2003 #24                Credit Store, Inc. 12-19-03

IN RE THE CREDIT STORE, INC., Bankr. No. 02-40922, Chapter 7

    The matter before the Court is the Supplemental Final Fee Application for Allowance of Compensation and Reimbursement of Expenses, Plus Applicable Sales Tax by Baker & McKenzie, Counsel for the Official Committee of Unsecured Creditors. This is a core proceeding under 28 U.S.C. § 157(b)(2)(A). This letter decision and accompanying order shall constitute the Court’s findings and conclusions under Fed.Rs.Bankr.P. 7052 and 9014. As set forth below, Baker & McKenzie shall be allowed $2,812.50 for compensation and $168.75 for sales tax thereon.

    Summary of facts. The Credit Store, Inc. (“Debtor”) filed a petition for relief under chapter 11 on August 15, 2002. The United States Trustee appointed an Official Committee of Unsecured Creditors (“Committee”) on August 20, 2002. The Committee filed an application to employ Baker & McKenzie as its attorneys on September 17, 2002. The Court granted the Committee’s application on October 1, 2002.

    Debtor’s case was converted to chapter 7 on February 4, 2003. Baker & McKenzie filed its First and Final Application for Compensation and Reimbursement of Expenses by Baker & McKenzie, Counsel for the Official Committee of Unsecured Creditors (“first application”), for services rendered between July 10, 2002 and February 4, 2003, on February 25, 2003. By order entered April 9, 2003, the Court allowed Baker & McKenzie $392,245.50 for compensation, $23,534.73 for sales tax thereon, and $18,710.29 for expenses. Pursuant to the Court’s order, Baker & McKenzie was permitted to file a supplemental fee application.

    Baker & McKenzie filed its Supplemental Final Fee Application for Allowance of Compensation and Reimbursement of Expenses, Plus Applicable Sales Tax by Baker & McKenzie, Counsel for the Official Committee of Unsecured Creditors (“supplemental application”), for services rendered between February 4, 2003 and July 31, 2003, on September 9, 2003. The United States Trustee and Chapter 7 Trustee John S. Lovald (“Trustee Lovald”) filed objections to Baker & McKenzie’s supplemental application on September 11, 2003 and September 26, 2003, respectively.

    The Court wrote counsel on October 10, 2003, inviting briefs on the issue of whether Baker & McKenzie could be compensated for services rendered after the conversion of Debtor’s case to chapter 7. Baker & McKenzie filed its Statement of Baker & McKenzie in Support of its Supplemental Final Fee Application for Allowance of Compensation and Reimbursement of Expenses, Plus Applicable Sales Tax on October 24, 2003. The United States Trustee filed a response thereto on October 31, 2003. Trustee Lovald filed a brief concerning Baker & McKenzie’s supplemental application on November 7, 2003. The matter was taken under advisement.

    Discussion. In a chapter 11 case, the United States Trustee is responsible for appointing a committee of unsecured creditors. 11 U.S.C. § 1102(a)(1). The committee may, with Court approval, employ an attorney to represent it. 11 U.S.C. § 1103(a). The court may award the committee’s attorney “reasonable compensation for actual, necessary services” and “reimbursement for actual, necessary expenses.” 11 U.S.C. § 330(a)(1).

    Upon conversion of the chapter 11 case to chapter 7, any committee of unsecured creditors ceases to exist. Belgravia Paper Company v. BCC Equipment Leasing Corp. (In re Great Northern Paper, Inc.), 299 B.R. 1, 5 (D. Me. 2003); Creditors’ Committee v. Parks Jaggers Aerospace Co. (In re Parks Jaggers Aerospace Co.), 129 B.R. 265, 268 (M.D. Fla. 1991) (“The committee permanently dissolves when the Chapter 11 proceeding is dismissed or converted to a Chapter 7 action.”); In re Freedlander, Inc. The Mortgage People, 103 B.R. 752, 758 (Bankr. E.D. Va. 1989) (“[C]onversion to Chapter 7, and the ensuing termination of the Chapter 11 Order for Relief, results in the dissolution of any committee appointed under 11 U.S.C. 1102"); In re Kel-Wood Timber Products, Co., 88 B.R. 93, 94 (Bankr. E.D. Va. 1988) (same).

    When the committee ceases to exist, the attorney’s right to compensation from the bankruptcy estate likewise ceases to exist. In re Energy Cooperative, Inc. 95 B.R. 961, 964 (Bankr. N.D. Ill. 1989) (A creditors committee’s attorney’s “right to compensation from the estate terminate[s] along with the existence of such Chapter 11 Creditors’ Committee.”); Kel-Wood Timber Products, Co., 88 B.R. at 94 (“[T]he conversion to Chapter 7 . . . prevents any award of attorneys’ fees from the estate for postconversion services.”).

    Baker & McKenzie has not pointed the Court to any contrary authority. Indeed, the only somewhat contrary authority cited by any party is Sable, Makoroff & Gusky, P.C. v. White (In re Lyons Transportation Lines, Inc.), 162 B.R. 460 (Bankr. W.D. Pa. 1994), cited by the United States Trustee in his objection to Baker & McKenzie’s supplemental application. However, as the United States Trustee correctly points out in his objection, that case involved facts and circumstances not present in this case.

    In its statement in support of its supplemental application, Baker & McKenzie argues that participants in a bankruptcy case cannot “simply abandon their client’s interests” upon conversion. However, Baker & McKenzie’s only client in this case was the Committee. As discussed above, upon conversion, the Committee ceased to exist. Thus, Baker & McKenzie no longer had a client whose interests needed to be protected.

    Baker & McKenzie also argues that it should be compensated under the “‘substantial benefit’ standard,” by which it presumably means the provisions of 11 U.S.C. § 503(b)(3)(D) and (4). However, § 503(b)(3)(D) (and by reference § 503(b)(4)) is inapposite in this case, for several reasons. First, Baker & McKenzie’s application was made pursuant to 11 U.S.C. §§ 328 and 330, not § 503(b)(4). Second, by its own terms, § 503(b)(3)(D) specifically excludes committees appointed under § 1102. Third, § 503(b)(3)(D) applies only in chapter 9 and chapter 11 cases. Finally, Baker & McKenzie has made no showing that the Committee has in fact made a substantial contribution in Debtor’s chapter 7 case.

    In this case, the Committee ceased to exist on February 4, 2003. Baker & McKenzie’s right to compensation from the estate ceased to exist on that same date. Therefore, the Court will not allow compensation for the services Baker & McKenzie rendered postconversion, with one exception.

    While other courts are split on the issue, this Court has long held that an attorney “will be allowed reasonable compensation for preparing his fee application and the necessary expenses for filing and serving the application.” In re Brandenburger, 145 B.R. 624, 630 (Bankr. D.S.D. 1992). See also In re Kauer, Bankr. No. 88-30038, slip op. at 10-11 (Bankr. D.S.D. March 27, 1992). This holding is in keeping with 11 U.S.C. § 330(a)(6), which clearly contemplates that a court may compensate an attorney for such services:

Any compensation awarded for the preparation of a fee application shall be based on the level and skill reasonably required to prepare the application[.]

The Court will therefore allow compensation for the following services Baker & McKenzie rendered in preparing its first fee application:

Each of the foregoing services was rendered by Catherine M. Chapple, a paralegal, whose hourly rate is $125.00. Baker & McKenzie’s fee for those services thus amounts to $2,812.50. The applicable sales tax thereon is $168.75.

    Baker & McKenzie would also be entitled to reimbursement of related expenses. However, its itemization of its expenses is insufficiently detailed for the Court to determine which of its expenses are related to the foregoing services and which are related to other services for which Baker & McKenzie cannot be compensated. Thus, the Court will not allow any reimbursement of expenses at this time. In the event Trustee Lovald recovers sufficient assets to pay all administrative expenses, Baker & McKenzie may submit a more detailed itemization that would enable the Court to identify those expenses that directly relate to the services for which compensation has been allowed herein. 

    The Court will enter an appropriate order.