Petition for Writ of Certiorari — Clifton Capital Group, LLC, Petitioner v. Bradley Sharp

Supreme Court briefJan 29, 2024

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No. ____

IN THE

Supreme Court of the United States

————

CLIFTON CAPITAL GROUP, LLC,

Petitioner,

BRADLEY SHARP,

Respondent.

————

On Petition for Writ of Certiorari to the

United States Court of Appeals

for the Ninth Circuit

————

PETITION FOR A WRIT OF CERTIORARI

————

ANTHONY R. BISCONTI

Counsel of Record

BIENERT KATZMAN

LITTRELL WILLIAMS LLP

360 E. 2nd Street, Ste. 625

Los Angeles, California 90012

(213) 528-3400

tbisconti@bklwlaw.com

Counsel for Petitioner

January 29, 2024

QUESTION PRESENTED

Petitioner is one of the largest creditors in the

Chapter 11 bankruptcy case of East Coast Foods, Inc.,

manager of the famed Roscoe’s House of Chicken &

Waffles restaurant. To date—approaching six years

after the bankruptcy plan was confirmed—Petitioner

has not been paid a penny on its claim. Respondent,

the former Chapter 11 trustee, on the other hand, not

only received payment for the services he charged the

bankruptcy estate, but a substantial unwarranted bonus ordered by the bankruptcy court.

Petitioner challenged the bankruptcy court’s order

awarding Respondent’s bonus. As one of the largest

creditors in the bankruptcy case, the plain text of the

Bankruptcy Code permits Respondent as a “party in

interest” to “raise” and “be heard on any issue” in the

Chapter 11 proceeding. 11 U.S.C. § 109. But the court

of appeals did not reach the merits of Petitioner’s appeal and instead held that Petitioner lacked standing

to challenge the bankruptcy court’s order awarding

Respondent’s bonus.

The question presented is:

If a bankruptcy plan proposes to pay creditors in

full with interest, does a creditor who alleges that a

bankruptcy court order will delay its receipt of funds

state an injury in fact sufficient to confer Article III

standing to appeal the order?

(i)

PARTIES TO THE PROCEEDINGS AND

RULE 29.6 STATEMENT

Petitioner Clifton Capital Group, LLC is one of the

largest unsecured creditors in the underlying Chapter

11 bankruptcy case of debtor East Coast Foods, Inc.,

was a party in interest in the bankruptcy court pursuant to 11 U.S.C. § 1109(b), and was the appellant before the district court and court of appeals. Petitioner

has no parent corporation and no publicly held corporation owns 10% or more of its stock.

Respondent Bradley Sharp is the former Chapter

11 trustee appointed in the underlying Chapter 11

bankruptcy case pursuant to 11 U.S.C. § 1104 and was

a party in interest in that case. Respondent was the

appellee before the district court and court of appeals.

(ii)

STATEMENT OF RELATED PROCEEDINGS

Pursuant to this Court’s Rule 14.1(b)(iii), the following proceedings are directly related to this case:



Clifton Capital Group, LLC v. Bradley Sharp

(In re East Coast Foods, Inc.), No. 21-55967 (9th

Cir.) (order and amended opinion entered Sept.

14, 2023);



Clifton Capital Group, LLC v. Bradley Sharp

(In re East Coast Foods, Inc.), No. 2:18-cv-10098

(C.D. Cal.) (order entered Aug. 6, 2021);



Clifton Capital Group, LLC v. Bradley Sharp

(In re East Coast Foods, Inc.), No. 2:18-cv-10098

(C.D. Cal.) (order entered Dec. 18, 2019);



In re East Coast Foods, Inc., No. 2:16-bk-13852

(Bankr. C.D. Cal.) (order and findings of fact

and conclusions of law entered).

(iii)

TABLE OF CONTENTS

Question Presented ......................................................i

Parties to the Proceeding and Rule 29.6

Statement .................................................................. ii

Statement of Related Proceedings ............................ iii

Table of Contents ....................................................... iv

Table of Authorities..................................................... v

Petition for a Writ of Certiorari .................................. 1

Opinions Below ............................................................ 1

Jurisdiction .................................................................. 2

Constitutional and Statutory Provisions Involved .... 2

Statement ................................................................... 2

Reasons for Granting the Petition .............................. 7

A. The Ninth Circuit’s decision carves out

a new and problematic exception to

constitutional standing doctrine ...................... 8

B. The standing question is exceptionally

important and squarely presented................. 11

C. The decision below is erroneous ................ 12

Conclusion ................................................................. 13

(iv)

TABLE OF AUTHORITIES

Cases

Burlington N. & Santa Fe Ry. Co. v. White,

548 U.S. 53 (2006) ....................................................9

Cf. TransUnion LLC v. Ramirez,

594 U.S. 413 (2021) ................................................10

Dieffenbach v. Barnes & Noble, Inc.,

887 F.3d 826 (7th Cir. 2018)....................................8

Ensminger v. Credit L. Ctr., LLC,

No. 19-CV-02147-TC-JPO, 2023 WL 6313680,

(D. Kan. Sept. 28, 2023) ..........................................9

Habitat Educ. Ctr. v. U.S. Forest Serv.,

607 F.3d 453 (7th Cir. 2010)....................................8

In re East Coast Foods, Inc.,

80 F.4th 901 (9th Cir. 2023) ....................................6

In re Global Industrial Technologies, Inc.,

645 F.3d 201 (3d Cir. 2011) ...................................12

In re P.R.T.C., Inc.,

177 F.3d 774 (9th Cir. 1999)....................................4

In re U.S. Off. of Pers. Mgmt. Data Sec. Breach Litig.,

928 F.3d 42 (D.C. Cir. 2019) ....................................9

Jones v. Ford Motor Co.,

85 F.4th 570 (9th Cir. 2023) ..................................11

Lucas v. S.C. Coastal Council,

505 U.S. 1003 (1992) ..............................................11

Lujan v. Defenders of Wildlife,

504 U.S. 555 (1992) ..................................................6

(v)

Missouri v. Jenkins by Agyei,

491 U.S. 274 (1989) ................................................10

MSPA Claims 1, LLC v. Tenet Fla., Inc.,

918 F.3d 1312 (11th Cir. 2019).......................... 8, 11

Nunez v. Exec. Le Soleil New York LLC,

No. 22 CIV. 4262 (KPF),

2023 WL 3319613 (S.D.N.Y. May 9, 2023) .............9

Stephens v. U.S. Airways Grp., Inc.,

644 F.3d 437 (D.C. Cir. 2011) ..................................9

Taylor v. Fed. Aviation Admin.,

351 F. Supp. 3d 97 (D.D.C. 2018) ............................9

Van v. LLR, Inc.,

962 F.3d 1160 (9th Cir. 2020)................................10

Statutes

11 U.S.C. § 1109(b) ....................................................12

11 U.S.C. § 326(a) ........................................................3

11 U.S.C. §1126 .........................................................12

U.S. Const. art. III, § 2 ................................................6

Other Authorities

Catherine Cote, Time Value of Money (TVM):

A Primer, Harvard Business School Online Business

Insights Blog, (June 16, 2022)

https://online.hbs.edu/blog/post/time-value-of-money ... 9

(vi)

In the Supreme Court of the United States

No.

CLIFTON CAPITAL GROUP, LLC,

Petitioner

BRADLEY SHARP,

Respondent

On Petition for Writ of Certiorari

To The United States Court of Appeals

for the Ninth Circuit

PETITION FOR A WRIT OF CERTIORARI

Petitioner Clifton Capital Group, LLC respectfully

petitions for a writ of certiorari to review the judgment of the United States Court of Appeals for the

Ninth Circuit in this case.

OPINIONS BELOW

The opinion of the court of appeals (App. 1a) is reported at 80 F.4th 901. The initial (App. 38a) and operative (App. 19a) opinions of the district court are not

published but are available at 2019 WL 6893015, and

2021 WL 3473926, respectively. The bankruptcy

court’s final fee order (App. 54a) and subsequent findings of fact and conclusions of law in support of its final fee order (App. 58a) are not published.

JURISDICTION

The court of appeals issued its judgment on May 8,

2023. The court of appeals denied a timely petition for

rehearing and amended its judgment on September

14, 2023. On December 17, 2023, this Court extended

the deadline to file a petition for a writ of certiorari to

January 29, 2024. The petition is timely filed. This

Court has jurisdiction under 28 U.S.C. § 1254(1).

CONSTITUTIONAL AND STATUTORY

PROVISIONS INVOLVED

Pertinent statutory and constitutional provisions

are reproduced at App. 137a.

STATEMENT

This case raises a question of exceptional importance regarding constitutional standing and federal jurisdiction. Petitioner is the former chair of the

unsecured creditors committee in the underlying

Chapter 11 bankruptcy case and holds one of the largest unsecured claims against the estate. It has yet to

receive any payment under a bankruptcy plan confirmed more than five years ago.

After the bankruptcy plan was confirmed, the

bankruptcy court awarded Respondent a fee enhancement of approximately $400,000 over Petitioner’s objection, to be paid ahead of any payment to creditors.

Petitioner appealed, arguing the bonus was unwarranted.

Although no one raised the issue of constitutional

standing, and the district court twice found that Petitioner meets the more stringent prudential standing

test for bankruptcy cases, the Ninth Circuit sua

sponte questioned whether Petitioner suffered an Article III “injury in fact” required to challenge the fee

award. After receiving supplemental briefing on the

issue, the appeals court held that Petitioner is not injured by any delay in payment the bankruptcy court’s

enhanced fee order might cause because Petitioner

should, at some point, be paid in full with interest.

The court thus ordered the appeal dismissed for lack

of Article III standing. That decision carves out a new

and troubling exception to constitutional standing

doctrine, and merits review by this Court.

1. In March 2016, East Coast Foods, Inc. (“ECF”),

manager of four locations of the storied Roscoe’s

House of Chicken and Waffles restaurants in Los Angeles, filed for Chapter 11 bankruptcy. The Office of

the United States Trustee appointed a committee of

unsecured creditors (“the Committee”) to monitor

ECF’s activities. Petitioner Clifton Capital Group,

LLC (“Clifton”) was named chair of the Committee.

The bankruptcy court later ordered the appointment

of a Chapter 11 Trustee to manage ECF’s affairs and

Respondent Bradley Sharp was appointed as the

Chapter 11 Trustee (“the Trustee”).

In January 2018, the Committee and ECF’s principal jointly proposed a Chapter 11 bankruptcy plan

(“the Plan”). The bankruptcy court confirmed the

Plan, effective September 2018. The following month,

the Trustee submitted a final fee application for approval of his fees and costs.

In his application to the bankruptcy court, the

Trustee requested $1,155,844.71, the maximum allowable under the fee cap statute, 11 U.S.C. § 326(a).

This amount represented the lodestar for hours

worked at the Trustee’s hourly rate, $758,955.50, plus

an enhancement of approximately 65%.

Clifton objected to the Trustee’s request, arguing

the fee was not reasonable or supported by the record.

The bankruptcy court overruled Clifton’s objection

and entered an order approving payment to the Trustee of the full, enhanced amount. App. 40a-42a.

2. Clifton appealed the original final fee order to

the district court. The Trustee responded on the merits and asserted that Clifton lacked standing to appeal

because it should eventually be paid 100% of its

$4,165,000 unsecured claim under the Plan, and thus

is not a “party aggrieved” by the order. (Being a “party

aggrieved” is a judicially-created prudential prerequisite to appeal a bankruptcy court’s order, separate and

apart from Article III constitutional standing. See In

re P.R.T.C., Inc., 177 F.3d 774, 777 (9th Cir. 1999).)

The district court rejected the Trustee’s prudential

standing argument, holding that Clifton is directly

and adversely affected by the final fee order because

the Trustee’s bonus (paid for with estate funds that

would otherwise go to creditors like Clifton) will further subordinate Clifton’s claim as a creditor. The district court also agreed with Clifton that the bankruptcy court did not make sufficient findings to support the fee enhancement and remanded for imposition of a lodestar fee award or entry of detailed findings to support an enhanced payout. App. 46a-48a.

3. On remand, the bankruptcy court again

awarded the Trustee the maximum compensation allowable under the fee cap statute, this time including

findings of fact to support its order. App. 58a. Clifton

again appealed the fee order, and the Trustee reiterated its prudential standing argument. The district

court again found that Clifton is a party aggrieved

with standing to appeal, but—relying on the newly entered findings—affirmed the bankruptcy court’s fee

order. App. 25a-35a.

4. Clifton appealed to the Ninth Circuit Court of

Appeals, arguing, inter alia, that the bankruptcy

court erred under controlling precedent by awarding

the Trustee nearly $400,000 more than the lodestar

amount. In addition to responding on the merits, the

Trustee briefly re-raised its claim that Clifton lacks

prudential standing because, regardless of the size of

the fee award, Clifton eventually purportedly should

be paid in full under the bankruptcy plan.

Clifton rejoined that the Trustee’s standing argument makes no sense because it would allow improper

fee awards to go unchallenged regardless of whether

they delay payment to creditors. As Clifton explained,

under the Trustee’s rationale, had the bankruptcy

court awarded $1 million to an individual who had

nothing to do with the case, no creditor could object

because the Plan proposed payment in full to all creditors at some later date—even though the unwarranted $1 million payment necessarily would delay

the creditors’ recovery.

At oral argument, the appellate panel sua sponte

raised the question whether Clifton has Article III

standing to appeal the fee award. The court requested

supplemental briefing on the standing issue, which

the parties filed.

Under established precedent, a party has Article

III standing to bring a “case” or “controversy” in federal court if it (1) suffered an “injury in fact” that is (2)

fairly traceable to the challenged action and (3) likely

redressable by a favorable decision. Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-61 (1992); see U.S.

Const. art. III, § 2, cl. 1.

In its supplemental brief, Clifton explained that it

has Article III standing because it suffered an injury

in fact when the bankruptcy court awarded the Trustee a substantial fee enhancement, diminishing the

likelihood Clifton will be paid on its claim and negatively impacting the timing of any payment. This injury is traceable to the fee order and redressable by a

favorable decision because, if the Trustee is required

to refund the nearly $400,000 bonus, there will be

funds available in the bankruptcy estate to pay Clifton’s claim sooner than if the Trustee is permitted to

keep the bonus.

The Trustee, however, took the position that even

if the fee order delays the estate’s payment to Clifton,

Clifton suffered no injury in fact because, eventually,

it will be paid. In other words, according to the Trustee, where a bankruptcy plan proposes to pay creditors in full with interest, no creditor can appeal an order that adversely affects the timing of those payments.

5. The Ninth Circuit agreed with the Trustee and

affirmed the bankruptcy court’s fee order in a published opinion, which the court later amended in response to Clifton’s petition for rehearing. In re East

Coast Foods, Inc., 80 F.4th 901 (9th Cir. 2023) (as

amended). According to the court, Clifton cannot

demonstrate Article III standing to challenge the fee

order because the Plan provides that all creditors, in-

cluding Clifton, will eventually be paid in full with interest.1 This promise of full payment forecloses Clifton’s claim that it suffered an injury in fact when the

bankruptcy court ordered the estate to pay the extra

$400,000 to the Trustee. In the Ninth Circuit’s view,

Clifton is not guaranteed payment within a certain

timeframe, and therefore will not be injured by any

delay in payment the enhanced fee award might

cause. App. 16a-17a.

Because the court held that Clifton cannot establish the injury in fact required for Article III standing,

it did not reach the other prongs of the constitutional

standing test, the prudential standing question, or the

merits. App. 18a.

REASONS FOR GRANTING THE PETITION

This Court has never directly addressed whether a

delay in payment is an injury in fact sufficient to confer Article III standing. Before the Ninth Circuit’s

opinion in this case, lower federal courts generally recognized that it could be. Those decisions partly rest on

the accepted principle that a dollar today is worth

more than a dollar tomorrow, and that late payment

deprives the recipient of the time value of money. This

line of reasoning is not particularly controversial, and

even the Ninth Circuit adopted it.

But the Ninth Circuit has now carved out a new

and troubling exception to this common-sense understanding of injury in fact. According to the appeals

court, if a party eventually will be paid with interest

1 Clifton disputes the Ninth Circuit’s factual premise—that it

will be paid in full with appropriate interest—but does not rely

on that factual disagreement in seeking this Court’s review.

on some unspecified future date, then a delay in payment causes no injury at all, and the party has no

standing to complain. This holding conflates the related but distinct concepts of injury and damages, and

ignores cognizable harms of delayed payment—including the shear inability to use funds to which a

party is otherwise entitled. This is particularly important in the context of bankruptcy cases, where

creditors are frequently forced to wait years before being paid on their claims, if at all.

As a result, parties in nine states and two territories with justiciable federal claims will be wrongly denied standing to bring them. That is a matter of exceptional importance that merits this Court’s review.

A. The Ninth Circuit’s decision carves out a

new and problematic exception to constitutional standing doctrine

The lower courts are in general agreement that a

delay in payment is an injury in fact sufficient to confer standing and invoke federal jurisdiction. See, e.g.,

MSPA Claims 1, LLC v. Tenet Fla., Inc., 918 F.3d

1312, 1318 (11th Cir. 2019) (holding party that received delayed reimbursement suffered Article III injury in fact, specifically, “[t]he inability to have and

use money to which a party is entitled”); Dieffenbach

v. Barnes & Noble, Inc., 887 F.3d 826, 828-29 (7th Cir.

2018) (holding “[l]osing the use of money for three

days” due to delay in receiving refund is injury in fact

that confers standing); Habitat Educ. Ctr. v. U.S. Forest Serv., 607 F.3d 453, 457 (7th Cir. 2010) (holding

party wrongfully required to post bond suffers injury

in fact that confers standing—the “loss of the use of”

that money—even if bond will be returned);

Ensminger v. Credit L. Ctr., LLC, No. 19-CV-02147-

TC-JPO, 2023 WL 6313680, at *4 (D. Kan. Sept. 28,

2023) (holding party charged fee one month early was

“deprived . . . of the use of his funds” and thus suffered

Article III injury in fact); Nunez v. Exec. Le Soleil New

York LLC, No. 22 CIV. 4262 (KPF), 2023 WL 3319613,

at *2-5 (S.D.N.Y. May 9, 2023) (holding “temporary

deprivation of money to which a plaintiff has a

right”—here, delayed receipt of wages—“constitutes a

sufficient injury in fact to establish Article III standing” (alteration and internal quotation marks omitted)) (collecting similar cases); cf. In re U.S. Off. of

Pers. Mgmt. Data Sec. Breach Litig., 928 F.3d 42, 66

(D.C. Cir. 2019) (per curiam) (holding delay in receipt

of funds is a tangible injury). But see Taylor v. Fed.

Aviation Admin., 351 F. Supp. 3d 97, 102-03 (D.D.C.

2018) (questioning whether premature collection of $5

gives rise to an Article III injury in fact).

These cases rest on the common-sense notion that

a party deprived of access to its funds loses the opportunity to use those funds, and on the economic concept

of the time value of money, which holds that a dollar

today is worth more than a dollar tomorrow. See Stephens v. U.S. Airways Grp., Inc., 644 F.3d 437, 442

(D.C. Cir. 2011) (Kavanaugh, J., concurring in the

judgment) (“Money later is not the same as money

now.”); Catherine Cote, Time Value of Money (TVM):

A Primer, Harvard Business School Online Business

Insights

Blog

(June

16,

2022),

https://online.hbs.edu/blog/post/time-value-of-money

(last visited Jan. 26, 2024). They are consistent with

this Court’s holdings that an employee deprived of pay

for 37 days but later recompensed suffers an “injury

or harm,” Burlington N. & Santa Fe Ry. Co. v. White,

548 U.S. 53, 67, 72-73 (2006), and that delay in receipt

of attorney’s fees “can cause considerable hardship,”

Missouri v. Jenkins by Agyei, 491 U.S. 274, 282-84 &

n.6 (1989).

Even the Ninth Circuit recognizes that “the temporary deprivation of money gives rise to an injury in

fact for purposes of Article III standing.” Van v. LLR,

Inc., 962 F.3d 1160, 1161 (9th Cir. 2020) (per curiam).

But, the Ninth Circuit now says, this principle only

holds if the injured party purportedly will not, at some

unspecified later point in time, be paid in full with interest. And so, in the instant case, even assuming the

Trustee’s bonus delays Clifton’s receipt of its

$4,165,000, “the Plan’s guarantee that Clifton will be

paid with interest precludes a finding of injury in fact”

and deprives Clifton of standing to appeal. App. 16a.

The Ninth Circuit’s exception is wrong for two reasons and establishes a troubling limitation on constitutional standing.

First, the Ninth Circuit conflates the related but

distinct concepts of injury and damages. Cf. TransUnion LLC v. Ramirez, 594 U.S. 413, 427-28 (2021) (explaining party can have statutory right to damages

but lack injury in fact). Interest is one form of damages meant to compensate a party that has been injured by delayed payment. But the anticipated, notyet-realized prospect of receiving damages does not

metaphysically undo the antecedent injury.

Second, interest (damages), while intended to

make the injured party whole for the lost time value

of funds, does not necessarily compensate for the

broader injury of lost opportunity to use funds that

may be needed now not later for consumption, emergencies, and the like. This deprivation—the shear inability to use one’s own money—is itself a cognizable

injury in fact. See MSPA Claims 1, LLC, 918 F.3d at

1318 (“The inability to have and use money to which

a party is entitled is a concrete injury.”); cf. Lucas v.

S.C. Coastal Council, 505 U.S. 1003, 1012 n.3 (1992)

(holding temporary taking of property is an Article III

injury in fact).

The Ninth Circuit has thus created a new and

problematic exception to constitutional standing doctrine.

B. The standing question is exceptionally important and squarely presented

As a result of the Ninth Circuit’s decision in this

case, parties in nine states and two territories with

justiciable claims will be tossed out of court, incorrectly, for lack of standing. That is a matter of exceptional importance that merits this Court’s review.

This standing question is also important because

it is likely to arise repeatedly in the context of bankruptcy cases across the nation. Confirmed Chapter 11

bankruptcy plans, even those that may propose to pay

creditors the full amount of their claims, often require

creditors to wait long periods of time, years even, before any payment is made. Under the Ninth Circuit’s

decision, if a plan proposes to pay creditors in full with

interest but no payment is to be made for years, creditors have no standing to object.

There are no bars to the Court’s consideration of

the question presented, which—although not raised

by either party in the lower courts—was independently introduced and squarely resolved by the

court of appeals. There are no relevant factual disputes, and the standard of review is de novo. See Jones

v. Ford Motor Co., 85 F.4th 570, 573 (9th Cir. 2023)

(per curiam).

C. The Decision Below Is Erroneous

Congress conferred a broad participatory right to

any party with a stake in a bankruptcy reorganization. Section 1109(b) of the Bankruptcy Code grants

any “party in interest,” which includes “the debtor, the

trustee, a creditors’ committee, an equity security

holders’ committee, [and] a creditor” to appear and be

heard on any issue” in a Chapter 11 bankruptcy case.

11 U.S.C. § 1109(b). Some lower courts have held that

this statutory standing under the Bankruptcy Code is

“effectively coextensive” with Article III standing. In

re Global Industrial Technologies, Inc., 645 F.3d 201,

211 (3d Cir. 2011).

There is no dispute that Clifton is a party in interest under 11 U.S.C. § 1109(b). Not even the Trustee

has ever argued otherwise.

Clifton is entitled to be paid under the confirmed

plan. But that payment only comes after other claimants and creditors are paid, including the Trustee.

Clifton is impaired under the bankruptcy plan and did

not vote to accept it. See 11 U.S.C. §1126. After the

bankruptcy plan was confirmed, the Trustee filed his

fee application in which he requested a substantial

and unwarranted fee enhancement bonus. The bankruptcy court ordered that bonus to be paid, and it has

been—but more than five years later, Clifton still has

not received a penny on its claim. Clifton’s lost use of

its money is an actual, concrete, and particularized injury. Clifton has Article III standing .

This case presents the question whether a delay in

payment to a creditor under a bankruptcy plan constitutes an injury in fact sufficient to confer Article III

standing on the creditor. That question is of extraordinary constitutional and practical importance. This

case is an ideal vehicle for the Court’s review. The

Court should therefore grant the petition for certiorari

and, on the merits, hold that Petitioner has Article III

standing.

CONCLUSION

The petition for a writ of certiorari should be

granted.

January 29, 2024

Respectfully submitted,

ANTHONY R. BISCONTI

Counsel of Record

BIENERT KATZMAN

LITTRELL WILLIAMS LLP

360 E. 2nd Street, Ste. 625

Los Angeles, California 90012

Telephone: (213) 528-3400

tbisconti@bklwlaw.com

Attorney for Petitioner

APPENDIX

TABLE OF APPENDICES

Appendix A

Opinion, U.S. Court of Appeals for the

Ninth Circuit, Clifton Capital Group, LLC v.

Bradley D. Sharp, No. 21-55967

(Sept. 14, 2023) ............................................... 1a

Appendix B

Order re: Consolidated Appeal from the

U.S. Bankruptcy Court’s Orders, U.S.

District Court for the Central District of

California, In re East Coast Foods, Inc.,

No. 20-cv-10982-MWF (Aug. 6, 2021) .......... 19a

Appendix C

Order re: Bankruptcy Court’s Order,

U.S. District Court for the Central District

of California, In re East Coast Foods, Inc.,

No. 18-10098-MWF (Dec. 18, 2019) ................38a

Appendix D

Order on Application for Payment of Final

Fees and/or Expenses (11 U.S.C. § 330),

U.S. Bankruptcy Court for the Central

District of California, In re East Coast

Foods, Inc., No. 2:16-13852-BB (Nov. 18,

2020) .............................................................54a

Findings of Fact and Conclusions of Law

in Support of Order Approving Former

Chapter 11 Trustee’s Final Application

for Approval of Fees and Expenses, U.S.

Bankruptcy Court for the Central District

of California, In re East Coast Foods, Inc.,

No. 2:16-13852-BB (Nov. 18, 2020) .............58a

Appendix E

U.S. Const., Art. III. The Judiciary ........... 137a

11 U.S.C. § 326 ........................................... 139a

11 U.S.C. § 330 ........................................... 141a

11 U.S.C. § 1109 ......................................... 146a

11 U.S.C. § 1124 ......................................... 147a

11 U.S.C. § 1126 ......................................... 149a

Appendix A

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

NO. 21-55967

IN THE MATTER OF: EAST COAST FOODS, INC.,

Debtor

------------------CLIFTON CAPITAL GROUP, LLC,

Appellant,

BRADLEY D. SHARP, FORMER CHAPTER 11 TRUSTEE,

Appellee

Filed: September 14, 2023

Before: SMITH, JR. AND NELSON, CIRCUIT JUDGES,

AND DRAIN,* DISTRICT JUDGE

*The Honorable Gershwin A. Drain, United States District

Judge for the Eastern District of Michigan, sitting by designation.

ORDER

The opinion filed on May 8, 2023, and appearing at 66

F.4th 1214, is amended as follows: On slip opinion

page 4, lines 7–8, delete <Plan's assets contained

within the Plan Collateral Package> and replace with

<Collateral Package>.

On page 13, line 6, delete footnote 9.

On page 13, line 8, replace footnote 10 with <The disclosure statement requires that the plan include a

classification of claims and how each class of claims

will be treated under the plan. See 11 U.S.C. § 1123.

Creditors whose claims are “impaired” generally vote

on the plan before it is approved by the bankruptcy

court. See id. at § 1126. Here, however, Clifton waived

that right in a stipulation approved by the bankruptcy

court and the plan was subsequently approved pursuant to § 1128.>.

On page 14, line 10, delete <Plan's assets contained

within the Plan> and replace with <Package>.

On page 16, line 6, delete <Given Clifton's consent to

the Plan, and b> and replaced with <B>.

With these amendments, Judges M. Smith and R. Nelson vote to deny the petition for rehearing en banc,

and Judge Drain so recommends. The full court was

advised of the petition for rehearing en banc, and no

judge of the court has requested a vote on whether to

rehear the matter en banc. The Petitions for Rehearing and Rehearing En Banc are DENIED. No further

petitions for rehearing will be accepted.

AMENDED OPINION

R. NELSON, Circuit Judge:

Creditor Clifton Capital Group, LLC challenges

the district court's order affirming the bankruptcy

court's enhanced fee award of over $1 million dollars

to the trustee in a funded bankruptcy. Because Clifton

has failed to show that the enhanced fee award will

diminish its payment under the bankruptcy plan, Clifton lacks standing. We thus reverse the district court's

order finding standing and remand with instructions

to dismiss the appeal for lack of Article III standing.

This is not a normal bankruptcy. Roscoe’s

House of Chicken & Waffles is a landmark Los Angeles restaurant chain. Building on a staple menu predating the American Revolution—Thomas Jefferson

served his guests chicken and waffles—Roscoe’s has

garnered celebrity attention since opening in 1975.

President Obama enjoyed chicken wings and a waffle

there in 2011, with “Obama’s Special” added to the

menu. 1 Several movies have referenced Roscoe’s. 2 And

Adrian Miller, The Layered Legacy of Roscoe’s House of

Chicken & Waffles, RESY Blog (Sept. 8, 2020)

https://blog.resy.com/2020/09/thelayered-legacy-of-roscoeshouse-of-chicken-waffles/.

2 See id. (“The restaurant has gotten a mention in films includ-

ing: Tapehead (1988), Swingers (1996), Jackie Brown (1997),

Rush Hour (1998), Soul Plane (2004). In 2004, Roscoe’s got more

numerous songs have memorialized the restaurant,

including one by Ludacris who suggests that the listener “roll to Roscoe’s and grab somethin’ to eat.” 3 Despite its cultural ubiquity, even Roscoe’s was not immune to a $3.2 million judgment in a racial discrimination case. 4 This significant judgment, along with

other debt, threatened to impair Roscoe’s ability to

pay its creditors.

But fear not. The public can still indulge in Roscoe’s famous soul food. As part of the bankruptcy plan,

the restaurants remain open and founder Herb Hudson has guaranteed payment to Roscoe’s creditors. As

a failsafe, Snoop Dogg suggested buying the chain to

keep it in business. 5

In 2016, East Coast Foods, Inc. (ECF), manager

of the four Roscoe’s locations, filed for Chapter 11

bankruptcy. The Office of United States Trustee appointed an official committee of unsecured creditors

(Committee) to monitor ECF’s activities, of which Clifthan a mention on the big screen: It got its own eponymous feature-length film.”).

3 LUDACRIS, CALL UP THE HOMIES (Def Jam Recordings

2008).

4 See Beasley v. East Coast Foods, Inc. et. al., No. BC509995

(L.A. Sup. Ct.); see also Shan Li, Parent Company of Roscoe’s

House of Chicken and Waffles Files for Bankruptcy Protection,

LA Times (Mar. 29, 2016) https://www.latimes.com/business/lafi-roscoes-chicken-wafflesbankruptcy-20160329-story.html.

5 Farley Elliott, Snoop Dogg Says He’ll Save Roscoe’s Chicken

N’ Waffles if it Comes to That, LA Eater (Mar. 31, 2016)

https://la.eater.com/2016/3/31/11338382/snoop-dogg-buy-roscoeschicken-waffles.

ton Capital Group, LLC (Clifton) was named chair. After an examiner found that ECF could not meet its fiduciary obligations, the court appointed Sharp as

trustee, the de facto head of ECF for two years.

The Committee and ECF’s principal submitted

a Chapter 11 bankruptcy plan (the Plan), effective

September 2018. The Plan granted $450 per hour plus

expenses for Sharp’s services as trustee.

The Plan guaranteed the creditors full payment

with interest secured by a “Collateral Package,” which

included all of the ECF’s assets, and up to a $10 million contribution from Hudson. The Plan’s appraiser

estimated the value of the Collateral Package at over

$39.2 million with $23.4 million of net equity, far exceeding the claims to be paid under the Plan.

In his final fee application filed in October

2018, Sharp requested $1,155,844.71, the maximum

allowable under the fee cap statute, 11 U.S.C. §

326(a). This amount represented the lodestar (1,692.2

hours worked times an hourly rate of $448.50, for

$758,955.50) plus a 65% enhancement for exceptional

services.

Clifton objected in the bankruptcy court, arguing the fee cap was not presumptively reasonable as

the record did not support an enhancement beyond

the lodestar. The court disagreed, holding that the fee

cap was presumptively reasonable and, in the alternative, that the case was exceptional and merited deviation from the lodestar.

Clifton then appealed to the district court and

moved to strike the Fee Order. Sharp countered that

Clifton lacked standing to appeal because it was not a

“party aggrieved.” The district court found Clifton aggrieved because there was insufficient capital in the

estate to pay all creditors. In re E. Coast Foods, Inc.,

No. CV 18-10098, 2019 WL 6893015, at *3 (C.D. Cal.

Dec. 18, 2019). It held that “[b]ecause the increased

compensation to the Trustee will further subordinate

Clifton Capital’s claim, the Court concludes that Clifton Capital is directly and adversely affected by the

Final Fee Order.” Id. The district court further held

that the lodestar was the starting point for reasonable

compensation and vacated and remanded for the

bankruptcy court to award fees equal to the lodestar

or “make detailed findings sufficient to justify a

higher amount.” Id. at *4, 6.

On remand, the bankruptcy court again found

that Sharp was “entitled to an enhancement because

the results in this case were truly exceptional.” The

bankruptcy court again awarded the statutory maximum. Clifton again appealed and the district court

this time affirmed. Clifton now appeals to this court.

The question of whether a party has standing

is a threshold issue that must be addressed before

turning to the merits of a case. Horne v. Flores, 557

U.S. 433, 445 (2009). To appeal a bankruptcy court’s

order, a party must establish Article III standing and

that it is “aggrieved” by the order. In re Fondiller, 707

F.2d 441, 443 (9th Cir. 1983).

We review Article III standing determinations

de novo. Tailford v. Experian Info. Sols., Inc., 26 F.4th

1092, 1098 (9th Cir. 2022). But we review the factual

determination that Clifton was a person aggrieved for

clear error. In re Point Ctr. Fin., Inc., 890 F.3d 1188,

1191 (9th Cir. 2018).

III

Our authority under Article III is dispositive.

Because the Constitution limits our jurisdiction to

“cases” and “controversies,” standing is an “essential

and unchanging” requirement. In re Sisk, 962 F.3d

1133, 1141 (9th Cir. 2020) (quoting U.S. Const. art.

III, § 2, cl. 1; Lujan v. Defs. of Wildlife, 504 U.S. 555,

560, 112 S.Ct. 2130, 119 L.Ed.2d 351 (1992)). Accordingly, a party must establish an Article III case or controversy before we exert subject matter jurisdiction.

Cetacean Cmty. v. Bush, 386 F.3d 1169, 1174 (9th Cir.

2004) (“A suit brought by a plaintiff without Article

III standing is not a ‘case or controversy,’ and an Article III federal court therefore lacks subject matter

jurisdiction.” (citation omitted)).

In the bankruptcy context, we have historically

bypassed the Article III inquiry, instead analyzing

whether a party is a “person aggrieved.” See Fondiller,

707 F.2d at 443. This standard is a prudential requirement initially found within the Bankruptcy Act of

1898, which permitted appeal by any “person aggrieved by an order of a referee.” 11 U.S.C. § 67(c)

(1976) (repealed 1978). The “person aggrieved” standard was designed to limit appeals in bankruptcy proceedings because such cases invariably implicate the

interests of various stakeholders, including those not

formally parties to the litigation. See Fondiller, 707

F.2d at 443. Even after Congress repealed and re-

placed the Bankruptcy Act of 1898, however, we continued to apply the “person aggrieved” standard. 6 See

id.; In re Com. W. Fin. Corp., 761 F.2d 1329, 1334 (9th

Cir. 1985).

It is unclear why we continued to apply the person aggrieved rule in the absence of the statute

providing the basis for doing so. We appear to have

recast the pre-1978 statutory standard and applied it

as a principle of prudential standing. But the Supreme Court has since questioned prudential standing, noting it “is in some tension with [the Court's] recent reaffirmation of the principle that ‘a federal

court's obligation to hear and decide’ cases within its

jurisdiction ‘is virtually unflagging.’ ” Susan B. Anthony List v. Driehaus, 573 U.S. 149, 167, 134 S.Ct.

2334, 189 L.Ed.2d 246 (2014) (quoting Lexmark Int'l,

Inc. v. Static Control Components, Inc., 572 U.S. 118,

125–26, 134 S.Ct. 1377, 188 L.Ed.2d 392 (2014)). Still,

our bankruptcy cases have historically addressed prudential standing with little attention to Article III

standing. See, e.g., Fondiller, 707 F.2d at 441–43; In

re Int'l Env't Dynamics, Inc., 718 F.2d 322, 326 (9th

Cir. 1983); Klein v. Rancho Mont. De Oro, Inc., 263

F.2d 764, 772 (9th Cir. 1959); Com. W. Fin., 761 F.2d

at 1334.

After the Supreme Court's decision in

Driehaus, however, we have returned emphasis to Article III standing. See, e.g., Sisk, 962 F.3d at 1141–43.

6 The Bankruptcy Reform Act of 1978 replaced the Bankruptcy

Act of 1898. It governs the relationship between creditors and

debtors when debtors can no longer pay their debts. Pub. L. No.

95-598, 92 Stat. 2549 (codified at 11 U.S.C. § 101).

And determining our Article III jurisdiction before

any prudential considerations does not offend our

precedent. See, e.g., In re P.R.T.C., Inc., 177 F.3d 774,

777–79 (9th Cir. 1999) (addressing Article III standing before person aggrieved prudential standing). We

thus first examine Article III standing, which we find

lacking here.

As the party invoking federal jurisdiction, Clifton “bears the burden of establishing” the elements of

Article III standing. Lujan, 504 U.S. at 561, 112 S.Ct.

2130. A party must establish “such a personal stake

in the outcome of the controversy as to warrant his

invocation of federal-court jurisdiction.” Horne, 557

U.S. at 445, 129 S.Ct. 2579 (quoting Summers v. Earth

Island Inst., 555 U.S. 488, 493, 129 S.Ct. 1142, 173

L.Ed.2d 1 (2009) (emphasis in original)). Clifton must

therefore show that it has: (1) suffered an “injury in

fact” that is concrete, particularized, and actual or imminent, (2) the injury is “fairly traceable” to the defendant's conduct, and (3) the injury can be “redressed

by a favorable decision.” Lujan, 504 U.S. at 560–61,

112 S.Ct. 2130 (alterations in original omitted).

Injury in fact is the “[f]irst and foremost” of the

three standing elements. Sisk, 962 F.3d at 1142 (quoting Steel Co. v. Citizens for a Better Env't, 523 U.S. 83,

103, 118 S.Ct. 1003, 140 L.Ed.2d 210 (1998)). Clifton

argues that it suffered an injury-in-fact because the

Plan established the expectation that it would receive

10a

full payment of its claim, which has not yet occurred

and which the Fee Order exacerbates. The Plan estimates that Clifton would “receive a pro rata share of

Available Cash 7 in the annual sum of $1,816,701 in

2022, $2,996,321 in 2023, and $634,634 in 2024 ... ” To

date, Clifton notes that this totals millions of dollars

in payments that have not been made. Clifton argues

that the Fee Order's grant of the $400,000 trustee bonus harms both the likelihood and timing of any payment by further subordinating it.

This, Clifton contends, suffices as an injury

‘fairly traceable’ to the wrongful conduct of the excessive fee award because its “injury need not be financial,” P.R.T.C., 177 F.3d at 777 (citation omitted), and

because, under 11 U.S.C. § 330, payment of the fee

award has priority and must be paid in full before unsecured creditors like Clifton receive any distribution.

Clifton thus argues that it suffered a traceable and redressable injury in fact because a favorable decision

would result in the excessive fees being returned to

the ECF estate to pay out claims, and therefore would

“increase the likelihood and timing” of payment to

Clifton.

Sharp counters that Clifton's alleged injury is

too conjectural and hypothetical to establish an injury

7 “Available Cash” is defined as cash in the estate from various

sources, less (among other things) “the amount necessary or estimated and reserved to pay in full [] any Allowed Administrative

Expense Claims,” which includes the Trustee’s awarded compensation pursuant to the Fee Order. See 11 U.S.C. § 503(b)(2)

(providing that an administrative expense claim includes “compensation and reimbursement awarded under [11 U.S.C. §

330(a)].”).

11a

in fact because there is no diminished likelihood that

Clifton will be paid in full. The Plan's Collateral Package 8 guarantees Clifton full payment with interest.

Sharp further argues that Clifton cannot claim injury

arising from the Plan's estimates because Clifton approved the Plan understanding that the timing of its

distributions depended on the allowed amounts of

senior claims, meaning payment could be delayed by

any increase in any Allowed Non-Subordinated

Claims. Thus, Sharp asserts that Clifton's alleged

harm is no harm at all because Clifton's payment is

certain, and the only question at issue is when payment will occur.

We conclude that Clifton's alleged injury is too

conjectural and hypothetical to establish an injury in

fact for Article III standing. We similarly conclude

that Clifton is wrong that the fee award both impaired

the likelihood and delayed the timing of its payment.

The district court erroneously concluded that the fee

award would further subordinate Clifton's claim.

We first address the likelihood of payment. The

district court concluded that Clifton had standing because it was an aggrieved party. Noting that Clifton

had not been paid on any of its Allowed Claim, the

court adopted Clifton's argument that “[t]here are not

8 As discussed below, the Collateral Package protects against

any risks of nonpayment and includes all of the Reorganized

Debtor’s assets.

12a

yet enough funds on hand to pay all creditors, including Clifton Capital, in full” and that “there are outstanding contingencies under the Plan that must occur before those funds become available.” E. Coast

Foods, 2019 WL 6893015, at *3. Sharp pointed out,

however, that because Clifton was guaranteed 100%

payment of its alleged claim under the Plan, it was not

aggrieved. Id. at *2–3.

The district court seemingly concluded, without

explicitly stating, that the Plan concerns a limited

fund. See id. at *3. It found that the alleged lack of

sufficient capital to pay all claims would further subvert Clifton's claim and thereby adversely affect its

payment. Id. Therefore, the district court held that

Clifton was aggrieved because it was appealing an order disposing of assets from which it (the claimant)

seeks to be paid. Id. (citing Int'l Env't Dynamics, 718

F.2d at 326).

The district court relied on our precedent that

in cases involving competing claims to a limited fund,

“a claimant has standing to appeal an order disposing

of assets from which the claimant seeks to be paid.”

Id. (quoting P.R.T.C., 177 F.3d at 778). A limited fund

necessarily concerns a finite pool of assets to pay

claims, thus creating the risk that creditors will not

be paid, either in full or at all. In the limited fund context, changes to any allotment or transfer of funds, including an enhanced fee award, would materially affect the likelihood of any potential payment and therefore directly implicate creditor interests. Along these

lines, we have found a party aggrieved when limited

fund plans “eliminated” a party's interest in estate assets from which they sought payment. Com. W. Fin.,

13a

761 F.2d at 1335. We have also found standing when

a bankruptcy court's order transferred all significant

assets out of the estate, effectively barring a creditor's

claim. P.R.T.C., 177 F.3d at 778–79.

In contrast, in Klein, we found that plaintiffs

challenging an order seeking payment of their attorney fees lacked standing because the plan specified

that there were “additional monies” available, even

though the plan did not expressly contemplate payment of their claims. 263 F.2d at 771–72. The plaintiffs challenged orders confirming a plan which they

asserted disregarded compensation for legal services

to which they were entitled. See id. Plaintiffs argued

that because the plan disposed of the estate's assets,

the plan rendered payment impossible. Id.

Our court rejected both arguments. Even

though the plan did not expressly contemplate the

plaintiffs’ compensation claims, the plan provided

that “additional monies are available if need(ed) ... to

... pay off the unsecured creditors their claims in full.”

Id. at 772 (alterations in original). At judgment, the

court noted that “if the sum which is actually available to pay appellants’ claims as finally allowed proves

insufficient, the court has only to enforce the provisions of the plan ... requiring that additional monies

be deposited or accrued in the registry.” Id.

Even though Klein was decided under the “person aggrieved” standard, it is most analogous to this

case. As in Klein, the Plan here does not relate to a

limited fund because there is no finite amount of assets from which all creditors could be paid. See id. Rather, “the Plan is a reorganizing plan that proposes

to pay all Allowed Claims in full (unless otherwise

14a

agreed) from the Debtor's ongoing operations and nonEstate sources.”

The Plan's mandatory “disclosure statement”

which outlines the Plan, its risk factors, and its financial projections bolsters this conclusion. 9 See 11 U.S.C.

§§ 1121, 1125. The Plan makes clear that Clifton's

claim will be paid in full with interest after all other

allowed unsecured claims and penalty claims are satisfied. Clifton understood these terms: its principal

Sam White testified that “the Plan was proposed to

move this case forward and to ensure 100% payment

to creditors as quickly as possible.”

Indeed, the Plan's promise of full payment with

interest is unconditionally guaranteed and secured by

a “Collateral Package,” which includes all of ECF's assets. The Debtor's principal (Hudson) is responsible

for contributing up to $10 million to the Plan to affect

the payment of claims. ECF is required to contribute

to the Plan roughly $110,000 per month plus the excess free cash flow from its post-confirmation operations. Additional funds are available from other entities owned by Hudson which are to contribute about

$130,000 per month to the Plan. Payments from ECF

and Hudson will continue until all claims are paid in

full with interest.

9 The disclosure statement requires that the plan include a

classification of claims and how each class of claims will be

treated under the plan. See 11 U.S.C. § 1123. Creditors whose

claims are “impaired” generally vote on the plan before it is approved by the bankruptcy court. See id. at § 1126. Here, however,

Clifton waived that right in a stipulation approved by the bankruptcy court and the plan was subsequently approved pursuant

to § 1128.

15a

The Package further ensures enough available

collateral to pay the Plan's covered claims in full, plus

a 35% equity cushion. The Plan's appraiser estimated

the value of the Package at over $39.2 million with

23.4 million of net equity, exceeding the claims to be

paid under the Plan by about $17.3 million (the 35%

equity cushion).

Given the detailed Plan which guarantees payment to creditors plus interest, and the net equity in

the Plan, the district court's finding that the estate is

a limited fund and that “there are not sufficient funds

to pay back all the creditors,” is clearly erroneous. E.

Coast Foods, 2019 WL 6893015, at *3. Moreover, even

if Sharp receives the contested $400,000 bonus, this

will not impact Clifton's ability to be paid because

there are other sources from which to make Clifton's

payment at the appropriate time.

We similarly disagree with Clifton's assertion

that it suffered injury to the timing of its payment. In

agreeing to the Plan, Clifton knew from the start that

the timing of its payment could be longer or shorter

than the Plan's initial estimates depending on the

amounts owed to senior claimants. The Disclosure estimates that all Allowed Unsubordinated Claims

would be paid in full within four years, by mid-2022.

But the Statement also notes that “[t]he term of the

Plan can be shorter or longer than expected depending

on the amount of the Allowed Claims.”

The Plan further estimates that allowed claims

could be paid within six years, but “for every $1 million change in allowed claims, the term of the Plan

16a

will change by 3.3 months.” Sharp points to specific

unresolved allowed claims that have delayed payment, such as a pending priority claim by the IRS for

over $10.2 million which it asserts Clifton knew was

present at the time the Plan was approved, and for

which $15 million is being held in reserve to pay.

Sharp also points to the effects of COVID-19 and a

missing $1.5 million payment from Hudson as reasons

that Clifton has not been paid yet. Sharp has entered

into a series of forbearance agreements to give Hudson additional time to pay the balance due. No evidence suggests that payment will not occur. And in

any event, this potential default is not traceable to the

Fee Order itself.

Given these uncertainties, the Plan estimated

that the distribution timeframe for subordinated

claims, such as Clifton's, would be between 2022 and

2024. But these were only estimates. Ultimately, the

Plan's guarantee that Clifton will be paid with interest precludes a finding of an injury in fact now even

though these estimates thus far have proven inaccurate.

Clifton's alleged harms are thus conjectural at

best. It remains possible that Clifton will be paid

within the Plan's initial estimated window before the

end of 2024. Because this period has not passed, Clifton has failed to establish that the timing of its payment has been harmed beyond what the Plan initially

provided. Since the Plan did not guarantee Clifton

payment by a specific date (it merely provided an estimated window which has not passed), and the estimated timing of payment was subject to change based

17a

on priority claims, Clifton has not yet shown an actual

injury. That is particularly true where Clifton is entitled to interest on the payments that are due. As such,

Clifton has failed to establish the negative impact of

any delayed payment not already addressed by the

Plan.

This remains the case even where Sharp receives his payment before Clifton is paid. The Plan anticipates fulfilling Clifton's claims even if Sharp receives the challenged bonus. As we held in Klein, the

availability of additional funds to satisfy plaintiffs'

claims foreclose standing. 263 F.2d at 771. The same

is true here.

This is not to say that no potential remedy

would exist should the Plan prove insufficient. We

agree with our prior analysis in Klein that Clifton, if

necessary, could sue to enforce those provisions of the

Plan. At that time, there may be an actual injury that

is both fairly traceable and would be easily redressable by ordering additional money deposited into the

estate to pay Clifton's claims. See id. at 766. But such

facts do not presently exist. And standing must exist

from the start of an action. See, e.g., Friends of the

Earth, Inc. v. Laidlaw Env't Servs. (TOC), Inc., 528

U.S. 167, 170, 120 S.Ct. 693, 145 L.Ed.2d 610 (2000)

(“The requisite personal interest that must exist at

the commencement of the litigation (standing) must

continue throughout its existence....”). As such, Clifton has failed to establish actual injury thus far and

therefore lacks Article III standing to challenge the

18a

Fee Award. 10

Because Clifton currently lacks an injury in

fact, we reverse the district court's order and remand

with instructions to dismiss the appeal for lack of Article III standing.

REVERSED.

10 Because Clifton lacks Article III standing, we need not ad-

dress the prudential “person aggrieved” standard. See Gov’t

Emps. Ins. Co. v. Dizol, 133 F.3d 1220, 1222–23 (9th Cir. 1998)

(holding that a suit seeking declaratory judgment must first pass

constitutional and statutory muster as presenting a case-or-controversy before the court exercises its prudential discretion).

19a

APPENDIX B

UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

LOS ANGELES DIVISION

NO. CV 20-10982 MWF

IN RE EAST COAST FOODS, INC.,

Debtor

Filed: August 6, 2021

ORDER RE: CONSOLIDATED APPEAL FROM

THE UNITED STATES BANKRUPTCY

COURT’S ORDERS

MICHAEL W. FITZGERALD, United States District

Judge:

Before the Court is an appeal from the United

States Bankruptcy Court (the Honorable Sheri L.

Bluebond, United States Bankruptcy Judge). Appellant Clifton Capital Group, LLC (“Clifton Capital”) appeals two orders of the Bankruptcy Court: (1) the Order Granting the Application for Payment of Final

Fees and/or Expenses (the “Second Fee Order”) in the

amount of $1,155,944.71; and (2) the Order Granting

Motion to Strike Declarations of John L. Sadd, Jed

20a

Sanford, and Sam White Filed by Clifton Capital

Group, LLC (“Clifton Capital”), in Opposition to Trustee's Final Fee Application (the “Strike Order”) (collectively, the “Orders”). The Bankruptcy Court entered the Orders in connection with its granting of the

Fourth and Final Application for Compensation and

Reimbursement of Fees and Expenses (the “Final Fee

Application”), filed by Bradley D. Sharp, the former

chapter 11 trustee (the “Trustee”) in the bankruptcy

case of East Coast Foods, Inc. (“ECF”).

Appellant Clifton Capital submitted its Opening Brief (“OB”) on February 2, 2021. (Docket No. 15).

On May 14, 2021, Appellee Bradley D. Sharp, Chapter

11 Trustee, submitted his Reply Brief (“AB”). (Docket

No. 16). On June 11, 2021, Clifton Capital submitted

its Reply Brief (“RB”). (Docket No. 23). The Court has

read and considered the papers filed in this appeal

and held a Zoom video hearing on July 7, 2021.

For the reasons discussed below, the Court

rules as follows:

• The Second Fee Order is AFFIRMED. The Bankruptcy Court neither erred nor abused its discretion in awarding the Trustee a fee enhancement

above the lodestar figure.

• The Strike Order is AFFIRMED. The Bankruptcy

Court neither erred nor abused its discretion in

granting the Trustee's motion to strike Clifton

Capital's declarations submitted in connection

with its supplemental brief on remand because the

Trustee did not introduce any new evidence in his

supplemental brief.

I. BACKGROUND

On November 18, 2018, the Bankruptcy Court

21a

granted the Trustee's Final Fee Application (the

“First Fee Order”), on the basis that the requested fee

was reasonable because it equaled the amount set

forth under 11 U.S.C. § 326(a), or alternatively, because “this was an exceptional case” warranting compensation in excess of the lodestar figure. See In re

East Coast Foods, Inc., CV 18-0098 MWF, 2019 WL

6893015 at *4 (C.D. Cal. Dec. 18, 2019).

On December 19, 2019, the Court entered the

Order Re the Bankruptcy Court's Order (the “Prior

Order”), reversing and remanding the Bankruptcy

Court's order on the basis that Bankruptcy Court did

not make detailed findings as to why the Trustee is

entitled to an amount significantly higher than the

lodestar figure. (Id.).

In so doing, the Court held as follows: (1) the

lodestar approach is “presumptively reasonable” for

purposes of determining the Trustee's compensation

under 11 U.S.C. § 330; (2) the Trustee must “come forward with specific evidence showing why the results

obtained were not reflected in either his standard

hourly rate or the number of hours allowed” and “must

also show that the bonus is necessary to make the

award commensurate with compensation for comparable nonbankruptcy services”; and (3) if the Bankruptcy Court determines that a bonus is justified, it

must make detailed findings that actually support

that determination. (Id.) (citing In re Manoa Finance

Co., Inc., 853 F.2d 687, 692 (9th Cir. 1988)). The Court

also noted that “while the Bankruptcy Court observed

that the Trustee faced various challenges in this action, it is not clear why such considerations would not

have been encompassed in the lodestar figure, or

would justify such a substantial bonus.” (Id. at *4).

22a

On remand, the parties provided supplemental

briefing in light of this Court's ruling, and the Bankruptcy Court held a continued hearing on the Trustee's Final Fee Application (the “Fee Application”). At

that hearing, the Bankruptcy Court stated:

It's difficult for a lower court on remand to

adjudicate an issue when it firmly believes

the appellate court made an error of law on

appeal. This court remains of the view that

Congress intended for the compensation formula set forth in Section 326(a) to be presumptively reasonable and generally in the

nature of a commission ... and that the citations offered by the District Court are not on

point.

(Excerpts of Record (“ER”) 7-8) (Docket No. 16)). The

Bankruptcy Court nonetheless acknowledged that

this Court's prior decision was “law of the case” and

that the Bankruptcy Court “need[s] to follow it, but it

kind of makes it a little bit — you know, I have to do

it with a couple of brain cells tied behind my back. It

makes [it] a little more challenging.” (ER 8-9).

The Bankruptcy Court ultimately determined

on remand that the lodestar amount in this case is

$758,951.70 (the “Lodestar”). (ER 10-12, 30-31). The

Bankruptcy Court then awarded the Trustee compensation with the same fee enhancement as before, in

the total amount of $1,155,844.71. (ER 17-18, 42-44).

The Bankruptcy Court also entered findings of fact

and conclusions of law in support of the Second Fee

Order. (ER 45-100). Finally, the Bankruptcy Court entered the Strike Order, striking certain declarations

submitted by Clifton Capital. (ER 101-102).

23a

The Court incorporates by reference the factual

and procedural background set forth in the Prior Order as if fully set forth herein. (See Prior Order at 24).

II. STANDARD OF REVIEW

A bankruptcy court's conclusions of law are reviewed de novo, and findings of fact are reviewed for

clear error. Zurich Am. Ins. Co. v. Int'l Fibercom, Inc.,

503 F.3d 933, 940 (9th Cir. 2007). Pertinent to this appeal, a bankruptcy court's award of professional fees

“will not [be] disturb[ed] ... unless the bankruptcy

court abused its discretion or erroneously applied the

law.” In re Strand, 375 F.3d 854, 857 (9th Cir. 2004).

“A bankruptcy court abuses its discretion if it applies

the wrong legal standard or its findings are illogical,

implausible or without support in the record.” In re

Cook Inlet Energy LLC, 583 B.R. 494, 500 (B.A.P. 9th

Cir. 2018).

III. LEGAL STANDARD

Pursuant to § 330, a bankruptcy court “may

award to a trustee, ... or a professional person employed under section 327 or 1103 (A) reasonable compensation for actual, necessary services rendered by

the trustee ...; and (B) reimbursement for actual, necessary expenses.” 11 U.S.C. § 330(a)(1)-(2).

In determining reasonable compensation for a

chapter 11 trustee, courts 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

24a

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.

Id. § 330(a)(3). Section 326(a) sets a statutory cap for

chapter 11 trustee compensation depending on the

amount disbursed to creditors. Id. § 326(a).

A trustee has the burden of demonstrating that

its requested compensation is reasonable and satisfies

these requirements. See Hale v. United States Trustee

(In re Basham), 208 B.R. 926, 931-32 (B.A.P. 9th Cir.

1997).

The primary method used to determine a reasonable fee under § 330(a)(3) is to calculate the lodestar. See In re Buckridge, 367 B.R. 191, 201 (Bankr.

C.D. Cal. 2007) (citing In re Eliapo, 468 F.3d 592, 598

(9th Cir. 2006); Yermakov v. Fitzsimmons (In re

Yermakov), 718 F.2d 1465, 1471 (9th Cir. 1983)). The

lodestar is computed by multiplying the number of

hours reasonably expended by a reasonable hourly

rate. See Hensley v. Eckerhart, 461 U.S. 424, 433, 103

S. Ct. 1933, 1939, 76 L. Ed. 2d 40 (1983).

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IV. DISCUSSION

A. Standing

As a preliminary matter, the Court rejects the

Trustee's argument that Clifton Capital lacks standing to bring this appeal. (See AB at 43). In the Prior

Order, faced with the exact same evidence and argument, the Court concluded that Clifton Capital had

standing to bring this appeal because the record indicated that the estate did not have sufficient capital to

pay all creditors:

Although neither party provides case law directly on point on the issue, the Court finds

Clifton Capital's argument to be more persuasive. Clifton Capital's claim is “subordinated to

... all allowed and secured and unsecured

claims and approved administrative expenses.”

(SER 46; AB at 15-16). This is important because to date, there is not sufficient capital

to pay all creditors. Because the increased

compensation to the Trustee will further subordinate Clifton Capital's claim, the Court concludes that Clifton Capital is directly and adversely affected by the Final Fee Order, giving

it standing to pursue this appeal. See Salomon

v. Logan (In re International Envtl. Dynamics,

Inc.), 718 F.2d 322, 326 (9th Cir. 1983) (“[I]n a

case involving competing claims to a limited

fund, a claimant has standing to appeal an order disposing of assets from which the claimant

seeks to be paid.”); In re P.R.T.C., Inc., 177 F.3d

774, 778 (9th Cir. 1999) (“A creditor does ...

have a direct pecuniary interest in a bankruptcy court's order transferring assets of the

estate.”).

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(Prior Order at 5) (emphasis added).

The Trustee acknowledges that the Court previously rejected this argument and that “no new facts

have arisen that bear on this question.” (AB at 4). Because the Court has already rejected this argument,

the Court declines to address it in detail here. The

Court is satisfied that Clifton Capital has standing for

the same reasons set forth in the Prior Order.

B. Specific Evidence in Support of Fee Enhancement

Clifton Capital argues that the Bankruptcy

Court erred in awarding the Trustee a fee enhancement above the lodestar figure of $758,951.70 because

the Trustee failed to show that (1) the bonus was necessary to make the award commensurate with compensation for comparable nonbankruptcy services;

and (2) the quality of the results obtained were not reflected in its standard hourly rate or the number of

hours allowed. (OB at 19-20) (citing Prior Order at 4).

In In re Manoa Finance Co., Inc., the Ninth Circuit explained that “[t]here is a strong presumption

that [an award based on the lodestar] was ‘reasonable

compensation.’ ” 853 F.2d at 692. Therefore,

[i]n order to justify a bonus [beyond the lodestar figure], appellant must come forward

with specific evidence showing why the results obtained were not reflected in either his

standard hourly rate or the number of hours

allowed. He must also show that the bonus is

necessary to make the award commensurate

with compensation for comparable nonbankruptcy services.

Id. “If the bankruptcy court determines that a bonus

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is justified, it must make detailed findings in support

of that determination.” Id. (emphasis added).

When granting a fee enhancement, courts may

not rely on factors subsumed within the initial calculation of the lodestar. In re Buckridge, 367 B.R. at 204

(citing Blum v. Stenson, 465 U.S. 886 (1984)). Factors

typically subsumed into the lodestar, and which cannot serve as an independent basis for an upward adjustment, include: (1) the novelty and complexity of

the issues, (2) the special skill and experience of the

professional, (3) the quality of the services, and (4) the

results obtained. Id. at 202; see also In re Manoa Fin.

Co., Inc., 853 F.2d at 691. Because these factors are

ordinarily accounted for in the lodestar figure, “they

can support an upward adjustment only when it is

shown by specific evidence that they are not fully reflected in the lodestar.” In re Manoa Fin. Co., Inc., 853

F.2d at 691 (citations omitted).

With respect to the first requirement — that the

award be commensurate with compensation for comparable nonbankruptcy services — the Court notes

that there is no direct analog to a chapter 11 trustee

outside of bankruptcy, and there is no easy benchmark against which to measure. On the one hand,

Clifton Capital points out that the Trustee repeatedly

represented below that “[t]he rates provided are the

normal hourly rates which [the Trustee] charges to its

regularly paying, non-bankruptcy clients for similar

services.” (ER 933). On the other hand, the Bankruptcy Court reasoned that, outside of the bankruptcy

context, a professional performing services similar to

the Trustee might be entitled to a fee enhancement:

Unlike with attorneys and other profession-

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als who provide services outside of bankruptcy similar to those they provide in bankruptcy cases, there is no such thing as a chapter 11 trustee outside of bankruptcy. The

closest analog may be a chief restructuring

officer hired to run a company. It is not uncommon for such non-bankruptcy professionals to be entitled to success fees or bonuses

when they deliver exceptional results. For a

company such as the Debtor, a CRO could

easily be entitled to additional compensation

in the form of a success fee or bonus in excess

of the fee enhancement sought by the Trustee

in this case.

(ER 95).

The Court determines that this reasoning is

sound, and that the Bankruptcy Court's conclusion

therefore was not an abuse of discretion. See In re

Cook Inlet Energy LLC, 583 B.R. at 500 (“A bankruptcy court abuses its discretion if it applies the

wrong legal standard or its findings are illogical, implausible or without support in the record.”).

With respect to the second requirement — that

the quality of the result obtained was not already reflected in the Lodestar calculations — the Bankruptcy

Court explained that this was an exceptionally difficult and complex case, and that the complexities of

this case did not necessarily result in an increase in

the number of hours spent by the Trustee and its staff.

(ER 14). Specifically, the Bankruptcy Court found this

to be an exceptional case for the following reasons:

[t]he trustee assumed control over an operating business with several locations and was

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called upon to keep those restaurants operating in a profitable manner while dealing with

the fact that there were effectively no internal controls, no reliable accounting methods

or records, a toxic corporate culture that had

resulted in large employee tort claims, years

of unfiled tax returns and unpaid sales taxes,

an owner who had siphoned off and was attempting to continue to siphon off estate assets and resources to benefit or support other

business and his competing restaurants, numerous related party contracts and a principal who failed to cooperate in discovery or

obey court orders. The analogy that comes to

mind here is of the plate-spinners that used

to appear on the Ed Sullivan show who

worked furiously to keep multiple plates in

the air at the same time.

(ER 86).

The Bankruptcy Court reasoned that, “[i]n light

of the high level of expertise and experience required

to perform these tasks in the manner in which they

were performed,” “[t]he number of hours spent working on the case is not a measure of the difficulty or

skill level required to perform the required services in

an exceptional manner.” (Id.). The Bankruptcy Court

specifically noted that, “if the complexities merely increased the number of hours that the trustee spent

working on the case, this would be reflected in, and

therefore compensated by, the lodestar calculation.”

(Id.).

Given that the complexity of the case and the

special skill of the professional are typically subsumed

into the lodestar, the question becomes whether the

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Trustee has shown “by specific evidence” that they are

not fully reflected in the Lodestar. See In re Manoa

Fin. Co., Inc., 853 F.2d at 691.

The Bankruptcy Court's thorough analysis of

the record demonstrates that the Bankruptcy Court

relied on the specific evidence set forth above in concluding that the complexity is not accurately reflected

in the Lodestar. This is a factual question and the

Bankruptcy Court is in the best position to make this

determination. Because the Bankruptcy Court's conclusion is based on specific evidence and is neither implausible nor illogical, the Court determines that the

Bankruptcy Court did not abuse its discretion.

C. Risk of Underpayment or Loss

Clifton Capital argues that the Bankruptcy

Court erred by basing its award of a bonus to the Trustee on a risk of underpayment or loss. (OB at 22). Specifically, Clifton Capital argues that (1) risk of underpayment or loss cannot be considered as a matter of

law under § 330; and (2) even if it could be considered,

the record establishes that there was no risk of nonpayment in this case. (Id.).

With respect to the first point, Burlington v.

Dague, 505 U.S. 557 (1992), and In re Cedic Dev. Co.,

219 F.3d 1115 (9th Cir. 2000), are instructive. In Burlington, the Supreme Court held that enhancements

to the lodestar figure are not permitted based on risk

of loss or contingency risk. 505 U.S. at 564-67

(“[E]nhancement for contingency is not permitted under the fee-shifting statutes at issue.”). In Cedic, the

bankruptcy court awarded a fee enhancement because

the attorney's hourly rates did not take into account

the results obtained or the risk of nonpayment. 219

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F.3d at 1116. The district court reversed the bankruptcy court, interpreting Burlington as prohibiting

enhancements based on risk of nonpayment. Id. The

Ninth Circuit expressly rejected that reading of Burlington, reversed the district court, and reinstated the

fee award. Id. at 1116-17. The Ninth Circuit distinguished Burlington as a case about contingent fees:

City of Burlington is a case about contingent

fees. It holds that the risk created by a contingency fee does not justify an increase beyond the lodestar. The case is not controlling

here, because the risk of nonpayment by

Cedic was not created by any contingency in

the merits of the litigation but by the conduct

of Cedic that suggested that it didn't like to

pay its lawyers.

Id. (citations omitted). The Ninth Circuit explained

“that the general principles applicable to fee-shifting

statutes ‘may require some accommodation to the peculiarities of bankruptcy.’ ” Id. at 1116-17 (quoting

Manoa, 853 F.2d at 691).

Here, the Bankruptcy Court explained that the

risk of underpayment stemmed from (1) the risk of the

Trustee being awarded less in fees than the Trustee

might be awarded on an hourly fee basis, and (2) the

risk that the Trustee may receive only a pro rata distribution of fees if the estate has insufficient funds to

pay for the full cost of services rendered:

[I]n addition to the inherent risk of underpayment

faced by all chapter 11 professionals, chapter 11

trustees face an additional underpayment risk because of § 326(a). In the Court's experience, because

of § 326(a), chapter 11 trustees are very often

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awarded less fees than they would be awarded on

hourly-fee bases.

This was true in this case for the first two interim

periods. For the first interim period, the Trustee requested fees of $252,997.09, while hours spent multiplied by hourly rates charged for non-trustee matters totaled $347,741.50. After the second interim

period, the Trustee had been paid $524,184.36 pursuant to § 326(a), while hours spent multiplied by

hourly rates charged for non-trustee matters totaled

$566,133.00. If the case had faltered during those

interim periods, the fee awarded would have been

less than any amount calculated in accordance with

hourly rates charged by the Trustee's firm for nontrustee matters.

Because of § 326(a), chapter 11 trustees face a double risk of underpayment. First, the amount of fees

awarded is very often less than the amount they

would be awarded if their fees were based on hourly

rates charged by their firms for their non-trustee

services. Second, based on that already-reduced

amount, the trustee may receive only a pro rata distribution. This double risk is not “priced into” the

normal hourly rate charged by a firm for the trustee's non-trustee services.

(ER 88-91).

On the one hand, the inherent risk of underpayment here faced by all chapter 11 professionals does

somewhat resemble a contingent fee: the Trustee's entitlement to a fee award here is contingent upon the

quality of his performance because he may receive

only a pro rata distribution of fees if the estate has

insufficient funds to pay for the full cost of services

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rendered. The Bankruptcy Court explained that “this

inherent risk of underpayment is already priced into

the hourly rates identified by attorneys, accountants,

and other estate professionals when they are being

employed under § 327(a) of the Code.” (ER 89).

On the other hand, the Trustee faces an additional risk of underpayment because of § 326(a): the

Trustee may be awarded less in fees than he would be

awarded on an hourly-fee basis. The Bankruptcy

Court recognized that this “double risk is not ‘priced

into’ the normal hourly rate charged by a firm for the

trustee's non-trustee services.” (ER 91).

Given that the Trustee here faced two different

types of underpayment risk, and that this “double

risk” was not priced into the normal hourly rate, the

Court determines that the risk of underpayment here

is likely not the type of “contingent fee” that cannot

justify an increase beyond the Lodestar pursuant to

Burlington. See Burlington, 505 U.S. at 559 (a contingent fee is one where the party's attorneys assume

“the risk of receiving no payment at all for their services”). This conclusion is consistent with the Ninth

Circuit's determination in Cedic that “the general

principles applicable to fee-shifting statutes ‘may require some accommodation to the peculiarities of

bankruptcy.’ ” 219 F.3d at 1116-17 (quoting Manoa,

853 F.2d at 691). Therefore, the Court determines that

the Bankruptcy Court did not err by basing its Lodestar enhancement on a risk of underpayment or loss.

With respect to Clifton Capital's second point,

Clifton Capital argues that there was never a real

risk of underpayment here because the Trustee inherited “an operating, successful, and profitable business

generating millions of dollars in revenue and more

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than sufficient funds to pay the Trustee and estate

professionals.” (OB at 24). Clifton Capital points out

that, “[a]t the time of each of Trustee's four fee applications, the estate had more than enough cash on

hand to pay not only the Trustee's requested fees and

expenses, but all administrative fees and costs.” (Id.).

Clifton Capital is essentially arguing that the Trustee's job in managing the business here was not difficult enough to create a significant risk of the business

becoming insolvent.

This argument does not even attempt address

the specific factual findings set forth by the Bankruptcy Court as to why the managing the business

was particularly difficult here:

In light of the numerous challenges this trustee faced and the manner in which the trustee rose to the occasion to resolve these challenges, producing exceptional results, this

Court finds that the trustee utilized in connection with the administration of this estate

levels of strategic thinking and diplomacy

above and beyond those normally employed

by a trustee in a chapter 11 case. The trustee

assumed control over an operating business

with several locations and was called upon to

keep those restaurants operating in a profitable manner while dealing with the fact that

there were effectively no internal controls, no

reliable accounting methods or records, a

toxic corporate culture that had resulted in

large employee tort claims, years of unfiled

tax returns and unpaid sales taxes, an owner

who had siphoned off and was attempting to

35a

continue to siphon off estate assets and resources to benefit or support other business

and his competing restaurants, numerous related party contracts and a principal who

failed to cooperate in discovery or obey court

orders.

(ER 86). In light of all of the difficulties faced by the

Trustee, the fact that the estate had enough cash on

hand to pay the Trustee's requested fees and expenses, as well as all administrative fees and costs,

appears to support, rather than discount, the Bankruptcy Court's conclusion that the Trustee produced

exceptional results under these circumstances. And

Clifton Capital has failed to explain why the difficulties identified by the Bankruptcy Court did not put

the business in any real danger of insolvency. The

Bankruptcy Court's factual findings are supported by

the record. Therefore, the Court is not convinced by

Clifton Capital's conclusory assertion that there was

no real risk of underpayment here.

Accordingly, the Second Fee Order is AFFIRMED.

D. Strike Order

Clifton Capital argues that the Bankruptcy

Court erred by striking the declarations that Clifton

Capital submitted in response to the Trustee's supplemental brief on remand. (OB at 52). Specifically, Clifton Capital argues that it is entitled to present countervailing evidence because the Trustee's supplemental brief cited to evidence not previously submit

in connection to the Final Fee Application. (Id.) (citing

In re Colusa Reg'l Med. Ctr., 604 B.R. 839, 852 (B.A.P.

36a

9th Cir. 2019) (“Typically, a party must have an adequate opportunity to address the evidence against it

and an opposing party should have both the ability to

do so in writing and to produce counterevidence.”)).

The Court disagrees.

Clifton Capital acknowledges that the Trustee's

supplemental brief did not introduce new evidence.

(OB at 53). The supplemental brief cited to the same

evidence introduced in the Trustee's original reply

brief, i.e., evidence that was already in the record. (Id.)

(“Clifton Capital took issue with these ‘four pages of

things’ at the original hearing on the Final Fee Application, pointed out that the Trustee had raised new

arguments and purported evidence in his reply, and

requested the opportunity to respond before the Court

ruled.”).

When discussing this precise issue before the

Bankruptcy Court on remand, Clifton Capital represented to the Bankruptcy Court that it was comfortable with the record as it currently existed, and that it

would seek additional discovery only in the event that

the Trustee attempted to provide additional evidence

in the supplemental brief:

So if we're limited to the record as is, we're

comfortable with that. To the extent, however, that Mr. Sharp attempts to provide any

additional evidence that's not currently in

the record to support an enhancement, we

feel that we should be entitled to discovery on

that additional evidence, and then a supplement — and then a briefing schedule that's

— flows from that.

(ER 2109). Because the Trustee's supplemental brief

37a

cited to evidence previously submitted in connection

with its reply brief, the Trustee's supplemental brief

did not introduce new evidence.

Even assuming that the Bankruptcy Court

should have stricken the evidence submitted in connection with the Trustee's reply brief in the first place

— a conclusion this Court does not endorse — Clifton

Capital failed to raise this issue in its first appeal, and

has therefore waived its right to make that argument

here.

Accordingly, the Strike Order is AFFIRMED.

V. CONCLUSION

The Second Fee Order is AFFIRMED. The

Bankruptcy Court neither erred nor abused its discretion in awarding the Trustee a fee enhancement above

the Lodestar.

The Strike Order is AFFIRMED. The Bankruptcy Court neither erred nor abused its discretion

in granting the Trustee's motion to strike Clifton Capital's newly submitted declarations because the Trustee did not introduce any new evidence.

IT IS SO ORDERED.

DATED: AUGUST 6, 2021

/s/ Michael W. Fitzgerald

United States District Judge

CC: Bankruptcy Court

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APPENDIX C

UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

LOS ANGELES DIVISION

NO. 18-10098 MWF

IN RE EAST COAST FOODS, INC.,

Debtor

Filed: December 18, 2019

ORDER RE: BANKRUPTCY COURT’S ORDER

MICHAEL W. FITZGERALD, United States District

Judge:

Before the Court is an appeal from the United

States Bankruptcy Court (the Honorable Sheri L.

Bluebond, United States Bankruptcy Judge). Appellant Clifton Capital Group, LLC (“Clifton Capital”) appeals from the Bankruptcy Court's Order granting the

Trustee's Fourth and Final Application for Compensation and Reimbursement of Fees and Expenses (the

“Final Fee Application”) in the amount of

$1,155,944.71. The Order was issued on November 19,

2018.

Clifton Capital submitted its Opening Brief

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(“OB”) on March 6, 2019. (Docket No. 11). On May 22,

2019, Appellee Bradley D. Sharp, Chapter 11 Trustee,

submitted his Brief (“AB”). (Docket No. 16). On July

1, 2019, Appellant submitted its Reply Brief (“RB”).

(Docket No. 23). The Court has read and considered

the papers filed in this appeal, and held a hearing on

November 6, 2019.

The Order is AFFIRMED in part, REVERSED in part, and REMANDED for further proceedings. The Bankruptcy Court did not make the required findings to determine that the Trustee is entitled to a fee award that exceeds the lodestar figure.

However, the Bankruptcy Court did not abuse its discretion in awarding compensation for services performed by Development Specialists, Inc. (“DSI”).

I. BACKGROUND

On March 25, 2016, East Coast Foods, Inc. (the

“Debtor”) filed for bankruptcy under Chapter 11. (Appellant's Excerpts of Record (“ER”) 60 (Docket No.

11)). On April 29, 2016, the Office of United States

Trustee (the “U.S. Trustee”) appointed the Official

Committee of Unsecured Creditors (the “Committee”).

(ER 84). Clifton Capital is a member of the Committee. (Id.).

On September 28, 2016, the Bankruptcy Court

appointed Bradley D. Sharp as the Chapter 11 Trustee (the “Trustee”). (ER 90). The Trustee handled numerous issues during his appointment, including

state court actions, tax disputes, landlord disputes,

accounting practices, and return of intellectual property assets. (ER 967-70; AB 10-14). The Trustee employed his company, DSI, to help him perform some of

40a

his duties as the Trustee. (ER 102, 258, 331, 879).

On July 3, 2018, the Bankruptcy Court entered

an order confirming a joint Plan of Reorganization

(the “Plan”). (ER 715-26). On September 10, 2018, the

court granted non-material modifications to the Plan,

and on September 14, 2018, the Plan became effective.

(ER 715-34).

The Trustee filed four fee applications during

the bankruptcy case. In the first three applications,

the Trustee sought approval of fees and costs on an

interim basis. (ER 102 et seq., ER 258 et seq., ER 331

et seq.). In the fourth and final application, the Trustee sought final approval of his fees and costs. (ER 879

et seq.).

In each Fee Application, the Trustee sought

fees incurred by himself as well as by DSI personnel.

Specifically, each Application contained the disclosure: “This Application includes the time records for

employees of [DSI] ... who assisted the trustee in the

performance of his duties of this case.” (ER 102, 258,

331, 879).

The Committee filed an objection to the First

Fee Application, arguing that the court never authorized DSI's employment, and therefore, fees to DSI totaling $202,767.59 should be disallowed. (ER 189).

The Bankruptcy Court overruled the Committee's objection and approved the First Fee Application in full.

(SER 41). The Committee did not object to DSI's fees

in the second and third applications, and the Bankruptcy Court approved both Fee Applications in full.

(SER 43-44; ER 52-53; AB 20).

41a

The Trustee filed the Final Fee Application in

October 2018. The Final Fee Application disclosed

that the Trustee and his staff at DSI had worked

1,692.2 hours during the case, which would equate to

$758,955.50 if billed at normal hourly rates. (ER 885).

However, the Trustee requested a fee of

$1,155,844.71, which is the maximum fee permitted

under 11 U.S.C. § 326(a) (“§ 326(a)”). (Id.).

Clifton Capital filed an objection to the Final

Fee Application. (ER 936 et seq.). It did not object to

the Trustee's request for fees associated with work

performed by his staff at DSI. However, Clifton Capital argued that the Trustee should not be paid the

maximum amount under § 326(a), which is a limit and

not a presumption of reasonableness. (ER 942-44).

Clifton Capital argued that the Trustee had the burden of establishing his requested compensation was

reasonable under 11 U.S.C. § 330(a) (“§ 330(a)”), and

that the proper way to establish reasonable compensation is by applying the lodestar method. (Id.).

The Bankruptcy Court granted the Trustee's

Final Fee Application and entered an order granting

the Final Fee Application (the “Final Fee Order”). (ER

58). The court provided two alternative grounds for

granting the Fee Application. First, the court determined that the requested fee was reasonable because

it equaled the amount set forth under § 326(a). The

court explained: “Congress has really tried to be

pretty clear that trustee compensation, it's really

more in the nature of commission” and “it takes some

pretty extraordinary circumstances for me to revisit

the Trustee compensation that's provided by formula”

42a

under § 326(a). (ER 47).

The court then provided an alternative basis for

its decision: “[I]n the alternative – aside from my discussion of how I read the compensation formula for

trustees, in the alternative, even if I look at it simply

as reasonable compensation, I think this was an exceptional case.” (ER 51). The court noted that “[t]his

case was a mess,” and “there were a number of problems with the way Mr. Hudson had run the business,

resulting in multi-million dollar judgments and tax

claims.” (Id.). Because the Trustee ran the Debtor's

business in a professional manner, “had an awful lot

of cleanup to do and an awful lot of challenges facing

him in doing that,” the court held that the compensation the Trustee was seeking as “reasonable for the

circumstances, under the circumstances and for the

results achieved.” (ER 52).

Appellant filed the instant appeal of the Final

Fee Order.

II. STANDARD OF REVIEW

A bankruptcy court's conclusions of law are reviewed de novo and findings of fact are reviewed for

clear error. Zurich Am. Ins. Co. v. Int'l Fibercom, Inc.,

503 F.3d 933, 940 (9th Cir. 2007). Pertinent to this appeal, the bankruptcy court's award of professional fees

“will not [be] disturb[ed] ... unless the bankruptcy

court abused its discretion or erroneously applied the

law.” In re Strand, 375 F.3d 854, 857 (9th Cir. 2004).

“A bankruptcy court abuses its discretion if it applies

the wrong legal standard or its findings are illogical,

implausible or without support in the record.” In re

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Cook Inlet Energy LLC, 583 B.R. 494, 500 (B.A.P. 9th

Cir. 2018).

III. DISCUSSION

A. Standing

“In order to have standing to appeal, a party

must be directly and adversely affected pecuniarily by

the bankruptcy court decision.” In re 240 N. Brand

Partners, Ltd., 200 B.R. 653, 657 (B.A.P. 9th Cir.

1996). The Trustee argues that Clifton Capital is not

an “aggrieved person” because it “is guaranteed to be

paid 100% of its alleged claim” under the Plan. (AB at

6). In support of this claim, the Trustee points to a

declaration made by Clifton Capital's principal, who

testified that the Plan “ensure[s] 100% payment to

creditors.” (AB at 6; SER 63).

In response, Clifton Capital argues that it is aggrieved because “[t]here are not yet enough funds on

hand to pay all creditors, including Clifton Capital, in

full, and there are outstanding contingencies under

the Plan that must occur before those funds become

available.” (RB at 3). In fact, Clifton Capital notes that

it “has not been paid any amount on its allowed

claim.” (Id.). At the hearing, Clifton Capital confirmed

that there are not sufficient funds to pay back all the

creditors. Clifton Capital further argues that “[a]llowing the Trustee to receive and retain compensation beyond which he is entitled subordinates Clifton Capital's claim more than it should be.” (RB at 4).

Although neither party provides case law directly on point on the issue, the Court finds Clifton

44a

Capital's argument to be more persuasive. Clifton

Capital's claim is “subordinated to ... all allowed and

secured and unsecured claims and approved administrative expenses.” (SER 46; AB at 15-16). This is important because to date, there is not sufficient capital

to pay all creditors. Because the increased compensation to the Trustee will further subordinate Clifton

Capital's claim, the Court concludes that Clifton Capital is directly and adversely affected by the Final Fee

Order, giving it standing to pursue this appeal. See

Salomon v. Logan (In re International Envtl. Dynamics, Inc.), 718 F.2d 322, 326 (9th Cir.1983) (“[I]n a case

involving competing claims to a limited fund, a claimant has standing to appeal an order disposing of assets from which the claimant seeks to be paid.”); In re

P.R.T.C., Inc., 177 F.3d 774, 778 (9th Cir. 1999) (“A

creditor does ... have a direct pecuniary interest in a

bankruptcy court's order transferring assets of the estate.”).

The Court thus turns to the merits.

B. The Fee Order

Clifton Capital argues that the Fee Order was

an abuse of discretion for two reasons. First, Clifton

Capital argues that the Bankruptcy Court erred in determining that the Trustee's requested fees were reasonable. Second, Clifton Capital argues that the

Bankruptcy Court erred in awarding the Trustee compensation for services performed by DSI. The Court

agrees with Clifton Capital that the Bankruptcy

Court erred in determining that the Trustee's requested fees were reasonable because the court did

not make detailed findings as to why the Trustee is

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entitled to an amount significantly higher than the

lodestar figure. However, the Court concludes that the

Bankruptcy Court did not abuse its discretion in

awarding the Trustee compensation for services performed by DSI.

1. Reasonableness of the Trustee's Fee

Clifton Capital argues that the Bankruptcy

Court committed two errors when it determined the

reasonableness of the Trustee's fee.

The Wrong Legal Standard: Clifton Capital

first argues that the Bankruptcy Court applied the

wrong legal standard. (OB at 12-19). According to Clifton Capital, the Bankruptcy Court concluded that the

Trustee's requested fee was reasonable because it

equaled the amount provided under § 326(a). (OB at

12-13). But § 326(a) sets a statutory cap for trustee

compensation, not what is presumptively reasonable

compensation. Therefore, Clifton Capital argues that

the Bankruptcy Court should have considered “all relevant factors” listed under § 330(a) to determine

whether the Trustee's requested compensation was

reasonable. (OB at 15-16). In response, the Trustee argues that the Bankruptcy Court did precisely that; it

provided an alternative ground for finding the requested fee to be reasonable under all relevant factors

as stated in § 330(a). (AB at 27-28).

The Court does not find Clifton Capital's argument to be persuasive. The Bankruptcy Court provided two separate bases for determining the reasonableness of the Trustee's requested fees. The Bankruptcy Court first determined that the requested fee

46a

was reasonable because the fee should be treated as a

“commission” that is equal to the § 326(a) statutory

cap. (See ER 47-48). If this was the only basis for the

Bankruptcy Court's determination, Clifton Capital's

argument would have merit.

However, the Bankruptcy Court also provided

an alternative basis for its decision. The Bankruptcy

Court stated: “in the alternative, even if I look at it

simply as reasonable compensation, I think this was

an exceptional case.” (ER 51). The Bankruptcy Court

then explained the challenges the Trustee faced in

this case and concluded that “the compensation that

[the Trustee] is requesting here in accordance with

the formula is reasonable for the circumstances, under the circumstances and for the results achieved.”

(ER 52). Even Clifton Capital appears to acknowledge

that this is the correct legal standard for determining

the reasonableness of the Trustee's fees. Therefore,

the Court determines that the Bankruptcy Court did

not err by applying the wrong legal standard.

Exceeding the lodestar figure: Even if the

Bankruptcy Court articulated the correct legal standard, Clifton Capital further argues that the court

erred by awarding a fee amount that far exceeded the

lodestar figure without providing sufficient reasoning

for the deviation. (RB at 15-19). Both parties appear

to agree that the Bankruptcy Court was not required

to apply the lodestar. (See RB at 11). Nonetheless,

Clifton Capital argues that lodestar approach is the

“primary method” for determining reasonableness of

the Trustee's compensation and argues that the court

should not have granted the Trustee an award beyond

the lodestar amount without “specific evidence that

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an award based on his standard hourly rate and actual hours worked does not fairly compensate for the

work done.” (OB at 28).

In response, the Trustee argues that the Bankruptcy Court has provided sufficient reasoning for

why this case was exceptional. The Trustee notes that

the Bankruptcy Court explained that “there were a

number of problems with the way Mr. Hudson had run

the business, resulting in multi-million dollar judgments and tax claims,” “[t]here were other labor problems,” and “it was apparent to this Court that [the

Debtor] did not know how to run a business with multiple locations in a professional manner.” (ER 51-52).

The Bankruptcy Court also observed that the Trustee

came in and ran the business and “had an awful lot of

cleanup to do and an awful lot of challenges facing him

in doing that.” (ER 52). According to the Trustee, this

record demonstrates that the Bankruptcy Court considered the circumstances of this case and appropriately determined a reasonable amount of fees.

The Court agrees with Clifton Capital. In In re

Manoa Finance Co., Inc., the Ninth Circuit explained

that “[t]here is a strong presumption that [an award

based on the lodestar] was ‘reasonable compensation.’

” 853 F.2d 687, 692 (9th Cir. 1988). Therefore, “[i]n order to justify a bonus [beyond the lodestar figure], appellant must come forward with specific evidence

showing why the results obtained were not reflected

in either his standard hourly rate or the number of

hours allowed. He must also show that the bonus is

necessary to make the award commensurate with

compensation for comparable nonbankruptcy services.” Id. Moreover, [i]f the bankruptcy court determines that a bonus is justified, it must make detailed

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findings in support of that determination.” Id. (emphasis added).

Here, the parties dispute what the correct lodestar amount is. However, after correcting for a typographical error in the Final Fee Application, it appears that the lodestar amount would have been

$758,977.50. (AB at 22; RB at 16, n.10). It is undisputed that the Bankruptcy Court awarded

$1,155,844.70. Therefore, the Bankruptcy Court appears to have determined that a significant enhancement or bonus to the lodestar figure was appropriate.

However, the Court cannot identify any detailed findings in support of this determination in the record.

Moreover, while the Bankruptcy Court observed that

the Trustee faced various challenges in this action, it

is not clear why such considerations would not have

been encompassed in the lodestar figure, or would justify such a substantial bonus.

Accordingly, the Court vacates the Order granting $1,155,944.71 in fees to the Trustee. On remand,

the Bankruptcy Court should either (i) definitively establish the lodestar figure and award fees accordingly,

or (ii) make detailed findings to determine whether a

fee award beyond the lodestar figure is warranted.

2. Compensation for Services

Performed by DSI

Clifton Capital also argues that the Bankruptcy Court erred in awarding the Trustee compensation for services performed by DSI, which were not

properly employed pursuant to 11 U.S.C. § 327. (OB

at 29). Clifton Capital argues that DSI was never employed by the bankruptcy estate, but still billed and

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was awarded $286,998 for its services. (Id.). Clifton

Capital argues that this award was reversible error.

As a preliminary matter, the Trustee argues

that Clifton Capital's objection has been waived because it did not raise this argument in its objection to

the Final Fee Application. (AB at 35). Even though the

Trustee disclosed that he was seeking fees for services

rendered by DSI personnel, and even though Clifton

Capital recognized this fact, Clifton Capital did not

object to the Final Fee Application on those grounds.

(Id.). In fact, the Trustee asserts that Clifton Capital

did the opposite by asking the Bankruptcy Court to

approve the Trustee's fees in the amount of

$810,661.24, which included compensation for services rendered by DSI personnel. (Id.)

In response, Clifton Capital argues that “there

was no reason—or need—to continue to raise the issue

on each subsequent fee application.” (RB at 20, n.11).

Clifton Capital argues that it did not need to raise this

issue because the Committee had raised this exact objection in the First Fee Application, but the Bankruptcy Court overruled the objection and approved the

award to DSI. (See SER 41).

Although Clifton Capital did not raise this objection to DSI in response to the Final Fee Application, the Court determines that the argument was sufficiently raised for the Bankruptcy Court to rule on it

in the First Fee Application. See In re Mercury Interactive Corp., 618 F.3d at 922. (“Although no bright line

rule exists to determine whether a matter has been

properly raised below, an issue will generally be

deemed waived on appeal if the argument was not

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raised sufficiently for the trial court to rule on it.”) (internal quotation marks and citation omitted). Accordingly, the Court examines the merits.

“In bankruptcy proceedings, professionals who

perform services for a debtor in possession cannot recover fees for services rendered to the estate unless

those services have been previously authorized by a

court order.” In re Atkins, 69 F.3d 970, 973 (9th Cir.

1995); see 11 U.S.C. § 327(a) (with court approval, the

trustee may employ “professional persons” who do not

hold an adverse interest to the estate). “The bankruptcy courts in this circuit possess the equitable

power to approve retroactively a professional's valuable but unauthorized services,” but “such retroactive

approval should be limited to situations in which ‘exceptional circumstances’ exist.” In re Atkins, 69 F.3d

at 973-74. “To establish the presence of exceptional

circumstances, professionals seeking retroactive approval must satisfy two requirements: they must (1)

satisfactorily explain their failure to receive prior judicial approval; and (2) demonstrate that their services benefitted the bankrupt estate in a significant

manner.” Id. at 974.

Here, it is undisputed the Trustee never filed

an employment application under § 327 for DSI.

Nonetheless, the Trustee argues that it was not required to employ DSI under § 327 because there is no

prohibition on a trustee utilizing the services of his or

her staff to assist him or her in performing administrative tasks. (AB at 35-36). The Trustee further notes

that Clifton Capital did not show that any of the services provided by DSI personnel did not constitute

trustee services. (Id. at 37-38). Finally, the Trustee argues that even if he should have formally sought to

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employ DSI, his failure to do so was harmless because

there can be no question that the Bankruptcy Court

would retroactively authorize DSI's employment. (Id.

at 38).

In response, Clifton Capital argues that DSI

should still have been employed under § 327 because

under the plain language of the statute, a professional

cannot be paid by the bankruptcy estate unless the

services rendered were previously approved by court

order. (RB at 20). Clifton Capital further argues that

DSI personnel are professionals.

The critical issue appears to be whether DSI

personnel should be considered a “professional”

within the meaning of § 327(a). Neither party has provided a clear definition of the term, and there appears

to be limited case law on the issue. However, the Court

notes that “[n]ot every person employed by a trustee

is a ‘professional person’ within the meaning of § 327.”

In re Blair, 329 B.R. 358 (B.A.P. 9th Cir. 2005). “A

‘professional person’ is one who takes a central role in

the administration of the bankruptcy estate and in the

bankruptcy proceedings[.]” Id. (internal quotation

marks and citation omitted). “Individuals or entities

that perform mechanical, nondiscretionary tasks are

not ‘professional persons’ within the meaning of §

327.” Id.; see also In re Fretheim, 102 B.R. 298, 299

(Bankr. D. Conn. 1989) (To qualify as a professional

under § 327(a), “it must be determined whether an

employee is to be given discretion or autonomy in

some part of the administration of the debtor's estate.”).

Here, the Trustee detailed the services that

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DSI personnel provided to assist him, and the Bankruptcy Court determined that these services should be

included as part of trustee services and should be paid

as part of the trustee fees. (SER 41). Therefore, it appears that the Bankruptcy Court implicitly determined that DSI personnel are not professionals that

must be employed under § 327. The Court determines

that this finding was neither illogical nor implausible.

It appears that the DSI personnel assisted the Trustee by performing mostly administrative tasks, including implementing new cash controls, a point of

sale system, and improved financial reporting. (ER

113-114). Even Clifton Capital does not appear to dispute that the nature of the services conducted by DSI

personnel were administrative. While Clifton Capital

emphasizes that the DSI personnel's hourly rates are

higher than what one would expect from lower-hourly

rate staff, the Court does not find this fact to be determinative.

Accordingly, the Bankruptcy Court did not

abuse its discretion in awarding the Trustee compensation for services performed by DSI.

IV. CONCLUSION

The Final Fee Order is AFFIRMED in part,

REVERSED in part, and REMANDED for further

proceedings consistent with this Order. Specifically,

the Bankruptcy Court in its discretion may either enter an order awarding fees consistent with the lodestar figure (which may be recalculated) or make detailed findings sufficient to justify a higher amount.

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IT IS SO ORDERED.

DATED: December 18, 2019

/s/ Michael W. Fitzgerald

United States District Judge

CC: Bankruptcy Court

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APPENDIX D

UNITED STATES BANKRUPTCY COURT

CENTRAL DISTRICT OF CALIFORNIA

LOS ANGELES DIVISION

NO. 2:16-13852 BB

IN RE EAST COAST FOODS, INC.,

Debtor

Filed: November 18, 2020

ORDER ON APPLICATION FOR PAYMENT OF

FINAL FEES AND/OR EXPENSES

(11 U.S.C. § 330)

1. Name of Applicant (specify): Bradley D. Sharp, former Chapter 11 Trustee

2. This proceeding was heard at the date and place

set forth above and was ☒Contested ☐Uncontested

3. Appearances were made as follows:

a. ☒ Applicant present in court

b. ☒ Attorney for Applicant present in court

(name): John N. Tedford, IV (Danning, Gill, Israel & Krasnoff, LLP)

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c. ☐ Attorney for United States trustee

present in court

d. ☒ Other persons present as reflected

in the court record

4. Applicant gave the required notice of the Application on (specify date): October 24, 2018

5. The court orders as follows:

a. ☐ Application for Payment of Interim Fees is

approved as follows:

(1) ☐ Total amount allowed: $

(2) ☐ Amount or percentage authorized

for payment at this time:

b. ☐ Application for Reimbursement of Interim

Expenses is approved and authorized for payment:

☐ Total amount allowed: $

c. ☒ Application for Payment of Final Fees is

approved in the amount of: $1,155,844.71.

d. ☒ Application for Reimbursement of Final

Expenses is approved and authorized for payment: Total amount allowed: $5,107.32.

e. (1) ☐ Application is denied

☐ in full

☐ in part

☐ without prejudice

☐ with prejudice

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(2) Grounds for denial (specify):

f. ☒ The court further orders (specify):

On October 24, 2018, Bradley D. Sharp,

the former chapter 11 trustee (the “Trustee”)

for the estate of East Coast Foods, Inc. (the

“Debtor”), filed his final application for compensation and reimbursement of expenses (the “Final Fee Application”) (docket entry no. 1134).

On November 19, 2018, the Court entered an

omnibus order on final applications by the

Trustee and others for approval of their fees

and expenses (docket no. 1192). Clifton Capital

Group, LLC (“Clifton Capital”) appealed the

Court’s approval of the full amount of fees

sought by the Trustee. On or about December

18, 2019, the District Court entered an order affirming in part, reversing in part, and remanding for further proceedings. The Trustee filed a

supplemental brief on June 17, 2020 (docket no.

1372), Clifton Capital filed a supplemental

brief on September 9, 2020 (docket no. 1385),

and the Trustee filed a supplemental reply brief

on October 7, 2020 (docket no. 1398). A hearing

on the Final Fee Application was held on November 4, 2020, the Honorable Sheri Bluebond,

United States Bankruptcy Judge, presiding.

John N. Tedford, IV, of Danning, Gill, Israel &

Krasnoff, LLP, appeared by Zoom on behalf of

the Trustee; Anthony R. Bisconti of Bienert

Katzman PC, appeared by Zoom on behalf of

Clifton Capital; and all other appearances were

as noted on the record at the hearing.

The Court having considered the Final

Fee Application, the supplemental papers filed

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by the Trustee and Clifton Capital on remand

except the declarations of John L. Sadd, Jed

Sanford and Sam White filed by Clifton Capital

in support of its supplemental brief, the District

Court’s order, and all of the other pleadings on

file in this case relevant to these proceedings,

having heard the statements of counsel at the

hearing, for the reasons stated in this Court’s

separately filed Findings of Fact and Conclusions of Law in Support of Order Approving

Former Chapter 11 Trustee’s Final Application

for Approval of Fees and Expenses and on the

record at the hearing, for good cause appearing,

the Court approves the Final Fee Application

and, on a final basis, awards the Trustee fees

and costs in the amounts set forth above.

DATED: NOVEMBER 18, 2020

/s/ Sheri Bluebond

United States Bankruptcy Judge

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UNITED STATES BANKRUPTCY COURT

CENTRAL DISTRICT OF CALIFORNIA

LOS ANGELES DIVISION

NO. 2:16-13852 BB

IN RE EAST COAST FOODS, INC.,

Debtor

Filed: November 18, 2020

FINDINGS OF FACT AND CONCLUSIONS OF

LAW IN SUPPORT OF ORDER APPROVING

FORMER CHAPTER 11 TRUSTEE’S FINAL

APPLICATION FOR APPROVAL OF FEES AND

EXPENSES

The matter of the final application for compensation and reimbursement of expenses (the “Final Fee

Application”) of Bradley D. Sharp, the former chapter

11 trustee (the “Trustee”) for the estate of East Coast

Foods, Inc. (the “Debtor”), came on for hearing before

the undersigned United States Bankruptcy Judge on

November 4, 2020. Appearances were as reflected in

the record.

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The Court having read and considered the

Trustee’s supplemental brief and proposed findings of

fact and conclusions of law in support of the Final Fee

Application (docket no. 1372), Clifton Capital Group,

LLC’s supplemental brief and declaration of Anthony

R. Bisconti, but not the declarations of Sam White,

John L. Sadd, and Jed Sanford (docket no. 1385), the

Trustee’s supplemental reply (docket no. 1398), and

all other pleadings and papers that have been filed

and brought before the Court during this case, having

presided over all hearings conducted in this case since

its inception in March 2016, and having heard and

considered the arguments of counsel at the hearing,

hereby makes the following findings of fact and conclusions of law:

FINDINGS OF FACT THE DEBTOR’S

BUSINESS

1. In 1976, Herbert Hudson (“Hudson”) established Roscoe’s House of Chicken & Waffles in Hollywood, California. [Dkt no. 911, p. 13.] Over the years,

Hudson expanded the business and had seven locations by the time the Debtor filed its bankruptcy petition in March 2016. [Id.] The first four locations were

operated by the Debtor (Gower Street in Hollywood;

Pico Boulevard in Los Angeles; 106 Manchester Avenue in South Los Angeles; and Lake Avenue in Pasadena). [Dkt no. 911, pp. 13, 75.] The other three are

separately incorporated and owned by Hudson. [Dkt

no. 911, p. 13.]

PREPETITION LITIGATION

AGAINST THE DEBTOR

2. In 2013, a former employee, Daniel Beasley

(“Beasley”), filed a wrongful termination suit against

the Debtor. [POC 12, p. 2.] In October 2015, the state

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court entered a Judgment on Jury Verdict awarding

Beasley over $3.2 million. [POC 12, pp. 2, 6-7.] The

Debtor appealed, but was unable to obtain an appeal

bond that would prevent any levy or execution on its

assets. [Dkt no. 56, p. 2.]

3. Also in 2013, a class action lawsuit was filed

against the Debtor, alleging claims related to the

Debtor’s alleged violations of California’s Labor Code.

[Dkt no. 122, pp. 11-12.] The matter was settled for

$900,000, and in February 2016 the state court

granted final approval of the settlement. [Dkt no. 122,

p. 12.] The settlement payment was due in April 2016.

[Dkt no. 122, p. 13.]

4. In February 2016, a half dozen plaintiffs

sued the Debtor and other entities, asserting claims

for, among other things, discrimination and failure to

accommodate. [See POC 25-1, p. 5.] This action was in

its infancy when the Debtor filed for bankruptcy.

FRAUDULENT TRANSFER OF THE DEBTOR’S

MOST VALUABLE ASSETS

5. In February 2016, Hudson formed a new entity called Roscoe’s Intellectual Properties, LLC (“Roscoe’s IP”). [AP Dkt no. 19-8, pp. 28-29; AP Dkt no. 1914, p. 2.] Hudson was the sole owner of Roscoe’s IP.

[AP Dkt no. 19-8, p. 28.]

6. On March 10, 2016 – 15 days before filing

this case – the Debtor transferred its most valuable

assets – intellectual property, including the Roscoe’s

Chicken N’ Waffles trademark – to Roscoe’s IP. [AP

Dkt no. 19-7, pp. 12-27.] The transfer was structured

as if it was a “sale” for $3.5 million, plus up to an additional $2.5 million depending on a future appraisal

of the assets’ value. [AP Dkt no. 19-7, p. 14.] Roscoe’s

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IP purportedly agreed to pay the full sale price over

15 years. [AP Dkt no. 19-7, pp. 14-15.]

7. Also on March 10, 2016, the Debtor entered

into a Trademark License Agreement with Roscoe’s

IP, in which the Debtor purportedly “licensed” its intellectual property back from Roscoe’s IP. [AP Dkt no.

19-7, pp. 29-40.] The term was only for five years, and

the Debtor agreed to pay Roscoe’s IP 1.5% of its quarterly net sales. [AP Dkt no. 19-7, pp. 29-30.]

8. At the § 341(a) meeting of creditors conducted in this case, Hudson admitted, under oath,

that the transfer was made because judgment creditors were trying to get hold of the Debtor’s intellectual

property. [AP Dkt no. 19-8, p. 39.] According to Hudson, “we figured it’d be better just to take it out of East

Coast’s name and put it in an LLC.” [Id.]

9. The assignment of the Debtor’s trademark

was registered with the U.S. Patent and Trademark

Office on March 23, 2016 – only two days before the

Debtor filed this case. [AP Dkt no. 19-13, p. 2.]

10. On May 4, 2016, without seeking Court approval, the Debtor and Roscoe’s IP purportedly

amended the agreement to increase the purchase

price to $5.5 million, to be paid over 15 years. [AP Dkt

no. 19-7, pp. 41-47.] The first payment of $223,140

(less amounts allegedly due under the licensing agreement) purportedly would be made on July 10, 2016,

with the balance paid in monthly payments of

$55,785. [AP Dkt no. 19-7, p. 42.]

11. Roscoe’s IP failed to pay the amounts it purportedly agreed to pay under the sale agreement. [AP

Dkt no. 19, pp. 32-33.]

THE DEBTOR’S BANKRUPTCY FILING

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12. On March 23, 2016, Beasley levied on the

Debtor’s bank accounts. [Dkt no. 56, pp. 2-3.] This precipitated the Debtor’s bankruptcy filing. [Dkt no. 56,

p. 3.]

13. On March 25, 2016 (the “Petition Date”), the

Debtor filed a voluntary petition for relief under chapter 11 of the United States Code (the “Code”). [Dkt no.

14. On March 29, 2016, the Debtor filed a motion for authority to use cash collateral. [Dkt no. 4.] In

that motion, the Debtor stated that it intended to file

a chapter 11 plan that would be “based on the continuing operation of Debtor and at least partial repayment of all creditors.” [Dkt no. 4, p. 3.]

15. The Debtor filed its schedules on April 8,

2016. [Dkt no. 38.]

16. In its schedule of assets, the Debtor stated

that it had no patents, copyrights, trademarks, or

trade secrets. [Dkt no. 38, p. 10.] It disclosed that, a

few months earlier, it had transferred its intellectual

property rights to the Roscoe’s Chicken and Waffle

name and mark to Roscoe’s IP. [Dkt no. 38, p. 28.] According to the schedules, the Debtor had “intellectual

property receivables (in installments)” worth $3.5 million. [Dkt no. 38, p. 10.]

17. In its schedule of assets, the Debtor stated

that it had no internet domain names or websites.

[Dkt no. 38, p. 10.]

THE DEBTOR’S INABILITY TO PROVIDE ADEQUATE FINANCIALS

18. From the start, the Debtor’s financial accounting and budgeting was extremely problematic.

Hudson himself seemed to acknowledge that he did

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not run the business in a normal way. At a meeting of

creditors conducted on April 25, 2016, Hudson reportedly testified that “[i]t is a unique operation. It’s not

like any other operation. I run an unorthodox business.” [Dkt no. 186, p. 2.]

19. In support of the cash collateral motion filed

a few days after the Petition Date, Hudson provided

only a one-page “budget” that purportedly showed anticipated monthly revenues and expenses for 90 days.

[Dkt no. 4-2, p. 2.] Some problems the Court and others had with the budget, including the lack of detail,

were later identified in a pleading filed by Beasley.

[Dkt no. 37, p. 2.] The Debtor eventually filed more

detailed budgets, but they continued to raise questions. [See, e.g., Dkt no. 52, p. 4.]

20. Serious questions also were raised about

payments made to Hudson prior to the Petition Date.

For example, even though the Statement of Financial

Affairs did not disclose any payment made to Hudson

during the year prior to the Petition Date, the Debtor

served a notice of setting/increasing insider compensation which stated that he had been paid the equivalent of $240,000 per year during that time period. [Dkt

no. 38, p. 26; Dkt no. 55, p. 21.]

21. Bank of Hope asserted a $600,000-plus lien

on all of the estate’s assets and the IRS asserted a

blanket lien for about $75,000. [Dkt no. 489, pp.14-24;

POC 2-4.] The Court entered orders authorizing the

Debtor to use cash collateral on an interim basis, but

only granted such authority for limited periods. [Dkt

nos. 27, 54, 86, 129.] In April 2016 the Court granted

the Debtor authority to use cash collateral for a month

but required the Debtor to, among other things, file a

report of its income and expenses for the first few

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weeks of the case, and required that the report be “accompanied and backed up by evidence and declaration

of a person knowledgeable of the facts stated therein.”

[Dkt no. 54, p. 3.]

22. Section 1104(c) of the Code provides that a

court may appoint an “examiner” to “conduct such an

investigation of the debtor as is appropriate, including

an investigation of any allegations of fraud, dishonesty, incompetence, misconduct, mismanagement, or

irregularity in the management of the affairs of the

debtor of or by current or former management of the

debtor.” In this Court’s experience, an examiner is

rarely appointed.

23. In July 2016, the U.S. Trustee and the

Debtor entered into a Stipulation Directing the Appointment of an Examiner. [Dkt no. 128.] As reflected

in the stipulation: Debtor filed a motion for cash collateral and included a budget that did not provide a

detail[ed] break-out of expenses or income by location.

Subsequent budgets did not include adequate accounting documentation. There was also discussion at

the cash collateral hearings about Debtor’s transactions with insiders and discussions at the meeting of

creditors about internal controls and accounting procedures. [Dkt no. 128, pp. 1-2.] In the hope that an examiner’s report would provide confidence in its internal controls, accounting systems, and management,

the Debtor agreed to appointment of an examiner.

[Dkt no. 128, p. 2.]

24. On July 21, 2016, the Court entered an order approving the Debtor’s stipulation with the U.S.

Trustee. [Dkt no. 139.] A hearing on the status and

timing of the examiner’s review was set for September

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28, 2016. [Dkt no. 139, p. 2.] The U.S. Trustee appointed Christopher Barclay (the “Examiner”) as the

examiner. [Dkt no. 148.]

THE COMMITTEE’S INVOLVEMENT PRIOR TO

THE TRUSTEE’S APPOINTMENT

25. On April 29, 2016 (about one month after

the Petition Date), the U.S. Trustee filed its notice of

appointment of a committee of creditors holding unsecured claims (the “Committee”). [Dkt no. 58.] The five

creditors on the Committee were Beasley, Sergio Borgognone, Choice Foods, Clifton Capital Group, LLC

(“Clifton Capital”), and Asaf Law APC. [Id.]

26. In a case such as this one, with questionable

financial reporting, large payments to insiders prior

to and after the petition date, so many insider dealings, and the transfer of valuable assets to a related

party shortly before the petition was filed, a committee typically exercises its authority to “investigate the

acts, conduct, assets, liabilities, and financial condition of the debtor, the operation of the debtor’s business . . . and any other matter relevant to the case or

to the formulation of a plan.” 11 U.S.C. § 1103(c)(2).

With court approval, the Code allows committees to

employ attorneys, accountants, and other agents to

help committees perform their duties. 11 U.S.C. §

1103(b). In most cases, committees hire counsel to represent them.

27. Shortly after the Committee was appointed,

Beasley pointed out that the Debtor was projecting

rent payments to landlords (including some owned by

Hudson) that were far more than the amounts historically paid by the Debtor. [Dkt no. 60, p. 3.] Estimates

for future payroll were substantially more than historical costs. [Dkt no. 60, pp. 3-4.] The Debtor planned

66a

to pay $10,000 per month to a company allegedly

owned by Hudson for an energy drink. [Dkt no. 60, p.

4.] Beasley also expressed concern that the Debtor

was paying various expenses incurred by Hudson’s

other entities, not just the Debtor. [Dkt no. 60, pp. 45.] Beasley also pointed out that the Debtor had transferred away its intellectual property shortly before filing for bankruptcy, and the transfer was likely avoidable. [Dkt no. 60, p. 5.] The Committee did not at that

time hire counsel or a financial advisor.

28. In June 2016, the Debtor filed motions for

authority to “assume” leases with one of Hudson’s

other entities, Waffle Plaza Properties, Inc. (“Waffle

Plaza”). [Dkt nos. 99 and 102.] By assuming the

leases, the Debtor not only would have been required

to pay rent going forward, it also would have been required to “cure” defaults by paying past-due rent as

an administrative claim of the estate. See 11 U.S.C. §

365(b). According to the motions, the past-due rent for

one location was approximately $1.85 million and the

past-due rent for the other was approximately

$310,000. [Dkt no. 99, p. 3; Dkt no. 102, p. 3.] The

Committee did not oppose or otherwise respond to the

Debtor’s request for approval of the transaction.

29. In July 2016, Beasley filed a motion for authority to conduct an examination of the Debtor pursuant to Federal Rule of Bankruptcy Procedure 2004.

[Dkt no. 123.] The Court granted the motion, and ordered the Debtor to produce certain documents by August 8, 2016, and appear for an oral examination on

August 15, 2016. [Dkt no. 131.]

30. In September 2016, Beasley filed a motion

to hold the Debtor in contempt for failing to comply

with the Court’s order authorizing the 2004 exam.

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[Dkt no. 168.] Evidence submitted in support of the

motion showed that the Debtor had not produced any

documents by the required deadline. [Dkt no. 168, p.

10.] At the oral examination, Hudson refused to answer some questions, and allegedly failed to provide

meaningful answers to many others. [Dkt no. 168, p.

5.] The Court granted the motion and issued an OSC

why the Debtor and Hudson should not be held in contempt. [Dkt no. 168.] The Committee did not take any

position with respect to Hudson’s failure to provide

documents and answer questions.

THE DEBTOR’S PLAN FILED PRIOR TO APPOINTMENT OF THE TRUSTEE

31. On September 15, 2016, the Debtor filed its

first proposed chapter 11 plan and accompanying disclosure statement. [Dkt nos. 171-172.] According to

the disclosure statement, the Debtor intended to pay

creditors in full over a period of 8 years. [Dkt no. 171,

pp. 17-18.] However, because no independent financial advisor was involved in the process of developing

the plan, the Debtor’s projections were highly suspect.

32. The Debtor intended to reject the lease for

the store located at 106 West Manchester and close

the store. [Dkt no. 172, p. 24-25.] This would eliminate

local competition for another Roscoe’s store, located at

621 W. Manchester Blvd., which was operated by one

of Hudson’s other non-debtor entities. [Dkt no. 186, p.

4.] After he was appointed, the Trustee determined

that it was not in the estate’s best interests to close

this location.

THE EXAMINER’S REPORT AND THE TRUSTEE’S APPOINTMENT

33. On September 21, 2016, the Examiner filed

a status report. [Dkt no. 186.] The Examiner painted

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a devastating picture of mismanagement, financial irregularities, insider dealing, and other problems that

an active committee likely would have uncovered

early on. The status report stated, among other

things:

(a) The Debtor had failed to fully cooperate with the Examiner, and obstructed the Examiner’s investigation. [Dkt no. 186, p. 3.] For

example, Hudson refused to consent to the

Debtor’s outside accountants providing the Examiner information and records held by them.

[Dkt no. 186, p. 9.]

(b) The Debtor’s procedures did not conform to reasonable accounting norms, “or any

semblance of responsible management.” [Dkt

no. 186, p. 2.] At least until the Debtor filed for

bankruptcy, the Debtor did not maintain a general ledger and did not reconcile its bank account statements. [Dkt no. 186, p. 10.]

receipts for January through March 2016 (the

3 months prior to the Petition Date) to the bank

statements, he “concluded that a material portion of the cash sales receipts for [the Debtor’s]

Hollywood and Pico stores during the early part

of 2016 were not deposited into [a Debtor] bank

account. These funds have not been accounted

for by [the Debtor].” [Dkt no. 186, p. 11.]

(d) The Examiner also identified at least

$615,000 of transfers made by the Debtor to

Hudson’s other entities during the three

months prior to the Petition Date, which were

not disclosed by the Debtor in its schedules or

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elsewhere. [Dkt no. 186, p. 18.] Even after the

Petition Date, the Debtor failed to disclose

transfers to insiders and related parties, including transfers of $150,000 to Waffle Plaza

and $45,000 to Hudson himself. [Dkt no. 186,

pp. 18-19.]

(e) The Examiner also identified over

$40,000 in postpetition cash sale proceeds that

had not been deposited into the Debtor’s bank

accounts. [Dkt no. 186, p. 19.] With Hudson’s

knowledge, the funds had been deposited into

another entity’s bank account. [Dkt no. 186, p.

19.]

(f) Even though the Debtor maintained

multiple bank accounts prior to the Petition

Date, “for all practical purposes only one bank

account was included in the Quickbooks data

file.” [Dkt no. 186, p. 11.]

(g) The Debtor lacked a “formally developed, organized system of internal accounting

controls.” [Dkt no. 186, p. 2.] In fact, the Examiner said it would be a misnomer to suggest that

the Debtor’s operating and accounting procedures and policies actually constitute an internal control system. [Dkt no. 186, p. 9.]

(h) “The limited controls that [did] exist

appear[ed] (by intentional design) to assure

Hudson’s personal access to [the Debtor’s] cash

funds while minimizing the accountability for

same.” [Dkt no. 186, p. 2.]

(i) For Hudson and the bookkeeper, “formalized accounting procedures [were] not central to their management culture. They favored

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instead an environment that is the antithesis of

accountability and transparency.” [Dkt no. 186,

p. 11.]

(j) The Debtor did not maintain inventory records. [Dkt no. 186, p. 2.]

(k) The profitability of each location was

“somewhat uncertain due to material errors evident in the financial statements prepared by

[the Debtor’s] unskilled bookkeeping staff.”

[Dkt no. 186, p. 2.] For example, the Examiner

was able to determine that the Debtor overstated its sales and net income in April, May

and June 2016 by entering the same data into

QuickBooks two or three times. [Dkt no. 186, p.

14.]

(l) The bookkeeping manager, who

worked for the Debtor for over 25 years, was

“remarkably incurious about specific . . . cash

receipt and cash disbursement transactions

and frequently deferred to Hudson for answers

to questions about transactions recorded by her

or under her supervision.” [Dkt no. 186, p. 7.]

(m) There were a number of “observable

irregularities involving management” relating

to the chapter 11 case. “The shear scope of the

identified irregularities suggests a high likelihood that further investigation would yield additional findings.” [Dkt no. 186, p. 2.]

(n) The California State Board of Equalization (“SBE”) audit found that the Debtor had

underreported sales and sales tax collections

for many years. [Dkt no. 186, p. 16.] Based on

the audit, the SBE asserted a claim against the

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estate for more than $2.1 million. [Dkt no. 186,

p. 16.] The SBE “was openly critical of the

Debtor’s accounting practices and exposed a

long-term pattern of significant shortcomings

in [the Debtor’s] historical recordkeeping and

record retention practices.” [Dkt no. 186, p. 16.]

(o) When it filed its schedules, the Debtor

failed to disclose the existence of a then-pending complaint brought by the U.S. Department

of Homeland Security, Immigration and Customs Enforcement. [Dkt no. 186, p. 16.] That

matter was secretly settled postpetition, with

the Debtor paying a settlement amount without

obtaining approval of this Court. [Dkt no. 186,

p. 16.] By law, court approval of any postpetition settlement was required. Fed. R. Bankr. P.

9019.

(p) The Debtor owned liquor licenses that

were being used by non-debtors, including Hudson’s entity operating a Roscoe’s restaurant in

Long Beach. [Dkt no. 186, p. 17.]

(q) The Debtor was “demonstrably

wholly incapable of dispending its fiduciary obligations in this Chapter 11 case.” [Dkt no. 186,

p. 3.]

34. A case status conference had been scheduled for September 28, 2016. On September 27, 2016,

after reading the Examiner’s status report, the Court

sua sponte issued an Order to Show Cause Re Appointment of Chapter 11 Trustee. [Dkt no. 193.] The

Court set a hearing on the OSC for the next day. [Id.]

35. On September 28, 2016, the Court ordered

the U.S. Trustee to appoint a chapter 11 trustee. [Dkt

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no. 202.] The next day, the Court approved the appointment of Bradley D. Sharp as the chapter 11 trustee. [Dkt no. 206.] As noted in the Trustee’s declaration filed in support of the U.S. Trustee’s motion, the

Trustee had more than twenty years’ experience

working with large and small troubled companies.

[Dkt no. 204, p. 8.] The Trustee also had been appointed as a chapter 11 trustee in other cases that involved complex issues. [Id.]

36. To say this case was a mess when the Trustee was appointed is a significant understatement.

Over the months leading to the Trustee’s appointment, it was clear that the Debtor’s management was

untrustworthy and obstructed efforts of the Examiner

and Beasley to uncover the truth about its financial

affairs. Its financial reporting to the Court was substandard. Its books and record were a disaster. It had

engaged in who-knows-how-many insider transactions that could need to be investigated and unraveled. It also had obviously transferred away its most

valuable assets in an attempt to keep them out of

reach of its creditors, putting the estate in a position

of being unable to fund a reasonable plan and distribution to unsecured creditors.

37. With only a few days’ warning, the Trustee

was made the head of a company with hundreds of

employees that had reportedly generated over $1.7

million of sales during August 2016, without an internal accountant he could trust and without knowing

who in management he could depend on. He could not

continue to depend on the Debtor’s accounting department, and needed to immediately install his own staff

to establish some internal controls and procedures until a longer-term solution could be found. By any

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standard, this was clearly not an easy case where a

court appoints a chapter 11 trustee to handle routine

business management issues.

SOME OF THE WORK PERFORMED BY THE

TRUSTEE

38. In operating chapter 11 cases, it is customary for a trustee to act quickly to employ counsel, communicate with parties involved in the case, recover

monies held in the Debtor’s bank accounts, and generally get things under control. There is usually a rush

of activity within the first few weeks, but then things

settle down as the trustee develops controls to ensure

that the business is being run properly. Depending on

the complexity of the business and trustworthiness of

existing management, among other things, the trustee might install a CRO or similar professional to

oversee operations and maintenance of books and records. Over the years, the Court has seen this play out

in scores of cases.

39. To be sure, many things the Trustee did

during this case are things a court would expect of any

chapter 11 trustee in this type of case. For example,

the Trustee communicated with the Examiner regarding his findings. [Dkt no. 597-1, p. 21.] He hired counsel to represent him in the case. [See Dkt nos. 236,

277.] He obtained continuances of pending matters so

he would have time to properly evaluate them. [See,

e.g., Dkt nos. 240, 243, 246, 248.] As to some legal matters that could be resolved, they went forward. [See,

e.g., Dkt no. 261.] In the first few months, the Trustee

evaluated the legal needs of the estate and hired attorneys and experts to serve those needs. [See, e.g.,

Dkt nos. 338, 418, 441, 551.] He evaluated litigation

that had been commenced by the Debtor prepetition

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and resolved various discovery disputes pending in

this case. [See Dkt no. 597- 1, pp. 20-21, 48.] He prepared monthly operating reports, including for the

last period covered by the Debtor’s operations. [See

Dkt no. 597-1, pp. 13-14.] He took control of the

Debtor’s books and records, including by securing

electronic records. [See Dkt no. 597-1, pp. 3, 12, 27.]

40. The Trustee also acted very quickly to identify, interview and retain an outside firm to manage

the Debtor’s restaurants. The Trustee’s billing records

reflect that this process started on the date of his appointment. [See Dkt no. 597-1, pp. 21-24.] Within a

week, the Trustee’s staff had conducted initial interviews with potential management companies. [See

Dkt no. 597-1, p. 22.] Less than one month after he

was appointed, the Trustee filed an application to employ The Next Idea [International] LLC (“TNI”) to

manage the restaurants and Triple Enterprises to

provide business-related accounting and bookkeeping

services. [Dkt nos. 262-263.] Once they were in place,

the Trustee transitioned the accounting role to Triple

Enterprises, and then communicated with them regarding management of the business. [See Dkt no.

597-1, pp. 5, 24-25, 27-28, 30.]

41. In the meantime, though, the Trustee and

his staff worked to get a handle on the financial situation. The Trustee and/or his staff met with the

Debtor’s accountant, and spent time at the Debtor’s

office many times during the first month after the

Trustee’s appointment. [See Dkt no. 597-1, pp. 4, 16,

23-29.] In the Court’s experience, while it is common

for a trustee to visit the debtor’s site when he or she is

appointed, it is uncommon for a trustee (and especially the trustee’s staff) to need to spend so much

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time on site. The Trustee established accurate tax accounting with respect to 1099’s and payroll taxes. [See

Dkt no. 597-1, p. 6.] The Trustee also established new

cash management controls as recommended by the

Examiner. [See Dkt no. 597-1, pp. 27-29.]

42. The Trustee’s staff spent substantial time

analyzing bank accounts and deposits, performing

work that ordinarily would be done by the Debtor’s existing personnel but which, in this case, needed to be

handled by the Trustee. [See Dkt no. 597-1, pp. 5, 2425, 27-32.] He and his staff worked to install a new

point of sale system to better handle and track credit

card transactions. [See Dkt no. 597-1, pp. 31-33.] He

and his staff worked to fix internal controls relating

to, among other things, the proper handling of cash.

[See Dkt no. 597-1, pp. 29-32.] They established cash

forecasting processes and actual-to-budget analyses,

and later transitioned the budget process to a new operations accountant and operating manager. [See Dkt

no. 597-1, pp. 10- 12, 30.]

43. The Trustee was also thrust into an ongoing

audit by the IRS, which was a significant issue in the

case. The Trustee and his staff worked to obtained required information to quantify the amount of taxes

due. The Trustee communicated with the IRS and attempted to locate records responsive to the IRS’s requests. [See Dkt no. 597, p. 12; Dkt no. 597-1, pp. 1617, 27; Dkt no. 1011, p. 32.]

44. Throughout his tenure the Trustee continued to deal with tax issues caused by the Debtor’s mismanagement. The Trustee and his staff researched

the Debtor’s records, and helped reconstruct the

Debtor’s financial records, to address the Debtor’s history of underreporting income, payroll and sales

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taxes. [See Dkt no. 808, pp. 20, 29-33; Dkt no. 1011,

pp. 12, 28-32; Dkt 14 no. 1134, pp. 10, 22, 27-29.] The

extent of the tax problem is exemplified by, among

other things, the SBE’s proof of claim, in which the

SBE asserted a claim for unpaid taxes incurred from

2001 through 2015. [POC 34, p. 4.] Other tax claims

included one filed by the IRS for more than $10 million and one filed by the Franchise Tax Board for approximately $3.97 million. [See POCs 2, 32.]

45. With respect to the IRS’s claim asserted

against the estate: (a) The IRS filed its original proof

of claim in April 2016 for $515,198.71. [POC 2-1.] The

documents attached to the proof of claim reflect that

the IRS used placeholders of $46,510 for 2010, 2011,

2014 and 2015 income taxes (years in which the

Debtor had failed to file income tax returns). [Id. at p.

4.] The proof of claim also included about $240,000 for

FICA taxes owed for the first quarter of 2016. [Id.] (b)

The IRS amended its proof of claim in June 2016 to

omit the FICA taxes. [POC 2-2.] (c) The IRS amended

its proof of claim on November 1, 2016, asserting a

claim for $277,662.71. [POC 2-3.] The IRS continued

to use the $46,510 placeholders for 2010, 2011, 2014

and 2015. [Id. at 4.] (d) The IRS amended its proof of

claim on November 8, 2016, asserting a claim for

$10,239,106.71. [POC 2-4.] The amount stated for

each of the 2012 and 2013 tax years was

$4,981,722.00. [Id. at p. 4.] (e) The IRS amended its

proof of claim on May 21, 2018, asserting a claim for

$10,608,245.33. [POC 2-5.] The reason for the increase

in the claim amount was that the Debtor had failed to

pay FICA taxes. [See id. at p. 4.]

46. With respect to the federal and state taxes,

the Trustee’s accountants analyzed, among other

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things, tax deductions and creditors that could be

properly claimed by the Debtor, and included data regarding such deductions and credits in its analyses.

[Dkt no. 813, pp. 4-5, 12-15; dkt no. 1002, pp. 4-6; dkt

no. 1133, pp. 9-10.] The accountants also prepared

missing tax returns or amended prior tax returns, and

spent considerable time dealing with the IRS’ audit.

[Dkt no. 813, pp. 3, 7-15; dkt no. 1002, pp. 3-4, 6, 8;

dkt no. 1133, pp. 4-9.]

47. The Trustee also had to deal with some personnel issues. Of particular note, the Trustee was involved in discussions which led to the replacement of

Hudson’s daughter as head of human resources and

her separation from the Debtor. [See Dkt no. 808, pp.

35-36, 50-51.]

48. The Trustee also was able to efficiently resolve some litigation matters in which the Debtor was

involved when the Trustee was appointed. For example, within a few months of his appointment, the Trustee settled claims the Debtor asserted against State

Compensation Insurance Fund, CompWest Insurance

Company, and Employers Compensation Insurance

Company based on their alleged mishandling of workers’ compensation insurance claims made against the

Debtor. [Dkt nos. 468, 547.] The estate received approximately $775,000 from those settlements. [Dkt

no. 468, p. 2.]

COMMITTEE’S INVOLVEMENT AFTER THE

TRUSTEE WAS APPOINTED

49. The Committee hired counsel after the

Trustee was appointed. The Committee’s counsel commenced services on November 1, 2016. [Dkt no. 350,

p. 1.] This was about one week after the Trustee filed

his applications to employ TNI and Triple Enterprises

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to take over management and accounting functions

that were previously controlled by Hudson. On November 22, 2016, the Committee filed an application

to employ counsel. [Dkt no. 307.] Sam White, the principal of Clifton Capital, executed the application as

the Committee’s chair. [Dkt no. 307, p. 6.]

50. In March 2017, the Committee filed an application for authority to employ a financial adviser.

[Dkt no. 553.] The primary purpose of the advisor’s

employment was to advise the Committee in connection with the formulation of a plan, exit financing, or

offers from potential purchasers or investors. [See Dkt

no. 553, pp. 2-3.]

51. The Committee eventually partnered with

Hudson to propose a chapter 11 plan that enabled

Hudson to retain his ownership of the Debtor and ensures payment to creditors in full.

52. The Trustee met, either in person or telephonically, with the committee and/or its professionals on November 29, 2016, January 21, 2017, February 22, 2017, March 8, 2017, March 22, 2017, April 7,

2017, May 25, 2017, August 3, 2017, November 6,

2017, February 21, 2018, and May 7-8, 2018. [Dkt no.

597-1, p. 45; Dkt no. 808, pp. 47-49; Dkt no. 1011, pp.

32, 41; Dkt no. 1134, p. 23, 37.] The Trustee provided

information that would help the Committee’s professionals analyze the Debtor’s finances, and communicated with them regarding ongoing operations (such

as personnel issues and marketing plans) and transition issues. [See Dkt no. 808, pp. 47-50; Dkt no. 1011,

pp. 32, 41-42; Dkt no. 1134, p. 23, 37.] The Trustee

also provided comments to financial exhibits that the

Committee intended to attach to its disclosure statement. [Dkt no. 1011, p. 25.]

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TRUSTEE’S REJECTION OF DV MARKETING’S

CONTRACT AND DISALLOWANCE OF ITS ALLEGED CLAIM

53. Besides hiring TNI and Triple Enterprises

to take over the management and accounting duties,

the Trustee was required to take other steps to separate the estate from persons connected to Hudson and

his other entities. For example, the Trustee learned

that the Debtor had entered into an agreement with

DV Marketing (“DV”), who was purportedly the “exclusive” inhouse marketing company for the Debtor.

[Dkt no. 450, p. 14.] DV’s principal refused to meet

with TNI and refused to provide the Trustee login information for all of the Debtor’s social media accounts.

[Dkt no. 450, p. 9.] She also reportedly instructed vendors like GrubHub and Postmates to pay someone

other than the Trustee for food purchased from the

Debtor’s stores. [Dkt no. 450, p. 10.] The Trustee rejected the Debtor’s contract with DV, and was forced

to seek discovery from GrubHub and Postmates to obtain information that DV refused to provide. [Dkt nos.

450, 462, 464.]

54. Subsequently, the Trustee sought to expand

the scope of TNI’s employment to include marketing

services. [Dkt no. 658.] The Committee opposed the

Trustee’s request and argued, among other things,

that the Trustee should not launch a new website for

the Debtor that would compete with the one controlled

by DV and Hudson. [Dkt no. 666.] The Court overruled

the objection and granted the Trustee’s motion. [Dkt

no. 673.]

55. In September 2017, the Trustee objected to

DV’s alleged claim. [Dkt no. 738.] Although DV filed

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an opposition, its counsel failed to appear at the hearing. [Dkt nos. 780, 905.] The Trustee’s objection was

sustained and DV’s alleged claim was disallowed.

[Dkt no. 905.]

56. DV’s refusal to cooperate was so extreme

that the Trustee was forced to file a complaint seeking

“turnover” of the Debtor’s domain name, website and

social media accounts. Sharp v. Vara, Adv. No. 2:17ap-01573-BB. In March 2018, a default judgment was

entered against DV. [AP Dkt no. 19.]

TRUSTEE’S AGREEMENT FOR SUBORDINATION

OF CLAIMS ASSERTED BY HUDSON’S OTHER

ENTITIES

57. Given the amount of self-dealing and the

condition of the Debtor’s books and records, it would

have been appropriate for the Trustee and his counsel

to investigate and, where appropriate, object to claims

asserted by persons and entities affiliated with Hudson, among others. Very likely, that would have required the estate to incur hundreds of thousands of

dollars of fees and expenses in litigation. Instead,

knowing that the Committee and Hudson wanted to

formulate a plan under which Hudson would retain

ownership and control, the Trustee negotiated and entered into stipulations which subordinated certain insider claims to those of third party general unsecured

creditors.

58. Hudson-affiliate Waffle Plaza Properties,

Inc., filed proofs of claims asserting claims in excess of

$2.1 million. [POCs 39-40.] Hudson-affiliate Freeway

Foods, Inc., filed a proof of claim for $750,000. [POC

41.] Hudson-affiliate Shoreline Foods, Inc., filed a

proof of claim for $1.5 million. [POC 42] Roscoe’s IP

filed a proof of claim for $22,500. [POC 43.]

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59. In August 2017, the Trustee entered into a

stipulation that assured that those entities would not

be paid before non-insider creditors, while also preserving two of four store leases that were critical to

the estate’s continued operations. [Dkt no. 698.] Under the stipulation, the Hudson affiliates agreed that

their claims would be subordinated to and paid only

after all allowed claims against the estate are paid in

full, and the estate was not required to pay any

amounts required to cure defaults. [Dkt no. 698, pp. 34.]

60. The subordination agreement was a creative way to solve the obvious problem that existed

with respect to the Debtor’s prior motion for authority

to assume its real property leases in Hollywood and

on Manchester Avenue. The landlords (owned by Hudson) claimed to be owed a substantial amount of back

rent that would have to be “cured” upon assumption

of the leases. 11 U.S.C. § 365(b)(1). The subordination

agreement allowed the Trustee to assume those leases

and avoid having to litigate regarding the validity and

amount of the alleged claims for back rent. The two

leases were assumed as soon as the subordination

agreement was approved by the Court. [See Dkt nos.

713, 716.]

61. The Trustee also reached a similar agreement with two members of the Committee, including

Clifton Capital, alleviating the need for the estate to

incur fees litigating further over the allowance of their

alleged claims.

TRUSTEE’S LITIGATION WITH CLIFTON CAPITAL, AND SUBORDINATION OF CLIFTON CAPITAL’S CLAIM

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62. In its schedule of creditors who had unsecured claims, the Debtor stated that Clifton Capital

Group, LLC, was a creditor and that it was owed

$4,165,000. [Dkt no. 38, p. 17.] Based on that alleged

claim, Clifton Capital was appointed to the Committee.

63. In February 2017, the Trustee filed a motion for authority to conduct a Rule 2004 examination

of Clifton Capital and its principal, Sam White. [Dkt

no. 472.] Clifton Capital’s claim was based on services

allegedly provided with respect to Enterprise Zone

Tax Credits; Clifton Capital also allegedly assisted

the Debtor with negotiations with the IRS, the FTB

and the BOE regarding tax-related disputes. [Dkt no.

472, p. 8.] In the Trustee’s view, the information and

documents provided by Clifton Capital relating to its

alleged claim was inadequate. [Dkt no. 472, p. 10.] The

Court granted the Trustee’s motion. [Dkt no. 478.] At

the same time, the Court granted the Trustee’s motion

for authority to conduct a Rule 2004 examination of

an accountant that had provided services to the

Debtor (“Sadd”). [Dkt no. 479.]

64. Mr. White appeared at the oral examination, but failed to bring any documents with him. [Dkt

no. 763, p. 22.] When the Trustee’s counsel demanded

that Clifton Capital comply, Clifton Capital’s counsel

said that he needed another week to respond. [Dkt no.

763, pp. 23-25.] When no response was received, the

Trustee’s counsel followed up again. [Dkt no. 763, p.

25.] Clifton Capital refused to provide the vast majority of documents required. [Id.]

65. Unlike Clifton Capital, Sadd complied with

the Court’s order requiring him to produce documents.

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[Dkt no. 763, p. 26.] According to the Trustee, the documents produced by Sadd contradicted the representations made by Clifton Capital and Mr. White. [Dkt

no. 763, pp. 10, 13-14, 16.]

66. In October 2017, the Trustee filed an objection to Clifton Capital’s claim. [Dkt no. 763.] According to the Trustee, although Clifton Capital claimed

that the Debtor had agreed to pay Clifton Capital a

flat fee for each employee approved with a voucher

certificate for the California Enterprise Zone Tax

Credit program, and although Mr. White testified that

Clifton Capital had not been paid anything for his

work, documents obtained by the Trustee from Sadd

suggested that the alleged flat fee was highly unreasonable and that Clifton Capital had already been

paid for the same work on an hourly fee basis. [Id.]

67. Clifton Capital opposed the Trustee’s objection. [Dkt no. 789.] According to Clifton Capital, its

contract with the Debtor was valid and the rate was

reasonable, it performed the work required by the contract, and it had not been paid. [Id.]

68. Even though it would have eliminated an

alleged $4+ million liability, the disallowance of Clifton Capital’s claim might have had a substantial impact on Hudson’s ability to confirm a plan to his liking.

In fact, notwithstanding the fact that the Trustee had

filed objections to a number of claims around the same

time, Clifton Capital accused the Trustee of objecting

to its claim at that time in order to derail Hudson’s

and the Committee’s efforts to develop a plan. [Dkt no.

789, pp. 4-5.]

69. Clifton Capital contends that its principal

(Mr. White) is not really close with Hudson. At the

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hearing on the Trustee’s objection, addressing Clifton

Capital’s attorney, the Court commented that it really

looks more like your client or the principal of your client is maybe perhaps the good buddy of the principal

of the debtor and he is – this is an attempt by the principal of the debtor to deliver significant value to his

good buddy. And whether or not any of it is supposed

to come back to him, I don’t know, but the facts and

circumstances are just suspicious because it’s the –

why would anybody agree to pay $8,215 per application when that’s far in excess of any benefit they

would obtain from this. [Dkt no. 846, p. 8.] Technically

Clifton Capital’s counsel did not deny this; instead,

she stated that the Trustee had not presented evidence that they were “good buddies.” [Dkt no. 846, p.

8.] (The Court was not making any findings at that

time regarding the relationship, if any, between Clifton Capital and Mr. White, on the one hand, and Hudson.)

70. In the Court’s view, the Trustee’s papers

made a strong case that Clifton Capital’s alleged claim

was suspicious. The Court determined that an evidentiary hearing was needed. [Dkt no. 846, pp. 14-15.] In

the meantime, the parties could conduct discovery.

[Id.]

71. After the hearing, counsel for Hudson – not

Clifton Capital – requested a transcript of the hearing. [Dkt no. 833.]

72. Consistent with his approach to potentiallyobjectionable claims asserted by Hudson’s other entities, and in light of the terms of a proposed plan thenrecently filed by Hudson and the Committee, the

Trustee made the economic decision that it would be

better to stipulate to allowance of Clifton Capital’s

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claim than to litigate, as long as Clifton Capital’s alleged claim was subordinated to all other general unsecured claims and the Trustee still could object if

Hudson’s plan was not confirmed. In February 2018,

the Trustee and Clifton Capital entered into a stipulation pursuant to which Clifton Capital’s claim was

subordinated to, and to paid only after, all allowed secured and unsecured claims and approved administrative expenses are paid in full under the then-proposed plan. [Dkt no. 946, p. 2.] The Trustee also reserved the right to re-object to Clifton Capital’s claim

if Hudson’s proposed plan was not confirmed. [Dkt no.

946, p. 3.] The Court approved the stipulation. [Dkt

no. 949.]

THE TRUSTEE’S TOLLING AGREEMENTS WITH

THE DEBTOR AND CERTAIN OTHER PARTIES

73. Generally, the deadline for a chapter 11

trustee to file complaints to avoid preferential and

fraudulent transfers is two years after the petition

date. 11 U.S.C. § 546(a)(1). Thus, unless the time was

tolled, the deadline for the Trustee to file such actions

was March 25, 2018.

74. In March 2018, the Trustee made the prudent decision to enter into tolling agreements with potential defendants rather than initiate litigation. The

Trustee entered into tolling agreements with ten of

Hudson’s affiliates, Clifton Capital, Choice Foods, and

Sergio Borgognone. [Dkt nos. 980, 985, 989, 995.]

THE TRUSTEE’S COMPLAINT AGAINST ROSCOE’S IP

75. The Trustee recognized that a successful

sale or reorganization required the Trustee to avoid

the fraudulent transfer of the Debtor’s intellectual

property to Roscoe’s IP.

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76. On September 27, 2016 (the date on which

the Court issued its OSC re appointment of a trustee),

Beasley filed a motion for an order granting him

standing to file a complaint on behalf of the estate

against Roscoe’s IP. [Dkt no. 197.] Such a motion was

appropriate because chapter 11 debtors generally do

not sue their principals and affiliates. Unless a trustee has been appointed, one of the major roles of a

creditors’ committee often is to investigate and pursue

avoiding power claims against the debtor’s insiders

and affiliates. The Committee did not do so in this

case. Due to the appointment of the Trustee, Beasley’s

motion was denied without prejudice. [Dkt no. 269.]

77. The Debtor’s transfer of its intellectual

property to Roscoe’s IP clearly was an avoidable

fraudulent transfer, in that the purpose of the transfer was to keep the assets out of reach of creditors.

Soon after his appointment, in a commendable attempt to avoid litigation, the Trustee requested that

Roscoe’s IP return the assets to the estate. [AP Dkt

no. 28, p. 10.] Hudson claimed to be considering the

Trustee’s request, and asked that the Trustee delay

filing a complaint. [Id.] Ultimately, though, Hudson

never agreed to return the assets despite the Trustee’s

efforts to reach an informal agreement achieving this

result. [Id.]

78. On January 3, 2017 (a few months after he

was appointed), the Trustee filed a complaint against

Roscoe’s IP, primarily seeking to avoid the transfer of

the Debtor’s intellectual property as a fraudulent

transfer. Sharp v. Roscoe’s Intellectual Properties,

LLC, Adv. No. 2:17- ap-01001-BB (the “Adversary”).

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79. Despite Hudson’s prior admissions, Roscoe’s

IP filed an answer and objected to the relief sought by

the Trustee. [AP Dkt no. 12.]

80. The Trustee promptly filed a motion for

summary judgment. [AP Dkt no. 19.] Roscoe’s IP opposed the motion. [AP Dkt no. 36.]

81. As noted by the Court in its memorandum

decision, because a court may not grant a summary

judgment motion where there is a genuine issue of

fact, “it is a rare case in which a court may grant summary judgment under an actual fraud fraudulent

transfer theory, but this is one such case.” [AP Dkt no.

60, p. 2.] As a result, the Court granted summary

judgment against Roscoe’s IP on the Trustee’s claim

for avoidance of the transfer. [AP Dkt no. 63.]

82. In September 2017, the Trustee entered

into a stipulation with Hudson, giving him a certain

amount of time to file and confirm a plan before the

Trustee proceeded with an alternative. [Dkt no. 722.]

As part of the stipulation, Roscoe’s IP agreed to not

appeal the judgment avoiding the fraudulent transfer

of the Debtor’s intellectual property to Roscoe’s IP.

[Dkt no. 722, p. 3.]

RECONSTRUCTION OF THE DEBTOR’S BOOKS

AND RECORDS FOR 2010-2015

83. The Trustee also recognized that a successful sale or reorganization of the Debtor required the

Trustee to reconstruct the Debtor’s books and records

for years prior to the Petition Date. [See Dkt no. 640,

p. 4.] The Trustee’s staff gathered historical bank

statements and other information, and provided documents and information to Triple Enterprises, and

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worked with Triple Enterprises to assist in the process. [See Dkt no. 597-1, pp. 10-11, 25-27, 39; Dkt no.

808, pp. 28-32.] This was needed for at least two reasons.

84. First, reconstructing the books and records

would enable the Trustee to prepare the Debtor’s tax

returns for 2010 through 2015. [Dkt no. 640, pp. 3-4.]

That, in turn, would allow the Trustee to determine,

or at least estimate, the estate’s true tax liabilities.

[Dkt no. 640, p. 4.]

85. Second, information in the reconstructed

books and records would be needed to show potential

purchasers a true historical financial history. Representatives for potential buyers started contacting the

Trustee the day he was appointed, and continued to

communicate with the Trustee from time to time. [Dkt

no. 597-1, p. 44; Dkt no. 808, p. 23.] In fact, a potential

buyer continued to communicate with the Trustee after the plan was confirmed and Hudson failed to perform his obligations under the plan. [Dkt no. 1134, pp.

25, 38.]

86. Reconstructing the books and records also

had the benefit of uncovering previously unknown

bank accounts. [Dkt no. 640, p. 4.] The Trustee filed

numerous motions seeking authority to subpoena

banks for records. [Dkt nos. 504-510, 585, 644-646.]

RESOLUTION OF CERTAIN OTHER ISSUES

CAUSED BY THE DEBTOR

87. The Trustee also efficiently accomplished

other tasks that cleaned up messes left behind by the

Debtor. For example, one of the Debtor’s most important stores, located on Pico Boulevard, generated

approximately $4 million in gross revenue annually.

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[Dkt no. 697, pp. 9-10.] That location was operating

under an oral, month-to-month lease, which could be

pulled by the landlord at any time. [Dkt no. 697, p. 9.]

The Trustee negotiated a new written lease for 12

months with an option to extend the term for 6

months. [Dkt no. 697, pp. 9, 12-67.]

88. Also, the Trustee rejected alleged, previously-undisclosed oral agreements between the

Debtor and employees that allowed the employees to

design and market merchandise using the Debtor’s

trademark and related intellectual property without

having to pay any royalties. [Dkt nos. 470, 566.]

HUDSON AND THE COMMITTEE’S JOINT PLAN

89. Within a year, the Trustee, his staff and his

professionals had accomplished the Trustee’s goal of

getting the estate in a position to start moving forward with a potential sale or chapter 11 plan. Hudson

obviously wanted to retain control of the company. In

September 2017, the Trustee entered into a stipulation with Hudson, giving him a certain amount of time

to file and confirm a plan before the Trustee proceeded

with an alternative. [Dkt no. 722.] As part of the stipulation, Roscoe’s IP agreed to not appeal the judgment

avoiding the fraudulent transfer of the Debtor’s intellectual property to Roscoe’s IP. [Dkt no. 722, p. 3.]

90. The stipulation required Hudson to move

quickly to propose a meaningful, confirmable plan.

The Trustee agreed to provide Hudson estimates of all

claims asserted in the case. [Dkt no. 722, p. 2.] Within

60 days after receiving those estimates, Hudson was

required to file a proposed plan and disclosure statement. [Dkt no. 722, p. 3.] Hudson was required to obtain approval of the disclosure statement within 45

days after it was filed with the Court. [Id.] Hudson

90a

was then required to obtain an order confirming the

plan within 45 days after the hearing on the disclosure statement. [Id.] These tight time frames could be

extended in certain circumstances. [Id.] While the

agreement wa

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