In re: Yousif H. Halloum

• Court: United States Bankruptcy Appellate Panel for the Ninth Circuit
• Decided: May 19, 2015
• Docket: EC-14-1219-JuKuPa
• Status: Unpublished

Opinion

FILED 1 NOT FOR PUBLICATION MAY 19 2015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

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