Case 20-00018-LA11 Filed 03/05/20 Entered 03/05/20 14:08 ...€¦ · Case 20-00018-LA11 Filed...

CSD 1001A

CSD 1001A [07/01/18] Name, Address, Telephone No. & I.D. No.

UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF CALIFORNIA

325 West F Street, San Diego, California 92101-6991

In Re BANKRUPTCY NO.

Date of Hearing: Time of Hearing: Name of Judge: Debtor.

ORDER ON

through with The court orders as set forth on the continuation pages attached and numbered

exhibits, if any, for a total of pages. Motion/Application Docket Entry No. .

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DATED: Judge, United States Bankruptcy Court

March 5, 2020

March 5, 2020

Case 20-00018-LA11 Filed 03/05/20 Entered 03/05/20 14:08:22 Doc 160 Pg. 1 of15

CSD 1001A

CSD 1001A [07/01/18]() ORDER ON DEBTOR: CASE NO:

Signed by Judge Louise DeCarl Adler March 5, 2020


EXHIBIT “A”

Exhibit A



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SULLIVAN HILL REZ & ENGEL Electronically Filed: 2/4/20 A Professional Law Corporation

James P. Hill, SBN 90478 Christopher V. Hawkins, SBN 222961

600 B Street, 17th Floor San Diego, California 92101 Telephone: (619) 233-4100 Fax Number: (619) 231-4372 Attorneys for Debtor and Debtor In Possession, Vestavia Hills, Ltd. dba Mount Royal Towers

UNITED STATES BANKRUPTCY COURT Southern District of California

In re

VESTAVIA HILLS, LTD. DBA MOUNT ROYAL TOWERS,

Debtor.

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CASE NO. 20-00018-LA11 MOTION PURSUANT TO SECTIONS 328, 330, 331, AND 105(A) OF THE BANKRUPTCY CODE FOR APPROVAL OF PROCEDURES FOR INTERIM COMPENSATION AND REIMBURSEMENT OF PROFESSIONALS; MEMORANDUM OF POINTS AND AUTHORITIES Date: March 5, 2020 Time: 2:00 p.m. Dept.: 2 Judge: Hon. Louise DeCarl Adler

VESTAVIA HILLS, LTD., dba MOUNT ROYAL TOWERS, as debtor and

debtor in possession (“Debtor”) in the above-captioned Chapter 11 case, hereby

moves the Court (“Motion”) pursuant to Sections 105(a), 328, 330, and 331 of the

Bankruptcy Code (11 U.S.C. § 101 et seq.), Rule 2016 and the Guidelines for

Establishing Interim Compensation Procedures for Professionals of the Local

Bankruptcy Rules (the “Local Rules”) to establish procedures for paying and

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Exhibit A



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monitoring the interim compensation and reimbursement of expenses due to

professionals on a shorter basis than every 120 days. The Debtor respectfully requests

approval of procedures providing for monthly payments to professionals of 80 percent

of fees and 100 percent of expenses incurred, subject to (i) notice and opportunity for

parties in interest to object and approval of the Court; and (ii) regularly noticed

interim and final fee applications.

The Debtor submits that the requested relief is specifically authorized by

Section 331, and is warranted here, given the large size of this case; Congress’s

mandate that professionals be paid on terms similar to those in other nonbankruptcy

areas so as not to require the professionals to essentially finance a Chapter 11 case;

and the fact that the requested relief will allow the Court, the United States Trustee,

creditors and other parties in interest to monitor the fees and costs of this case with

greater frequency and clarity than would be the case otherwise.

This Motion is based on the following Memorandum of Points and Authorities,

the First Day Declaration of Kevin Moriarty filed in support of the Debtor’s Voluntary

Petition and First Day Motions (“First Day Declaration”), the Declaration of Kevin

Moriarty filed in support of this Motion (“Moriarty Declaration”), the pleadings and

other documents on file in this case, and any argument to be presented by counsel at

any hearing hereon.

Dated: February 4, 2020 SULLIVAN HILL REZ & ENGEL A Professional Law Corporation

By: /s/ James P. Hill James P. Hill Christopher V. Hawkins Attorneys for Debtor Vestavia Hills, Ltd. dba Mount Royal Towers


Exhibit A



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MEMORANDUM OF POINTS AND AUTHORITIES

I.

JURISDICTION

This Court has jurisdiction over this Motion pursuant to 28 U.S.C. §§ 157 and

1334. This matter is a core proceeding within the meaning of 28 U.S.C. § 157(b)(2).

Venue of this proceeding and over this Notice is proper in this district pursuant to 28

U.S.C. §§ 1408. The statutory bases for the requested relief are Sections 105(a), 328,

330, and 331 of the Bankruptcy Code.

II.

STATEMENT OF FACTS

A. The Bankruptcy Filing

On January 3, 2020 (“Petition Date”), the Debtor filed its voluntary petition for

relief under Chapter 11 of the Bankruptcy Code. The Debtor continues to operate its

business and manage its property as a debtor in possession pursuant to Sections 1107

and 1108. No trustee, examiner or committee has been appointed in this Chapter 11

case. Additional information regarding the circumstances leading to the

commencement of the Chapter 11 case and evidence in support of this Notice is set

forth in the First Day Motions (ECF #s 5, 6, 7, 8) and the Moriarty Declaration (ECF

#9).

B. The Debtor’s Applications to Employ Professionals

On January 16, 2020, the Debtor filed and served the ex parte application to

retain and employ Sullivan Hill Rez & Engel, APLC (“Sullivan Hill”) as general

bankruptcy counsel for the Debtor (ECF #40). On January 24, 2020, the Debtor filed

and served the ex parte application to retain and employ Squar Milner LLP as

accountants for the Debtor (ECF #52). On January 27, 2020, the Debtor filed and

served the ex parte application to employ Campbell Partners, APC (“Campbell”) as its

special purpose litigation counsel (ECF #66). On January 31, 2020, the Debtor filed

and served the ex parte application to employ Elisabeth Eisner (“Eisner”) as its special


Exhibit A



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purpose transactional counsel (ECF #87). As set forth in all of the applications, the

retained professionals (collectively the “Retained Professionals”)1 will provide

necessary services for the Debtor in the Debtor’s roles as a debtor and a debtor in

possession. The Debtor believes that these professionals are well qualified to

represent the Debtor in their respective contemplated roles.

C. Relief Requested

By this Motion, Debtor seeks entry of an order authorizing and establishing

procedures (described below) for the compensation and reimbursement of the

Retained Professionals on a monthly basis, comparable to those procedures

established in other Chapter 11 cases filed within the Ninth Circuit and other districts.

D. Service

A copy of this Motion and all supporting papers is being served on:

(1) The United State Trustee;

(2) Wells Fargo Bank;

(3) The 20 largest unsecured creditors;

(4) Commonwealth Assisted Living Series E, a Delaware Series LLC;

(5) Municipal Capital Appreciation Partners LLP;

(6) Securities and Exchange Commission;

(7) Internal Revenue Service;

(8) Karen L. McElliott and Judith A. Chance, by way of their counsel; and

(9) All Registered Users, as such term is defined in Local Rule 1001-

6(b)(23).

A copy of the Notice of the Hearing on this Motion (“Notice”) is being served

on the creditors’ matrix, a copy of which is attached to the Notice.

1 “Retained Professionals” also includes the Patient Care Ombudsman being appointed pursuant to the Court’s order entered January 16, 2020 (ECF #42), and the United States Trustee’s notice of appointment filed January 24, 2020 (ECF #60). As part of this application, the Debtor seeks permission to compensate the patient care ombudsman Virginia Moore-Bell, who has been approved and appointed by order of the Court (ECF #s 42, 60) on the same terms and conditions as the other Retained Professionals. Moriarty Declaration, ¶12.


Exhibit A



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III.

THE PROPOSED INTERIM PAYMENT PROCEDURES FOR

PROFESSIONALS

The Debtor requests that the Court establish the following procedures (the

“Interim Payment Procedures”) for awarding interim compensation and

reimbursement of expenses to the Retained Professionals, with such procedures to

apply retroactively to the commencement of the case:

(a) Each month, the Retained Professionals may prepare a professional fee

statement or invoice (the “Fee Statement”), which shall:

i. relate to services rendered and expenses incurred during the prior month

(or, in the case of the first Fee Statement, the services rendered and expenses incurred

since the Petition Date);

ii. indicate the amount of the fees accrued during the relevant period;

iii. indicate the amount of costs accrued during the relevant period; and

iv. indicate the services rendered, the amounts so requested, the total time

expended, the names of the specific individuals who performed the services for which

compensation is requested, and the hourly billing rate for each such individual, if

applicable.

(b) This Motion is not intended to alter the fee application requirements

outlined in Sections 330 and 331 of the Bankruptcy Code. Therefore, the Fee

Statements shall not be filed with the Court. The Fee Statements shall be submitted to

the Debtor. At the same time, the Retained Professionals shall: (i) serve by regular

first class postage prepaid mail a copy of the Fee Statements on the Office of the U.S.

Trustee, Wells Fargo, any official committee appointed in the case, and any parties

requesting special notice (collectively, the “Notice Parties”). The Notice Parties shall

have 10 days after the service of the invoices to object by notifying the Debtor in

writing and setting forth the specific grounds for the objection. The objecting party

will provide the Debtor with the option to either request a hearing on the objection or


Exhibit A



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hold back the amount of compensation and/or expenses that are the subject of the

objection until the hearing on the application for interim compensation.

(c) Following expiration of the 10-day period described above, the Debtor

may pay 80 percent of the amount of the Retained Professional’s fees not the subject

of objection and 100 percent of the amount of the Retained Professional Costs not the

subject of objection, subject to (i) the right of the Notice Parties and any other party in

interest to later object to and seek disgorgement of payments previously made

pursuant to a Fee Statement at hearings on interim fee applications; and (ii) any cash

collateral orders entered in the case.

(d) No Retained Professional shall be allowed to submit a fee statement, or

receive any payment, until such time as the Court has approved the Retained

Professional’s employment, and there is an order on the docket approving such

employment.

(e) Notwithstanding any payment made pursuant to a Fee Statement, the

Retained Professionals shall file with the Court and serve on the Notice Parties interim

fee applications (“Interim Application”) pursuant to Section 331, Local Rule 2016,

and Rules 2002(a)(6) and 2016 of the Federal Rules of Bankruptcy Procedure

(“Rules”). Such applications shall be filed no more frequently than every 120 days

and no less frequently than every 180 days. In such Interim Applications, the

Retained Professionals may seek approval of the compensation relating to, and

reimbursement of expenses incurred in, the period since the Petition Date or the prior

period, as the case may be, as well as resolution of any objections raised to Fee

Statements.

(f) Subject to the applicable Rules and Local Rules for objecting to fee

applications, nothing in the Interim Payment Procedures shall limit a Notice Party’s or

other party in interest’s right to object to an Interim Application or to a Retained

Professional’s application for final allowance of fees and costs. If the Court sustains

an objection and so orders, a Retained Professional shall disgorge the disallowed


Exhibit A



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portion of any payment it has received in accordance with the Interim Payment

Procedures to the Debtor’s estate. Moriarty Declaration, ¶ 6.

In connection with the administration of this case, the Debtor from time to time

may seek to employ additional attorneys, accountants, and other professionals for a

finite period of time or for a limited purpose. In such instances, if any, the Debtor

requests that any such additional professionals be subject to the Interim Payment

Procedures and order approving them, without the need to file a new motion for

approval of procedures for interim compensation. Moriarty Declaration, ¶ 7.

IV.

AUTHORITY

Section 331 authorizes professionals to apply for approval of compensation for

services rendered and reimbursement of expenses incurred “once every 120 days after

an order for relief in a case under this title, or more often if the court permits.”

11 U.S.C. § 331 (emphasis added). Further, Section 105(a) of the Bankruptcy Code

authorizes the court to issue any order “that is necessary or appropriate to carry out the

provisions of [the Bankruptcy Code].” 11 U.S.C. § 105(a). Thus, the Court may

authorize the Interim Payment Procedures requested in this Motion.

The legislative history relating to compensation of professionals demonstrates

that Congress adopted the principle that “[p]rofessionals in bankruptcy cases are

entitled to be paid on a comparable basis to other privately retained counsel, both in

terms of timeliness and amount of payment.” In re Commercial Consortium of

California, 135 B.R. 120, 123 (Bankr. C.D. Cal. 1991); In re Nucorp Energy, Inc., 764

F.2d 655, 658-59 (9th Cir. 1985); and In re Powerine Oil Co., 71 B.R. 767, 770

(B.A.P. 9th Cir. 1986). Thus, Section 331 provides for the payment of interim

compensation for professionals retained by debtors in possession as follows: A trustee, an examiner, a debtor's attorney, or any professional person employed under section 327 or 1103 of this title may apply to the court not more than once every 120 days after an order for relief in a case under this title, or more often if the court permits, for such compensation for services rendered before the date of such an


Exhibit A



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application or reimbursement for expenses incurred before such date as is provided under section 330 of this title. After notice and a hearing, the court may allow and disburse to such applicant such compensation or reimbursement.

11 U.S.C. § 331. Section 102(1) provides that the phrase “after notice and a hearing:” (A) means after such notice as is appropriate in the particular circumstances, and such opportunity for a hearing as is appropriate in the particular circumstances; but (B) authorizes an act without an actual hearing if such notice is given properly and if–

(i) such a hearing is not requested timely by a party in interest . . .

11 U.S.C. § 102(1).

The legislative history illustrates the intent of Congress that interim

compensation be provided on a sufficiently regular basis to ensure the adequacy of

interim compensation: The court may permit more frequent applications if the circumstances warrant, such as in very large cases where the legal work is extensive and merits more frequent payments. The court is authorized to allow and order disbursement to the applicant of compensation and reimbursement that is otherwise allowable under section 330.

H.R. Rep. No. 595, 95th Cong., 1st Sess. 330 (1977). In the seminal In re Knudsen

Corp., 84 B.R. 668 (B.A.P. 9th Cir. 1988) case, the Bankruptcy Appellate Panel for

the Ninth Circuit (“BAP”) also made clear that monthly interim payments to

professionals employed in large, complex cases are reasonable and appropriate,

observing that: . . . the problem, arising especially in large cases, [is] that when counsel must wait an extended period for payment, counsel is essentially compelled to finance the reorganization. This result is improper and may discourage qualified practitioners from participating in bankruptcy cases; a result that is clearly contrary to Congressional intent.

Id. at 672. See also In re Heritage Mall Associates, 184 B.R. 128, 134 (Bankr. D. Or.

1995) (noting same problem); In re Cnty. of Orange, 179 B.R. 195, 198 n.5 (Bankr.

C.D. Cal. 1995) (same). In Knudson, the BAP held that monthly payments to

professionals are appropriate without prior court approval if such payments are made


Exhibit A



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pursuant to a procedure that provides the opportunity for subsequent review.

Knudsen, 671–72.

In Knudsen, the BAP held that interim payment procedures substantially

identical to those proposed in this motion are appropriate if: 1. The case is an unusually large one in which an exceptionally large amount of fees accrue each month; 2. The court is convinced that waiting an extended period for payment would place an undue hardship on counsel; 3. The court is satisfied that counsel can respond to any reassessment in one or more of the ways listed above; and 4. The fee retainer procedure is, itself, the subject of a noticed hearing prior to any payment thereunder to any payment thereunder.

Id. at 672–73.

V.

ARGUMENT

The Debtor submits it is necessary and appropriate to establish a procedure for

paying and monitoring the interim compensation and reimbursement of expenses due

to professionals for their services on a shorter basis than every 120 days. The Debtor

believes that the Interim Payment Procedures proposed herein are fair, reasonable, in

the best interest of the estate, and comply with the Local Bankruptcy Rules. See the

Moriarty Declaration, ¶ 5.

The four Knudsen factors are present here. First, this is a large and complicated

case, including a 363 sale of Debtor’s business as a going concern. The sale will be

subject to overbid. The hostile creditor who drove the Debtor into bankruptcy is

likely to intervene. And the Debtor’s business is healthcare related. Due to the

complexity of this Chapter 11 case, the Debtor has retained multiple professionals to

assist with monitoring the costs of administration, forecast cash flows, implement

effective cash management procedures, assist with the legal proceedings, assure the

integrity of the health care aspects of the business to help preserve the going concern

/ / /


Exhibit A



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value, and assist with the sale of Debtor’s business. Large fees are almost certain to

accrue. See the Moriarty Declaration, ¶ 8.

Second, given those expected large fees, forcing the Retained Professionals to

wait a minimum of four months (and more practically, six months) to get paid would

place an undue burden on them. See the Moriarty Declaration, ¶ 9. As provided in

Knudson, if the Retained Professionals are required to wait an extended period of time

for payment, they are essentially financing the case, which is improper. See Knudson,

84 B.R. at 672.

Third, if any fees and costs paid on a monthly basis to the Retained

Professionals are not ultimately allowed by this Court, the Retained Professionals’ 20

percent holdback of all fees provide enough cushion to allow repayment to the Debtor.

The Retained Professionals are reputable firms with strong financial positions that

make it certain that they can and will repay any reassessments to the estate should it

become necessary. The Retained Professionals understand that their compensation is

subject to Sections 330 and 331 and are prepared to respond to any such reassessment.

See the Moriarty Declaration, ¶ 10.

Fourth, the Interim Payment Procedures are the subject of a noticed hearing,

and no payments will be made in accordance with those procedures unless authorized

by this Court. Consistent with Sections 331 and 102(1), the Interim Payment

Procedures permits payments only after notice of the intended payment amounts is

given to the Notice Parties via Fee Statement. Any party in interest may thereafter

object to a Retained Professional’s Fee Statement, Interim Application, or final fee

hearing. See the Moriarty Declaration, ¶ 11.

In Commercial Consortium, 135 B.R. at 123, the Central District of California

Bankruptcy Court addressed the issue of monthly compensation of professionals. It

noted that, while “the essential purpose of [Section 331] is to relieve counsel and other

professionals of the burden of ‘financing’ lengthy bankruptcy proceedings,” payments

every 120 days may now be insufficient to fulfill that purpose:


Exhibit A



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In 1978, when the Code was enacted, attorneys customarily billed their clients on a quarterly basis. Times have changed. Lawyers now run their practices in a more business-like fashion. Computerization has simplified and speeded the billing process. As widely documented in the legal press, the billing cycle has shifted to monthly statements. The 120-day provision of Section 331, intended to be a help to lawyers in 1978, has become a straight-jacket for the lawyers of the ‘90s. Thus, even payments every 120 days no longer compensate bankruptcy attorneys on a fully equivalent basis with their non-bankruptcy colleagues.

Id. at 123-24. The court recognized that more frequent payments are “commonly

authorized in large cases involving extensive legal work” in order “to help avoid

undue delays in payment.” Id. at 124, 127 (citing Knudsen, 84 B.R. at 672). As

shown above, the proposed Interim Payment Procedures alleviate an undue financial

burden on the Professionals and comply with the requirements of Section 331.

The Debtor therefore respectfully submits that the Knudsen factors are satisfied

here and that the Interim Payment Procedures set forth herein are reasonable and

appropriate. The requested relief is specifically authorized by Section 331. Such

procedures will mitigate the unnecessary financial burden and inconvenience that the

Retained Professionals will face if their fees and expenses must accrue prior to the

filing of regularly noticed fee applications once every four to six months. The

procedures comport with Congress’s mandate that bankruptcy professionals be paid

on terms similar to professionals in other areas of the law. Monthly review and

payment of professional fees will greatly assist in the administration of the estate by

focusing it, and all other creditors and parties in interest, on the actual costs of

administration, which in turn will enable the parties to better consider and evaluate

potential sale alternatives.

/ / /

/ / /

/ / /


Exhibit A



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VI.

CONCLUSION

Based on the foregoing, the Debtor requests that the Court enter an order

approving the Interim Payment Procedures, and grant such other and further relief as it

may deem just and proper.

Dated: February 4, 2020 SULLIVAN HILL REZ & ENGEL A Professional Law Corporation

By: /s/ James. P. Hill James P. Hill Christopher V. Hawkins Attorneys for Debtor Vestavia Hills, Ltd. dba Mount Royal Towers


Exhibit A



Notice Recipients

District/Off: 0974−3 User: Admin. Date Created: 3/5/2020

Case: 20−00018−LA11 Form ID: pdfO1 Total: 4

Recipients of Notice of Electronic Filing:aty Christopher V. Hawkins [email protected] James P. Hill [email protected] Kathleen A. Cashman−Kramer Cashman−[email protected]

TOTAL: 3

Recipients submitted to the BNC (Bankruptcy Noticing Center):db Vestavia Hills, Ltd. 9619 Chesapeake Drive Suite 103 San Diego, CA 92123

TOTAL: 1

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