the firm’s attorneys was listed as billing

$575 per hour. As another point of reference, the firm of Norris McLaughlin &

73 Doc 218; Doc 219

74 , 2009 WL 2167736, at *8 (Bankr. E.D.N.Y. July 15, 2009) (court determined

a reasonable hourly rate based on its “familiarity with rates generally charged in this

district for services of this type.”)

75 ., 210 B.R. 493 (B.A.P. 1st Cir. 1997)

76 13-12682 VFP

Marcus, who previously represented SB Building in its Chapter 11 case, disclosed in

its 2013 application to employ the firm that its members on the case would bill at

rates up to $590.

Conclusion

The objections to the Trustee’s commission are overruled. The court is

granting the Trustee the full statutory commission and expenses as requested. The

request for a 3% trustee commission on any funds ultimately disbursed to W.J.

Casey Trucking & Rigging Co., Inc. is granted without further order. The request

for a 3% trustee commission on any funds distributed to the trustee’s professionals

is denied. The objections to the Kelly Firm’s application are overruled in their

entirety and the fees and expenses are granted as requested. The objections to the

Trustee’s First Interim Application for Compensation are granted in part and

denied in part. The previously awarded fee of $27,303.82 is hereby reduced by

$5,548. The objections to the Trustee’s Second Application for Compensation is

granted in part and denied in part. Fees are allowed in the amount of $43,009.15

and expenses are allowed in the amount of $156.15.

KATHRYN C. FERGUSON

United States Bankruptcy Judge

Dated: January 11, 2021