03/06/2008 368 Objection Filed by U.S. Trustee (RE: related document(s)362 Application for Administrative Expenses/Compensation, filed by Trustee Kenneth C. Henry). (Hanrahan, Philip) (Entered: 03/06/2008)
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Doc 368
IN RE:
CASE NO. 07-50935
CHAPTER 11
(Judge Howard)
PRO MOLD, INC.
(Debtor)
OBJECTION OF THE UNITED STATES TRUSTEE TO THE FIRST INTERIM APPLICATION OF STITES & HARBISON, PLLC FOR ALLOWANCE OF PROFESSIONAL FEES AND REIMBURSEMENT OF EXPENSES
Comes Richard F. Clippard, United States Trustee, (“United States Trustee”) by counsel, and objects to the First Interim Application of Stites & Harbison, PLLC, Counsel for Kenneth Henry, Chapter 11 Trustee of the Bankruptcy Estate of Pro Mold, Inc., for Allowance of Professional Fees and Reimbursement of Expenses (the “First Fee Application” or the “FFA”) (Document No. 362). As grounds in support of this Objection the United States Trustee states as follows:
1. This Chapter 11 Case was filed on May 16, 2007.
2. Stites and Harbison, PLLC (“S&H”) filed the First Fee Application on February 19, 2008 for the period October 19, 2007 through January 31, 2008. The FFA seeks fees of $51,993.00 and expenses of $1,168.94. The FFA, provided for a 20-day period within which to file Objections. This Objection is timely filed within the 20-day period.
3. The primary objection of the United States Trustee is, for the reasons set forth below, that any award of compensation to S&H should be subject to an 85% Hold-Back due to the lack of funds currently on hand and the overall status of this Chapter 11 case.
A. S&H represents Kenneth Henry, (“Mr. Henry” or the “Trustee”) the Chapter 11 Trustee for this case. As of the date this Objection is filed, the Trustee has filed Financial Reports for October 2007 (Document No. 313) and November 2007 (Document No. 325). As of the date of the filing of this Objection the Trustee has not filed Financial Reports for December 2007 and January 2008, even though both of these Financial Reports are due and outstanding [1]. The November 30 2007 Financial Report (Document No. 325), the last Financial Report filed as of the date of this Objection, reflects that as of the date of the November 2007 Report, there was only approximately $32,600 dollars on hand in the estate.
B. The Trustee currently has pending his Amended Second Fee Application (Document No. 361), in which the Trustee seeks approximately $80,000. The Trustee has agreed to a 75% Hold-Back [2].
C. As of the date of the filing of this Objection, there has not been a showing made that the Debtor / Trustee has estimated the status of any post-petition taxes which might be outstanding for 2007 and 2008. Additionally, the Debtor / Trustee has not sought authority to employ an accountant to prepare its 2007 and 2008 tax returns [3]. Unless and until such estimates are provided, a very large Hold–Back is necessary, appropriate and warranted.
D. As of the date of the filing of this Objection, the Debtor, via the Trustee, has not paid its U.S. Trustee fees for the fourth quarter of 2007. This fee is estimated to be $3,750.00 [4]. No compensation should be paid to S&H (or any other professional or the Trustee) until the December Financial Report and January Financial Reports are filed and the U.S. Trustee fee for the Fourth Quarter of 2007 has been paid and sufficient “reserves” are established to pay future U.S. Trustee fees.
E. Since the Trustee has not filed the December 2007 or January 2008 Financial Reports, it is unclear if there are any “operational” expenses that are unpaid for which amounts must be reserved.
F. On information and belief, the Trustee may be planning on asking the Court to “close” this case. The United States Trustee may oppose such a request and may instead ask the Court to convert this case to Chapter 7. In the event of such a conversion, the administrative expenses in Chapter 7 will have priority over the administrative expenses in Chapter 11, which would, or could, require S&H, the Trustee and other professionals to “disgorge” fees previously awarded in the Chapter 11 case.
G. Based on the foregoing, until the above questions are adequately addressed, this Court should impose at least an 85% Hold-Back and should not allow any fees to be paid to S&H until the Trustee files all outstanding Monthly Reports and pays the outstanding U.S. Trustee fees in full.
[1] The Trustee has advised various parties that he is not in a position to file one or more of these outstanding Monthly Financial Reports due to a transfer of the records to the asset purchaser. The transfer of various assets does not excuse the Trustee from filing financial reports.
[2] The United States Trustee has filed an Objection (Document No. 367) to the Trustee’s Amended Second Fee Application requesting, among other things, an 85% Hold-Back. This Objection is incorporated herein by reference.
[3] On information and belief the Debtor may still have to file its 2006 and 2007 Federal and State tax returns. Due to the corporate relationship between the Debtor and Plasticon International, Inc., (“Plasticon”), also a debtor before this Court (Case No. 07-50934), Plasticon is responsible for ensuring appropriate tax returns are prepared and filed. However, it is unclear at this time if Pro Mold will have a post-petition or pre-petition tax liability.
[4] This is an estimate only because, as noted above, the Debtor has not filed its Financial Report for December 2008.
4. The FFA does not address various matters set forth in the United States Trustee Guidelines for Reviewing Applications for Compensation and Reimbursement of Expenses Filed Under 11 U.S.C. § 330 (the “Guidelines”). Pursuant to 28 U.S.C. §586(a)(3)(A), the United States Trustee for the region is required to supervise the administration of Chapter 11 cases including but not limited to “reviewing, in accordance with procedural guidelines adopted by the Executive Office of the United States Trustee (which guidelines shall be applied uniformly by the United States trustee except when circumstances warrant different treatment), applications filed for compensation and reimbursement under section 330 of title 11”. This Section of 28 U.S.C. 586 goes on to provide that the United States Trustee, as part of the supervision process shall file with the Court “comments with respect to such application, and if the United States Trustee considers it to be appropriate, objections to such application.” The FFA fails to address, or inadequately addresses, numerous points raised in the Guidelines, including but not limited to:
A. At least that portion of Section II(A) of the Guidelines, which states information regarding whether the person on whose behalf the applicant is employed has been given the opportunity to review the application and whether that person has approved the request is not included in the FFA.
B. Various portions of Section II(B) of the Guidelines, such as when a plan and disclosure statement are expected to be filed, payment status of US Trustee fees; status of filing of monthly reports and “cash” status is not included in the FFA.
C. While S&H did provide a total for each of the Project Billing as required in Section II(D) of the Guidelines, S&H did not provide invoices of fees and expenses in Project Billing format. Instead, the copies of the invoices are just arranged chronologically by date and not by Project Billing. While a brief overall narrative summary and a general summary and background of work performed are provided, the summary does not contain various disclosures required by Section II(D)(3) of the Guidelines.
D. The shortcomings listed above are only examples of matters that need correction in the FFA prior to its review by the Court, creditors, and parties-in-interest. The matters noted above are not necessarily an all-inclusive list of shortcomings with regard to compliance with the Guidelines.
5. Finally, the FFA fails to comply with Local Bankruptcy Rule 2016-1 in that the FFA fails to “have attached a copy of the order of retention or authorization”.
6. The Court should therefore defer ruling on the First Fee Application until the above matters have been corrected. Additionally, until more “clarity” has been achieved regarding the competing demands for the limited Estate assets as discussed in more detail in Section 3 above, the Court should require that an 85% Hold-Back be put in place for all fees awarded to S&H. The United States Trustee reserves the file a subsequent objection after S&H addresses the issues set forth above.
WHEREFORE, for the reasons set forth above the United States Trustee requests this Court to enter an Order:
1. Overruling the First Fee Application without prejudice to allow S&H to file an additional or supplemented First Fee Application addressing the issues set forth above,
2. Requiring S&H’s client, the Trustee, to file the Monthly Operating Reports for December 2007, January 2007 and February 2007; requiring the Trustee pay the Fourth Quarter United States Trustee Fees and requiring the Trustee to establish a “reserve” for future United States Trustee Fees prior to any fee payment to S&H,
3. Requiring that any Fee Order be subject to an 85% Hold-Back, and
4. Granting such other and further relief as is just, proper, necessary, or appropriate.
NOTICE
Please take Notice that the forgoing matter will be heard by the Court on March 13, 2008 at 2:15 p.m. or as soon thereafter as counsel may be heard, in the U.S. Bankruptcy Courtroom B, 3rd Floor, 100 E. Vine Street, Lexington, KY 40507.
Dated this the 6th day of March 2008.
Richard F. Clippard
United States Trustee
By Counsel
/s/ Philip L. Hanrahan
Philip L. Hanrahan
Trial Attorney
100 East Vine St., Suite 500
Lexington, KY 40507
(859) 233-2822
CERTIFICATE OF SERVICE
This is to certify that a copy of the foregoing was served on March 6, 2008 electronically via CM/ECF on those parties who receive electronic notice in this case.
/s/ Philip L. Hanrahan
Philip L. Hanrahan |
