Saturday, April 21, 2007

In Re: Van T. Vu (Maryland U.S.D.C.) (Approved for Publication)

Signed April 17, 2007--Memorandum opinion by Judge Deborah K. Chasanow.

This is an appeal by objecting creditors challenging a December 2006 Bankruptcy Court Order Approving Counsel Fees.

Debtor ("Vu") filed a voluntary Chapter 11 in July 2004. As the case progressed, however, it came to light that Vu had participated in a real estate business with her sister, Minh-Vu Hoang ("Hoang"). In June 2006, Vu's primary counsel moved to employ additional counsel ("Regenhardt") when it became clear that the trustee appointed in Hoang's bankruptcy case intended to file a motion for substantive consolidation of Vu's bankruptcy estate into Hoang's bankruptcy estate, which motion was approved by the Bankruptcy Court.

The Hoang trustee filed a motion to substantively consolidate, asserting that many of the assets claimed by Vu as part of her estate were actually titled in the name of other entitities and that Hoang's estate had a superior claim to the ownership of these properties. In August 2006, the U.S. Trustee filed a motion to convert Vu's Chapter 11 to a liquidation proceeding under Chapter 7 based on an assertion that Vu had made unauthorized payments to some of her creditors from her bankruptcy estate.

In October 2006, Vu's counsel applied for payment of their fees for services in connection with Vu's bankruptcy case. Regenhardt's application indicated her services were primarily directed toward defending against the motion for substantive consolidation and the motion to convert to Chapter 7. The creditors argued that Regenhardt's services did not confer a benefit for Vu's bankruptcy estate and that the fees requested were unreasonable. The Bankruptcy Court determined that the services were reasonable and necessary expenses, and that the hours and fees submitted were reasonable.

Upon review, de novo, this Court found Regenhardt's services were of benefit to the estate. Analysis of the benefit to the estate is whether, at the time at which the services were rendered, a reasonable attorney would have believed they would benefit the estate rather than a subsequent consideration of the practical effects actually acheived by an attorney's services. Creditors further argued that Regenhardt failed to exercise billing judgment. The bankruptcy court found that Regenhardt was presented with an unusually challenging litigation schedule and taught deadlines after starting work in the middle of ongoing litigation. In addition, the litigation regarding the motions for substantive consolidation and the conversion to Chapter 7 were difficult and fact-intensive legal issues and this complexity was compounded by complicated facts associated with convoluted financial transactions which had occurred in the case. In light of these factors, this Court affirmed the Bankruptcy Court's order approving counsel fees, finding the amount of time expended was reasonable and necessary, and Regenhardt's substantial qualifications rendered her fee comparable to or lower than comparable professional fees.

The full opinion is available in PDF.

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