Anctil Plumbing & Mechanical Contractors, Inc. and Robert Anctil

1
UNITED STATES BANKRUPTCY COURT
DISTRICT OF MASSACHUSETTS
EASTERN DIVISION
_________________________________________
IN RE
ANCTIL PLUMBING & MECHANICAL Chapter 7
CONTRACTORS, INC., Case No. 05-17495-WCH
DEBTOR
_________________________________________
IN RE
ANCTIL LEASING, LLP, Chapter 7
DEBTOR Case No. 05-21832-WCH
_________________________________________
IN RE
ROBERT ANCTIL, Chapter 7
DEBTOR Case No. 05-21817-WCH
_________________________________________
MEMORANDUM OF DECISION
I. INTRODUCTION
The matter now before the Court is the Response of Gordon N. Schultz to [the] March 10,
2009 Order to Show Cause (the “Response”) filed by Gordon N. Schultz (“Schultz”), the Chapter
7 Trustee’s Reply to the Response (the “Trustee’s Reply”) filed by Donald R. Lassman (the
“Trustee”), the Chapter 7 trustee of the estates of Anctil Plumbing & Mechanical Contractors, Inc.
(the “Corporation”), Anctil Leasing, LLP (“Leasing”), and Robert Anctil (“Anctil”) (collectively,
the “Debtors”), Schultz’s Limited Motion for Reconsideration of Order on Fee Application (the
“Motion for Reconsideration”), and the Trustee’s Response to the Motion for Reconsideration (the
“Trustee’s Response). On March 10, 2009, in light of the Memorandum of Decision issued in this
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Docket No. 395.1
2
case on that same date, the Court ordered Gordon Schultz (“Schultz”) to show cause “why the Court
should not impose sanctions pursuant to Fed. R. Bankr. P. 9011(c) against him for the advancement
of claims, defenses, and other legal contentions not warranted by existing law and previously ruled
upon by this Court in a related adversary proceeding.” On March 20, 2009, Schultz filed the1
Response to the order to show cause (the “OSC”), as well as the Motion for Reconsideration,
asserting sanctions are not appropriate because I erroneously denied his fees for preparing a fee
application post-conversion. For the reasons set forth below, I will deny reconsideration and impose
sanctions against Schultz in the amount of $10,000, payable to the Clerk of the Bankruptcy Court.
II. BACKGROUND
By way of background, the Corporation filed a voluntary Chapter 11 petition on August 19,
2005, and Leasing filed its Chapter 11 case on October 11, 2005. On November 8, 2005, the two
cases were substantively consolidated. Anctil’s individual case was filed under Chapter 7 on
October 13, 2005. In January, 2006, Anctil moved to convert his case to Chapter 11 and jointly
administer it with the consolidated case. The motion was granted on January 20, 2006. On March
20, 2008, the consolidated case, as well as Anctil’s jointly administered case, was converted to
Chapter 7 upon an uncontested motion filed by the United States Trustee.
Schultz filed each case on behalf of the Debtors. He was subsequently employed as counsel
for the Corporation on September 19, 2005, and as counsel to Anctil on April 4, 2006. On February
19, 2008, four days after the United States Trustee filed an Amended Motion to Convert, the
Corporation paid Schultz $2,500 by a check drawn from the Corporation’s debtor-in-possession
account (the “Chapter 7 Retainer”). Schultz subsequently filed two statements disclosing that the
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See Lassman v. Schultz, Adv. P. No. 08-1131.2
Lamie v. United States Trustee, 540 U.S. 526 (2004).3
Morse v. Ropes & Gray (In re CK Liquidation Corp.), 343 B.R. 376 (D. Mass. 2006).4
3
Corporation paid $2,500 to Schultz as a “flat fee retainer” and that Anctil agreed to a fee of $2,500,
of which nothing was paid. On May 21, 2008, the Trustee filed an adversary proceeding seeking
turnover under 11 U.S.C. § 542 or recovery of the Chapter 7 Retainer as an unauthorized
post-petition transfer under 11 U.S.C. §§ 549 and 550, asserting that Schultz was not entitled to be
paid from estate funds under 11 U.S.C. § 330(a)(1) because he was not employed by the Trustee.2
He also sought to surcharge the fees and costs of that proceeding against the balance of a pre-petition
petainer paid to Schultz or, in the alternative, to surcharge those amounts against fees to be paid to
Schultz in the principal case.
Schultz moved to dismiss the Trustee’s complaint, arguing that the Chapter 7 Retainer was
appropriately paid under the “flat fee retainer exception” recognized by Lamie v. United States
Trustee and the subsequent decision by Judge Gorton of this district in In re CK Liquidation Corp.3 4
On September 15, 2008, I issued a Memorandum of Decision stating:
[T]he Chapter 7 Retainer was, with a quiet nod to Lamie, denominated as a flat fee
retainer. This, however, is an inadequate invocation of the exception as the Chapter
7 Retainer had been paid not only pre-conversion, but post-filing, and that makes all
of the difference. When the petition is filed, property of the estate comes into being.
Lamie expressly states that 11 U.S.C. Ҥ 330(a)(1) does not authorize compensation
awards to debtors’ attorneys from estate funds unless they are employed as
authorized by § 327.” While perhaps a bit confusing on its face, this statement is
completely consistent with the previously quoted dicta on which Schultz relies. The
Supreme Court’s conclusion that “[s]ection 330(a)(1) does not prevent a debtor from
engaging counsel before a chapter 7 conversion and paying reasonable compensation
in advance to ensure that the filing is in order,” simply does not mean that 11 U.S.C.
§ 330(a)(1) specifically authorizes such a payment from property of the estate.
Rather, it implicitly recognizes that individual debtors may have “property of the
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Lassman v. Schultz (In re Anctil Plumbing & Mech. Contractors, Inc.), 394 B.R. 1, 75
(Bankr. D. Mass. 2008) (footnotes omitted).
See Docket No. 353, Ex. 1-P.6
4
debtor” made up of exempt assets form [sic] which they could pay counsel for legal
services performed in advance of a conversion to Chapter 7 while a bankruptcy case
is pending under another chapter.5
Finding Schultz’s position meritless, I denied the motion to dismiss and entered judgment for the
Trustee. Moreover, I approved Trustee’s request to surcharge his fees in the amount of $4,987.50
against Corporation’s pre-petition retainer.
On November 24, 2008, Schultz filed two fee applications: one with respect to the
Corporation (the “Corporate Fee Application”) and one with respect to Anctil (the “Individual Fee
Application”). As part of the Corporate Fee Application, Schultz sought payment of $8,910 for 48.4
hours spent preparing the Corporate Fee Application between November 9, 2008, and November 24,
2008, over seven months after the case’s conversion to Chapter 7. In the Individual Fee6
Application, Schultz requested fees in the amount $7,075 and reimbursement of expenses of $859
for services rendered during Anctil’s original Chapter 7 before its conversion to Chapter 11.
Additionally, Schultz sought $1,375 for services rendered preparing the Individual Fee Application,
but did not support these fees with any time entries.
The Trustee objected to the fees incurred preparing the Corporate Fee Application on the
basis that they were unreasonable and excessive and that no more than $1,500 was warranted as
compensation for this task. Schultz responded that the additional time spent was reasonable because
the local rules of this district required him to categorize his time entries, but his billing software
would not allow him to do so and required manual re-entry. The Trustee also objected to the fees
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The Trustee also objected to the total fee amount on the basis that it was miscalculated.7
In re Anctil Plumbing & Mech. Contractors, Inc., No. 05-17495-WCH, 2009 WL8
691017 (Bankr. D. Mass. Mar. 10, 2009).
Id. at *5-6.9
5
incurred prior to Anctil’s conversion to Chapter 11, arguing that my decision in Lassman v. Schultz
determined that such fees are precluded under Lamie. Schultz, without citing any authority, asserted
that Lamie was inapplicable because no retainer was involved. Moreover, he contended that the
services rendered were in contemplation of conversion to Chapter 11 and are the type of “pre-filing
services” that are normally compensable in a Chapter 11 case. The Trustee did not object to the fees
incurred preparing the Individual Fee Application, but due to mathematical errors in the fee
application, it is unclear whether the Trustee was aware of the request.7
On March 10, 2009, I issued a Memorandum of Decision (the “Memorandum”) regarding
the fee applications. In the absence of an objection, I approved fees incurred during the Chapter 118
cases, but found that the request for fees incurred during Anctil’s original Chapter 7 case (the “Pre-
Conversion Fees”) was merely a variation of the same issue addressed in Lassman v. Schultz.9
Denying these fees, I stated:
[T]he Supreme Court of the United States held that 11 U.S.C. § 330(a)(1) does not
authorize compensation awards to debtors’ attorneys from estate funds unless they
are employed under 11 U.S.C. § 327.
* * *
First, Lamie’s holding is unequivocal. There is no basis to conclude that the
language of 11 U.S.C. § 330(a)(1), which the Supreme Court found unambiguous,
ceases to apply when debtor’s counsel renders services in contemplation of
conversion. To the contrary, Lamie expressly states that “[u]nless the applicant for
compensation is in one of the named classes of persons in the first part [of 11 U.S.C.
§ 330(a)(1)], the kind of service rendered is irrelevant.” Second, Lamie’s holding
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Id. at *5 (emphasis added) (footnotes omitted).10
Id. at *6.11
Id.12
Id.13
6
is not restricted to retainers or post-conversion services. Again, the language of 11
U.S.C. § 330(a)(1) extends to all Chapter 7 cases, regardless of if, or when, the case
is converted. Third, Schultz’s argument ignores the fact that conversion of a case
from one chapter to another does not affect the petition date so as to render the
conversion a new filing. Although pre-conversion services in many cases may be
analogous to those performed pre-petition in contemplation of a new filing, the
former are subject to the rules and restrictions imposed by an already pending
bankruptcy case.10
I similarly denied Schultz’s fees incurred preparing the Corporate Fee Application (the “Post-
Conversion Fees”) because the services were rendered after the Debtors’ conversion to Chapter 7.11
Citing In re CK Liquidation Corp., I noted that although the fees related to the Chapter 11 case,
Schultz’s employment, and therefore his entitlement to compensation from the estate, had been
terminated by the conversion to Chapter 7. I also denied Schultz’s fees incurred preparing the12
Individual Fee Application because they were not supported by any time entries as required by the
provisions of Massachusetts Local Bankruptcy Rule (“MLBR”) 2016-1(a)(1)(C).13
On the same date, I ordered Schultz to show cause “why the Court should not impose
sanctions pursuant to Fed. R. Bankr. P. 9011(c) against him for the advancement of claims, defenses,
and other legal contentions not warranted by existing law and previously ruled upon by this Court
in a related adversary proceeding” on the basis that: (1) the Fee Application and Schultz’s defense
of its charges essentially re-asserted the same issues and arguments resolved in Lassman v. Schultz;
(2) those arguments were found frivolous, unsupported by the very authority he cited, and warranted
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Docket No. 395.14
I note that the arguments from the Motion for Reconsideration are included in the15
Response as cause why Schultz should not be sanctioned.
7
the imposition of sanctions in the amount of $4,987.50; (3) Schultz cited no authority supporting his
defense of the fee applications and, in fact, admitted there was no such authority; and (4) Schultz’s
arguments in defense of the fee applications were expressly precluded by Lamie. Schultz filed the14
Response and Motion for Reconsideration on March 20, 2009, and the Trustee filed the Trustee’s15
Reply and Trustee’s Response the following day.
On March 25, 2009, I conducted a hearing on the order to show cause and Motion for
Reconsideration. After hearing arguments from Schultz, the Trustee, and the United States Trustee,
I took the matter under advisement. Both Schultz and the Trustee filed supplemental briefs.
Notably, in his supplemental brief, the Trustee represented that the estates of both the Corporation
and Anctil are administratively insolvent and have been since Schultz filed his fee applications.
III. POSITION OF THE PARTIES
Schultz
In the Response, Schultz argues that he should not be sanctioned for requesting the Pre-
Conversion Fees because he believed that my ruling in Lassman v. Schultz was limited to mean that
he could not be paid for any services relating to the Chapter 7 proceeding because he had not been
employed under 11 U.S.C. § 327 as required by Lamie. In pressing his claim for Pre-Conversion
Fees, Schultz believed that the scope of his Chapter 11 services could include those relating to the
Chapter 11 conversion. After reading the Memorandum, Schultz now understands that this is a
“bright line” test not based upon “the nature of the services rendered,” but simply a temporal
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Docket No. 418 at ¶ 3.16
In re CK Liquidation Corp., 343 B.R. at 379.17
Docket No. 418 at ¶¶ 7-8.18
8
analysis. He further notes that the issue in Lassman v. Schultz was not framed in this context
because the services there related to the Chapter 7 proceeding. Schultz requests my indulgence with
respect to this mistake because he has already lost approximately $7,000 in addition to the prior
sanction of nearly $5,000.
With respect to the Post-Conversion Fees, Schultz seeks reconsideration asserting that my
ruling is unfair and that the principles of Lamie and the ruling in In re CK Liquidation Corp. should
not preclude him from being awarded a reasonable fee for preparing the Corporate Fee Application
simply because it was done after the case was converted to one under Chapter 7. In support of this
contention, Schultz first notes that Judge Gorton “included a significant comment about the
‘uncertainty’ of arguing such a position under Lamie,” by observing that the United States Trustee16
“expressed uncertainty as to whether [the expenses incurred preparing the Final Application were]
disputable under Lamie or for some other reason.” Second, he asserts that Judge Gorton denied17
the fee application for all post-conversion services without articulating a separate position on the
appropriateness of doing so with respect to the fee application issue. Third, Schultz contends Judge
Gorton did not consider that the time spent preparing a fee application is not a legal service rendered
to the Debtor, but a necessary undertaking mandated by the Bankruptcy Code and rules. He submits
that while Lamie states that “‘the kind of services rendered’ should be ‘irrelevant,’” this statement
must be examined in the context of the types of services that were at issue before the Supreme Court
of the United States. As such, Schultz contends that Lamie’s holding only states that there will be18
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In re Johnson, 397 B.R. 486 (Bankr. E.D. Cal. 2008).19
Braswell Motor Freight Lines, Inc. v. Crutcher (In re Braswell Motor Freight Lines,20
Inc.), 630 F.2d 348 (5th Cir. 1980).
In re Nucorp Energy, Inc., 764 F.2d 655 (9th Cir. 1985).21
9
no distinction between legal services performed for a Debtor.
Schultz relies on In re Johnson, a bankruptcy court decision from the Eastern District of19
California, for the proposition that courts have adopted the position that Lamie does not preclude a
fee award for a fee application prepared post-conversion. In that case, debtor’s counsel sought, and
the United States Trustee expressly did not oppose, fees incurred preparing a fee application after
the appointment of the Chapter 11 trustee. While the Johnson court resolved the issue by allowing
the Chapter 11 trustee to employ debtor’s counsel for a transitional period under 11 U.S.C. § 327(e),
Schultz represented that he contacted the debtor’s counsel and the United States Trustee and both
viewed Lamie as inapplicable to the issue of fees incurred preparing a fee application.
Ultimately, Schultz strenuously argues that adopting a reading of Lamie that precludes
payment of fees incurred preparing a fee application simply because it was prepared post-conversion
would be entirely inconsistent with the substantial pre-Lamie precedent. He contends that the
preparation of a fee application, as a requirement set forth in the Bankruptcy Code, must be
compensable regardless of when it was prepared. Indeed, relying on In re Braswell Motor Freight
Lines, Inc. and In re Nucorp Energy, Inc., Schultz suggests I abused my discretion by denying him20 21
reasonable compensation for time spent preparing the Corporate Fee Application. Lastly, he notes
that such a result is consistent with the policy behind Lamie, which he understands to be the
elimination of duplicative fees between debtor’s counsel and the Chapter 7 trustee.
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10
The Trustee
The Trustee opposes the Motion for Reconsideration contending that the district court’s
decision in In re CK Liquidation Corp. is directly on point and fully supports the Memorandum. The
Trustee asserts that Judge Gorton expressly considered whether Chapter 11 services rendered, as a
temporal matter, after the conversion date may nonetheless be compensable Chapter 11 services, but
unambiguously rejected the argument. Moreover, the Trustee contends that in denying the request
for post-conversion fees, including those incurred preparing a fee application, Judge Gorton
acknowledged Lamie’s holding places debtor’s counsel in a difficult position by potentially requiring
additional services to be performed after counsel’s employment has been terminated.
During oral arguments, the Trustee indicated that he was unfamiliar with In re Johnson, but
argued that it was inappropriate to cite a position advanced before a different court in another circuit
as authority. In any event, he asserted that In re Johnson is irrelevant because there is case law in
this district precluding such a position. Therefore, the Trustee suggests, Schultz’s reliance on In re
Johnson is, in fact, yet another advancement of a legal contention not warranted by existing law and
barred by my prior rulings.
In sum, the Trustee expresses considerable frustration that the estates have been forced to
litigate and re-litigate the same issues with respect to Schultz’s fees when it was clear from the outset
that any dividend on his administrative expense claim would be minimal. Ultimately, the Trustee
contends that it makes no difference whether I grant the Motion for Reconsideration because the
estates are administratively insolvent and Schultz’s distribution will be zero. Therefore, in the event
that I find sanctions warranted, he requests that I allow sanctions against Schultz in the amount of
$1,150 in favor of Anctil’s estate and $3,575 in favor the Corporate estate, representing the Trustee’s
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See Fed. R. Civ. P. 59(e), made applicable to bankruptcy cases by Fed. R. Bankr. P.22
9023.
Harley-Davidson Motor Co., Inc. v. Bank of New England-Old Colony, N.A., 897 F.3d23
611, 616 (1st Cir. 1990) (citing White v. New Hampshire Dept. of Employment Security, 455 U.S.
445, 451 (1982)).
In re Mortgage Investors Corp., 136 B.R. 592, 597 (Bankr. D. Mass. 1992) (quoting In24
re Grand Builders, Inc., 122 B.R. 673, 675 (Bankr. W.D. Pa.1990) (citations omitted)).
In re Oak Brook Apartments, 126 B.R. 535, 536 (Bankr.S.D.Ohio 1991).25
11
time spent opposing the fee applications and the Motion for Reconsideration.
The United States Trustee
While the United States Trustee did not file a response to either fee application or the Motion
for Reconsideration, counsel appeared at the March 25, 2009 hearing in opposition to the
reconsideration of the Post-Conversion Fees, relying on the United States Trustee’s original brief
filed in Lassman v. Schultz. As such, the United States Trustee similarly asserts that Schultz’s
arguments are barred by Lamie and In re CK Liquidation Corp. The United States Trustee did not
take a position on the appropriateness of sanctions.
IV. DISCUSSION
A. The Motion for Reconsideration
The standard for reconsideration is well established in this district. Under Fed. R. Civ. P.
59(e), I may reconsider a judgment upon the filing of a motion by a party within ten days of the
entry of the judgment. To be clear, “[r]ule 59(e) motions are aimed at reconsideration, not initial22
consideration.” “It is not a vehicle for rehashing arguments previously made or for refuting the23
court's prior ruling.” Nor is it a substitute for an appeal. Instead, “[t]o succeed on a motion to24 25
reconsider, the Court requires that the moving party show newly discovered evidence or a manifest
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In re Wedgestone Fin., 142 B.R. 7, 8 (Bankr. D. Mass. 1992) (citations omitted).26
Lamie, 540 U.S. at 535, 538.27
12
error of fact or law.”26
The main thrust of Schultz’s argument on reconsideration is that Lamie should not be applied
to the question of whether counsel is entitled to a reasonable fee for preparing a fee application post-
conversion because such an extension of the holding is neither fair nor intended. While perhaps
unfair, Lamie’s holding most certainly applies and is unequivocal. To reiterate, I again quote the
relevant passages of Lamie:
A debtor’s attorney not engaged as provided by § 327 is simply not included within
the class of persons eligible for compensation. . . . Unless the applicant for
compensation is in one of the named classes of persons in the first part [of 11 U.S.C.
§ 330(a)(1)], the kind of service rendered is irrelevant.
* * *
Adhering to conventional doctrines of statutory interpretation, we hold that §
330(a)(1) does not authorize compensation awards to debtors' attorneys from estate
funds, unless they are employed as authorized by § 327. If the attorney is to be paid
from estate funds under § 330(a)(1) in a Chapter 7 case, he must be employed by the
trustee and approved by the court.27
I note that the Supreme Court does not state that the kind of service rendered should be irrelevant
as Schultz suggests, but that it is irrelevant.
Schultz advances several flawed theories in an apparent effort to circumvent Lamie’s express
language. First, he attempts to characterize preparation of a fee application as a necessary
undertaking mandated by the Bankruptcy Code and Rules and not a legal service rendered to the
Debtor. Section 330(a)(1)(A) encompasses “actual, necessary services” and does not distinguish
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11 U.S.C. § 330(a)(1)(A).28
“Section 327's limitation on debtors’ incurring debts for professional services without29
the Chapter 7 trustee’s approval is not absurd. In the context of a Chapter 7 liquidation it
advances the trustee’s responsibility for preserving the estate.” Lamie, 540 U.S. at 537.
I further note that neither case involves a conversion to Chapter 7, and only addresses30
the issue of whether counsel is entitled to be compensated to prepare a fee application in a
Chapter 11 (or in the case of In re Braswell Motor Freight Lines, Inc., Chapter XI) case.
Moreover, while a majority of cases agree that debtor’s counsel is entitled to fees incurred
preparing a fee application, see, e.g., In re Bank of New England Corp., 134 B.R. 450 (Bankr. D.
Mass. 1991), this proposition is not universal. See, e.g., In re Rothman, 206 B.R. 99 (Bankr.
E.D. Pa. 1997); In re Junco, Inc., 185 B.R. 215 (Bankr. E.D. Va. 1995).
13
services rendered to the debtor from other services. Moreover, this argument ignores the28
fundamental principle that a pre-requisite to payment under 11 U.S.C. § 330(a)(1)(A) is authorized
employment under 11 U.S.C. § 327. If Schultz means to suggest that preparation of a fee application
is not a “service” as that term is used within 11 U.S.C. § 330(a)(1)(A), there would be no basis to
award compensation at all.
Second, Schultz misapprehends the policy behind Lamie as simply the elimination of
duplicative fees between the Chapter 7 trustee and debtor’s counsel. To the extent that the Supreme
Court recognized a policy behind 11 U.S.C. §§ 327 and 330, it was to limit debtor’s counsel from
incurring fees and diminishing the estate without the Chapter 7 trustee’s approval. Additionally,29
Schultz’s reliance on In re Braswell Motor Freight Lines, Inc. and In re Nucorp Energy, Inc. is
misplaced because both predate the 1994 amendment to 11 U.S.C. § 330 by at least ten years. If30
Lamie is inconsistent with the law as it previously existed, the reason is obvious: Congress changed
the law in 1994.
In a final effort to support the Motion for Reconsideration, Schultz relies on positions
asserted by the United States Trustee in In re Johnson and In re CK Liquidation Corp. An argument
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In re Johnson, 397 B.R. at 493.31
Nearly all written decisions provide at least some statement of the parties’ arguments.32
Accordingly, there is nothing “significant” about Judge Gorton’s acknowledgment of the United
States Trustee’s uncertainty in that case. In any event, Judge Gorton’s holding precludes such
uncertainty in the future.
In re CK Liquidation Corp., 343 B.R. at 385 (emphasis added).33
The Trustee correctly notes that Judge Gorton considered the effect of applying Lamie34
to all fees incurred post-conversion, including those incurred preparing fee applications:
Although the Court acknowledges that its decision may place bankruptcy counsel
in the difficult position of choosing between performing fiduciary obligations to
clients despite the potential for nonpayment and risking professional malpractice
claims, it is bound by the Supreme Court's interpretation of the Bankruptcy Code
that when a bankruptcy court converts an action from Chapter 11 to a Chapter 7
proceeding and appoints a Chapter 7 Trustee,
this [action] terminate[s] [the debtor's] status as
debtor-in-possession and so terminate[s] [counsel's] service under
§ 327 as an attorney for the debtor-in-possession.
Id. at 385 (quoting Lamie, 540 U.S. at 532).
14
advanced by a party in one case, however, is not authority to decide another. Regardless of what the
parties’ subjective understanding was with respect to the law in pressing their case, only the court’s
holding is authoritative. Here, neither holding supports reconsideration of the Post-Conversion Fees.
In In re Johnson, the court approved the transitional employment of the debtor’s counsel under 11
U.S.C. § 327(e), thus mooting any consideration of whether a fee application prepared post-
conversion is a compensable service. In contrast, Judge Gorton in In re CK Liquidation Corp.,31
while noting the United States Trustee’s uncertainty, concluded that Lamie barred compensation32
for “[a]ny services performed after the conversion date.” A separate position with respect to the33
post-conversion fees incurred preparing the fee application was unnecessary because those fees were
necessarily encompassed by the breadth of the holding.34
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Even if cause existed reconsider the Post-Conversion Fees on their merits, they would35
still be denied on other grounds. As stated in Footnote 29 of the Memorandum, Exhibit 1-P is
simply a chart of time spent per day on the Corporate Fee Application and does not identify the
specific tasks performed as required by MLBR 2016-1(a)(1)(C). Additionally, time spent re-
entering his billing invoices into spreadsheets is non-compensable. In re ACT Mfg., Inc., 281
B.R. 468, 485 (Bankr. D. Mass. 2002) (“By now professionals who routinely practice before
bankruptcy courts should be well versed in the requirements for time keeping and should have
tailored both their individual time-keeping practices and their computer billing systems
accordingly. As a result a professional should not have to expend time to “rearrange” time entries
into separate categories or to fix other time-keeping problems such as “lumping” of time or the
supplementation of inadequate entries. The preparation of a fee application should be primarily a
ministerial task.”) Moreover, because Schultz “lumped” the time spent preparing the
spreadsheets with the time spent preparing the Corporate Fee Application by failing to describe
the discrete tasks performed, it is impossible to simply cut the non-compensable portion of the
request. As fee applications are filed at the applicant’s peril, Schultz is not entitled to amend the
Corporate Fee Application to correct these problems. See In re Bank of New England Corp., 134
B.R. at 467-468.
Featherston v. Goldman (In re D.C. Sullivan Co., Inc.), 843 F.2d 596, 598 (1st Cir.36
1988), aff'd in part on rehearing en banc, 878 F.2d 1478 (1989).
15
Not only does the Motion for Reconsideration fail to identify a material error of fact or law,
it asserts, for the third time, an unwarranted entitlement to fees in a Chapter 7 case despite Lamie’s
clear holding and his lack of employment under 11 U.S.C. § 327. As such, I will deny the Motion
for Reconsideration.35
B. The Order to Show Cause
1. The Appropriateness of Sanctions
Fed. R. Bankr. P. 9011 “emphasizes responsible behavior on the part of [attorneys]” and
requires them “to conduct [themselves] in a manner bespeaking reasonable professionalism and
consistent with the orderly functioning of the judicial system.” It provides in relevant part:36
(b) Representations to the court. By presenting to the court (whether by signing,
filing, submitting, or later advocating) a petition, pleading, written motion, or other
paper, an attorney or unrepresented party is certifying that to the best of the person's
knowledge, information, and belief, formed after an inquiry reasonable under the
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Fed. R. Bankr. P. 9011(b)(2).37
See Matter of Excello Press, Inc., 967 F.2d 1109, 1111-1112 (7th Cir. 1992).38
Parker v. Boston Univ. (In re Parker), 334 B.R. 529, 538 (Bankr. D. Mass. 2005)39
(quoting In re D.C. Sullivan Co., Inc., 843 F.2d at 599).
Sylver v. Sec. Pac. Servs. (In re Sylver), 214 B.R. 422, 428 (B.A.P. 1st Cir. 1997)40
(quoting Cruz v. Savage, 896 F.2d 626, 631 (1st Cir. 1990)).
16
circumstances,--
* * *
(2) the claims, defenses, and other legal contentions therein are
warranted by existing law or by a nonfrivolous argument for the
extension, modification, or reversal of existing law or the
establishment of new law . . .37
Under Fed. R. Bankr. P. 9011, the focus is not whether the claim asserted was frivolous, but whether
the attorney conducted an adequate inquiry into the facts and law before filing the claim. “In38
examining the actions of counsel, the First Circuit has stated that ‘[s]ubjective good faith is not the
issue; generally, Rule 9011 demands that counsel's actions comport with an objective standard of
lawyerly performance.’” Accordingly, “[a] violation of Rule 11 . . . might be caused by39
inexperience, incompetence, willfulness, or deliberate choice.”40
On three occasions, Schultz advanced arguments regarding an entitlement to fees from the
estate in a Chapter 7 case despite a lack of authorized employment under 11 U.S.C. § 327, as
required under Lamie. Each time, I rejected his arguments by quoting the very cases upon which he
relied. By citing a case, an attorney is presumed to have read it in its entirety. Under an objective
standard, any attorney reading Lamie would reasonably understand that employment under 11 U.S.C.
§ 327 is a pre-requisite to compensation under 11 U.S.C. § 330(a)(1), regardless of the kind of
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While the notice provisions of Fed. R. Bankr. P. 9011 preclude the imposition of41
sanctions based upon the Motion for Reconsideration at this time, I may consider the substantive
arguments in support of reconsideration included in the Response to determine the
appropriateness and amount of sanctions.
To be clear, Schultz’s arguments cannot be construed as “a nonfrivolous argument for42
the extension, modification, or reversal of existing law or the establishment of new law” for
several reasons. Fed. R. Bankr. P. 9011(b)(2). First, the arguments, as discussed in the
Memorandum and above, are in fact frivolous. Second, in order to state a claim for the
modification or reversal of existing law, one must first acknowledge the state of the law as it
currently stands. See White v. Burdick (In re CK Liquidation Corp.), 321 B.R. 355, 364-365
(B.A.P. 1st Cir. 2005). His persistent contention that Lamie is inapplicable precludes such a
finding.
17
service rendered. Given the plain, unequivocal language used by the Supreme Court in Lamie, such
a conclusion is inescapable.
Schultz’s explanation that he innocently misunderstood the scope of Lamie is unreasonable
under the circumstances and undercut by his concurrent request for reconsideration. Despite41
Trustee’s objection, which quoted the relevant passage of Lamie and put him on notice of his error,
Schultz nonetheless pursued the Pre-Conversion Fees without citing supporting authority and
conceding none existed. Instead, without addressing the text emphasized by Lassman v. Schultz and
the Trustee, he merely stated that Lamie was inapposite because he sought to establish an
administrative claim without involving a retainer. The problem is apparent: Lamie involved only
a fee application for post-conversion services and not a retainer. In further aggravation, the
Response continued the same practice of citing and quoting portions of cases out of context,
misrepresenting the holdings of cases, and arguing against the applicability of controlling authority
without any legal basis. Because these problems were identified in Lassman v. Schultz, the42
Memorandum, and the OSC, and Schultz still frivolously seeks reconsideration, I must conclude that
he is proceeding with a deliberate indifference to the law. This present situation is analogous to that
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In re Willis Furniture Co., Inc., 148 B.R. 691 (Bankr. D. Mass. 1992).43
Id. at 694.44
Business Guides, Inc. v. Chromatic Commc’ns. Ent., Inc., 498 U.S. 533, 543 (1991).45
Figueroa-Ruiz v. Alegria, 905 F.2d 545, 548 (1st Cir. 1990).46
Fed. R. Bankr. P. 9011(c)(2).47
Id.48
18
in In re Willis Furniture Co., Inc., where I found debtor’s counsel violated Fed. R. Bankr. P. 901143
by filing a “fourth or fifth generation motion for reconsideration of a prior order which flies in the
face of the precise wording of the Court of Appeals decision.” Therefore, under the totality of the44
circumstances, I find that Schultz’s actions fall far below the standard imposed by Fed. R. Bankr.
P. 9011.
2. The Imposition of Sanctions
Once a violation of Fed. R. Bankr. P. 9011 is found, the imposition of sanctions is
mandatory. Nonetheless, courts have the “discretion to tailor sanctions to the particular facts of45
the case . . . .” All that is required by Fed. R. Bankr. P. 9011 is that the “sanction imposed for46
violation[s] of this rule shall be limited to what is sufficient to deter repetition of such conduct or
comparable conduct by others similarly situated.” Otherwise, the sanction may consist of47
“directives of a nonmonetary nature, an order to pay a penalty into court, or, if imposed on motion
and warranted for effective deterrence, an order directing payment to the movant of some or all of
the reasonable attorneys' fees and other expenses incurred as a direct result of the violation.”48
Having found his position in Lassman v. Schultz without merit, I previously sanctioned
Schultz (by surcharging the Trustee’s fees against his) in the amount of $4,987.50. Nonetheless,
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See In re Iappini, 192 B.R. 8, 10 (Bankr. D. Mass. 1995) (doubling prior sanction for49
each subsequent instance of similar conduct).
The Trustee’s request for the sanctions to be paid to the Chapter 7 estates included in50
the Trustee’s Reply does not comply with the separate motion requirement of Fed. R. Bankr. P.
9011(c)(1)(A).
These sanctions are separate and distinct from any sanction previously imposed in this51
case.
19
in pursuing his fee applications, he continued to advance similar theories and positions precluded
under the same authority. Then, in the face of the OSC, Schultz responded by seeking
reconsideration of my prior order on equally frivolous grounds. Due to his persistence in this matter,
I find that the imposition of additional monetary sanctions in the amount of $10,000 is necessary to
deter future repetition of such conduct. As these sanctions are imposed on the Court’s own49
initiative, they shall be paid to the Clerk of the bankruptcy court.50
V. CONCLUSION
In light of the foregoing, I will enter an order denying the Motion for Reconsideration and
imposing sanctions in the amount of $10,000 payable to the Clerk of the Bankruptcy Court against
Schultz.51
_______________________________
William C. Hillman
United States Bankruptcy Judge
Dated: April 28, 2009
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