Brenda Diana Nestor, 628 B.R. 707

Background

Debtor Brenda Nestor (Chapter 11 filed Aug. 31, 2017) was also personal representative and sole residuary beneficiary of the Victor Posner probate estate; the probate court removed her and appointed a curator, spawning related state-court litigation.
Special counsel (Oppenheim, then Udell) prosecuted a post-petition cross-claim in litigation between the curator and the PR bond insurer (F&D); multiple law firms (including Lewis & Thomas and Crabtree) also represented the Debtor/estate at various times.
The Debtor repeatedly failed to comply with bankruptcy requirements, prompting appointment of a Chapter 11 Trustee (May 10, 2018).
Fee applications were filed by Oppenheim, Udell, Lewis & Thomas (L&T), Crabtree, and others; the Trustee, F&D, and the receiver objected, raising issues of unauthorized post-petition work, nondisclosure, conflicts of interest, and post-petition payments.
The court analyzed retention under §327/327(e), compensation under §330, and disgorgement authority under §328(c), and made reductions, setoffs, and partial awards depending on disallowed services, duplicate/excessive entries, unauthorized lawsuits, and post-petition payments.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether Oppenheim (and successor Udell) were disinterested and entitled to full fees despite prepetition representation and post-petition payment	Oppenheim/Udell: retention covered state litigation; any post-petition payment came from third parties; services benefitted estate (reduced Debtor exposure)	Trustee/F&D/Receiver: firms represented Debtor pre-petition, failed to disclose lack of disinterestedness and post-petition receipts, so fees should be denied or reduced	Court found nondisclosure disqualifying but exercised discretion to allow reduced fees; disallowed work pre-dating employment application and required credit for post-petition payments; awarded reduced amounts to both firms.
Whether filing the Akerman suit (Udell) and Castellano suit (Udell on behalf of Debtor’s husband) were authorized and compensable	Udell: Akerman/other suits were part of protecting Debtor’s interests; Castellano suit was not adverse to estate	Trustee/F&D: suits were filed without court authorization, exposed estate to administrative claims, and violated conflict rule (Rule 4-1.9) by taking positions adverse to former client (the estate)	Court disallowed fees for Akerman suit work; found Castellano suit violated Rule 4-1.9 and caused measurable harm; ordered Trustee to quantify extra fees so Udell’s award can be set off dollar-for-dollar.
Whether L&T’s requested final fees were reasonable given poor performance and prior interim awards	L&T: performed necessary triage, produced schedules, defended motions, preserved insurance; sought remaining holdback and additional fees	Trustee: L&T’s work was incompetent in parts, failed on MORs, misleading retention attempts, deficient plan/disclosure, secretarial/timekeeping issues	Court reduced L&T’s final award substantially for deficient work, secretarial time, useless MORs, and disallowed fees for deficient plan/disclosure; awarded a reduced final amount.
Whether Crabtree may keep/receive $35,000 post-petition flat-fee balance for appellate work	Crabtree: flat fee disclosed in attachment; services were necessary and reasonable for appeal; retention was reasonable when made just before argument	Trustee/F&D: appeal provided no benefit to estate (probate priority dispute) so fees not compensable	Court treated retention under §330 (not §328), found retention reasonable at the time and that appellate services were beneficial enough; awarded the $35,000.

Key Cases Cited

Electro-Wire Prods., Inc. v. Sirote & Permutt, P.C. (In re Prince), 40 F.3d 356 (11th Cir. 1994) (court has discretion under §328(c) to deny or disgorge fees for nondisclosure/conflict).
In re Taxman Clothing Co., 49 F.3d 310 (7th Cir. 1995) (interim fee awards are reviewable and revisable at case end).
In re Keller Fin. Servs. of Fla., Inc., 248 B.R. 859 (Bankr. M.D. Fla. 2000) (failure to obtain court-approved employment precludes payment for postpetition services).
In re Gulf Coast Orthopedic Ctr., 265 B.R. 318 (Bankr. M.D. Fla. 2001) (non-disclosure can render authorization invalid and preclude compensation).
In re Cenargo Int’l, PLC, 294 B.R. 571 (Bankr. S.D.N.Y. 2003) (benefit analysis should focus on what a reasonable lawyer would have done at the time, not hindsight).
In re South Station, LLC, 464 B.R. 46 (Bankr. D. Utah 2011) (professional’s paramount duty is to the estate and duty to disclose conflicts).
In re Howard Ave. Station, L.L.C., 568 B.R. 146 (Bankr. M.D. Fla. 2017) (courts may temper rigid disgorgement with case-by-case discretion).