534 B.R. 106
Bankr. D. Md.2015Background
- Dreamplay, Inc. (operator of an adult entertainment club) filed Chapter 11 on July 16, 2012; major asset listed: liquor and adult-entertainment licenses.
- Creditor John J. DeLuca (an accountant) prosecuted prepetition collection efforts that led to a sheriff’s seizure of the Debtor’s liquor license; Debtor moved for sanctions for violating the automatic stay.
- The court held the license was property of the estate under Maryland law (Rosedale Plaza), found DeLuca and his lawyer Kline willfully violated the automatic stay, and entered sanctions and ordered appointment of a Chapter 11 trustee.
- DeLuca repeatedly filed papers claiming to proceed pro se but included footnotes disclosing assistance from out-of-state attorney John P. Raynor; Raynor never sought pro hac vice admission or Maryland licensure.
- DeLuca moved for allowance of fees as a "substantial contribution" (seeking administrative priority); debtor’s counsel James P. Koch filed a fee application; court issued an order to show cause re: Raynor’s conduct (contempt/unauthorized practice/ghostwriting).
- Court denied DeLuca’s substantial-contribution request, awarded part of Koch’s fees ($8,546 total including expenses/retainer), and found Raynor in contempt/unauthorized-practice/ghostwriting and ordered sanctions (reprimand, bar from practicing in the court, referral to Nebraska discipline, and vacatur of Raynor-prepared filings).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether DeLuca’s postpetition efforts entitled him to administrative priority as a "substantial contribution" under 11 U.S.C. § 503(b)(3)(D),(4) | DeLuca contended his Motion to Dismiss and related work led to appointment of a trustee and disclosures (cash, unauthorized payments, recoverable items) that benefited the estate, justifying $17,941.90 in fees | Trustee argued mere prosecution of a contested matter without unique, measurable benefit does not constitute a substantial contribution; claimed value to estate was minimal | Denied — DeLuca’s efforts were neither unique nor produced measurable value to creditors; equities (willful stay violation, misconduct) weighed against any award |
| Whether Koch’s fee application should be allowed as an administrative expense despite management/case‑handling shortcomings | Koch sought $15,680 in fees + $1,046 expenses; contended he represented the debtor until trustee appointment and performed necessary filings | Trustee and objectors acknowledged some estate benefit but faulted Koch for failing to address glaring MOR cash gaps and insufficient financial controls | Partially granted — Awarded total of $8,546 (retainer plus reimbursed expenses); court reduced requested fees due to inadequate handling of material financial issues |
| Whether Raynor engaged in unauthorized practice, Rule 9011 violations, and "ghostwriting" warranting contempt and sanctions | Court (moving against Raynor) alleged Raynor prepared filings, advised DeLuca (including re: licensing seizure), failed to sign pleadings, practiced without MD admission or pro hac vice, and attempted to hide role behind a pro se signature | Raynor argued disclosures in DeLuca’s footnotes and a Limited Representation Agreement evidenced limited/pro bono assistance and contested personal jurisdiction | Held — Raynor violated Rule 9011, engaged in unauthorized practice of law and ghostwriting; court reprimanded him, barred him from practice in that court, referred him to Nebraska disciplinary authority, and ordered all Raynor‑assisted papers stricken and vacated |
Key Cases Cited
- Rosedale Plaza Ltd. P’ship v. Lefta, 780 A.2d 387 (Md. Ct. Spec. App. 2001) (liquor license issued to individuals for corporate use is corporate property and thus estate property in bankruptcy)
- DP Partners Ltd. P’ship v. Travelers Indem. Co., 106 F.3d 667 (5th Cir. 1997) (creditor’s purchase of claims and bidding increased estate value — example of substantial contribution)
- Celotex Corp. v. Edwards, 227 F.3d 1336 (11th Cir. 2000) (creditor provided extraordinary, long‑term services leading to consensual plan — substantial contribution example)
- Cellular 101, Inc. v. AT&T, 377 F.3d 1092 (9th Cir. 2004) (creditors presented sole reorganization plan that paid creditors in full — substantial contribution found)
- In re On Tour, LLC, 276 B.R. 407 (Bankr. D. Md. 2002) (creditors stepped in to fill administrative vacuum and secured appointment of trustee — substantial contribution example)
- In re Mungo, 305 B.R. 762 (Bankr. D.S.C. 2003) (discussing ghostwriting, duties of counsel, and need for attorney disclosure under Rule 9011)
- Dodds v. Shamer, 663 A.2d 1318 (Md. 1995) (liquor license may be subject to execution — cited by respondents though court relied on Rosedale Plaza for estate ownership analysis)