FILED DEC 08 2017 SUSAN M. SPRAUL, CLERK 1 NOT FOR PUBLICATION U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT 2 3 UNITED STATES BANKRUPTCY APPELLATE PANEL OF THE NINTH CIRCUIT 4 5 In re: ) BAP No. HI-16-1181-BTaL ) 6 1910 PARTNERS, ) Bk. No. 15-00009 ) 7 Debtor. ) Adv. No. 15-90006 ) 8 ) 1910 PARTNERS, ) 9 ) Appellant, ) 10 ) v. ) M E M O R A N D U M1 11 ) ASSOCIATION OF APARTMENT ) 12 OWNERS OF CANTERBURY PLACE, ) ) 13 Appellee. ) ______________________________) 14 Argued and Submitted on October 26, 2017, 15 at Honolulu, Hawaii 16 Filed - December 8, 2017 17 Appeal from the United States Bankruptcy Court for the District of Hawaii 18 Honorable Lloyd King, Bankruptcy Judge, Presiding 19 20 Appearances: Chuck C. Choi of Choi & Ito argued for appellant, 1910 Partners; Jerrold K. Guben of O'Connor, 21 Playdon & Guben LLP argued for appellee, Association of Apartment Owners of Canterbury 22 Place. 23 Before: BRAND, TAYLOR and LAFFERTY, Bankruptcy Judges. 24 25 26 1 This disposition is not appropriate for publication. 27 Although it may be cited for whatever persuasive value it may have (see Fed. R. App. P. 32.1), it has no precedential value. See 9th 28 Cir. BAP Rule 8024-1. 1 Chapter 112 debtor 1910 Partners appeals a judgment awarding 2 the Association of Apartment Owners of Canterbury Place ("AOAO") 3 its postpetition attorneys' fees and costs of $567,936.25. The 4 fees and costs were awarded as a secured claim under § 506(b) and 5 as an administrative expense priority claim under § 503(b)(4), to 6 be paid in full, in cash, on the effective date of 1910 Partners' 7 confirmed plan pursuant to § 1129(a)(9)(A). Because the 8 bankruptcy court applied an incorrect standard of law and failed 9 to provide sufficient due process, we VACATE the award of post- 10 petition attorneys’ fees and costs and REMAND. 11 I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY 12 A. Events prior to the instant bankruptcy case and related adversary proceeding 13 14 AOAO is an association of owners of residences in Canterbury 15 Place, a mixed use condominium project in Honolulu ("Building"). 16 1910 Partners is a limited partnership which owns the five ground 17 floor commercial units in the Building and 96 parking stalls 18 located on the second and third floors of the Building's parking 19 garage. Mr. Bruce C. Stark is the president of 1910 Partners. 20 The conflict between 1910 Partners and AOAO dates back to the 21 1990s. The parties' primary dispute lies in the allocation of 22 common expenses, utilities and reserves for the Building and how 23 much 1910 Partners should have to pay towards those items. 24 In 2009, AOAO filed five complaints against 1910 Partners in 25 state court; it sought to collect on 1910 Partners' alleged 26 2 Unless specified otherwise, all chapter, code and rule 27 references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and the Federal Rules of Bankruptcy Procedure, Rules 1001-9037. The 28 Federal Rules of Civil Procedure are referred to as "Civil Rules."
-2- 1 delinquencies by foreclosing its statutory liens against the five 2 commercial units. 1910 Partners filed its first chapter 11 3 bankruptcy case before the state court could decide the merits of 4 the complaints. 1910 Partners removed the complaints to the 5 bankruptcy court and filed counterclaims against AOAO. 6 During the course of 1910 Partners' first bankruptcy case, 7 the parties entered into a settlement agreement. Among other 8 things, the settlement agreement provided that 1910 Partners would 9 pay AOAO approximately $285,000 in full satisfaction of all 10 alleged prepetition maintenance fees, costs and utilities accrued 11 and contractual attorneys' fees. The settlement amount was to be 12 paid in monthly installments over four years. The parties also 13 agreed to install a submetering system to prevent future disputes 14 over the allocation of common expenses for the Building. 15 Unfortunately, the parties continued to have disputes and, 16 when mediation failed, AOAO filed another action against 1910 17 Partners. 1910 Partners responded with several counterclaims. 18 B. The instant bankruptcy case and related adversary proceeding 19 On January 5, 2015, 1910 Partners filed its second chapter 11 20 bankruptcy case. Shortly thereafter, AOAO removed the 2014 state 21 court action to the bankruptcy court. During the course of the 22 main case and adversary proceeding, AOAO was represented by the 23 law firms of O'Connor Playdon & Guben ("OPG") and Revere & 24 Associates ("Revere"). 25 AOAO filed an amended proof of claim, asserting a secured 26 claim for $1,308,500 ("Claim"). The Claim included prepetition 27 unpaid AOAO maintenance fees, unpaid utility expenses, and unpaid 28 utility adjustment charges as provided by the 2012 settlement
-3- 1 agreement, as well as AOAO's prepetition attorneys' fees of 2 approximately $155,000. The Claim did not include any request for 3 payment of postpetition attorneys' fees or costs. 4 1910 Partners filed its initial chapter 11 plan of 5 reorganization in June 2015. In its objection, AOAO contended it 6 was owed postpetition attorneys' fees as an oversecured creditor 7 under § 506(b), accruing from the petition date through July 15, 8 2015. Thereafter, 1910 Partners filed an amended chapter 11 plan 9 of reorganization, which the bankruptcy court confirmed over 10 AOAO's objection ("Plan").3 The Plan paid the Claim in 11 installments of $18,000 per month plus interest. 12 The confirmation order was entered on March 4, 2016. 13 According to the order, entered the same day as the adversary 14 judgment in favor of AOAO discussed below, administrative expense 15 claims were to be filed and served on 1910 Partners no later than 16 60 days after the effective date of March 21, 2016, unless the bar 17 date was extended by mutual agreement of 1910 Partners and the 18 holder of the claim. 19 1. The trial, judgment and events up to the appeal date 20 The sole purpose of the adversary proceeding between AOAO and 21 1910 Partners was to adjudicate the amount of the Claim. 22 The first time AOAO indicated its intent to request 23 postpetition attorneys' fees and costs incurred as part of the 24 Claim was in its pretrial list of exhibits. AOAO presented two 25 exhibits, each consisting of only a single page summary of the 26 fees and costs incurred by OPG and Revere respectfully. AOAO also 27 3 AOAO's concurrent motion to appoint a chapter 11 trustee 28 was denied after a two-day hearing.
-4- 1 contended at the end of its 50-page brief that it was entitled to 2 postpetition attorneys' fees and costs as an oversecured creditor 3 in the amount of $106,426 through December 31, 2015. AOAO 4 acknowledged that its attorneys' fees and costs through trial 5 would be calculated at the conclusion of the trial. AOAO's brief 6 did not mention any substantial contribution claim. 7 Trial on the Claim was held over four days. Counsel for AOAO 8 stated at the end of his summation that AOAO's postpetition 9 attorneys' fees were "almost a half a million dollars . . . and 10 accruing, because of Mr. Stark's obstinacy." He further argued, 11 for the first time, that the court needed "to send a message" to 12 Mr. Stark for his obstinacy and treat AOAO's postpetition fees and 13 costs as an administrative claim under § 1129(a)(9)(A) that would 14 be paid in full, in cash, on the effective date. 15 Counsel for 1910 Partners objected, arguing that it was not 16 appropriate to address AOAO's postpetition attorneys' fees and 17 costs and their reasonableness in the context of deciding the 18 Claim; some additional type of motion had to be filed and served. 19 Counsel also objected to AOAO's oral request that its fees and 20 costs be paid as an administrative expense, arguing that AOAO 21 could not have both a secured claim and an administrative claim, 22 and that this issue should have been raised in the main case, not 23 the adversary proceeding, and properly noticed with a hearing. 24 After trial, the bankruptcy court ordered the parties to 25 submit competing findings of fact and conclusions of law. In its 26 proposed findings and conclusions, AOAO proposed the following 27 with respect to its postpetition attorneys' fees and costs: 28 • AOAO incurred postpetition attorneys' fees and costs totaling
-5- 1 $567,936.25; 2 • as an oversecured creditor AOAO was entitled to all postpetition attorneys' fees and costs under § 506(b), which 3 were "reasonable"; and 4 • because AOAO had made a "substantial contribution" to the estate it was entitled to have its attorneys' fees and costs 5 be accorded administrative expense priority status under § 503(b)(4) and be paid in cash, in full, on the Effective 6 Date of the Plan as per § 1129(a)(9)(A).4 7 In addition to its proposed findings and conclusions, AOAO 8 submitted an ex parte motion to submit its attorneys' time sheets 9 under seal and to hand deliver the time sheets to 1910 Partners 10 upon entry of an order granting the motion to seal. AOAO 11 maintained that the time sheets contained confidential attorney- 12 client information and attorney work product. Alternatively, AOAO 13 offered to file redacted versions of the time sheets with 14 unredacted versions to be viewed in camera. 15 1910 Partners submitted proposed findings, including one 16 stating that the bankruptcy court was unwilling to rule on AOAO's 17 postpetition attorneys' fees and costs under § 506(b) until AOAO 18 filed a properly noticed motion with supporting documentation, so 19 that the court and interested parties could ascertain the 20 "reasonableness" of AOAO's fee request. 1910 Partners also 21 submitted a proposed finding that none of AOAO's attorneys' fees 22 were entitled to administrative expense priority. 1910 Partners 23 4 AOAO maintained that it made a "substantial contribution" 24 in the main case by: (1) being the only active creditor in the case; (2) raising the issue of recovering $300,000 in insider 25 preference payments, which was not dealt with in the first plan; (3) ensuring the enforcement of the "absolute priority" rule; 26 (4) moving to appoint a chapter 11 trustee, which motion was denied but uncovered 1910 Partners' failure to maintain its units 27 and parking area; and (5) its objections raised to the initial plan, which led to a reduced term of the final Plan payments to 28 unsecured creditors to five years after the Effective Date.
-6- 1 maintained that, as an oversecured creditor, AOAO's legal fees 2 could not be both a secured claim under § 506(b) and an unsecured 3 administrative expense priority claim. 4 The bankruptcy court entered its findings of fact and 5 conclusions of law and judgment with respect to AOAO's Claim on 6 March 4, 2016 ("March 4 Judgment"). In short, the court, adopting 7 AOAO's proposed findings and conclusions, found in favor of AOAO 8 in all respects and ruled that its Claim would be allowed in full. 9 With respect to AOAO's postpetition attorneys' fees and 10 costs, which is the only issue on appeal, the court determined 11 that: (1) AOAO was entitled to an award of its fees and costs 12 under § 506(b) and that the requested $567,936.25 was 13 "reasonable"; and (2) AOAO had made a "substantial contribution" 14 to the estate and therefore all of its § 506(b) fees and costs 15 were to be treated as a § 503(b)(4) administrative expense claim 16 and be paid in full, in cash, on the Effective Date of the Plan 17 pursuant to § 1129(a)(9)(A). 18 1910 Partners filed a timely motion for reconsideration, 19 raising two arguments with respect to AOAO's postpetition 20 attorneys' fees and costs. First, 1910 Partners argued that the 21 court erred by awarding AOAO's fees and costs under § 506(b) as 22 part of a "claims allowance process" without providing 1910 23 Partners or unsecured creditors a fair "due process" opportunity 24 to object to their reasonableness, after a duly noticed motion and 25 hearing. Without detailed time sheets, 1910 Partners argued that 26 it was unable to ascertain not only reasonableness of AOAO's 27 postpetition fees but also what fees were attributable to legal 28 services provided in the main case as distinguished from those
-7- 1 provided in the adversary proceeding. 2 Second, 1910 Partners argued that the court erred by granting 3 AOAO's postpetition attorneys' fees and costs administrative 4 priority under § 503(b)(4) without detailed time sheets from OPG 5 and Revere, any notice or hearing, and by making that 6 determination in the context of the adversary proceeding on the 7 Claim as opposed to in the main case. Furthermore, 1910 Partners 8 argued that, because the fees AOAO incurred in the adversary 9 proceeding were solely for its benefit, they could never be 10 awarded as an administrative expense claim; AOAO's efforts there 11 did not provide a tangible benefit to the estate or the general 12 unsecured creditors. 13 AOAO opposed the motion to reconsider. Much of its 14 opposition spent time making a case for why its claim for 15 postpetition attorneys' fees and costs was entitled to 16 administrative priority under § 503(b)(4). AOAO maintained that 17 by raising the administrative expense claim issue at the closing 18 of trial, in its proposed findings and conclusions after trial, 19 and by "proffering to file the detailed time sheets of OPG and 20 Revere under seal," 1910 Partners received sufficient due process. 21 AOAO faulted 1910 Partners for not objecting to the proposed seal 22 motion or requesting that the court direct AOAO to file its time 23 sheets in open court, when it had three weeks to do so. 24 After a hearing, the bankruptcy court entered findings of 25 fact and conclusions of law and an order on June 8, 2016, denying 26 the reconsideration motion (the "June 8 Order"). Throughout the 27 findings and conclusions, drafted by counsel for AOAO and adopted 28 by the court, the court referred to AOAO's postpetition attorneys'
-8- 1 fees and costs of $567,936.25 as an administrative expense 2 priority claim under § 503(b)(4) to be paid per § 1129(a)(9)(A). 3 However, in the related order, also drafted by AOAO's counsel and 4 adopted by the court, AOAO's postpetition attorneys' fees and 5 costs of $567,936.25 were awarded under § 506(b), with no mention 6 of § 503(b)(4) or § 1129(a)(9)(A). 7 On May 20, 2016, after the hearing on the reconsideration 8 motion but before the bankruptcy court had entered the June 8 9 Order denying that motion, the parties filed in the main case a 10 stipulation agreeing to extend the "Professional Fee Claims Bar 11 Date" to August 31, 2016. 12 1910 Partners timely appealed the March 4 Judgment and the 13 June 8 Order. 14 2. Post-appeal events 15 On June 29, 2016, AOAO filed in the main case a motion to 16 enforce the Plan, arguing that 1910 Partners had failed to pay its 17 administrative expense claim of $567,936.25. After a hearing, the 18 bankruptcy court entered findings of fact and conclusions of law 19 and an order on October 13, 2016, again drafted by counsel for 20 AOAO, ordering that 1910 Partners either pay the claim 21 immediately, create a reserve for the $567,936.25, seek a stay of 22 the enforcement of the Plan, or proffer a supersedeas or appeal 23 bond for $709,245.31. 24 Meanwhile, on August 31, 2016, AOAO filed in the main case an 25 application for the allowance and award of its postpetition 26 attorneys' fees and costs under § 503(b)(4), which 1910 Partners 27 opposed. Included with the application were detailed time sheets 28 from OPG and Revere. In total, AOAO sought $607,420.57 in fees
-9- 1 and costs to be awarded administrative expense priority under 2 § 503(b)(4). The fee application was served on 1910 Partners, 3 creditors and the U.S. Trustee. Later, in its reply, AOAO boldly 4 asserted that the court did not need detailed time sheets or any 5 documentation to allow and award its postpetition fees and costs 6 as a § 503(b)(4) administrative expense priority claim, because 7 AOAO's work and results were apparent for both the main case and 8 the adversary proceeding liquidating its Claim and sufficiently 9 supported its administrative claim. 10 On December 2, 2016, the bankruptcy court entered an order in 11 the main case awarding AOAO its postpetition attorneys' fees and 12 costs of $607,420.57 as an administrative expense priority claim 13 under § 503(b)(4) to be paid pursuant to § 1129(a)(9)(A) (the 14 "December 2 Fee Order"). Attached to and incorporated in the 15 December 2 Fee Order were the March 4 Judgment and June 8 Order. 16 1910 Partners did not appeal the December 2 Fee Order. 17 II. JURISDICTION 18 The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 19 and 157(a)(2)(A), (B) & (K). AOAO raised the issues of finality 20 and mootness with respect to the March 4 Judgment in its motion to 21 dismiss this appeal, arguing that the December 2 Fee Order was a 22 "final" order that superseded the March 4 Judgment and mooted this 23 appeal. For the reasons that follow, AOAO's motion to dismiss is 24 DENIED. 25 We conclude that the March 4 Judgment was a final order. "An 26 order is final if it constitutes a complete adjudication of the 27 issues at bar and clearly evidences the judge's intention that it 28 be final." Wiersma v. Bank of the W. (In re Wiersma), 483 F.3d
-10- 1 933, 938 (9th Cir. 2007) (citing Slimick v. Silva (In re Slimick), 2 928 F.2d 304, 307 (9th Cir. 1990)). The March 4 Judgment 3 adjudicated the claims between the parties and unequivocally 4 awarded AOAO its postpetition attorneys' fees and costs under 5 § 506(b), § 503(b)(4) and § 1129(a)(9)(A). The court made express 6 findings about the "reasonableness" of AOAO's fees as well as 7 findings about the "substantial contribution" AOAO had made to the 8 estate. Nothing in the March 4 Judgment indicates that a further 9 motion was necessary for AOAO to be awarded its postpetition fees 10 and costs and, in fact, AOAO vehemently argued that no such motion 11 had to be filed for its fees and costs to be awarded under any 12 statute.5 13 We reject AOAO's argument that the parties and the court 14 contemplated further proceedings on AOAO's postpetition attorneys' 15 fees and costs after the March 4 Judgment based on the stipulation 16 to extend the Professional Fee Claims Bar Date. Section 2.3.2 of 17 the Plan governs claims for professionals who have rendered 18 services to the estate, such as debtor's counsel or counsel for a 19 creditor's committee. AOAO was not claiming "professional fees" 20 here; it was asserting an administrative expense claim for its 21 fees, the bar dates for which is governed by Section 2.3.1 of the 22 Plan and confirmation order. The parties' stipulation, therefore, 23 had no effect on the bar date for AOAO's administrative expense 24 claim. Any such claim had to be filed and served no later than 25 26 5 Arguably, AOAO must have thought the March 4 Judgment finally adjudicated its postpetition fee claim given that it filed 27 the motion to enforce the Plan, wherein it complained about not being paid its $567,936.25 administrative claim, before it filed 28 its fee application.
-11- 1 60 days after the Effective Date, which would have been May 20, 2 2016. Thus, AOAO's fee application filed on August 31, 2016, if 3 even considered a proper administrative expense claim, was 4 untimely. 5 We also conclude that the appeal of the March 4 Judgment is 6 not moot. We lack jurisdiction over moot appeals. I.R.S. v. 7 Pattullo (In re Pattullo), 271 F.3d 898, 901 (9th Cir. 2001). A 8 case is moot where an event occurs while a case is pending appeal 9 that makes it impossible for the court to grant any effective 10 relief to the prevailing party. Id. While AOAO argues that the 11 December 2 Fee Order has mooted the appeal because proper 12 procedures have since been followed and its postpetition 13 attorneys' fees and costs have again been awarded under the same 14 statutes, AOAO fails to recognize that the bankruptcy court lacked 15 jurisdiction to enter the December 2 Fee Order. 16 Once a notice of appeal for a final, appealable order is 17 filed, the trial court is divested of jurisdiction over aspects of 18 the case involved in the appeal. Griggs v. Provident Consumer 19 Disc. Co., 459 U.S. 56, 58 (1982); Hill & Sanford, LLP v. Mirzai 20 (In re Mirzai), 236 B.R. 8, 10 (9th Cir. BAP 1999). Although the 21 trial court may take actions that preserve the status quo during 22 the pendency of an appeal, it may not finally adjudicate 23 substantial rights directly involved in the appeal. Neary v. 24 Padilla (In re Padilla), 222 F.3d 1184, 1189 (9th Cir. 2000). The 25 trial court cannot enter an order that supplements the order on 26 appeal because such supplementation would change the status quo. 27 In re Mirzai, 236 B.R. at 10 (citing McClatchy Newspapers v. Cent. 28 Valley Typographical Union, 686 F.2d 731, 734-35 (9th Cir. 1982)).
-12- 1 The trial court also may not alter or expand upon the judgment. 2 In re Padilla, 222 F.3d at 1190. 3 Because the propriety of AOAO's claim seeking recovery of 4 postpetition attorneys' fees and costs is the subject of this 5 appeal, the bankruptcy court lacked jurisdiction to consider 6 AOAO's subsequent fee application or to enter the December 2 Fee 7 Order, which not only supplemented the March 4 Judgment but 8 expanded upon it by awarding AOAO an additional $40,000 in 9 postpetition fees and costs. As a result, the December 2 Fee 10 Order is void. Id. Therefore, contrary to AOAO's position, the 11 subsequent events which may have "cured" the procedural 12 irregularities that occurred here have no impact on this appeal. 13 Because we are able to grant 1910 Partners effective relief 14 if we decide the appeal of the March 4 Judgment in its favor, the 15 appeal is not moot. Accordingly, we have jurisdiction under 16 28 U.S.C. § 158. 17 III. ISSUES 18 1. Did the bankruptcy court err by awarding AOAO's 19 postpetition attorneys' fees and costs as both a § 506(b) claim 20 and as an administrative expense priority claim to be paid in 21 full, in cash, on the Effective Date of the Plan? 22 2. Did the bankruptcy court err by awarding AOAO's 23 postpetition attorneys' fees and costs without requiring AOAO to 24 file and serve a motion with supporting documentation before 25 determining the amount of the fees and costs allowed under either 26 § 506(b) or § 1129(a)(9)(A) and § 503(b)(4)? 27 3. Did the bankruptcy court abuse its discretion in denying the 28 motion to reconsider?
-13- 1 IV. STANDARDS OF REVIEW 2 The bankruptcy court's application of the rules of procedure 3 is reviewed de novo. Ruvacalba v. Munoz (In re Munoz), 287 B.R. 4 546, 550 (9th Cir. BAP 2002). Likewise, whether a party's due 5 process rights were violated is a question of law we review de 6 novo. Miller v. Cardinale (In re Deville), 280 B.R. 483, 492 (9th 7 Cir. BAP 2002). 8 We will not disturb the bankruptcy court's award of 9 attorney's fees and costs unless the court erroneously applied the 10 law or abused its discretion. Renfrow v. Draper, 232 F.3d 688, 11 693 (9th Cir. 2000); Fry v. Dinan (In re Dinan), 448 B.R. 775, 783 12 (9th Cir. BAP 2011). 13 The bankruptcy court's denial of a reconsideration motion is 14 also reviewed for an abuse of discretion. Cruz v. Stein Strauss 15 Tr. # 1361, PDQ Invs., LLC (In re Cruz), 516 B.R. 594, 601 (9th 16 Cir. BAP 2014). The bankruptcy court abuses its discretion if it 17 applies an incorrect legal standard or its factual findings are 18 clearly erroneous. TrafficSchool.com, Inc. v. Edriver Inc., 19 653 F.3d 820, 832 (9th Cir. 2011). 20 V. DISCUSSION 21 A. The bankruptcy court erred in awarding AOAO its postpetition attorneys' fees and costs on this record. 22 23 1910 Partners contends that the bankruptcy court erred by 24 granting AOAO's fee claim administrative expense priority under 25 §§ 503(b)(4) and 1129(a)(9)(A) and, at the same time, determining 26 that AOAO was entitled to its postpetition attorneys' fees and 27 costs as an oversecured creditor under § 506(b). 1910 Partners 28 also argues that it was denied due process when the court awarded
-14- 1 AOAO its postpetition attorneys' fees and costs without a separate 2 motion or any documentation to support it. While, conceivably, we 3 can envision a situation where an oversecured creditor could have 4 an administrative expense priority claim and a claim under 5 § 506(b), we need not address that issue, because the record does 6 not support AOAO's postpetition fee award under any of the above 7 statutes. 8 1. AOAO was not entitled to its fee award under § 506(b). 9 Section 506(b) permits oversecured creditors to claim 10 attorney's fees and costs: 11 To the extent that an allowed secured claim is secured by property the value of which, after any recovery under 12 subsection (c) of this section, is greater than the amount of such claim, there shall be allowed to the holder of 13 such claim, interest on such claim, and any reasonable fees, costs, or charges provided for under the agreement 14 or State statute under which such claim arose. 15 § 506(b). Thus, the creditor is entitled to postpetition 16 attorney's fees and costs if: (1) the claim is an allowed secured 17 claim; (2) the creditor is oversecured; (3) the fees are 18 reasonable; and (4) the fees are provided for under the agreement. 19 Kord Enters. II v. Cal. Commercial Bank (In re Kord Enters. II), 20 139 F.3d 684, 687 (9th Cir. 1998). It is undisputed that AOAO is 21 an oversecured creditor with an allowed secured claim and could 22 recover its reasonable postpetition attorneys' fees and costs 23 based on the underlying agreements between the parties upon proof. 24 However, § 506(b) requires that such fees and costs be 25 "reasonable." Dalessio v. Pauchon (In re Dalessio), 74 B.R. 721, 26 723 (9th Cir. BAP 1987). The key determinant for "reasonableness" 27 is whether the creditor incurred expenses and fees that fall 28 within the scope of the fees provision in the parties' agreement
-15- 1 and took the kinds of actions that similarly situated creditors 2 might reasonably conclude should be taken. Id. "The bankruptcy 3 court should inquire whether, considering all relevant factors 4 including duplication, the creditor reasonably believed that the 5 services employed were necessary to protect its interests in the 6 debtor's property." Id. (citing In re Carey, 8 B.R. 1000, 1004 7 (Bankr. S.D. Cal. 1981)). "A court should not reward a creditor 8 whose overly aggressive attorney harasses and opposes the debtor 9 at every stage of the bankruptcy proceeding, nor should an 10 oversecured creditor be given a blank check to incur fees and 11 costs which will automatically be reimbursed out of its 12 collateral." Id. 13 A secured claim holder has the burden of proving the 14 reasonableness of its fee claim under § 506(b). Atwood v. Chase 15 Manhattan Mortg. Co. (In re Atwood), 293 B.R. 227, 233 (9th Cir. 16 BAP 2003). This requires, at minimum, supporting documentation to 17 include detailed time sheets.6 In re Dalessio, 74 B.R. at 724. 18 Without this, the trial court has no possible way to determine 19 reasonableness. Here, AOAO did not request its postpetition 20 attorneys' fees and costs under § 506(b) in the Claim. The first 21 time AOAO provided any real discussion on the matter was in its 22 trial brief in the adversary proceeding. However, AOAO failed to 23 6 We do not address the question of what procedural device 24 is required for an oversecured creditor to recover postpetition attorney's fees and costs under § 506(b). While the Ninth Circuit 25 has not decided this issue, we held in In re Atwood that a proof of claim requesting such fees and costs may be sufficient. 26 293 B.R. at 231-232. The Local Bankruptcy Rules for the District of Hawaii are silent on this issue. Nonetheless, regardless of 27 the procedure used, an award for such fees and costs uniformly has to be supported with evidence sufficient for the bankruptcy court 28 to determine reasonableness.
-16- 1 state the exact amount it would be seeking, indicating that it 2 would be determined after trial. 3 The amount of postpetition fees and costs AOAO was seeking 4 was finally revealed in its proposed findings and conclusions 5 after trial, but was not supported with any evidence. AOAO also 6 sought to file its counsels' time sheets under seal and proposed 7 not to provide a copy of them to 1910 Partners until after the 8 court had entered an order granting the seal motion. No such 9 order was entered, and 1910 Partners did not receive a copy of the 10 time sheets, redacted or otherwise, prior to the March 4 Judgment. 11 Also absent from the record is any declaration from AOAO's counsel 12 attesting to the fees' reasonableness. 13 AOAO faults 1910 Partners for failing to object to the motion 14 to file the time sheets under seal or to request that the court 15 compel AOAO to provide them in open court, suggesting that 1910 16 Partners' alleged silence somehow constituted waiver. 1910 17 Partners did object to the award of AOAO's postpetition attorneys' 18 fees and costs in closing argument at trial and in its competing 19 proposed findings and conclusions. Further, as the creditor 20 seeking such fees and costs, AOAO had the burden of proving the 21 reasonableness of its claim under § 506(b). In re Atwood, 22 293 B.R. at 233. Putting the onus on 1910 Partners to object to 23 the seal motion or to compel AOAO to provide the time sheets was 24 not only inappropriate, it was contrary to the law. 25 It is also not evident whether the bankruptcy court received 26 and reviewed the time sheets or did any independent inquiry into 27 the nature of the requested fees and costs. Although the court 28 summarily found that the entire amount requested for fees and
-17- 1 costs was "reasonable," the March 4 Judgment was drafted, in large 2 part, by AOAO. Thus, we review this finding with special 3 scrutiny. Silver v. Exec. Car Leasing Long-Term Disability, 4 466 F.3d 727, 733 (9th Cir. 2006). 5 Overall, we conclude that the bankruptcy court erred by 6 failing to require AOAO to support its postpetition fee request 7 with any evidence and by failing to afford 1910 Partners a 8 procedure to review the time sheets of AOAO's professionals and to 9 make objections as to the reasonableness of the requested fees and 10 costs before entering the March 4 Judgment. 11 2. AOAO's fee award was not entitled to administrative priority. 12 13 Even more troubling is the bankruptcy court's award of AOAO's 14 postpetition attorneys' fees and costs as an administrative 15 expense priority claim under § 503(b)(4) to be paid pursuant to 16 § 1129(a)(9)(A). Section 503(b)(4) provides, in relevant part: 17 (b) After notice and a hearing, there shall be allowed administrative expenses, other than claims allowed under 18 section 502(f) of this title, including — 19 (4) reasonable compensation for professional services rendered by an attorney or an accountant of an entity 20 whose expense is allowable under paragraph (3) of this subsection, based on the time, the nature, the extent, and 21 the value of such services, and the cost of comparable services other than in a case under this title, and 22 reimbursement for actual, necessary expenses incurred by such attorney or accountant[.] 23 24 § 503(b)(4). As pertinent here, § 503(b)(4) permits an 25 administrative claim for fees and expenses of an attorney who 26 represents a creditor who made a substantial contribution to the 27 chapter 11 case. See Wake v. Sedona Inst. (In re Sedona Inst.), 28 220 B.R. 74, 81 (9th Cir. BAP 1998); In re W. Asbestos Co.,
-18- 1 318 B.R. 527, 530 (Bankr. N.D. Cal. 2004). 2 A creditor seeking administrative priority for its legal fees 3 and costs bears the burden of proof to demonstrate that the 4 creditor has made a substantial contribution to the estate. 5 Andrew v. Coopersmith (In re Downtown Inv. Club III), 89 B.R. 59, 6 64 (9th Cir. BAP 1988) ("The burden of proof under Bankruptcy Code 7 § 503(b)(4) to show that a substantial contribution was made is on 8 the party seeking compensation[.]"); see also In re Catalina Spa & 9 R.V. Resort, Ltd., 97 B.R. 13, 17 (Bankr. C.D. Cal. 1989) (same). 10 The measure of any substantial contribution is the "'extent of the 11 benefit to the estate.'" Cellular 101, Inc. v. Channel Commc'ns, 12 Inc. (In re Cellular 101, Inc.), 377 F.3d 1092, 1096 (9th Cir. 13 2004) (quoting Christian Life Ctr. Litig. Defense Comm. v. Silva 14 (In re Christian Life Ctr.), 821 F.2d 1370, 1373 (9th Cir. 1987)). 15 The benefits conferred by the claimant must be direct and not 16 "incidental" or "minimal," and must outweigh the benefit received 17 by the claimant. Id. at 1098. 18 The prerequisite for a creditor's administrative priority 19 claim for legal fees and costs under § 503(b)(4) is "notice and a 20 hearing." See § 503(b)(4). Moreover, Local Bankruptcy 21 Rule 3001-2(d) requires an entity requesting payment of an 22 administrative expense in a chapter 11 case to give notice of the 23 request to the debtor in possession, the U.S. Trustee and the 24 holders of the 20 largest unsecured claims. Local Bankruptcy 25 Rule 2016-1 also mandates that, to receive compensation for 26 attorney's fees or reimbursement of expenses under § 503(b)(4), 27 the professional must submit an application with supporting 28 documentation, including detailed time records and a certification
-19- 1 by the applicant. None of these things happened here. 2 We also find error in the court's consideration of AOAO's 3 proposed administrative expense claim in the context of the 4 adversary proceeding on the Claim. Any administrative expense 5 claim had to be filed by separate motion in the main case, 6 properly noticed, and granted only after a hearing or opportunity 7 for hearing. No separate motion was filed in the main case, 8 proper notice was not provided, and no hearing was noticed or 9 held. AOAO's counsel simply threw in as part of his closing 10 argument in the adversary proceeding that AOAO's postpetition 11 attorneys' fees and costs should be given administrative priority 12 and be paid in full, in cash, on the Effective Date of the Plan to 13 teach Mr. Stark a lesson. AOAO then proceeded to award itself an 14 administrative expense priority claim for the full amount of its 15 postpetition fees and costs in its proposed findings and 16 conclusions after trial, which the court adopted. 17 In summary, given these procedural irregularities, 1910 18 Partners (and others) were denied due process with respect to the 19 granting of administrative priority status to AOAO's postpetition 20 attorneys' fees and costs. 21 Further, without a proper fee application and supporting 22 documentation, it was impossible not only for the court to find 23 that AOAO made a "substantial contribution" to the estate but also 24 to find that every cent AOAO spent pursuing its own Claim in the 25 adversary proceeding was a direct benefit to the estate. Even 26 with supporting documentation, it would be extremely difficult for 27 AOAO to prove that the benefit recovered in the adversary 28 proceeding was outweighed by the benefit received by the estate.
-20- 1 Therefore, because the court's finding of "substantial 2 contribution" was not supported by any evidence, only argument, it 3 was clearly erroneous.7 4 B. The bankruptcy court abused its discretion by not granting the motion to reconsider. 5 6 A motion under Civil Rule 59(e) should not be granted unless 7 the court is presented with newly discovered evidence, committed 8 clear error, or if there is an intervening change of controlling 9 law. 389 Orange St. Partners v. Arnold, 179 F.3d 656, 665 (9th 10 Cir. 1999). 1910 Partners asked the bankruptcy court to 11 reconsider its ruling in the March 4 Judgment with respect to 12 AOAO's postpetition attorneys' fees and costs under either 13 § 506(b) or § 503(b)(4), arguing lack of due process and that an 14 insufficient evidentiary record existed to find "reasonableness" 15 or "substantial contribution." Because we have determined that 16 the court applied an incorrect standard of law and clearly erred 17 in these respects, it abused its discretion by not granting 1910 18 Partners' motion to reconsider. 19 VI. CONCLUSION 20 We VACATE the portion of the March 4 Judgment awarding AOAO 21 postpetition attorneys' fees and costs of $567,936.25 and REMAND 22 for further proceedings. On remand, the court can consider 23 whether AOAO is entitled to some amount of fees or costs as an 24 oversecured creditor under § 506(b). The court may also consider, 25 after proper notice and a hearing, whether any amount of these 26 7 As with § 506(b), AOAO's administrative claim for fees and 27 costs under § 503(b)(4) was also subject to a "reasonableness" determination, which could not be determined absent an evidentiary 28 record. § 503(b)(4); In re Sedona Inst., 220 B.R. at 81.
-21- 1 fees or costs are entitled to administrative expense priority, to 2 the extent that such claim is not barred by the Plan or the 3 confirmation order. 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28
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