In re Fontainebleau Las Vegas Holdings, LLC

574 B.R. 895
CourtUnited States Bankruptcy Court, S.D. Florida.
DecidedAugust 15, 2017
DocketCase No. 09-21481-BKC-AJC Jointly Administered
StatusPublished
Cited by2 cases

This text of 574 B.R. 895 (In re Fontainebleau Las Vegas Holdings, LLC) is published on Counsel Stack Legal Research, covering United States Bankruptcy Court, S.D. Florida. primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
In re Fontainebleau Las Vegas Holdings, LLC, 574 B.R. 895 (Fla. 2017).

Opinion

ORDER DISAPPROVING SUPPLEMENTAL APPLICATIONS FOR ALLOWANCE FILED BY EXAMINER’S COUNSEL

A. Jay Cristol, Judge, United States Bankruptcy Court

THESE CASES initially were filed under Chapter 11 of the Bankruptcy Code. During the Chapter 11 phase, this Court ordered the appointment of an examiner, and the United States Trustee appointed Jeffrey R. Truitt (the “Examiner”). The Examiner employed the law firms Stut-man, Treister & Glatt, P.C. (“Stutman Treister”), and GrayRobinson, P.A. (“GrayRobinson,” and, together with Stut-man Treister, the “Examiner’s Professionals”) to serve as his counsel in the Chapter 11 cases. The Examiner and the Examiner’s Professionals received compensation for their services in connection with the Examiner’s responsibilities in the Chapter 11 case. After the Court converted these cases to Chapter 7, the Examiner and the Examiner’s Professionals filed final applications for compensation and expense reimbursement [ECF Nos. 2569, 2571, and 2573] for the services they performed during the Chapter 11 phase. This Court approved the final applications, and the Trustee paid the Examiner and the Examiner’s Professionals the last and final installment for their Chapter 11 services.

[898]*898The services of an examiner and his or her professionals terminate upon conversion to Chapter 7. In these cases, the services for which the Examiner was appointed did in fact end at conversion. During the course of the cases, however, a lien-priority dispute emerged between the Debtors’ financial lenders (the “Term Lenders”) and the contractors, suppliers, and materialmen who provided goods and services to the Fontainebleau project in Las Vegas and asserted mechanic’s lien claims (the “Statutory Lienholders”). The Statutory Lienholders objected to the Debtors’ use of cash collateral under § 363 of the Bankruptcy Code and subsequent financing under § 364. The Statutory Lienholders appealed from this Court’s orders authorizing use of cash collateral and postpetition financing. In an order entered after the conversion of the cases to Chapter 7, the District Court reversed this Court’s orders and directed this Court to order disgorgement of professional fees until a determination could be made as to the relative priorities of the liens of the Term Lenders and the Statutory Lienhold-ers [Case No. 09-23683-CIV-ALTONA-GA, ECF No. 156], In the face of that directive, the Term Lenders and numerous professionals, including the Examiner, through the Examiner’s Professionals, filed appeals to the Eleventh Circuit Court of Appeals from the District Court’s order. The issues in those appeals were ultimately resolved by an agreement among all the parties [ECF No. 4129-1] (the “Comprehensive Settlement Agreement”), which was approved by this Court [ECF No. 4185].

Athough the Examiner’s Professionals now have been paid in full for their services as counsel to the Examiner, the firms logged additional postconversion services in prosecuting appeals through the Eleventh Circuit Court of Appeals. The fees incurred in prosecuting the Examiner’s appeal to the Eleventh Circuit are the subject of the instant applications before the Court seeking allowance of fees and expenses.

The issue before the Court is whether the Bankruptcy Code provides a statutory basis for the allowance of fees to an examiner’s lawyer for work done after the cases converted to Chapter 7 and the examiner’s services terminated. In addition, if those services are not compensable under the provisions of § 330, are those same amounts allowable as administrative expenses under § 503? As explained herein, under the circumstances of these cases, the Court can find no statutory basis for allowance of postconversion fees and expenses to the Examiner’s Professionals. Further, although the services performed after the conversion to Chapter 7 may have been well advised to protect the fees of the Examiner’s Professionals and other Chapter 11 professionals in these cases, those services did not provide the necessary benefit to the estate to support allowance as an administrative expense.

I. Background 1

A. Examiner’s Appointment and Activities

On June 9, 2009, certain of the Debtors filed voluntary petitions for relief, and on November 25, 2009, others of the Debtors filed voluntary petitions, all under Chapter 11 of the Bankruptcy Code. On October 14, 2009, while these cases were pending under Chapter 11, the Court ordered the appointment of an examiner (the “Examiner Appointment Order”) [ECF No. [899]*899770]. The Examiner’s duties, as set forth in the Examiner Appointment Order, related to the sale process and procedures. [See ECF No. 770, ¶¶ 1-3.] However, on November 6, 2009, during the Chapter 11 phase, the Court modified the Examiner’s appointment to also include the defense of appeals of the Examiner Appointment Order. [ECF No. 932]. No further modifications to his appointment were made.

In addition to the scope of the Examiner’s services, the Examiner Appointment Order addressed the source of his compensation, providing that “[t]he Examiner, Examiner’s expenses and the expense of the Examiner’s professionals shall be a first priority and either way will be superi- or to the disputed liens and mortgage claims on the Debtors’ property” [ECF No. 770, ¶ 8]. The Examiner’s Professionals were employed to represent the Examiner in fulfillment of his duties under the Employment Order, nunc pro tunc to October 16, 2009 [ECF Nos. 931, 1353]. The Statutory Lienholders appealed from the Examiner’s Appointment Order and certain cash collateral and debtor-in-possession financing orders to the District Court, claiming their liens were senior to the interest of estate professionals, including the Examiner and the Examiner’s professionals. The orders appealed from authorized use of funds against which the Statutory Lienholders claimed a senior lien to, among other things, pay administrative expenses including professional fees of the Examiner and the Examiner’s Professionals. Notwithstanding the appeal, the Examiner’s Professionals received payment for their fees incurred.

The Court approved the sale of the Fon-tainebleau Las Vegas project on January 29, 2010 [ECF No. 1671] and the sale closed on February 18, 2010 [ECF No. 1746], No appeal of the sale order was filed. On April 12, 2010 (the “Conversion Date”), the Court converted the Debtors’ cases from Chapter 11 to Chapter 7 [ECF No. 1944]. Soneet R. Kapila was appointed as the Chapter 7 trustee (the “Trustee”)’ [ECF No. 1973]. The Examiner was not reappointed following the Conversion Date; and, the Examiner’s Professionals were not retained by the Trustee as estate professionals following the Conversion Date.

On July 14, 2010, several months after the Conversion Date, the District Court on appeal remanded these cases. In its mandate, the District Court directed the Bankruptcy Court to recover funds that had been distributed—in effect ordering disgorgement of funds received—and to determine the priority of liens asserted by the group of Term Lenders and the Statutory Lienholders. The District Court said, in pertinent part:

At bottom, the financing orders decreased the value of the Statutory Lien-holders’ interests in the Project by the amount of the priming lien granted to Icahn Nevada. Under those orders, funds were disbursed to the Term Lenders, the Examiner, and other professionals.

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Cite This Page — Counsel Stack

Bluebook (online)
574 B.R. 895, Counsel Stack Legal Research, https://law.counselstack.com/opinion/in-re-fontainebleau-las-vegas-holdings-llc-flsb-2017.