In re South Station, LLC, 464 B.R. 46

This is a First and Final Fee Application by Woodbury & Kesler, P.C. for South Station, LLC, under 11 U.S.C. §§ 329, 330 and Rule 2016.
Chapter 7 Trustee objected to the application on Rule 2016 disclosure grounds; the UST joined the objection.
South Station’s case was converted to Chapter 7 on January 19, 2010; four pre- and post-petition disclosures show payments to the applicant from Steve Bates and other related parties.
The applicant received a $13,000 prepetition retainer and later disclosed $20,000 paid by the Bates in October 2008, though a $4,000 post-conversion payment in January 2010 was not disclosed.
The disclosure statements and fee application show inconsistent figures for prepetition and postpetition payments, with funds allegedly held in trust but without a clear accounting of application to fees.
There is extensive interrelation among the debtor, Bates entities, and creditors, including numerous proofs of claim signed by Steve Bates, raising concerns about disinterestedness and allocation of payments.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether there was a failure to disclose compensation under § 329 and Rule 2016	Rushton argues incomplete disclosure of payments from Bates.	Walker contends any disclosure gaps were due to software error.	Yes; insufficient disclosure supported denial of fees.
Whether there was an inadequate accounting of how Bates payments were applied	Trustees assert $57,000 payment with only $13,912.10 in trust; lack of accounting for $43,000.	Applicant plans to credit various payments against fees; no final accounting.	Yes; incomplete accounting supports denial of fees.
Whether the applicant was disinterested under § 327(a) given payments from related creditors	Payments from Bates and related entities threaten disinterestedness.	No direct adverse interest disclosed; argues compliance with ethics.	No; arrangement not sufficiently disinterested, supporting denial.
Whether § 329(b) and § 328(c) permit disgorgement and denial of fees	Trustees seek disgorgement for excess or improper payments.	No evidentiary showing fees were excessive or improper.	Disgorgement denied; however, fees denied on other grounds.

In re Smitty’s Truck Stop, Inc., 210 B.R. 844 (10th Cir. BAP 1997) (failure to disclose retainer supports denial of fees)
Neben & Starrett, Inc. v. Chartwell Fin. Corp. (In re Park-Helena Corp.), 63 F.3d 877 (9th Cir. 1995) (retainer source disclosure required under § 329 and Rule 2016)
In re Park-Helena Corp., 223 B.R. 782 (10th Cir. BAP 1998) (disinterestedness and disclosure failures may deny fees)
In re Maui 14K, Ltd., 133 B.R. 657 (Bankr. D. Haw. 1991) (basic rule on disclosure and fee denial for noncompliance)
In re Roberts, 46 B.R. 827 (Bankr. D. Utah 1985) (principles governing disinterestedness and fee denial)