09 B 30029
Debtors’ financial advisor FBR Capital Markets & Co. (“FBR”) filed an amended application for compensation, which included a request for a restructuring fee and reimbursement of expenses, the majority of which were attorneys’ fees incurred in defense of FBR’s fee request. Plan transferee Bletchley Hotel at O’Hare LLC (“Bletchley”) filed an objection, asking the Court to: (1) reconsider its prior decision, which found that FBR was entitled to the restructuring fee, and (2) deny or substantially reduce both the restructuring fee and the requested attorneys’ fees for work performed in defending the original fee application. As to the restructuring fee, the Court denied the request for reconsideration because Bletchley primarily rehashed arguments already considered and rejected in the prior proceeding and, thus, failed to sustain its burden under Rule 60(b). The Court further found that, based on the express language of the governing documents, the restructuring fee was subject to review under the improvidence standard of § 328(a) and that the requested amount of the fee would not be reduced because Bletchley failed to identify any developments incapable of being anticipated at the time the order approving FBR’s retention was entered. As to the reimbursement of expenses, the Court found that FBR is not entitled to the attorneys’ fees incurred for fee-defense work because the reimbursement under the pre-approved engagement letter is subject to review under § 330 and the U.S. Supreme Court’s decision in Baker Botts L.L.P. v. ASARCO LLC held that § 330(a)(1) does not allow a bankruptcy court to award attorneys’ fees for work performed in defending a fee application. Accordingly, the Court awarded FBR a restructuring fee in the requested amount of $2,568,145.89 and reimbursement of expenses not related to the defense of FBR’s fees in the amount of $62,466.60.
Judge Janet S. Baer - Opinions / Outlines
Judge Janet S. Baer
August 31, 2015
09 B 30029
April 23, 2015
13 B 43900, 14 A 00719
On the chapter 7 trustee’s motion for authority to turn over certain funds to secured creditor BCL-Capital Funding LLC (“BCL”) as alleged cash collateral proceeds, a creditor (and the Debtor’s former attorney) (“Stern”) objected, arguing that the proceeds were not BCL’s cash collateral and that turnover was, thus, improper. The trustee contended that he was bound by the terms of a pre-conversion cash collateral order (the “Order”) in which the Debtor and BCL had agreed that certain funds constituted cash collateral. The Court found that the Order did not, by its terms, foreclose consideration of Stern’s arguments regarding the validity of BCL’s claimed interest in the proceeds because the Order: (1) made no findings regarding whether the funds were cash collateral, and (2) contained broad reservations of rights. Thus, the Order was found to have no preclusive effect beyond enforcement of the Order itself. Further, the Court found that, despite an assignment of rents held by BCL, the proceeds were paid to the Debtor before the commencement of the case and while he retained control of the property at issue and that, thus, BCL could assert no interest in the proceeds by virtue of the assignment. Ultimately, the Court concluded that the proceeds at issue were not BCL’s cash collateral and, accordingly, denied the trustee’s motion.
October 30, 2014
09 B 30029
Debtors’ financial advisor filed an application for compensation that included a request for a “restructuring fee” based on the percentage of indebtedness involved in any restructuring. Plan transferee objected to the restructuring fee because the restructuring that took place in the case was based on a third party’s plan. Plan transferee argued that the agreement regarding the restructuring fee was unclear and that parol evidence explained that the financial advisor was not entitled to the restructuring fee because the plan confirmed was neither the debtors’ plan nor the result of the financial advisor’s efforts. The District Court (who originally reviewed this matter on appeal after Summary Judgment ) found that the Retention Order, which was modified by the parties after the Engagement Letter was signed and submitted, made the agreement ambiguous and remanded for trial. The Court found the agreement as such was ambiguous and allowed the parties to introduce parol evidence. The Court found, however, that the parol evidence was confusing and unhelpful. It did nothing to clarify the ambiguity in the revised Retention Order regarding the terms under which the financial advisor would be entitled to the restructuring fee. Ultimately, the Court construed the ambiguity against the party responsible for creating the ambiguity - the plan transferee. The Court therefore found that the financial advisor was entitled to the restructuring fee.
September 30, 2014
12 B 35492, 12 A 01889
Pro se debtor Gabriela Carter commenced an adversary proceeding seeking to discharge her educational loan debt owed to the Illinois Student Assistance Commission and Educational Credit Management Corporation pursuant to 11 U.S.C. § 523(a)(8). The issue addressed by the Court was whether the Debtor met the three-pronged Brunner test requiring her to show, by a preponderance of the evidence, that paying the loans would cause “undue hardship.” The Court found that the evidence demonstrated that the Debtor cannot maintain, based on current income and expenses, a minimal standard of living if forced to repay the student loans, thus satisfying the first prong of the test. The Court also found, however, that the Debtor failed to present evidence of additional, exceptional circumstances indicating that the state of affairs is likely to persist for a significant portion of the repayment period. Because the Debtor was not able to satisfy this second prong, the Court found that she did not meet her burden to prove that repayment of the loans would constitute an undue hardship under the statutory exception and held that the student loan debt is nondischargeable under § 523(a)(8).
March 6, 2014
12 B 30867
In response to a memorandum opinion allowing creditor bank costs of collection in their bankruptcy case, the debtors filed a motion to alter or amend the opinion pursuant to Federal Rule of Civil Procedure 59(e) and Federal Rule of Bankruptcy Procedure 9023, requesting that the Court reduce the amounts awarded. The debtors alleged that the Court erred by basing its opinion on the fact that numerous confirmation hearings and modified plans were required before a plan could be confirmed rather than focusing on the reasons for the delay. The Court found that because the debtors merely rehashed old matters and attempted to advance a version of the evidence that could and should have been presented prior to judgment, they failed to establish the existence of manifest errors of fact or newly discovered evidence required under Rule 59(e). Accordingly, the Court denied the debtors’ motion.
September 25, 2013
12 B 02903
Counsel for the Debtors filed an amended fee application in this chapter 13 case, requesting fees of $3,500 pursuant to the firm’s Attorney-Client Agreement for Legal Services. The Debtors objected to the application, alleging that the firm should receive no fees because its attorneys betrayed the Debtors’ trust in the representation, particularly with respect to negotiations in two lien strip adversary proceedings. The issue before the Court was whether the fees requested were reasonable compensation for actual, necessary services rendered pursuant to section 330 of the Code or whether the fees charged exceeded the reasonable value of the services provided pursuant to section 329. The Court found that the time spent by counsel in providing legal services to the Debtors was both appropriate and necessary for the administration of the case and that the rates charged for those services were commensurate with those charged by comparably skill attorneys. The Court also found, however, that a reduction in fees was justified because of the firm’s role in a miscommunication between attorney and client in the negotiation of a settlement in the lien strip adversaries. Accordingly, the Court sustained the Debtors’ objection in part, awarded counsel fees of $3,000, and disallowed the remaining fees of $500.
12 B 02903, 12 A 00440, 12 A 00441
Pro se debtors commenced two adversary proceedings to determine the value of two pieces of real property and to strip down the unsecured portions of the first mortgage liens on those properties pursuant to §§ 506(a) and 1322(b)(2). The debtors also filed a motion to strip off the creditor’s second mortgage lien from one of the properties under § 506(d). Based on the evidence presented and the credibility of the witnesses who testified at trial, the Court valued each property and gave the debtors permission to file an amended plan consistent with the Court’s ruling stripping down the first mortgages. As for the debtors’ motion to strip off the second mortgage lien under § 506(d), the Court denied the motion without prejudice, finding that the statute cited does not provide the vehicle for lien stripping in chapter 13 cases in the wake of the Seventh Circuit’s recent decision in Ryan
12 B 07352, 12 A 00765
The debtors filed an adversary proceeding to determine the nature and extent of creditor’s lien on their residence. The Court found that the creditor’s third priority lien was wholly unsecured and thus subject to being stripped off the debtors’ residence and treated as an unsecured claim. The Court found that the sales comparison approach was the appropriate method of valuation in this case and held that the petition date was the relevant date for valuation.
12 B 26295, 12 A 01630
The Court held that wages withheld pre-petition under an Illinois Citation to Discover Assets, and an order for installment payment of judgment, are not exempt assets and thus may not be recovered by the debtor as a preferential transfer. Personal property exemptions do not apply to wages that are required to be withheld in a wage deduction proceeding under Part 8 of Article XII of the Illinois Code of Civil Procedure. The issue before the Court was whether the same was true of wages withheld pursuant to a citation to discover assets, which is a special proceeding under Part 14 of Article II, as opposed to a wage deduction proceeding under Part 8 of Article XII. In holding that the debtor could not claim an exemption in wages withheld pursuant to a citation to discover assets, the Court based its decision on the language in 735 Ill. Comp. Stat. 5/2–1402(k-5) that directs the Court, in the event property held by a third party respondent is wages, to proceed as if a wage deduction proceeding had been filed. Accordingly, the Court granted the creditor’s motion to dismiss the preference action.
April 18, 2013
After his chapter 13 case was dismissed without a plan being confirmed, the debtor moved to compel the trustee to release funds he was holding in payment to the debtor’s attorney, alleging that section 1326(a)(2) of the Bankruptcy Code mandates the disbursement of those funds. The issue addressed by the Court was whether a third-party citation to discover assets, which was served upon the trustee by creditor Brendan Financial, Inc. and which initiated supplementary proceedings in the Circuit Court of Cook County, trumps the release of funds to the debtor’s attorney. The Court found that Brendan Financial violated the Barton doctrine by initiating supplementary proceedings in the state court without obtaining leave of the Bankruptcy Court. The Court also concluded that section 1326(a)(2) governs the matter and that the plain language of that statute mandates the disbursement of funds to the debtor’s attorney. Accordingly, the Court granted the debtor’s motion and directed the trustee to release funds to the debtor’s attorney in accordance with the Court’s order which granted the attorney’s application for compensation.