[00:00:00] Speaker 03:
to find out what we think before we announce our decision.

[00:00:04] Speaker 03:
All right, so let's go ahead and I'm quick, please call the first case.

[00:00:09] Speaker 00:
In Ray TBH 19 LLC, David Shimano appearing for appellants.

[00:00:16] Speaker 00:
Carolyn Dye appearing for Appellee Sam Leslie chapter seven trustee and Leah accountancy LLP and Ryan O'Day appearing for Appellee Schulman Bastion Friedman and we LLP.

[00:00:31] Speaker 03:
All right.

[00:00:31] Speaker 03:
Before we turn to Mr. Shimano, let me ask, Ms.

[00:00:34] Speaker 03:
Dai and Mr. O'Day, have you agreed on how to divide up your 15 minutes?

[00:00:39] Speaker 02:
Yes, Your Honor, we have.

[00:00:41] Speaker 02:
Ms.

[00:00:41] Speaker 02:
Dai is going to take the first 10 minutes and I will take the second five minutes, Your Honor.

[00:00:45] Speaker 03:
Okay.

[00:00:46] Speaker 03:
Very good.

[00:00:47] Speaker 03:
Mr. Shimano, you want to reserve some time for rebuttal?

[00:00:50] Speaker 05:
I will aspirationally reserve three minutes, Your Honor.

[00:00:53] Speaker 03:
Three minutes.

[00:00:54] Speaker 03:
All right.

[00:00:54] Speaker 03:
Very good.

[00:00:55] Speaker 03:
Go ahead, please.

[00:00:56] Speaker 05:
Well, good afternoon may please the court.

[00:00:58] Speaker 05:
David Chimano on behalf of the Haar Unsecured Creditors.

[00:01:02] Speaker 05:
This appeal is the culmination of a fundamental disagreement with the trustee concerning the appropriate administration of a Chapter 7 case in which the sole asset is a very valuable asset in which is fully encumbered.

[00:01:18] Speaker 05:
The trustee through its conduct throughout the case and in his argument to the Bankruptcy Court and in several appeals,

[00:01:24] Speaker 05:
has taken the position that it's perfectly appropriate in such cases for the trustee to negotiate a carve-out and then administer the case for the primary benefit of the trustee and his professionals.

[00:01:38] Speaker 05:
And by primary benefit, the trustee and his professionals requested and the court approved fees representing 96% of the 3.75 million carve-outs.

[00:01:51] Speaker 03:
Let me stop you for just a second.

[00:01:52] Speaker 03:
Your client, the one who was the second lien holder, agreed to the carve-out, correct?

[00:01:59] Speaker 05:
We did not.

[00:02:00] Speaker 05:
Yes, we consented to the trustee administering the case in exchange for the carve-out.

[00:02:04] Speaker 05:
That is correct.

[00:02:05] Speaker 03:
You stipulated to it, or that client stipulated to it, I should say.

[00:02:09] Speaker 05:
That's correct.

[00:02:09] Speaker 03:
Okay, go ahead.

[00:02:11] Speaker 05:
And the trustee kind of defends this conceptually by saying in cases like this, the unsecured creditors are out of the money.

[00:02:21] Speaker 05:
They really don't have a pecuniary interest in the case.

[00:02:23] Speaker 05:
They're kind of like the debtor in the typical Chapter 7 case, who really doesn't even have standing to appear on most issues.

[00:02:33] Speaker 05:
And therefore, if the unsecured creditors really have no cause to complain, if the trustee kind of utilizes this case to kind of make up for all the no asset cases that he otherwise has to do, this is his big opportunity, the compensation scheme under the code,

[00:02:49] Speaker 05:
is what it is.

[00:02:49] Speaker 05:
And this is, this is just the game that we all understand has to be played.

[00:02:53] Speaker 05:
We have an unwritten rule deal with the U.S.

[00:02:55] Speaker 05:
trustee.

[00:02:57] Speaker 04:
Ultimately, I mean, you're challenging several fee applications.

[00:03:04] Speaker 04:
The trustees, which is a straight commission, has an extraordinary circumstances.

[00:03:09] Speaker 04:
And then the professionals for reasonable compensation are 330, right?

[00:03:13] Speaker 04:
Correct.

[00:03:14] Speaker 04:
All of that was baked in at the time of the agreement of the carve out though, wasn't it?

[00:03:19] Speaker 05:
Well, you see baked in where I interpret that to mean was when the trustee negotiated the carve out, which happened immediately upon the commencement of the appointment of the trustee was that okay, we have a property, which we know is going to sell within a range.

[00:03:38] Speaker 05:
If that property is sold at that range, what would it generate as a fee?

[00:03:43] Speaker 04:
And the commission.

[00:03:44] Speaker 04:
You should have been able to know exactly at the time of the negotiation, because you knew the amount of the debt.

[00:03:51] Speaker 04:
So you knew that that was going to be some boundary as to what the asset would generate.

[00:03:57] Speaker 04:
And statutorily, the trustee is entitled to commission on secured payments, correct?

[00:04:02] Speaker 04:
That's correct.

[00:04:03] Speaker 04:
It sounds like there's a lot of surprise here.

[00:04:07] Speaker 04:
it had to be known that any sale of that property was going to generate a significant commission by virtue of the asset and the debt that was there.

[00:04:19] Speaker 05:
Your honor, I think you're begging the question.

[00:04:22] Speaker 05:
And the question is, in a case like this, where yes, presumptive, I mean, this court has held in this situation, the trustee is presumptively supposed to abandon the property.

[00:04:36] Speaker 05:
if it elects to proceed and negotiate a carve out that doesn't change its duty to administer the case primarily for the benefit of unsecured creditors.

[00:04:48] Speaker 05:
So the question is, what is reasonable compensation in a case where at its commencement, the state was never gonna realize $63 million available for unsecured creditors.

[00:05:02] Speaker 05:
It was gonna realize the carve out.

[00:05:05] Speaker 05:
And so this is the policy decision that has to be determined by this panel, which was- But you agreed to the carve out, as Judge Farris pointed out.

[00:05:14] Speaker 04:
You agreed.

[00:05:15] Speaker 04:
So really, it's the divvying it up and the dependence upon the administrative costs to get to that point, correct?

[00:05:22] Speaker 04:
Absolutely.

[00:05:22] Speaker 05:
Yeah, we're not disagreeing about there should have been a carve out.

[00:05:28] Speaker 05:
The issue is based upon this panel's prior decisions,

[00:05:32] Speaker 05:
discussing extraordinary circumstance and discussing meaningful distribution, what is a reasonable compensation for a trustee in a case where at the commencement of the Chapter 7 case, we knew that the proceeds to be distributed were going to be the carve-out amount, not the proceeds of the sale itself.

[00:05:56] Speaker 05:
You have to decide this.

[00:05:57] Speaker 03:
This is a policy decision.

[00:05:59] Speaker 03:
And we suggest.

[00:06:01] Speaker 03:
I gotta say, I don't think it's a policy decision.

[00:06:04] Speaker 03:
I think it's a statutory decision.

[00:06:07] Speaker 03:
And as I understand it, your basic argument is that the trustees professionals shouldn't get more than half of the carve out.

[00:06:13] Speaker 03:
I think that's fundamentally what you're saying.

[00:06:16] Speaker 03:
How do you support that in the statute?

[00:06:19] Speaker 05:
Well, I think the way the statute works is that

[00:06:23] Speaker 05:
The compensation always must be reasonable.

[00:06:26] Speaker 05:
That is an absolute standard.

[00:06:28] Speaker 03:
Even with the trustee?

[00:06:29] Speaker 05:
Absolutely, with the trustee.

[00:06:31] Speaker 05:
What is clear from 330 is the trustee is not to be measured by a lodestar.

[00:06:36] Speaker 05:
We absolutely agree with that.

[00:06:38] Speaker 05:
He's entitled to a commission.

[00:06:40] Speaker 05:
The question is, what is the reasonable commission in a case?

[00:06:45] Speaker 05:
This court held in

[00:06:48] Speaker 03:
But doesn't the statute tell us what the commission is?

[00:06:50] Speaker 03:
I mean, the percentage is laid out in the statute.

[00:06:52] Speaker 05:
That's the maximum commission.

[00:06:54] Speaker 05:
That's the maximum commission.

[00:06:56] Speaker 05:
It is not an absolute.

[00:06:58] Speaker 05:
And what this court said... Why wasn't that negotiated at the carve out?

[00:07:03] Speaker 04:
We weren't party to the negotiation, Your Honor.

[00:07:06] Speaker 04:
That's part of the problem.

[00:07:08] Speaker 04:
You were a party to the case with the effectively unsecured debt whose only hope was getting something from this asset, and there was a motion to approve it, to which you stipulated.

[00:07:24] Speaker 04:
You stipulate it to the carve out.

[00:07:26] Speaker 04:
And then as Judge Farris is saying, there's a statutory rubric for the distribution of payments within the seven that goes administrative first.

[00:07:34] Speaker 04:
And that administrative was known within a range or projected within a range by virtue of the asset being sold based upon the commission.

[00:07:43] Speaker 05:
What I disagree with you, Your Honor, is I read KVN to say that when the court considers the propriety of the carve out,

[00:07:55] Speaker 05:
The trustee's fee from that carve out is not an issue when the court approves the carve out.

[00:08:00] Speaker 05:
The trustee's fee is to be determined from the carve out at the conclusion of the case.

[00:08:07] Speaker 05:
That's how I read KVN.

[00:08:08] Speaker 05:
Now, if you want to say that there's a burden on creditors to oppose a carve out unless the carve out spells out and all these issues have to get thrashed out,

[00:08:22] Speaker 05:
at the hearing to approve the carve out, then you'll write a decision that says that.

[00:08:26] Speaker 05:
But that's not what KVN says.

[00:08:28] Speaker 05:
And that's not what the case law following KVN says.

[00:08:30] Speaker 05:
It says you look at this.

[00:08:32] Speaker 04:
You are arguing that the extraordinary circumstances is measured at the end of the case rather than at the carve out, which allowed the administration of the over secured asset.

[00:08:45] Speaker 05:
Every case we cite, we cite you the cases that have dealt with is not a lot of them, but each of those cases say.

[00:08:52] Speaker 05:
You don't thrash out the compensation issue when you're considering the car about you consider that doesn't say you shouldn't approve the court should approve the car about unless there's going to be.

[00:09:04] Speaker 03:
A.

[00:09:06] Speaker 03:
I forget what the exact term is, a distribution of unsecured creditors, and doesn't the trustees' compensation play a role in that?

[00:09:12] Speaker 03:
I mean, I don't see how you can separate the two things, calculating the probability of a material distribution of unsecured creditors from what the trustees' compensation is gonna be under the statutory percentage.

[00:09:24] Speaker 05:
They're related, but again, we're begging the question.

[00:09:27] Speaker 05:
The question is, you're presenting with a card, the court is presenting with a request to approve a card out.

[00:09:34] Speaker 05:
Let me administer the case.

[00:09:36] Speaker 05:
And the one issue that the court has to determine is, okay, if I'm going to let you do that, is there a prospect for a meaningful distribution?

[00:09:46] Speaker 05:
That's it.

[00:09:46] Speaker 05:
That's the only real issue.

[00:09:49] Speaker 05:
whether what the allocation is with the unsecured creditors and the chapter seven professionals, you can't know that what's reasonable until the end of the case.

[00:09:58] Speaker 05:
That's absolutely a hindsight analysis.

[00:10:02] Speaker 03:
And it doesn't, doesn't KVN say it has to be a possibly of a meaningful distribution to unsecured creditors to approve the card out.

[00:10:09] Speaker 03:
Right.

[00:10:10] Speaker 03:
Right.

[00:10:10] Speaker 03:
And you know, I think what the point Mr. Jess Breaker is making is you go into this case,

[00:10:15] Speaker 03:
You know, what the amount of the carve out is, you do the math, you figure out the dollars are, you know, the percentage for the trustees commission, you do the math.

[00:10:22] Speaker 03:
And somebody can say, look, only the trustee gets paid out of this carve out.

[00:10:26] Speaker 03:
There's only going to be X dollars left for unsecured creditors.

[00:10:32] Speaker 03:
You can do that math up front, right?

[00:10:35] Speaker 05:
I disagree in this sense.

[00:10:39] Speaker 05:
Yes, there is this statutory fee hanging out in the car.

[00:10:43] Speaker 05:
There's a statutory fee hanging out in the background.

[00:10:44] Speaker 05:
That's absolutely true.

[00:10:47] Speaker 05:
But again, you don't know what the ultimate result in the cases until.

[00:10:52] Speaker 05:
The final fear until the final report, you really can't do this.

[00:10:58] Speaker 05:
I don't think it's fair to put a burden on a creditor to come in and say, your honor, we have to argue about this now.

[00:11:05] Speaker 05:
We have to debate where the trustee's commission should be today.

[00:11:09] Speaker 05:
Don't let them sell this property unless we determine they should not get.

[00:11:14] Speaker 05:
you know, a full commission that should only get a partial commission.

[00:11:17] Speaker 03:
No, I'm not saying that.

[00:11:18] Speaker 03:
I think the argument would be you shouldn't, your honor, approve a carve out at three and a quarter percent, whatever it was.

[00:11:25] Speaker 03:
Instead, it needs to be six percent, hypothetically speaking, to produce a meaningful distribution for unsecured creditors.

[00:11:31] Speaker 03:
And here's why.

[00:11:32] Speaker 03:
You can come out, you can do the math.

[00:11:34] Speaker 03:
Why is that such a difficult burden to impose on creditors?

[00:11:38] Speaker 03:
Oh, I think- Other who stipulate to the three and a quarter percent.

[00:11:43] Speaker 05:
we believe the burden should be on the trustee.

[00:11:46] Speaker 05:
If the trustee wants this fixed and not reviewable at a final fee hearing, when you review final fees, when you determine compensation under 330 at the final fee hearing, if you want that baked in under like a 328A analysis, the trustee's gotta propose that in connection with the carve out motion.

[00:12:06] Speaker 05:
That's okay, we're okay with that.

[00:12:07] Speaker 05:
We say that in the brief.

[00:12:09] Speaker 05:
If you wanna treat this as a 328A issue,

[00:12:11] Speaker 05:
You should do that, but that's not what the trustee did in this case.

[00:12:14] Speaker 05:
I don't think that's what's done in normal cases.

[00:12:17] Speaker 05:
I think you basically the trustee said, I'm willing to take a chance.

[00:12:21] Speaker 05:
I want to administer the case.

[00:12:23] Speaker 05:
I think I can generate something.

[00:12:24] Speaker 05:
Okay.

[00:12:26] Speaker 05:
We're not opposing that.

[00:12:27] Speaker 05:
We're not opposing that.

[00:12:28] Speaker 05:
When we get to the conclusion of the case, let's see what the result was.

[00:12:32] Speaker 05:
Let's see the circumstances.

[00:12:34] Speaker 05:
Let's look.

[00:12:35] Speaker 05:
Are there extraordinary circumstances?

[00:12:37] Speaker 05:
Is there a meaningful distribution?

[00:12:39] Speaker 05:
Let's determine that.

[00:12:40] Speaker 05:
And that's.

[00:12:42] Speaker 05:
what we believe is the correct result.

[00:12:45] Speaker 05:
I do want to reserve time.

[00:12:46] Speaker 05:
What I want to emphasize to you is that you're never going to get a better fact pattern to thrash out these issues.

[00:12:54] Speaker 05:
A law professor could not create a hypothetical that gives you better issues and a factual record to really thrash out what you were talking about in KVN.

[00:13:06] Speaker 05:
and what you were talking about in Salgado.

[00:13:09] Speaker 05:
And the final comment I wanna make is, before I get to rebuttal, is several members of this panel involved with the Earls custom wines case.

[00:13:22] Speaker 05:
And in that case, they put poor Mr. Smith through the wringer to get a couple of thousand dollars and- For attorney's fees.

[00:13:31] Speaker 05:
For attorney's fees.

[00:13:31] Speaker 03:
Not for trustees.

[00:13:32] Speaker 05:
For attorney's fees, I agree.

[00:13:36] Speaker 05:
Comparing that to this case where the bankruptcy court basically rubber stamped 3.6 million dollars of fees without a record of the trustee doing anything in this case, we are living in two separate bankruptcy universes.

[00:13:48] Speaker 05:
And I just don't think this is the appropriate way you administer you review compensation in a case.

[00:13:56] Speaker 05:
an extraordinary case like this.

[00:13:59] Speaker 05:
And so we asked the court to give content to what it said and reverse, and I will then reserve the remainder of my time.

[00:14:08] Speaker 03:
Thank you.

[00:14:09] Speaker 03:
Ms.

[00:14:09] Speaker 03:
Dye, go ahead, please.

[00:14:18] Speaker 01:
Thank you.

[00:14:19] Speaker 01:
Good afternoon and may it please the court.

[00:14:22] Speaker 01:
My name is Carolyn Dye and as Mr. Shimano has, and I do recognize the arguments that he's made, which I'll address in a moment.

[00:14:31] Speaker 01:
I'm gonna propose that I take the first few minutes or 10 minutes or so of the time today and Mr. O'Day will address the Schulman's fees.

[00:14:41] Speaker 01:
in the final five.

[00:14:43] Speaker 01:
So I will be talking about the fees for the trustee and for LEA accountancy, which is the accounting firm that provided the accounting and forensic tax services to the trustee and in which Mr. Leslie is a principal.

[00:14:57] Speaker 01:
So, you know, I think to begin, parsing through Mr. Shimano's arguments, this appeal is really not about how this trustee administered this case.

[00:15:10] Speaker 01:
or any law-based theory about how the trustee fee, in quotes, ought to be calculated.

[00:15:17] Speaker 01:
It's simply about more.

[00:15:19] Speaker 01:
That's all it's about.

[00:15:20] Speaker 01:
And in light of the history of this case, the complications of COVID, the many problems of the property itself, and not to mention the price point of this property, which limited the number of buyers, and that basis alone, the result achieved by the trustee was truly remarkable, except for one thing.

[00:15:39] Speaker 01:
In Mr. Shimano's and his client's analysis, it didn't leave them enough money after the approved fees were paid.

[00:15:48] Speaker 01:
But as this court has recognized in its comments, the carve out was fully disclosed.

[00:15:54] Speaker 01:
It was approved without objection by Mr. Shimano's clients.

[00:15:59] Speaker 01:
It wasn't known at the time what the percentage or amount would be.

[00:16:03] Speaker 01:
I'm sorry, which wasn't on what the percentage would be, but not the amount, because no one even knew if a sale of this property could be achieved.

[00:16:12] Speaker 01:
So there was no way to guarantee Mr. Shimano's clients or anyone else what result there would be at the end of the day in this case.

[00:16:22] Speaker 01:
And the trustees administration resulted in an increase of an offer, the first offer of 47 million to 63.1 million.

[00:16:33] Speaker 01:
The sale was approved at that price and closed without objection.

[00:16:39] Speaker 01:
So Mr. Shimano's objections to the fees were first raised at the interim fee hearing and were overruled.

[00:16:48] Speaker 01:
He had time between that hearing and the final report to figure out what evidence there was to object to these fees.

[00:16:56] Speaker 01:
And he didn't bring forth any evidence.

[00:16:58] Speaker 01:
So there's nothing in the record evidence-wise that

[00:17:02] Speaker 01:
supports this analysis that he's trying to ask the court to buy into.

[00:17:09] Speaker 01:
There's nothing in the record that suggests this was an error that would require reversal.

[00:17:17] Speaker 01:
So parsing through the arguments, this appeal is nothing more than a wish list.

[00:17:24] Speaker 01:
They want you to revisit the carve out, reallocate the money provided from that carve out and somehow under some formula, not defined, but perhaps 50%, give the appellants an additional amount of money from the carve out.

[00:17:38] Speaker 01:
Now, in a chapter seven trustee case, you look at the numbers, bankruptcy ultimately is all about the numbers and that's what we're here for today.

[00:17:48] Speaker 01:
I think 53%.

[00:17:51] Speaker 01:
$500,000 that Mr. Shimano's clients received when they weren't going to get anything if the property was foreclosed.

[00:17:59] Speaker 01:
That's a number.

[00:18:00] Speaker 01:
So another number is the $700,000 that was set aside represents a distribution of 18.67% of the carve-out.

[00:18:10] Speaker 01:
Now in a normal Chapter 7 case, a distribution of 18 plus percent to unsecured creditors is a pretty good result.

[00:18:19] Speaker 01:
That's not bad.

[00:18:21] Speaker 01:
The fees were reduced across the board by Mr. Leslie, LEA accountancy and the showman firm by 20 point something percent to generate the carve out.

[00:18:34] Speaker 01:
That's not insignificant either.

[00:18:38] Speaker 01:
So, I think this is, this appeal is cloaked in the mantle of requiring a quote meaningful distribution

[00:18:48] Speaker 01:
to unsecured creditors, whatever that means in any particular case, is just a request for a redo of how the case was administered.

[00:18:59] Speaker 01:
And there's simply nothing in the record that would support that.

[00:19:03] Speaker 01:
There's nothing in the case law that I believe supports that.

[00:19:09] Speaker 01:
And, you know, looking at the administration of the case, this was not a rubber stamp of the fees.

[00:19:18] Speaker 01:
detailed findings in its tentative rulings that identified the rationale for the decision approving the fees.

[00:19:27] Speaker 01:
He made the point that the carve out itself was the law of the case and he had no authority to adjust it or amend it in any way.

[00:19:36] Speaker 01:
There was no basis for

[00:19:40] Speaker 01:
finding that the fee calculation itself is per se unreasonable because it's simply, as you've pointed out, a function of the calculation under the statute.

[00:19:52] Speaker 01:
And there's no cap under the statute.

[00:19:55] Speaker 01:
So there's that.

[00:19:58] Speaker 04:
Is it your position that given the statutory commission, you know,

[00:20:07] Speaker 04:
Really, the tug of this is that it seems like hogs and pigs, right?

[00:20:12] Speaker 04:
That this is a lot of money going to the trustee in this case, for one, where the trustee has handed a highly valuable property, which may have been difficult to sell, but was going to sell for a lot of money.

[00:20:29] Speaker 04:
I think Mr. Shimano's ultimate argument is that this is just too much in this situation where it's just handed over to the trustee to sell and it's sold, it's just too much.

[00:20:38] Speaker 04:
Is there ever a situation where that is looked at other than just by mathematical computation or the commission?

[00:20:47] Speaker 01:
Well, the case law sets out the various steps where that has to be done.

[00:20:52] Speaker 01:
First of all, we have cases that say the statutory fee is presumptively reasonable.

[00:21:00] Speaker 01:
And then we have cases that say, well, maybe not under certain circumstances.

[00:21:06] Speaker 01:
So where is it not presumptively unreasonable?

[00:21:09] Speaker 01:
Well, you have to look to find what are called extraordinary circumstances.

[00:21:14] Speaker 01:
And the cases reviewing that say,

[00:21:16] Speaker 01:
Maybe the trustee didn't do his job right or there's some problem with how the case was administered or in certain circumstances, there's no real reason to administer the case except for the fact that you're going to get a trustee fee.

[00:21:33] Speaker 04:
Well, that's the point here I think he's trying to make, is again, spinning it back to when you sought the carve out, you knew based upon the bottom line number that was going to be sold for or going to be offered for, the commission was going to be roughly

[00:21:54] Speaker 04:
you know, $1.7 to $2 million, plus there was going to be some attorney's fees, which was likely to be, you know, a fair amount.

[00:22:04] Speaker 04:
So out of a, what, 37375, you're starting at 25 at beginning, aren't you?

[00:22:12] Speaker 01:
I think in the trustee's experience of this case, Your Honor, he was starting out at zero.

[00:22:20] Speaker 01:
This was a contentious Chapter 11.

[00:22:22] Speaker 01:
It had been pending for many months.

[00:22:25] Speaker 01:
Judge Izzola was clearly frustrated with the fact that there had been so much litigation, which continued, by the way, after Mr. Leslie was appointed.

[00:22:35] Speaker 01:
And this property had been marketed for over a number of months, years, at prices that started at $110 million.

[00:22:46] Speaker 01:
When Mr. Leslie got into this,

[00:22:48] Speaker 01:
There was absolutely no assurance, even though one would like to say in retrospect, oh, this property is going to sell.

[00:22:55] Speaker 01:
There was no assurance that that was in fact going to be the case.

[00:22:58] Speaker 01:
And there was going to have to be a lot of work to get from point A to that ultimate result.

[00:23:05] Speaker 01:
So yes, it's a large fee in the context of the normal routine chapter seven, but there's

[00:23:16] Speaker 01:
If Congress had wanted to cap the fees to trustees based upon the results obtained in a case, they could have done that.

[00:23:23] Speaker 01:
They didn't do it.

[00:23:25] Speaker 01:
It's a statutory fee based upon distributions of creditors.

[00:23:29] Speaker 01:
So we go from there to what happened.

[00:23:32] Speaker 01:
We go from there to the fact that there is simply no evidence in the record that would support this court to find that Judge Rizzolo

[00:23:44] Speaker 01:
made errors of fact or law.

[00:23:46] Speaker 01:
You'd have to have a firm conviction that that was the case, which I submit can't possibly be done.

[00:23:52] Speaker 01:
And I'm running a little bit out of time.

[00:23:54] Speaker 01:
I want to give Mr. O'Day some time.

[00:23:55] Speaker 01:
So I'm just going to say as to the LEA fees, that the relationship was disclosed between Mr. Leslie and his accountancy firm.

[00:24:05] Speaker 01:
That was approved over no objection.

[00:24:08] Speaker 01:
The court found the fees were reasonable.

[00:24:10] Speaker 01:
Under the circumstances, there were no specific objections raised by anyone to the particular time entries.

[00:24:17] Speaker 01:
And the fees were, in fact, discounted before they were submitted to remove any possible overlap of services.

[00:24:26] Speaker 01:
I want to give Mr. O'Day his time.

[00:24:27] Speaker 01:
So unless the court has other questions for me, I will take a break.

[00:24:34] Speaker 03:
We're OK.

[00:24:34] Speaker 03:
Go ahead, Mr. O'Day.

[00:24:36] Speaker 02:
Thank you, Your Honor.

[00:24:37] Speaker 02:
May it please the court, Ryan O'Day of Schulman, Bastion, Friedman, and Bowie.

[00:24:41] Speaker 02:
In preparing for today's oral argument, it struck me that this reminded me of sort of a thought of my childhood, and that is a game of musical chairs.

[00:24:53] Speaker 02:
Unfortunately, the trustee was airdropped into the center of an ongoing game of musical chairs.

[00:24:58] Speaker 02:
Screaming, loud music, chairs, people running around.

[00:25:02] Speaker 02:
And the trustee and his professionals had the Herculean task

[00:25:07] Speaker 02:
of figuring out who's on first and what can be done to help the people dancing around these chairs.

[00:25:13] Speaker 02:
Now the music being played was being sung by all the secured creditors telling the trustee and his professionals that this property is worth a lot of money.

[00:25:20] Speaker 02:
110,000, or 110 million, 90 million.

[00:25:25] Speaker 02:
And so the music kept playing and it became apparent to the trustee and his professionals that the chairs just kept disappearing and there's going to be a lot of people standing around without a place to sit.

[00:25:36] Speaker 02:
So today you are presented with argument from my colleague that the chair's the wrong color, it's the wrong shape, maybe not quite big enough, but guess what?

[00:25:49] Speaker 02:
He's sitting in a chair, a chair that would not be there, but for the efforts of the trustee and his professionals.

[00:25:57] Speaker 02:
So with that, let's unpackage the standard of appeal here.

[00:26:01] Speaker 02:
This is abuse of discretion.

[00:26:03] Speaker 02:
Abuse of discretion further in the context of the high deference that a

[00:26:06] Speaker 02:
Court of Appeal will pay to the findings of fact and conclusions of law attendant to the award of fees.

[00:26:14] Speaker 02:
That is the uphill battle of everything before this panel today.

[00:26:19] Speaker 02:
Now, evident by my colleague's opening statements, I think the professional fees are a sideshow really to the big issue of appellant.

[00:26:31] Speaker 02:
Appellant doesn't like that the trustee was paid more than he thinks was fair.

[00:26:36] Speaker 02:
It seems to be belied by the statutory context and the calculation of a trustee fee, but I'll put that aside because that's not my argument to make.

[00:26:44] Speaker 02:
We've yet to hear one word from anyone today about the professional fees, and I think it's because everything in this appeal, all of the moving papers, all of the issues in front of the bankruptcy judge were dominated by trustee fee issues.

[00:26:58] Speaker 02:
As noted in our brief, less than five pages of argument was spent

[00:27:03] Speaker 02:
going through how apparently the fees paid to my firm were not appropriate.

[00:27:08] Speaker 02:
Now we put it in our, in our opening brief, almost 1000 pages of moving papers, detailed billing records.

[00:27:15] Speaker 02:
I think the billing records were over 700 pages detailing ad nauseam, every single thing that was done by my firm in opposition to those fees.

[00:27:25] Speaker 02:
What did we get?

[00:27:26] Speaker 02:
We got less than one page of high level

[00:27:30] Speaker 02:
arguments from Mr. Chamayo by general billing categories.

[00:27:35] Speaker 02:
X was spent here, X was spent there.

[00:27:38] Speaker 02:
And to me, to look at the standard of appeal, was it an erroneous application of law or was the finding of fact clearly illogical based upon the record?

[00:27:52] Speaker 02:
It's a resounding no to both of those questions.

[00:27:55] Speaker 02:
But going down each path nonetheless,

[00:27:58] Speaker 02:
I think it's first important to note, and then I will sort of echo Mr. Shimano here.

[00:28:04] Speaker 02:
He says, I read KVN as follows.

[00:28:07] Speaker 02:
And that's the beauty of what we all do for a living.

[00:28:09] Speaker 02:
We get to read things differently.

[00:28:11] Speaker 02:
We get to argue different sides.

[00:28:12] Speaker 02:
But I think the reading of KVN is abundantly clear.

[00:28:16] Speaker 02:
The context in which KVN was decided was whether or not it was appropriate to approve a carve out.

[00:28:25] Speaker 02:
KVN states

[00:28:26] Speaker 02:
a prospect of a meaningful distribution period.

[00:28:33] Speaker 02:
That is in approving the carve out agreement.

[00:28:37] Speaker 02:
So to go down the KVN path in and of itself is tantamount to a collateral attack upon a final order of Judge Rizzolo.

[00:28:46] Speaker 02:
The carve out was approved.

[00:28:48] Speaker 02:
And again,

[00:28:49] Speaker 02:
Going from that point forward, the meaningful distribution quote unquote standard for approval of a professional fee is not how 330 professional fees are ever adjudicated.

[00:29:00] Speaker 02:
The issue is were they actual reasonable and necessary?

[00:29:03] Speaker 02:
Unequivocally, the answer is yes.

[00:29:05] Speaker 02:
And I think without belaboring the point, I do want to clear up a few things because Mr. Shimano's brief is replete with a statement that goes something like this.

[00:29:16] Speaker 02:
Everything paid was unreasonable because the trustee knew what the carve out was out of the gate.

[00:29:23] Speaker 02:
True in part.

[00:29:24] Speaker 03:
I'll let you finish your sentence, but your time is out.

[00:29:26] Speaker 03:
So please go ahead and just wrap up that sentence.

[00:29:29] Speaker 02:
True in part because the property sold for over $16 million more than the stocking horse better.

[00:29:39] Speaker 02:
And we have reduced the general unsecured creditor body by over $160 million.

[00:29:46] Speaker 02:
burning that candle at both ends in order directly to the benefit of the unsecured creditors of which appellants are the majority holder.

[00:29:54] Speaker 02:
So with that, I rest and I thank you, Your Honor.

[00:29:57] Speaker 02:
Thank you.

[00:29:58] Speaker 03:
Okay, Mr. Shimano, you've got a little shy of two minutes.

[00:30:02] Speaker 03:
Yeah, there it is.

[00:30:02] Speaker 03:
Okay, please go ahead.

[00:30:04] Speaker 05:
Quickly, Your Honor.

[00:30:05] Speaker 05:
I want to correct, I think a representation made

[00:30:10] Speaker 05:
The property in the chapter 11 didn't sell because Mr. Ross went sell it for under $120 million.

[00:30:17] Speaker 05:
We wanted to convert it to a chapter seven because we knew a trustee would sell it for fair market value.

[00:30:23] Speaker 05:
The carve out agreement, which was negotiated very quickly, provided for a mandatory credit bid by the secure creditor.

[00:30:30] Speaker 05:
So this was not contingent.

[00:30:32] Speaker 05:
They had it baked in into the carve out agreement.

[00:30:34] Speaker 05:
They knew they were getting paid a minimum from a credit bid paid by the secured creditor.

[00:30:40] Speaker 05:
The legal issue, according to this court and in the decided decisions is, is there a rational relationship between the fee and the case?

[00:30:51] Speaker 05:
And that is a burden that never goes away for the trustee.

[00:30:53] Speaker 05:
The trustee has to meet its burden of showing a rational relationship.

[00:30:57] Speaker 05:
And the bankruptcy, we think the cases say yes, in the normal case, you meet that burden by the statutory fee.

[00:31:06] Speaker 05:
But in an extraordinary circumstance, you don't meet that burden.

[00:31:10] Speaker 05:
You have to come forward with your own evidence of a rational relationship and they did not do that.

[00:31:16] Speaker 05:
They refuse to do it and bankruptcy the bankruptcy court.

[00:31:18] Speaker 05:
Let them get away with it.

[00:31:21] Speaker 05:
Regarding the professionals, we gave the court.

[00:31:25] Speaker 05:
Many examples of what we think that.

[00:31:28] Speaker 05:
does not appropriate in this case.

[00:31:31] Speaker 05:
The fact that the trustee's own accounting firm got an additional $300,000 in this case, where there is no evidence the trustee did anything in the case should shock this court's conscience and make the court rethink how this works.

[00:31:46] Speaker 05:
And finally, we think Judge Klein got it right in Ray Scoggins and every element of extraordinary circumstances present

[00:31:56] Speaker 05:
should be applied in this case and should be reconsidered appropriately.

[00:32:00] Speaker 05:
And for that reason, I thank the court.

[00:32:03] Speaker 05:
Hopefully, if there's any questions, you're happy to answer.

[00:32:06] Speaker 05:
But I do think this gives you a great case to write a great opinion.

[00:32:12] Speaker 03:
In other circumstances, I would say you're welcome, but I don't think I will.

[00:32:15] Speaker 03:
But anyway, the matter is submitted.

[00:32:17] Speaker 03:
You'll be getting our decision in due course.

[00:32:19] Speaker 03:
Thank you.

[00:32:19] Speaker 03:
Thank you.

[00:32:21] Speaker 03:
Thank you.