Court Opinion

ID: 4192896
Source: CourtListenerOpinion
Date Created: 2017-08-03 17:03:12.69957+00
Date Added: 2024-06-11T14:40:20.515161
License: Public Domain

FILED
 1                         NOT FOR PUBLICATION                 MAY 19 2015

 2                                                         SUSAN M. SPRAUL, CLERK
                                                             U.S. BKCY. APP. PANEL
                                                             OF THE NINTH CIRCUIT
 3                  UNITED STATES BANKRUPTCY APPELLATE PANEL
 4                            OF THE NINTH CIRCUIT
 5   In re:                        )        BAP No. EC-14-1219-JuKuPa
                                   )
 6   YOUSIF H. HALLOUM,            )        Bk. No.   12-21477-CMK
                                   )
 7                  Debtor.        )
     ______________________________)
 8                                 )
     YOUSIF H. HALLOUM,            )
 9                                 )
                    Appellant,     )
10                                 )
     v.                            )
11                                 )        M E M O R A N D U M*
     MCCORMICK, BARSTOW, SHEPPARD, )
12   WAYTE & CARRUTH LLP; HILTON   )
     A. RYDER; MICHAEL G. KASOLAS, )
13   Trustee,                      )
                                   )
14                  Appellees.     )
     ______________________________)
15
                        Submitted Without Oral Argument
16                              on May 14, 2015
17                            Filed - May 19, 2015
18            Appeal from the United States Bankruptcy Court
                  for the Eastern District of California
19
         Honorable Christopher M. Klein, Chief Bankruptcy Judge,
20                              Presiding
                        _________________________
21
     Appearances:     Yousif H. Halloum on brief pro se; Scott M.
22                    Reddie and Hilton A. Ryder of McCormick
                      Barstow LLP on brief for appellees McCormick,
23                    Barstow, Sheppard, Wayte & Carruth LLP and Hilton
                      A. Ryder.**
24                         _________________________
25
         *
26         This disposition is not appropriate for publication.
   Although it may be cited for whatever persuasive value it may
27 have (see Fed. R. App. P. 32.1), it has no precedential value.
   See 9th Cir. BAP Rule 8024-1.
28
        **
            Michael G. Kasolas, Trustee did not file a brief.

                                      -1-
 1   Before:      JURY, KURTZ, and PAPPAS, Bankruptcy Judges.
 2
 3            Chapter 71 debtor, Yousif H. Halloum,2 appeals from an order
 4   granting the motion for chapter 11 administrative expenses filed
 5   by his former attorney, Hilton A. Ryder (Ryder).      We VACATE and
 6   REMAND for lack of adequate findings under Rule 7052.
 7                                  I.   FACTS3
 8   A.       Prepetition Events
 9            Beginning in 2005, the predecessor-in-interest to Midwest
10   Bank N.A. (Bank) made secured loans to debtor.      The loans were
11   secured by debtor’s real and personal property.      Debtor operated
12   an ARCO gas station and convenience store on the real property
13   located in Lodi, California (Real Property).      Debtor also had
14   his business checking account with Bank.
15            In late 2010 and thereafter, debtor overdrew his checking
16   account with Bank.      Although debtor said the overdrafts would be
17   repaid in the near term and Bank prodded him to do so, the
18   amount due increased over time.       In October 2011, Bank advised
19   debtor he had ten days to establish alternative banking
20
21        1
          Unless otherwise indicated, all chapter and section
22 references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532.
   “Rule” references are to the Federal Rules of Bankruptcy
23 Procedure and “Civil Rule” references are to the Federal Rules of
   Civil Procedure.
24
        2
          Debtor is also known as Joe Halloum.
25
        3
26        To the extent needed, we take judicial notice of various
   pleadings which were docketed and imaged by the bankruptcy court
27 in the underlying bankruptcy case. Atwood v. Chase Manhattan
   Mortg. Co. (In re Atwood), 293 B.R. 227, 233 n.9 (9th Cir. BAP
28 2003).

                                         -2-
 1   relationships for his business, no further overdrafts would be
 2   honored after the ten days, and that no overdraft would be
 3   honored in the interim if the cumulative total exceeded
 4   $300,000.   During this ten-day cautionary period, debtor took
 5   advantage of Bank’s accommodation to boost the overdrafts from
 6   approximately $190,000 to $297,372.49.
 7        Around this time, debtor also defaulted under the loans.
 8   On October 12, 2011, Bank recorded a notice of default that
 9   commenced nonjudicial foreclosure as to the Real Property.    On
10   January 20, 2012, a notice of trustee’s sale under the trust
11   deed was recorded.
12        Bank also sued debtor and his wife in the San Joaquin
13   County Superior Court to recover on the $297,372.49 overdraft.
14   Debtor and his wife cross-complained against Bank, alleging
15   breach of a contract to transform the overdraft into some
16   unspecified term loan.   The Bank’s demurrer to the cross
17   complaint was stayed by the bankruptcy filing.
18   B.   Bankruptcy Events
19        Debtor filed a chapter 11 petition on January 26, 2012.
20   The Disclosure of Compensation of Attorney for Debtor form
21   attached to the petition stated in relevant part:
22        For legal services, I have agreed to accept
          $38,954.00.
23
          Prior to the filing of this statement I have received
24        $38,954.00.
25   The form goes on to state that in return for the above-disclosed
26   fee, “I have agreed to render legal service for all aspects of
27   the bankruptcy case, including:   representation of the debtor in
28   adversary proceedings and other contested bankruptcy matters.”

                                    -3-
 1   The form was signed by Ryder, a partner with the law firm
 2   McCormick, Barstow, Sheppard, Wayte & Carruth LLP (MBSWC).
 3        On February 10, 2012, debtor filed an application to employ
 4   MBSWC as bankruptcy counsel.   The application did not mention a
 5   flat fee arrangement.   A few days later, the bankruptcy court
 6   approved MBSWC’s employment by entering an order which stated in
 7   relevant part:
 8        Compensation will be at the ‘lodestar rate’ at the
          time that services are rendered in accordance with the
 9        Ninth Circuit decision in In re Manoa Fin. Co., 853
F.2d 687 (9th Cir. 1988). No hourly rate referred to
10        in the application is approved unless unambiguously so
          stated in this order or in a subsequent order of this
11        court.
12        MBSWC submitted applications for payment of interim fees
13   and expenses on May 2, June 27, September 6, 2012, and
14   January 31 and May 28, 2013.   Each fee application was
15   accompanied by a declaration signed by debtor declaring that he
16   had reviewed the application and that he approved the fees and
17   expenses as set forth in the application and attached exhibits.
18   By the time MBSWC submitted the May 28, 2013 application, debtor
19   had approved fees incurred by MBSWC totaling $116,067.
20        MBSWC also submitted an application for payment of interim
21   fees and expenses on October 8, 2013.   Debtor refused to provide
22   a declaration approving the fees, contending that Ryder agreed
23   to represent him in the chapter 11 case for a flat fee of
24   $40,000.   MBSWC later withdrew this application.
25        On November 7, 2013, the bankruptcy court issued an Order
26   To Show Cause Why a Chapter 11 Trustee Should Not Be Appointed.
27   Apparently, debtor was unable to negotiate a consensual plan
28   with Bank and had also used Bank’s cash collateral without

                                    -4-
 1   making adequate protection payments.   On November 22, 2013, the
 2   bankruptcy court appointed Michael G. Kasolas as the chapter 11
 3   trustee (Trustee) to assist the court in evaluating the
 4   feasibility of plan confirmation and related issues.
 5        Bank then filed a motion to convert the case to chapter 7.
 6   Bank noted that, although it attempted a constructive global
 7   resolution with debtor, it would not agree to an ongoing
 8   business relationship with him for various reasons and that it
 9   would vote against any plan.
10        On January 17, 2014, Trustee’s counsel sent an e-mail to
11   MBSWC stating:
12        The Trustee will support a plan that contains the
          following. Other issues may develop, but these are
13        the essentials for the Trustee’s support.
14        First, Joe [Halloum] must have deposited $200,000 to
          cover the accrued administrative fees at the time of
15        the confirmation hearing. These funds can be held in
          your trust account or held by the Trustee. These
16        funds cannot be held by Joe.
17        Second, Joe must acknowledge your fees and waive any
          objection to your fees. You have done an excellent
18        job, and Joe only raises this issue when he feels it
          essential to create more available funds for his
19        business. Joe cannot attack his own lawyer at the
          same time he wants that same lawyer to commit himself
20        100% to confirming a plan of reorganization. This
          behavior is irrational, upsets the Judge and must
21        stop.
22        On February 7, 2014, MBSWC substituted out of the
23   chapter 11 case.   On the same date, Trustee filed a status
24   report.   There, Trustee opined that debtor would not be able to
25   confirm a plan over the objection of Bank and further said:
26        Moreover, the Trustee is at a complete loss to
          understand the Debtor’s actions. Mr. Ryder has done
27        an extraordinary job of representing the Debtor in
          this case, including negotiating exceptionally
28        debtor-friendly treatment under the proposed Plan:

                                    -5-
 1        eliminating more than $1 million in unsecured claims
          and stretching out the payment terms for Arco and the
 2        taxing authorities. Mr. Ryder was also integral to
          the efforts to seek a solution with the Bank, which
 3        not long ago was simply insisting that the case be
          converted because they refused to continue to deal
 4        with the Debtor. Notwithstanding these efforts, the
          Debtor has sought an eleventh-hour substitution of
 5        counsel raising the entirely specious claim that the
          initial disclosure of compensation in the case amounts
 6        to Mr. Ryder’s agreement to perform all services
          required in the case in exchange for the retainer and
 7        nothing more. These mystifying claims have been
          raised before and completely ignore the fact that the
 8        Court has awarded additional compensation on multiple
          occasions in the case.
 9
10        In a declaration filed in support of an application to
11   employ his new counsel, Daniel Weiss, debtor contended that
12   MBSWC did not adequately represent him in the case and had
13   agreed to handle the entire bankruptcy case for a flat fee of
14   $40,000.    Debtor sought to recoup the fees over the $40,000
15   amount.    MBSWC denied that there was any such flat fee
16   agreement.
17        On February 12, 2014, debtor’s case was converted to
18   chapter 7.    Kasolas was appointed the chapter 7 trustee.
19        On March 4, 2014, MBSWC filed a motion seeking final
20   compensation for its work in the chapter 11 case.    MBSWC
21   requested final compensation in the amount of $114,004.50 and
22   expenses of $2,892.56, and requested $27,383.32 which had been
23   held back in the prior five fee applications.    In addition,
24   MBSWC asserted that debtor’s claim against it for recoupment was
25   a compulsory counter-claim that belonged to Trustee.
26        On April 1, 2014, debtor filed an opposition to the motion,
27   arguing that there was never any discussion between Ryder and
28   himself about hourly rates and no written fee agreement was

                                     -6-
 1   presented or signed by him.   Debtor maintained that under
 2   California law, Ryder must disclose the fees that he would be
 3   charging debtor and that if the total fee is over $1,000, then
 4   there must be a written fee contract.    Debtor also asserted that
 5   Ryder agreed to perform the services listed in the Disclosure Of
 6   Compensation for $38,964 ($40,000 less the filing fee).    Debtor
 7   alleged that approximately three months post-petition, contrary
 8   to their agreement, Ryder began billing debtor on an hourly
 9   basis.   According to debtor, after he confronted Ryder about
10   their flat fee arrangement, Ryder warned him verbally and in
11   writing that if he refused to pay the legal fees, Ryder would
12   withdraw from the case and the case may be converted to
13   chapter 7.   Debtor maintained that he “had no choice” but to pay
14   Ryder to avoid losing his business.   Debtor also asserted that
15   Ryder did not adequately represent debtor’s interest in
16   negotiating approval of a chapter 11 plan.   Debtor attributed
17   the conversion of the case and the loss of his business to
18   Ryder’s actions or inactions.   In the end, debtor requested the
19   court to hold an evidentiary hearing on his counterclaim for
20   recoupment of fees.
21        In reply, MBSWC argued that debtor did not have standing to
22   oppose the motion since if disgorgement were ordered the monies
23   would be paid to the chapter 7 estate.   MBSWC also noted that
24   Trustee was made aware of the fee dispute and made a decision to
25   not pursue disgorgement from MBSWC.   MBSWC again denied that
26   there was ever an agreement for a flat fee and argued that such
27   an agreement was inconsistent with debtor’s conduct throughout
28   the case, i.e., debtor signed a total of five disclosure

                                     -7-
 1   statements, none of which ever mentioned the professional fees
 2   being subject to a flat fee of $40,000 and debtor approved fee
 3   applications in excess of the initial retainer on five separate
 4   occasions in his capacity as debtor-in-possession.   Finally,
 5   MBSWC asserted that under California law, even without a
 6   retention agreement, Ryder was entitled to fees and expenses on
 7   a quantum meruit basis.   Accordingly, the bankruptcy court could
 8   decide the value of Ryder’s services.
 9        On April 15, 2014, the bankruptcy court heard the matter.
10        On April 16, 2014, the bankruptcy court entered the order
11   granting the motion.   The order did not contain any findings of
12   fact or conclusions of law and simply noted that the amount
13   requested was appropriate.
14        On April 28, 2014, debtor filed a timely notice of appeal.
15        On April 2, 2015, the Clerk’s office issued an Order Re
16   Transcript, which noted that the transcript for the April 15,
17   2014 hearing on the motion for administrative fees was never
18   prepared and filed with the bankruptcy court.   The order gave
19   debtor until Thursday, April 16, 2015, to file and serve a copy
20   of the transcript and further stated:
21        If appellant does not provide the transcript, the
          Panel is entitled to assume that appellant does not
22        believe there is anything in the transcript that will
          help appellant's appeal and may dismiss the appeal or
23        summarily affirm the order on appeal. State of Cal.
          v. Yun (In re Yun), 476 B.R. 243 (9th Cir. BAP 2012).
24
25        Debtor filed the transcript almost a month after the due
26   date, explaining that he had just received the Clerk’s Order
27   because he had moved and it was forwarded to his new address.
28   Generally, “[a]lthough civil litigants who represent themselves

                                    -8-
 1   (“pro se”) benefit from various procedural protections not
 2   otherwise afforded to the attorney-represented litigant . . .
 3   pro se litigants are not entitled to a general dispensation from
 4   the rules of procedure or court-imposed deadlines.”         Jones v.
 5   Phipps, 39 F.3d 158, 163 (7th Cir. 1994).         Nonetheless, we
 6   exercise our discretion to consider the late-filed transcript.
 7                               II.    JURISDICTION
 8        The bankruptcy court had jurisdiction pursuant to 28 U.S.C.
 9   §§ 1334 and 157(b)(2)(A).         We have jurisdiction under 28 U.S.C.
10   § 158.
11                                  III.    ISSUE
12         Whether the bankruptcy court made sufficient findings of
13   fact and conclusions of law to allow for meaningful review of
14   this appeal.
15                         IV.    STANDARD OF REVIEW
16        The bankruptcy court’s approval of administrative expenses
17   and award of attorney’s fees is reviewed for abuse of
18   discretion.    Hale v. U.S. Tr., 509 F.3d 1139, 1146 (9th Cir.
19   2007); Film Ventures Int'l, Inc. v. Asher (In re Film Ventures
20   Int'l, Inc.), 75 B.R. 250, 253 (9th Cir. BAP 1987).          The
21   bankruptcy court abuses its discretion when it fails to identify
22   and apply “the correct legal rule to the relief requested,”
23   United States v. Hinkson, 585 F.3d 1247, 1263 (9th Cir.2009) (en
24   banc), or if its application of the correct legal standard was
25   “(1) ‘illogical,’ (2) ‘implausible,’ or (3) without ‘support in
26   inferences that may be drawn from the facts in the record.’”
27   Id. at 1262.
28

                                           -9-
 1                               V.   DISCUSSION
 2        Because it was opposed, MBSWC’s motion seeking final
 3   compensation for its work was a contested matter subject to
 4   Rule 9014.   As a contested matter, the bankruptcy court was
 5   required to make findings of fact, either orally on the record
 6   or in a written decision.    See Rule 9014(c) (incorporating
 7   Rule 7052, which in turn incorporates Civil Rule 52); Harris v.
 8   U.S. Tr. (In re Harris), 279 B.R. 254, 260 (9th Cir. BAP 2002)
 9   (in contested matters the bankruptcy court is required to make
10   findings on disputed issues of material fact).    In an action
11   tried on the facts without a jury, “the court must find the
12   facts specially and state its conclusions of law separately.”
13   Civil Rule 52(a)(1), incorporated by Rule 7052.    These findings
14   must be sufficient to indicate the factual basis for the court's
15   ultimate conclusion.    Unt v. Aerospace Corp., 765 F.2d 1440,
16   1444 (9th Cir. 1985).    Moreover, the findings must be explicit
17   enough to give the appellate court a clear understanding of the
18   basis of the trial court’s decision, and to enable it to
19   determine the grounds on which the trial court reached its
20   decision.    Mattel, Inc. v. Walking Mountain Prods., 353 F.3d
21   792, 815 (9th Cir. 2003); Unt, 765 F.2d at 1444; Veal v. Am.
22   Home Mortg. Servicing, Inc. (In re Veal), 450 B.R. 897, 919 (9th
23   Cir. BAP 2011).
24        Debtor raised a number of issues in the bankruptcy court
25   related to the fee application, including his contention that
26   Ryder agreed to represent him in his chapter 11 case for a flat
27   fee of $40,000.    The alleged existence of such an agreement
28   raised a factual question which the bankruptcy court would

                                       -10-
 1   resolve presumably by weighing the conflicting evidence and
 2   making credibility determinations.
 3        A review of the transcript from the fee dispute hearing
 4   reflects that the bankruptcy court did not articulate any
 5   findings or conclusions on the record regarding the alleged
 6   agreement nor did it say that it was awarding the fees under
 7   § 330 or some other theory such as quantum meruit.   See Hensley
 8   v. Eckerhart, 461 U.S. 525, 437 (1983) (trial court must provide
 9   a “concise but clear explanation of its reasons for the fee
10   award.”).    Likewise, the order on appeal provides no inkling of
11   how the bankruptcy court resolved the factual dispute regarding
12   the flat fee agreement or why it determined that the fees
13   requested were reasonable.
14        However, even when a bankruptcy court does not make formal
15   findings, we may conduct appellate review “if a complete
16   understanding of the issues may be obtained from the record as a
17   whole or if there can be no genuine dispute about omitted
18   findings.”   In re Veal, 450 B.R. at 919–20 (citations omitted).
19   As there is a genuine dispute about the omitted findings, we
20   have no basis for evaluating whether the bankruptcy court abused
21   its discretion in awarding MBSWC the full amount requested in
22   its final fee application.
23                             VI.   CONCLUSION
24        Accordingly, we VACATE the order and REMAND to the
25   bankruptcy court to make the required findings.   See United
26   States v. Ameline, 409 F.3d 1073 (9th Cir. 2005).
27
28

                                     -11-