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United States v. Seiller Waterman, LLC

United States District Court, S.D. Indiana, New Albany Division

September 26, 2018

IN RE SAINT CATHERINE HOSPITAL OF INDIANA, LLC UNITED STATES OF AMERICA, Appellant,
v.
SEILLER WATERMAN LLC, Appellee.

          ENTRY ON APPEAL FROM THE UNITED STATES BANKRUPTCY COURT

          TANYA WALTON PRATT, JUDGE

         This matter is before the Court on an appeal by the United States of America from a decision of the Bankruptcy Court of the Southern District of Indiana, New Albany Division issued on September 13, 2017, denying its request for an order requiring Seiller Waterman LLC to disgorge attorneys' fees. For the reasons detailed below, the Bankruptcy Court's decision is AFFIRMED.

         I. PROCEDURAL BACKGROUND

         Appellee Seiller Waterman LLC (“Seiller”), a law firm, represented Saint Catherine Hospital of Indiana, LLC (the “Hospital”) and filed a Chapter 11 bankruptcy petition on behalf of the Hospital on June 19, 2012. Seiller's employment was approved by the Bankruptcy Court, and the firm represented the Hospital throughout the time it operated as a debtor-in-possession (“DIP”). Approximately two years later, in June 2014, the United States (on behalf of the Internal Revenue Service) (“IRS”) and the United States Trustee moved the Bankruptcy Court to dismiss the proceedings or to convert the case to a liquidation; the Bankruptcy Court took no immediate action on the motions. In November 2014, after a mediation, Seiller moved the Bankruptcy Court to appoint a Chapter 11 trustee to liquidate the Hospital's assets, settle claims, and distribute the proceeds under the court's supervision. The Bankruptcy Court appointed a trustee (the “Trustee”), who retained counsel, and Seiller's legal work on behalf of the Hospital ended.

         While Seiller represented the Hospital as DIP, it received a total of $135, 572.22 in attorneys' fees and expenses for legal work between 2012 and March 31, 2014, pursuant to two interim fee applications approved by the Bankruptcy Court. After Seiller's work for the Hospital had ceased because a Trustee (who was represented by his own counsel) had been appointed to manage the bankruptcy estate, Seiller filed a third interim fee application on January 12, 2015, seeking approval of a fee of $114, 474.65 and expenses of $10, 000.08 for the remainder of all of the work it had performed, between April 1, 2014 through December 31, 2014. The Trustee filed a “Limited Objection” to the fee application on February 3, 2015, to reserve his rights because he had not been able to discuss his questions and concerns with Seiller “due to more pressing demands in the case.” The Trustee stated that if his questions were not resolved, he intended to file a more complete objection once a then-anticipated sale of assets was complete. No. other creditors filed an objection to the third fee application.

         On July 10, 2015, the Trustee and Seiller filed with the Bankruptcy Court an Agreed Entry resolving the Trustee's limited objection to Seiller's third application. The Agreed Entry provided, in pertinent part, that (1) Seiller's fees and expenses were allowed but Seiller would not be paid anything of value from the Trustee, the Debtor, or the Debtor's estate for any fees claimed in the third application and (2) the Trustee and the Debtor's estate, “directly and indirectly and derivatively on behalf of the Debtor, ” released and forever discharged Seiller from any claims or demands of any kind, whether known or unknown, related in any way to the bankruptcy proceedings. The Bankruptcy Court approved the Agreed Entry on July 14, 2015, and ordered, consistent with it:

1. IT IS HEREBY ORDERED that the Agreed Entry is GRANTED on the terms specified below.
2. Seiller's claimed fees and expenses in the [third] Application are allowed in their entirety; provided, however, that Seiller shall not be paid or receive any item of value from the Trustee, the Debtor, or the Debtor's estate on account of the fees and expenses claimed in the [third] Application.
3. The Trustee and the Estate both directly and indirectly and derivatively on behalf of the Debtor, and all entities related thereto releases, acquits and forever discharges Seiller, and each of its respective owners, officers, directors, employees, servants, agents, representatives, attorneys, professionals, successors and assigns, from and against any and all claims, demands, causes of actions, or liabilities, of any kind and nature whatsoever, in law or in equity, whether known or unknown, currently existing or which may arise in the future, arising out of, resulting from, based upon, or related in any way to this chapter 11 case.

         Thus, for the totality of its legal work as counsel to the Hospital as DIP, performed from 2012 through December 31, 2014, Seiller was awarded and paid a total of $135, 572.22 (consisting of $132, 557.00 in fees and $3, 015.22 for expenses). In other words, Seiller and the Trustee resolved the Trustee's objections by agreeing that Seiller would be paid only what it had been paid pursuant to its first and second interim fee applications and would not be paid anything pursuant to its third application, and Seiller would receive the release described in the order.

         On September 19, 2016, approximately two years after the Trustee was appointed, the Trustee filed a Motion to Disburse Funds and for Orderly Dismissal of Case. He reported that there were not sufficient funds to pay administrative claimants in full and that an orderly dismissal of the case was preferable to a conversion to Chapter 7 because the costs of administration by a Chapter 7 trustee would outweigh any potential value from such trustee's services. At that time, the allowed and not-yet-disallowed administrative claims totaled about $4.2 million, and the Trustee held only about $1 million. The administrative claims include a claim by the IRS for unpaid employee trust fund taxes of about $2.6 million, claims for the Trustee's fees, and claims for attorneys' fees by Seiller, by the Trustee's counsel, and by counsel for the unsecured creditors' committee. In other words, the IRS and Seiller are both administrative claimants.

         Dismissal has not yet occurred because of the subject appeal from the Bankruptcy Court's denial of the Trustee's and the United States' joint motion seeking an order requiring Seiller to disgorge a portion of the fees it has been paid. The joint motion was filed on May 4, 2017, and sought disgorgement in the approximate amount of $60, 000.00. The Bankruptcy Court's denial of the motion was entered on September 13, 2017, and only the United States has appealed the Bankruptcy Court's order. The Trustee did not appeal.

         II. JURISDICTION

         Under 28 U.S.C. § 158(a)(1), district courts have jurisdiction over appeals from “final judgments, orders, and decrees” issued by bankruptcy judges. Finality in the bankruptcy context does not require, like most federal civil litigation, that the entire case be disposed of before an appeal is permissible. Germeraad v. Powers, 826 F.3d 962, 965 (7th Cir. 2016); In re Morse Elec. Co.,805 F.2d 262, 264 (7th Cir. 1986). To assess finality, a district court determines if the bankruptcy court's decision “finally disposed of” or “conclusively determined” a discrete dispute within the case, such as a dispute over ...


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