ATHENA MEDICAL GROUP, LLC
Case Information
*1 ORDERED ACCORDINGLY. Dated: July 29, 2025 _________________________________ Brenda K. Martin, Bankruptcy Judge IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF ARIZONA In re: Chapter 11
ATHENA MEDICAL GROUP, LLC, Case No. 2:23-bk-01635-BKM
Debtor. UNDER ADVISEMENT DECISION REGARDING DORSEY & WHITNEY LLP’S FEE APPLICATION I. INTRODUCTION
Before the Court is the Application of Dorsey & Whitney LLP, as Attorneys for the Debtor, for Compensation and Reimbursement of Expenses for the Period June 28, 2023 through January 27, 2025 for Actual and Necessary Work Performed for the Benefit of the Estate After June 27, 2023 (the “Application”). Wound Care Specialists, LLC and RENU LLC (collectively, “WCS”) filed an objection to the Application. The Application and the objection raise the somewhat novel question of whether counsel for a dispossessed subchapter V debtor may recover from the estate its fees and costs incurred in pursuing a plan of reorganization, or for performing other work. As *2 noted in the Final Report of the ABI Subchapter V Task Force p. 49, “[t]he current legal landscape provides no clear path to allowing debtor’s counsel to continue to be compensated following dispossession.” The Debtor, however, claims three paths for payment: 1) because only the Debtor can file a plan under § 1189, [2] it must be able to retain and pay counsel; 2) as prior counsel for the debtor in possession, the firm is still a professional retained under § 327; and 3) its fees can be awarded as the actual and necessary costs of preserving the estate under § 503(b)(1)(A). The Court finds that these paths are non-navigable as a means of payment post-dispossession. Accordingly, it denies the Application.
II. BRIEF FACTS
The facts of this subchapter V case are also somewhat novel. The Debtor is a medical group that provides wound care services to patients in Arizona, Washington, Texas, and Florida. Before and after the filing of its chapter 11 petition, the Debtor has grossed in excess of $25,000,000 annually. The Debtor has no secured creditors, and only a modest amount of unsecured debt, with one exception: WCS’s asserted claim in excess of $12,000,000.
Debtor filed for bankruptcy under subchapter V of the Bankruptcy Code on March 15, 2023, [3] in response to WCS’s state court complaint and motion for preliminary injunction. [4] The case was contentious from the start, with WCS obtaining an order to examine the Debtor under Rule 2004 on March 20, 2023, [5] as well as an order providing for expedited discovery. [6] Following a flurry of filings by WCS, including discovery requests and an objection to the Debtor’s *3 subchapter V election, [7] on April 25, 2023, the Debtor moved to substitute in Dorsey & Whitney LLP (“Dorsey”) as its counsel of record. [8] Such motion was approved by the Court on May 8, 2023. [9]
Based largely on information learned through discovery, on May 25, 2023, WCS filed its Motion for Appointment of Chapter 11 Trustee or, in the Alternative, for the Removal of the Debtor-in-Possession and Expansion of the Subchapter V Trustee's Powers. [10] On June 28, 2023 (“Disposition Date”), the Court entered its order removing the Debtor as debtor-in-possession and expanding the Subchapter V Trustee’s powers under § 1181(b)(5). [11]
Dorsey continued representing the Debtor after the Disposition Date and filed its first plan on July 13, 2023. [12] While the Subchapter V Trustee supported the Debtor’s first plan, confirmation was, nonetheless, a grueling process. It was not until January 27, 2025, following a series of objections by WCS, three plans, a multitude of other pleadings, several hearings, and two multi day trials, that the Court entered an order confirming the Debtor’s Third Amended Plan (the “Plan”). 13, 14 WCS did not appeal the order confirming the Plan. On February 12, 2025, the Plan went effective.
Thereafter, on March 14, 2025, Dorsey filed the instant Application, requesting $1,251,277 in fees and $25,865.40 in expenses, for work performed from June 28, 2023, through January 27, *4 2025, i.e. , the period after the Disposition Date up through the day before the Plan was confirmed. WCS objected to the Application on April 4, 2025, arguing that the attorney for a dispossessed debtor is not entitled to an award of attorney fees from the estate as a matter of law under the Bankruptcy Code, that the Application was untimely, and that many time entries were not compensable (“Objection”). [15] Dorsey filed its reply on April 18, 2025 (“Reply”). [16] While the parties disagree on many things, the fundamental facts necessary to decide the matter are undisputed.
III. LEGAL FRAMEWORK
As noted, the case before the Court was filed under subchapter V of chapter 11. Subchapter V is relatively new having become effective on February 19, 2020, as a result of the Small Business Reorganization Act of 2019 (“SBRA”). Small Business Reorganization Act of 2019, 3 Bankruptcy Desk Guide § 26:69. “The purpose of Subchapter V is to provide a better path for small businesses to successfully restructure, reduce liquidations, save jobs and increase recoveries to creditors.” Id.
To meet this goal, the SBRA did not repeal existing chapter 11 provisions but instead added several alternative procedures under subchapter V of chapter 11.
Unless and until it is removed by a court, a debtor filing a chapter 11 remains in possession of its assets and in charge of its operations as a “debtor in possession.” Pursuant to § 1107(a), a *5 debtor in possession in a traditional chapter 11 holds many of the powers of a trustee, including the right to retain professionals under § 327(a). [18] Similarly, pursuant to § 1184, [19] in a subchapter V case, the debtor in possession has many of the rights of a trustee, including the right to retain professionals under § 327(a). Approval of employment does not guarantee payment. Pursuant to § 330, [20] before a debtor’s attorney can be paid from the estate, there must be notice and an opportunity to be heard, and the court must approve the amounts to be paid.
In a traditional chapter 11 under § 1121(b), [21] the debtor has the exclusive right to pursue a plan for the first 120 days of the case. Pursuant to § 1106(a)(5), [22] when a traditional chapter 11 debtor is removed as the debtor in possession, the chapter 11 trustee who succeeds it is charged *6 with the responsibility of filing a plan, and under § 1121(c) [23] the door is also opened for any other party in interest to file a plan.
Among its many features that distinguish it from a traditional chapter 11, under the SBRA, §§ 1106, 1107 and 1121 do not apply in a subchapter V case, [24] and “[o]nly a debtor may file a plan....” § 1189(a). Absent from the SBRA is any corollary provision that allows an interested party, including a subchapter V trustee, in a subchapter V to file a plan, even in the event the debtor is dispossessed. The parties’ dispute emanates from the lack of clarity as to how counsel for a dispossessed debtor in a subchapter V is to be compensated for assisting a debtor in pursuing a plan.
IV. LEGAL ANALYSIS
WCS objects to the Application arguing that nothing in the Bankruptcy Code entitles Dorsey to have its fees paid by the estate. Its argument sets forth the same analysis courts have used in traditional chapter 11 cases, noting that a “prerequisite for an award of compensation for a professional under § 330 is … employment under § 327 (or § 1103),” and concluding that, because a debtor’s authority to retain counsel under § 327(a) is premised on it asserting the rights *7 of a trustee as debtor in possession, once the debtor is removed as debtor in possession it can no longer retain counsel under § 327 and counsel is, accordingly, no longer appointed thereunder. In support of this argument, WCS relies primarily on four cases.
The first case cited is Lamie . The issue before the Supreme Court in Lamie was whether a chapter 11 debtor’s counsel could recover fees from the estate for work performed after the case converted to chapter 7. Id. at 538-39. The focus of the Supreme Court’s analysis in was on a change made to the text of § 330(a) in the Bankruptcy Reform Act of 1994, 108 Stat. 4106, which provided that only entities employed under § 327 could be paid under § 330(a). Employing the plain meaning of the text, the Supreme Court noted that “§ 327 professional persons undoubtedly includes attorneys, as much as does § 330(a)(1)’s reference to professional persons.” Id. at 536. Accordingly, it concluded that debtor’s counsel appointed under § 327 in a chapter 11 was not entitled to fees under § 330(a)(1) for work performed after the case converted to chapter 7 because upon conversion, counsel ceased to be “employed as authorized by § 327. If the attorney is to be paid from estate funds under § 330(a)(1) in a Chapter 7 case, he must be employed by the trustee and approved by the court.” at 538-539.
The second case cited is
In re Tevis
,
The third case cited is
In re Sunergy California LLC
,
The fourth case, and only subchapter V case cited by WCS, is in
In re NIR West Coast,
Inc.
,
…provides the debtor as the debtor in possession-and thence as the functional equivalent of a trustee-with authority to employ attorneys under § 327 and to compensate attorneys from the estate under § 330…[s]o too must the former. And so just as the removal of the debtor as the debtor in possession in a non-subchapter v chapter 11 case terminates the debtor's authority and status under § 1107(a), removal of the debtor as the debtor in possession in a subchapter v chapter 11 case equally terminates the debtor's authority and status under § 1184. In other words, Lamie is no less applicable in a subchapter v chapter 11 case.
NIR West Coast
,
Termination of the Debtor's status as the debtor in possession … terminated the Debtor's retention of the Law Firm under § 327(a) as the estate's attorneys and the ability to compensate and reimburse the Law Firm from the estate under § 330. Compensation and reimbursement of expenses for services that the Law Firm provided on and after April 1, 2021, are therefore denied for the independent reasons stated above. at 453.
Dorsey argues that is distinguishable because it involved conversion from a traditional chapter 11 to chapter 7, not the removal of a debtor in possession in a subchapter V case. It argues that Tevis and Sunergy are distinguishable because neither involved subchapter V, the former dealing with a chapter 7 trustee in a converted chapter 13 case and the latter, because it “converted to Chapter 7.” Dorsey also argues that NIR West Coast is not binding on the Court and is distinguishable because the court in NIR West Coast was focused primarily on the debtor’s attorney’s failure to disclose an adverse interest to the estate and did not address any of the arguments it raises as to the payment of its fees.
*10 Dorsey raises three possible theories on which the Court can award its fees: 1) because only the Debtor can file a plan under § 1189, it must be able to retain and pay counsel; 2) as prior counsel for the debtor in possession, the firm is still a professional retained under § 327; and 3) its fees can be awarded as the actual and necessary costs of preserving the estate under § 503(b)(1)(A). The Court will address WCS’s arguments first and then turn to Dorsey’s.
Key to a professional being compensated from the estate under § 330 is that person’s employment under § 327(a)(1): “A debtor's attorney not engaged as provided by § 327 is simply not included within the class of persons eligible for compensation.” Lamie , 540 U.S. at 534. Focusing on the effect of conversion from chapter 11 to 7, the Supreme Court noted that the conversion to chapter 7 “terminated [the debtor’s] status as debtor-in-possession and so terminated petitioner's service under § 327 as an attorney for the debtor-in-possession.” Id. at 532. “Adhering to conventional doctrines of statutory interpretation,” the Supreme Court concluded “that § 330(a)(1) does not authorize compensation awards to debtors' attorneys from estate funds, unless they are employed as authorized by § 327. If the attorney is to be paid from estate funds under § 330(a)(1) in a Chapter 7 case, he must be employed by the trustee and approved by the court.” at 538-39.
Although the court was most certainly relying on § 348(e) in its determination that the debtor was terminated as debtor in possession upon conversion, the focus of the Supreme Court’s analysis was on the effect of such termination. That is, the Supreme Court concluded that once terminated as debtor-in-possession, the debtor’s attorney’s services were also terminated. In *11 the chapter 11 context, once a debtor is dispossessed, it no longer functions as the trustee and therefore has no ability to hire counsel under Section 327. It stands to reason, then, that upon removal of the debtor in possession, counsel is likewise removed or terminated as counsel for the debtor in possession. This Court agrees with the court’s analysis in Johnson (as adopted in Sunergy ):
Although Lamie involved the different situation of a case that was converted from chapter 11 to chapter 7, the fact that its underlying rationale turned on cessation of status as debtor in possession indicates that there is no reason to doubt that Lamie applies equally to chapter 11 cases in which a trustee is appointed.
Johnson
,
While Dorsey distinguishes Sunergy as not involving subchapter V , the Sunergy court’s analysis appears sound in the context of a traditional chapter 11 and the Court is unaware of any courts holding to the contrary. The court in NIR West Coast expanded this analysis to the subchapter V context, finding no reason to differentiate. But as Dorsey notes, NIR West Coast did not analyze the arguments that Dorsey puts forth, and at least one court in the unreported ComedyMX decision did just that and allowed the fees.
Before exploring Dorsey’s arguments, the context in which the ComedyMX decision was issued merits discussion. In ComedyMX, the court had before it a request for fees for work performed by debtor’s counsel after the removal of the debtor as debtor in possession. The court referenced three theories for recovery, describing each as “potential” bases for relief, “subject to *12 counterarguments that are at least colorable” and specifically noting that its order “does not adjudicate or resolve any such issue.” Id. at p. 2-3. The ComedyMX court was not required to resolve any such argument as it was in the unique situation where “no party object[ed] to awarding [debtor’s counsel’s] compensation from the estate for actual, necessary worked [sic] performed for the benefit of the state [sic] after the Dispossession Date. The Court accordingly grant[ed] this relief on that basis.” While the decision can hardly be considered a ringing endorsement of any particular theory of recovery, it does set forth three different paths of analysis which Dorsey adopts in its briefing.
1. The “Necessity” Argument
The theory behind Dorsey’s first argument, as mentioned in ComedyMX and explained in the Bonapfel Update , is that “after dispossession, the debtor retains the limited obligation of a trustee to file a plan so that the dispossessed debtor can retain counsel under § 327(a) (entitled to compensation under § 330(a)) for services necessary to perform that function.” Bonapfel Update at p. 29, n. 22. Despite the Code’s silence on the theory, Dorsey contends that this theory is logical because it would be illogical for Congress to enact the SBRA – with the intent of making chapter 11 more efficient and affordable to small businesses and giving a debtor the exclusive ability to file a plan – while also making it impossible for a dispossessed debtor to pursue a plan because it cannot pay counsel. It also argues that any interpretation that does not allow for compensation of counsel would disincentivize debtors from filing under subchapter V.
The Court does not find this argument persuasive. The weaknesses of this argument are also well stated in the Bonapfel Update :
The difficulty with this position is that the duty of a trustee to file a plan under § *13 1106(a)(5) is not applicable in a subchapter V case. See § 1181(a). The argument thus depends on the proposition that the duty to file a plan is a trustee duty that § 1189 vests in the debtor and that the debtor retains this trustee duty even after dispossession. at p. 29, n. 22.
As noted in the Bonapfel Update , a trustee’s duty to file a plan emanates from § 1106(a)(5) which is not applicable in a subchapter V case. Accordingly, a subchapter V debtor’s right to file a plan does not emanate from the trustee, but directly from § 1189(a). Therefore, it is illogical to argue that a debtor continues to retain the rights of the trustee to file a plan, when the debtor’s right never emanated from the trustee’s rights in the first place.
If the dispossessed debtor is to have the right to retain counsel who will be paid from the estate, the right must arise from some other provision in the Bankruptcy Code. Sections 1189 and 330 are, however, silent on the issue, even though Congress has demonstrated it knows how to allow compensation for attorneys who represent debtors with the exclusive ability to file plans. In chapters 12 and 13 only the debtor can file a plan [32] and § 330(a)(4)(B) specifically allows for the compensation of a debtor’s attorney in each instance. [33] No other Code section provides that a dispossessed debtor is entitled to pay its counsel from estate funds.
This Court also disagrees with Dorsey’s argument that it is illogical and inequitable that
Congress would grant the debtor the exclusive right to pursue a plan and then make it “impossible”
for a dispossessed debtor’s attorney to be entitled to compensation. It is well established that
*14
“when the statute's language is plain, the sole function of the courts—at least where the disposition
required by the text is not absurd—is to enforce it according to its terms.” ,
The Court also disagrees that denying counsel’s fees will have a chilling effect for those wanting to file subchapter V. Given all the benefits of subchapter V, the primary impact of not allowing compensation from the estate would most likely be that future debtors will be more careful not to do things that could lead to their removal. For these reasons, the Court is not persuaded by this argument.
2. Retention as a Professional Person Argument
For its second argument, Dorsey argues that “post-removal fees are appropriate under 11
U.S.C. § 330 because, as prior counsel to the debtor-in-possession, the Dorsey attorneys working
on this case are professional persons employed under 11 U.S.C. § 327.” Put another way, Dorsey
through counsel.
See Rowland v. California Men’s Colony, Unit II Men’s Advisory Council
,
exceeding the projected disposable income inures to the equity holders. In the context of paying its counsel from estate
funds, a debtor could also seek reinstatement under § 1185(b), or with respect to non-plan work, debtor’s counsel
might be approved as special counsel under § 327(e).
See Johnson
,
WCS contends that NIR West Coast “makes clear that debtor’s counsel does not qualify as a ‘professional person’ under § 327(a) with the ability to obtain compensation from the debtor’s estate following the removal of the debtor as the debtor-in-possession.” [38] According to WCS, a “professional person” under § 327(a) is no different than, and has no greater rights than, an attorney employed under § 327(a). Moreover, as WCS points out, Dorsey was appointed as counsel for the debtor in possession, not as a professional person.
While it does not appear that the court in NIR West Coast specifically addressed this issue, this Court nonetheless agrees with WCS. The key to employment under § 327(a) is employment by the trustee, whether that person is an attorney or another professional person. Once a debtor is dispossessed, it no longer functions as the trustee; thus, anyone it hires should no longer be *16 employed under § 327 unless the trustee independently determines to seek approval to hire them.
In addition, redesignating the debtor’s counsel as a professional person upon the removal of the debtor in possession would lead to complications with respect to the breadth of counsel’s duties, which under such analysis would presumably not be limited solely to filing a plan. Indeed, in its Application, Dorsey is seeking fees not just for formulating and pursuing a plan, but for other general work on the case. While the Court notes that Dorsey and the Subchapter V Trustee both contend that the general work was performed at the Subchapter V Trustee’s request, that might not always be the case and could lead to duplication of expenses as well as potential inconsistency in administering the estate. For these reasons, the Court does not find this argument persuasive.
3. Actual Necessary Costs and Expenses Argument
Finally, Dorsey argues that its legal fees incurred after Debtor’s removal as debtor in possession qualify as actual, necessary costs and expenses of preserving Debtors’ estate under § 503(b)(1)(A). According to Dorsey, fees are actual and necessary costs of preserving the estate because, if “the Debtor was prohibited from employing Dorsey for post-removal services, the Debtor would never have confirmed a plan and would have ended up liquidating.” Dorsey also argues that the Debtor’s retention of exclusivity to file a plan differentiates this from a traditional chapter 11 in which the trustee can file a plan. Dorsey also notes that the list of examples under § 503(b) of those who can be entitled to an award is not exclusive or exhaustive. Thus, nothing in § 503(b) excludes its compensation.
WCS cites multiple cases for the proposition that Dorsey cannot use § 503(b)(1)(A) to
make an end run around of §§ 327, 330, and 503(b)(2).
See, In re Milwaukee Engraving Co., Inc.,
*17
Dorsey differentiates these cases by noting their age and observing that none of them interpret the issue in the context of a subchapter V case.
Of all the arguments made by Dorsey, this theory has the most surface appeal, as the work performed by Dorsey in proposing and prosecuting the plan unquestionably resulted in a successful confirmation. Indeed, WCS implicitly acknowledges some benefit to the estate by challenging the necessity of only $836,915.38 of the $1,251,277, leaving $414,361.62 in requested fees unchallenged.
As tempting as it would be to grant fees on this basis, the Bankruptcy Code and case law
do not support Dorsey’s argument. To start, the Court must acknowledge the "axiom that a statute's
general permission to take actions of a certain type must yield to a specific prohibition found
elsewhere.”
Law v. Siegel
,
In
Milwaukee Engraving
a law firm filed chapter 11 on behalf of the debtor and applied to
be counsel of record.
it would vitiate the limitations of § 327 if a bankruptcy court could deny an
application under that section and order the estate to pay for the legal services
anyway. Moreover, the structure of § 503(b) strongly implies that professionals
eligible for compensation must receive it under § 503(b)(2)—which depends on
authorization under § 330 or § 1103(a) (and thus on approval under § 327). One
might as well erase § 503(b)(2) from the statute if attorneys may stake their claims
under § 503(b)(1)(A) even when ineligible under §§ 327, 330, and 503(b)(2).
Milwaukee Engraving
is not alone in this observation. The facts of
Weibel
, are similar to
those of
Milwaukee Engraving.
In
Weibel,
the bankruptcy court found that counsel was not
disinterested and denied its application to be retained as counsel under § 327. Thereafter, counsel
applied for approval of its fees and costs for the period up to the court’s ruling. The bankruptcy
court denied the fees, initially finding it had no discretion because counsel was never appointed
under § 327, but later on reconsideration concluded it did have discretion, but that exercising its
*19
discretion was not warranted.
On appeal, counsel argued that it was entitled to compensation under §§ 327 and 330, based on quantum meruit, and based on benefit to the estate under § 503(b)(1). Addressing the last argument, the panel disagreed, writing:
If compensation cannot be awarded under Section 503(b)(2), then the question is whether it can be awarded under Section 503(b)(1). McCutchen argues that it can. However, such an interpretation of Section 503 renders Section 503(b)(2), as well as Section 327, “nugatory.” See F/S Airlease II, Inc. v. Simon, 844 F.2d 99, 109 (3rd Cir. 1988). Indeed, the language behind both Sections is remarkably similar. Section 503(b)(2) essentially incorporates the language of Section 330, that reasonable compensation can be allowed for “actual, necessary services rendered by” the attorney based on the nature, extent and value of such services. Section 503(b)(1) provides for payment, as administrative claims, of “the actual, necessary costs and expenses of preserving the estate, including wages, salaries, or commissions for services rendered after the commencement of the case.”
For an attorney, the test for receiving compensation would appear nearly
identical under both Sections. It is reasonable then, to construe Section 503(b)(2),
with its specific reference to compensation to professionals under Section 330, as
the only part of Section 503(b) under which such professionals can receive
compensation.
at 213.
See, also,
S
urrey Inv. Services, Inc. v. Smith
,
(“to apply section 503(b)(1)(A) to professional compensation would render section 503(b)(2)
superfluous and avoid the requirements and purposes of section 327”);
In re First Magnus
Financial Corp.
, No. BAP.AZ-08-1160-PADMO,
Hence, while the equities here may favor Dorsey more than in the cited cases, the Court is persuaded that allowing the fees under § 503(b)(1) would improperly circumvent more specific provisions of the Code that do not allow for such fees. Accordingly, the fees will not be allowed under this theory.
V. CONCLUSION
Because this Court agrees with the analysis in NIR West Coast and is not persuaded by the other theories advanced by Dorsey, the Application is denied. As it is denying the Application in its entirety, the Court need not address the parties’ arguments reading the timeliness of the Application or the detailed objections to specific time entries.
*21 Based on the foregoing,
IT IS HEREBY ORDERED denying the Application.
DATED AND SIGNED ABOVE.
Copy of the foregoing emailed
this 29th day of July, 2025 to:
Isaac M. Gabriel
Alissa Brice Castaneda
Michael Galen
DORSEY & WHITE LLP
2398 E. Camelback Rd., Ste. 760
Phoenix, AZ 85016
Email: gabriel.isaac@dorsey.com, Email: Castaneda.alissa@dorsey.com, Email: galen.michael@dorsey.com Attorneys for Debtor
Benjamin W. Reeves
James G. Florentine
SNELL & WILMER, L.L.P.
One E. Washington St., Ste. 2700
Phoenix, AZ 85004
Email: breeves@swlaw.com, Email: jflorentine@swlaw.com Attorneys for Wound Care Specialists, LLC and RENU LLC
David Weitman
Christopher A. Brown
K&L GATES LLP
1717 Main Street, Ste. 2800
Dallas, TX 75201
Email: david.weitman@klgates.com, Email: chris.brown@klgates.com Attorneys for Wound Care Specialists, LLC and RENU LLC *22 Michael W. Carmel
MICHAEL W. CARMEL, LTD.
80 E. Columbus, Avenue
Phoenix, AZ 85012
Email: michael@mcarmellaw.com Attorney for Subchapter V Trustee
James E. Cross
CROSS LAW FIRM, PLC
PO BOX 45469
Phoenix, AZ 85064
Email: jcross@crosslawaz.com Subchapter V Trustee
Patty Chan
OFFICE OF THE U.S. TRUSTEE
230 North First Avenue, Suite 204
Phoenix, AZ 85003
Email: patty.chan@usdoj.gov Attorney for U.S. Trustee
By:/ s /Annette J. Franchello Judicial Assistant
Notes
[1] Dkt. No. 851.
[2] Unless otherwise indicated, all chapter and section references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532 and “Rule” references are to the Federal Rules of Bankruptcy Procedure.
[3] Dkt. No. 2.
[4] The Debtor vehemently disputes WCS’s claim. The Debtor’s claim objection, as well as its counterclaims against WCS are the subject of an ongoing adversary proceeding, case no. 2:23-ap-00057-BKM (“Adversary”).
[5] Dkt. No. 21.
[6] Dkt. No. 28.
[7] Dkt. No. 31.
[8] Dkt. No. 63. 20
[9] Dkt. No. 97.
[10] Dkt. No. 111. The motion focused primarily on “missteps” made by the Debtor, among them, continuing to pay prepetition vendors after the filing. WCS requested alternative relief in its motion because at the time, its objection to the subchapter V election was still pending. That objection was denied on June 15, 2023. Dkt. No. 156.
[11] Dkt. No. 174.
[12] Dkt. No. 211.
[13] Dkt. No. 651.
[14] Dkt. No. 811.
[15] Dkt. No. 866. The Court notes that WCS’s objection to the Application is not a surprise to the parties or the Court, as WCS indicated early on the record that it would object to any fee application by Dorsey on the same or similar 20 grounds as it does here. See June 28, 2023, Minute Entry. Dkt. No. 181.
[16] Dkt. No 877.
[17] Section 1107(a) reads: Subject to any limitations on a trustee serving in a case under this chapter, and to such limitations or conditions as the court prescribes, a debtor in possession shall have all the rights, other than the right to compensation under section 330 of this title, and powers, and shall perform all the functions and duties, except the duties specified in sections 1106(a)(2), (3), and (4) of this title, of a trustee serving in a case under this chapter.
[18] Section 327(a) reads: Except as otherwise provided in this section, the trustee, with the court's approval, may employ one or more attorneys, accountants, appraisers, auctioneers, or other professional persons, that do not hold or represent an interest adverse to the estate, and that are disinterested persons, to represent or assist the trustee in carrying out the trustee's duties under this title.
[19] Section 1184 reads: Subject to any limitations on a trustee serving in a case under this chapter, and to such limitations or conditions as the court prescribes, a debtor in possession shall have all the rights, other than the right to compensation under section 330 of this title, and powers, and shall perform all the functions and duties, except the duties specified in sections 1106(a)(2), (3), and (4) of this title, of a trustee serving in a case under this chapter.
[20] Section 330(a)(1), in particular, reads: 17 After notice to the parties in interest and the United States Trustee and a hearing, and subject to sections 326, 328, and 329, the court may award to a trustee, a consumer privacy ombudsman appointed under section 332, an examiner, an ombudsman appointed under section 333, or a 18 professional person employed under section 327 or 1103-- (A) reasonable compensation for actual, necessary services rendered by the trustee, 19 examiner, ombudsman, professional person, or attorney and by any paraprofessional person employed by any such person; and 20 (B) reimbursement for actual, necessary expenses.
[21] Section 1121(b) reads: Except as otherwise provided in this section, only the debtor may file a plan until after 120 days after the date of the order for relief under this chapter.
[22] Section 1106(a)(5) reads: A trustee shall-- as soon as practicable, file a plan under section 1121 of this title, file a report of why the trustee will not file a plan, or recommend conversion of the case to a case under chapter 7, 12, or 13 of this title or dismissal of the case.
[23] Section 1121(c) reads: 17 Any party in interest, including the debtor, the trustee, a creditors’ committee, an equity security holders’ committee, a creditor, an equity security holder, or any indenture trustee, may file a plan if and only if— 18 (1) a trustee has been appointed under this chapter; (2) the debtor has not filed a plan before 120 days after the date of the order for relief under 19 this chapter; or (3) the debtor has not filed a plan that has been accepted, before 180 days after the date of 20 the order for relief under this chapter, by each class of claims or interests that is impaired under the plan.
[24] Section 1181(a) reads in pertinent part: Sections 105(a), 1101(1), 1104, 1105, 1106, 1107, 1108, 115, 1116, 1121, 1123(a)(8), 1123(c), 1127, 1129(a)(15), 1129(b), 1129(c), 1129(e), and 1141(d)(5) of this title do not apply in a case under this subchapter.
[25] Objection, 8:5-6, citing § 330(a);
Lamie v. U.S. Trustee
,
[26] Objection, 8:5-17.
[27] Objection, 8:9-10; 14-15.
[28] Reply, p. 15, n. 13. The comment regarding Sunergy may have been in error; the Court sees nothing in the opinion to indicate the confirmed liquidating case converted to chapter 7.
[29] These theories derive from those set forth in In re ComedyMX, LLC , No. 1:22-bk-11181, Dkt. No. 153 (Bankr. D. Del. April 25, 2023) and by the Hon. Paul W. Bonapfel, Subchapter V Update (March 2024), https://www.flmb.uscourts.gov/judges/tampa/mcewen/SubchapterV.pdf (“ Bonapfel Update ”), at p. 28, n. 22.
[30] The ruling appears in line with other rulings on the topic, e.g.,
In re Bresnick
,
[31] Application, 20:18-21.
[32] See §§ 1221 and 1308.
[33] As explained in , “while § 330(a)(1) requires proper authorization for payment to attorneys from estate funds
in Chapter 7 filings, it does not extend throughout all bankruptcy law. Compensation for debtors' attorneys in Chapter
12 and 13 bankruptcies, for example, is not much disturbed by § 330 as a whole. See,
e.g.,
11 U.S.C. § 330(a)(4)(B)….”
[34] Dorsey argues that the inequity is exacerbated by the fact that entities (as opposed to individuals) can only appear
[37] From
ComedyMX
:
Alternatively, it could be argued that an award is appropriate under § 330 on the ground that, as
16
prior counsel to the debtor, the firm is a professional person employed under § 327.
Id.
at p. 2-3.
ComedyMX
immediately follows the prior quote with a footnote:
17
But see Lamie v. United States Trustee
,
[38] Objection, 10:16-11:2.
[39] Dkt. No. 97.
[40] Application, 21:12-13.
[41] Or on the bases of §§ 503(b)(3)(D) and (4) which were raised for the first time in Dorsey’s Reply at p. 4.
[42] Interestingly, for its conclusion that it had discretion, the bankruptcy court relied on Matter of Grabill Corp. , 983 F.2d 773 (7th Cir. 1993), the same case that the lower court in Milwaukee Engraving relied on and that the Seventh 20 Circuit criticized as containing only dicta on the issue of compensation without the benefit of any legal analysis from the litigants. Milwaukee Engraving at 637-638.
[43] The § 327 argument was made under the prior version of the Code section, which is discussed by the Supreme Court in and not at issue here. The quantum meruit theory was rejected by the panel in that it had previously held that “the Bankruptcy Code and Federal Rules of Bankruptcy Procedure operate to preclude fee awards for services performed on behalf of a bankruptcy estate based upon state law theories not provided for by the Code.” Weibel , 176 B.R. at 211.
[44] Any suggestion that Dorsey was representing the equity holders entitling it to fees under § 503(b)(3)(D) and (b)(4) – and it is not clear that either party is actually arguing this – is factually incorrect as Dorsey specifically appeared on 19 behalf of the Debtor and, of course, only the Debtor had the right to pursue a plan. Further, Dorsey seems to argue in its Reply that because the Subchapter V Trustee with expanded powers requested its assistance and its work benefitted 20 the estate, its fees should be approved under § 503(b). However, such work does not fit neatly under any provision of § 503(b). Moreover, the Subchapter V Trustee certainly knew how to seek approval of Dorsey as special counsel for the estate – but did so only with respect to the Adversary. And as WCS points out, the Court’s order approving such appointment specifically limited the start date of such appointment to the date of the application, which was not filed until August 22, 2024. Dkt. No. 646.
[45] WCS’s Motion to Strike Declarations of Katie McNally, Melissa Scott, and James E. Cross (Dkt. No. 889) that sought to strike the declaration of the Subchapter V Trustee to the extent it supported the Application is also deemed moot.