In re Maust Transp., Inc.

589 B.R. 887
CourtUnited States Bankruptcy Court, W.D. Washington
DecidedApril 3, 2018
DocketCase No. 14-40595
StatusPublished
Cited by2 cases

This text of 589 B.R. 887 (In re Maust Transp., Inc.) is published on Counsel Stack Legal Research, covering United States Bankruptcy Court, W.D. Washington primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
In re Maust Transp., Inc., 589 B.R. 887 (Wash. 2018).

Opinion

Mary Jo Heston, U.S. Bankruptcy Judge

This matter is before the Court on the Application for Allowance of Administrative Expense - Substantial Contribution Claim of Attorneys for J D Logistics ("Application"), filed by J D Logistics, Inc. ("JDL"). The Chapter 7 Trustee ("Trustee") filed the only response to the Application. After considering the pleadings, evidence, and arguments presented, the Court's findings of fact and conclusions of law are as follows.

BACKGROUND

The underlying facts are not in dispute. This Chapter 7 case was commenced as an involuntary proceeding on February 7, 2014. JDL was one of the petitioning creditors. At that time, the Debtor and an affiliate, Maust Transportation Services, LLC ("MTS"), were in state court receivership proceedings. According to JDL, the purpose of the receiverships was to pay *891the allegedly secured debt owed to Columbia State Bank ("Columbia Bank"). On May 6, 2014, the Court entered a Stipulated Order for Relief under Chapter 7 and Judgment Granting Involuntary Petition.

At the time of the involuntary petition, JDL was represented by Nagler Law Group, P.S. ("Nagler"), who served as counsel of record, and Sheppard, Mullin, Richter & Hampton LLP ("SMRH"), who evaluated and researched the grounds for filing the involuntary proceeding. On April 3, 2014, Donald A. Bailey and the firm of Shafer & Bailey LLP ("Bailey") filed a Notice of Appearance and substituted for Nagler as counsel for JDL and the other petitioning creditors on April 8, 2014.

Prior to filing the involuntary petition, JDL believed, based on the advice of SMRH, that a case could be made to avoid Columbia Bank's security interest in the Debtor's assets on a fraudulent transfer theory and to recover the assets taken from the Debtor by other related entities. After the filing, Bailey conducted Rule 20041 examinations to determine the financial condition of the Debtor and discover potential causes of action that the estate might have. SMRH performed the bulk of the financial and legal analysis. In early 2015, Bailey and SMRH met with the Trustee, Debtor's counsel, and Columbia Bank and its counsel to lay out the case for a fraudulent transfer claim against Columbia Bank and pursue a negotiated resolution. The parties were unable to reach a settlement.

The Trustee represents that he was hesitant to pursue the fraudulent transfer claim because of the substantial legal expense and risk that the estate would not prevail and recover on the claim. Such concerns also extended to obtaining and reviewing key records held by Columbia Bank. Bailey, on behalf of JDL, agreed to advance the cost for copying and scanning the Columbia Bank records necessary to establish a claim, and the Trustee indicated he would support an application for an administrative cost of this expense, which totaled $6,748.01. The Trustee also determined that the best option to pursue the fraudulent transfer claim was to employ a firm willing to undertake the litigation on a contingency fee basis. Despite the Trustee's efforts, he was not successful in finding a firm willing to take on the claim on a contingency. Bailey assisted the Trustee in locating a firm, Williams, Kastner & Gibbs PLLC, which was appointed to represent the Trustee in the adversary proceeding commenced against Columbia Bank and what are collectively referred to as the "Cold Locker Entities" on May 5, 2016, Adv. No. 16-04059. The Order Approving Employment of Special Counsel was entered on July 21, 2016. On September 27, 2017, the Court approved a compromise of the adversary proceeding for $200,000. The settlement amount was subject to a one-third contingency fee plus costs, for a total of $69,169.43, resulting in net funds to the estate of $130,830.57 as well as the elimination of Columbia Bank's deficiency claim in the approximate amount of $2,984,159.33.

According to the Trustee, the bankruptcy estate currently holds the total sum of $183,218.01. These funds were received from the fraudulent claim settlement, which is the basis for a portion of the JDL administrative claim requests ($130,830.57), the Primal Pets accounts receivable ($40,000), and the compromise and sale of equipment to JDL ($15,000).2 There *892are no other assets to be liquidated. The Trustee also represents that statutory trustee fees are approximately $18,000, estimated costs are approximately $950, and the court appointed CPA is owed approximately $2,000 for the preparation of tax returns. The Internal Revenue Service has filed a priority claim of $111,751.07, and the California Franchise Tax Board has filed a priority claim for $18,081.70. JDL has filed an unsecured claim for $189,577.04, in addition to its request for an administrative expense claim.

On January 9, 2018, JDL filed its Application, seeking an administrative expense claim under 11 U.S.C. § 503(b) in the total amount of $111,857.50, for costs and fees incurred to: 1) institute the involuntary proceeding ($32,596.50) pursuant to § 503(b)(3)(A) and (b)(4) ; and 2) preserve, pursue, and investigate the fraudulent transfer claim that resulted in recovery for the estate ($79,261.01) pursuant to § 503(b)(3)(D) and (b)(4). The Trustee filed a response, agreeing to an administrative expense claim for the copying costs of $6,748.01, but questioning whether the requested costs and fees are permitted under § 503(b)(3) and whether the administrative claim amounts sought are reasonable. Specifically, the Trustee questioned whether some of the time expended by JDL's legal counsel in connection with the fraudulent transfer claim was duplicative of the efforts of the Trustee and Trustee's legal counsel.

At the hearing on February 27, 2018, the Court questioned whether all of the fees and costs requested by JDL are allowable as administrative expenses. First, recognizing JDL's burden to establish an administrative expense claim, the Court requested that JDL address disputed billing entries through a declaration to be filed by March 13, 2018, or alternatively through an evidentiary hearing focusing on those entries related to obtaining legal counsel for the estate and briefing such counsel to induce them to accept the appointment under a contingency arrangement. The Court also asked that counsel address the redacted entries related to pursuit of the involuntary petition in camera or otherwise. On March 13, 2018, JDL filed a Supplemental Memorandum in Support of Administrative Expense - Substantial Contribution Claim of J D Logistics ("Supplemental Memorandum"). While JDL voluntarily agreed to reduce its total administrative claim to $55,000, their supplemental submission did not address any particular billing entries included in its Application. The Trustee did not file an additional response, although was given until March 16, 2018, to do so.

ANALYSIS

I. Section 503(b) Generally

The claimant has the burden of proving an administrative expense claim. Microsoft Corp. v. DAK Indus., Inc. (In re DAK Indus., Inc.), 66 F.3d 1091, 1094 (9th Cir. 1995).

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Bluebook (online)
589 B.R. 887, Counsel Stack Legal Research, https://law.counselstack.com/opinion/in-re-maust-transp-inc-wawb-2018.