In Re: Sarah Reva Kaye

Filing 9

ORDER REMANDING CASE TO BANKRUPTCY COURT. Signed by Judge Lance M Africk on 10/18/2011. (cc: Bkcy Crt, Bkcy Judge, US Trustee)(lag, )

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA

CIVIL ACTION

IN RE:
SARAH REVA KAYE

No. 11-1674
SECTION “I”

ORDER AND REASONS
Before the Court is an appeal of an order of the U.S. Bankruptcy Court for the Eastern
District of Louisiana (“bankruptcy court”) filed by appellant, Orrill, Cordell & Beary, L.L.C.
(“OCB”), special counsel for Barbara Rivera-Fulton (“the trustee”), trustee of the bankrupt estate
of Sarah Reva Kaye (“the debtor”). Appellees, Neal W. Kaye, Jr. and Susan Patricia Kaye
Knight, have filed a response. For the following reasons, the matter is REMANDED to the
bankruptcy court for further articulation of its reasoning.
BACKGROUND
The debtor and Malcolm J. Rebennack (“Rebennack”) were previously married between
March 25, 1987 and April 21, 1994.1 A judgment of divorce between the debtor and Rebennack
was entered on January 29, 1995, terminating the community effective April 21, 1994.2 The
debtor filed for bankruptcy on May 1, 2009. At that time, certain community property had yet to
be partitioned and remained in Rebennack’s control.3

1

R. Doc. No. 3, p. 7.
2:10-ap-1089, R. Doc. No. 1, p. 3.
3
R. Doc. No. 3, p. 7.
2

Eight proofs of claim were filed against the estate.4 Claim 1, totaling $58,066.63, was
based upon a judgment against the debtor for legal fees owed to Lowe, Stein, Hoffman, Allweiss
& Hauver, L.L.P., and this claim was ultimately assigned to Rebennack.5 Claims 2 through 6
were minor claims totaling $5,095.51.6 Claim 7, totaling $78,063.08, addressed OCB’s claim for
legal fees for its pre-bankruptcy representation of the debtor.7 Finally, claim 8, totaling
$275,583.47, concerned the community property dispute between the debtor and Rebennack and
included reimbursement claims that Rebennack had against the community.8
Following the debtor’s filing of her bankruptcy petition, the trustee filed an application to
have OCB appointed as special counsel for the estate.9 Rebennack opposed OCB’s appointment
as special counsel in light of appellant’s prior representation of the debtor.10 Consequently, the
bankruptcy court gave OCB a choice: OCB could either waive its claim against the estate and be
appointed special counsel, or OCB could maintain its claim for $78,063.08 and it would not be
appointed as special counsel for the estate.11 OCB chose the former, agreeing to withdraw its
claim.12 Thereafter, the bankruptcy court approved OCB’s appointment as special counsel.13
Acting as counsel for the estate, OCB presented a proposed settlement to the bankruptcy
court for approval regarding the community property in dispute in the adversary proceeding.14
The parties stipulated that the value of community property equaled $400,000.00.15 The

4

R. Doc. No. 3, p. 7.
R. Doc. No. 3, p. 8.
6
R. Doc. No. 3, p. 7.
7
R. Doc. No. 3, p. 8.
8
R. Doc. No. 3, p. 8.
9
2:09-bk-11300, R. Doc. No. 37.
10
2:09-bk-11300, R. Doc. No. 40.
11
R. Doc. No. 3, p.9.
12
R. Doc. No. 3, p.9.
13
2:09-bk-11300, R. Doc. No. 50.
14
2:09-bk-11300, R. Doc. No. 57, ex. A.
15
2:09-bk-11300, R. Doc. No. 57, ex. A.
5

2

proposed settlement provided that rather than Rebennack paying $400,000.00 into the estate, and
the estate then paying Rebennack $200,000.00 on his reimbursement claim, Rebennack would
simply pay $200,000.00 to the estate in a structured payment.16 Additionally, the proposed
settlement called for OCB to receive one-third of $400,000.00 (a total of $133,333.33) in
attorney’s fees.17
The bankruptcy court approved the terms of the settlement, but denied OCB’s requested
attorney’s fees and ordered OCB to submit a separate fee application.18 OCB’s subsequent fee
application again requested $133,333.33 in attorney’s fees.19 Ultimately, the bankruptcy court
awarded OCB one-third of the net $200,000.00 available for distribution to creditors (a total of
$66,666.67 in attorney’s fees).20
OCB argues that the bankruptcy court erred in calculating its one-third contingency fee
based on the $200,000.00 available for distribution to creditors, rather than the community’s total
value of $400,000.00.21 OCB specifically argues that the bankruptcy court “erred by concluding
that the entire community estate was not property of the bankruptcy estate pursuant to [11 U.S.C.
§] 541 of the Bankruptcy Code because the debtor was not going to receive a discharge.”22 OCB
asserts that it should have been awarded one-third of the total value of the community as
predicated on the language of 11 U.S.C § 541 (“§ 541”).23 Consequently, OCB contends that the

16

2:09-bk-11300, R. Doc. No. 57, ex. A.
2:09-bk-11300, Doc. No. 57, ex. A.
18
2:09-bk-11300, R. Doc. No. 63.
19
2:09-bk-11300, R. Doc. No. 65.
20
2:09-bk-11300, R. Doc. No. 70.
21
R. Doc. No. 3, p. 5.
22
R. Doc. No. 3, p. 5.
23
R. Doc. No. 3, p. 9 (“[I]t was OCB’s understanding that any attorney’s fee awarded would be based on the whole
or gross value of the community – not the Debtor’s portion alone.”).
3
17

bankruptcy court committed legal error by misapplying § 541 when calculating the total value of
the estate.24
Appellees respond that the bankruptcy court properly calculated OCB’s contingency fee
based on the net amount recovered for the estate.25
LAW AND ANALYSIS
This Court has jurisdiction to hear this appeal pursuant to 28 U.S.C. § 158(a)(1), which
authorizes appellate review of final orders, judgments and decrees of a U.S. Bankruptcy Court
entered consistent with 28 U.S.C. § 157. 28 U.S.C. § 158(a)(1); see also In re Crescent City
Capital Dev. Corp., 1997 WL 90976, at *1 (E.D. La. Feb. 28, 1997) (Duval, J.). With respect to
attorney’s fees, a district court reviews such an award for abuse of discretion. In re Coho Energy
Inc., 395 F. 3d 198, 204 (5th Cir. 2004) (citations omitted). The legal conclusions that guided
the bankruptcy court’s determinations are reviewed de novo. Id.
When sitting as an appellate court, a district court “may affirm, modify or reverse a
bankruptcy court’s judgment, order or decree or remand with instructions for further
proceedings.” Bankr. R. 8013. When an appellate court has “no notion of the basis for a [lower]
court’s decision because its reasoning is vague or simply left unsaid, there is little opportunity for
effective review.” Liberty Mutual Ins. Co. v. Brown, 86 Fed. App’x 718, 219 (5th Cir. 2004)
(citing McInrow v. Harris County, 878 F.2d 835, 836 (5th Cir.1989)). “In such cases, [the
appellate court has] not hesitated to remand the case for an illumination of the court’s analysis
through some formal or informal statement of reasons.” Id. (citing Myers v. Gulf Oil Corp., 731
F.2d 281, 284 (5th Cir. 1984) (remand appropriate where lower court’s reasoning is vague or

24
25

R. Doc. No. 3, pp. 15-18.
R. Doc. No. 6, p. 12.
4

simply left unsaid)); see also Thule Drilling ASA v. Schimberg, 290 Fed. App’x 745, 747 (5th
Cir. 2008) (remand appropriate where the appellate court was “uncertain about the rationale for
the [lower] court’s decision”).
The bankruptcy court’s orders in this matter are silent with respect to the basis for
calculating OCB’s one-third contingency fee. First, the trustee’s “Application to Employ Special
Counsel” does not address how to calculate OCB’s one-third contingency fee.26 Consequently,
when the bankruptcy court authorized the trustee to employ OCB as special counsel and stated
that, “IT IS FURTHER ORDERED that OCB’s proposed one-third contingency fee is hereby
APPROVED,” the court did not set forth or incorporate by reference the basis upon which the
contingency fee would be calculated.27 Further, when OCB presented the proposed settlement to
the bankruptcy court, the agreement called for OCB to receive one-third of $400,000.00.28 The
court denied that portion of OCB’s motion without explanation and it ordered OCB to submit a
separate fee application regarding attorney’s fees.29 OCB’s subsequent fee application reiterated
the firm’s demand for one-third of $400,000.00.30 The bankruptcy court held a hearing on
OCB’s fee application on June 7, 2011, and entered an order approving attorney’s fees in the
amount of $66,666.67 on June 9, 2011 (one-third of $200,000.00).31 The June 9, 2011 order
does not explain the court’s reasoning for approving $66,666.67 in attorney’s fees.
OCB directs the Court to the transcript of the June 7, 2011 proceedings wherein the
bankruptcy court heard argument regarding OCB’s fee application.32 OCB argues that the

26

2:09-bk-11300, R. Doc. No. 37.
2:09-bk-11300, R. Doc. No. 50.
28
2:09-bk-11300, R. Doc. No. 57.
29
2:09-bk-11300, R. Doc. No. 63.
30
2:09-bk-11300, R. Doc. No. 65.
31
2:09-bk-11300, R. Doc. No. 70.
32
R. Doc. No. 3-1.
27

5

transcript establishes that the bankruptcy court erroneously interpreted § 541.33 However, while
counsel and the court discuss § 541, at the end of the hearing the court states, “[b]ut, no, I’m not
doing this. I set fees. I set them on contingency basis. Sometimes you win, sometimes you lose.
That’s what contingencies are about. So, I will award the contingency fee based on the amounts
that were recovered for the estate which is the $200,000.”34
Based on the above quoted exchange, this Court cannot determine whether the
bankruptcy court applied § 541, misapplied § 541, or declined completely to consider § 541
when calculating OCB’s contingency fee.35 If the bankruptcy court did in fact apply § 541, it did
not adequately explain its application of the facts to the statutory language. As a result, the cold
hearing transcript does not set forth with sufficient particularity the reasoning for the bankruptcy
court’s decision to calculate OCB’s contingency fee as one-third of $200,000.00.36
CONCLUSION
For the reasons stated above,

33

11 U.S.C. § 541 states that:
(a) The commencement of a case under section 301, 302, 303 of this title creates an estate. Such estate is
comprised of all the following property, wherever located and by whomever held:
(1) Except as provided in subsections (b) and (c)(2) of this section, all legal or equitable interests
of the debtor in property as of the commencement of the case.
(2) All interests of the debtor and the debtor’s spouse in community property as of the
commencement of the case that is –
(A) under the sole, equal, or joint management and control of the debtor; or
(B) liable for an allowable claim against the debtor, or for both an allowable claim
against the debtor and an allowable claim against the debtor’s spouse, to the extent that
such interest is so liable.
...
34
R. Doc. No. 3-1, p. 10.
35
The record also does not indicate whether the bankruptcy court, when awarding such attorney’s fees, considered
11 U.S.C. § 328 or 11 U.S.C. § 330.
36
This Court expresses no opinion on the merits of OCB’s argument that it is entitled to attorney’s fees in the
amount of one-third of $400,000.00.
6

IT IS ORDERED that this matter is REMANDED to the U.S. Bankruptcy Court for the
Eastern District of Louisiana for further explanation for its reasoning with respect to the
aforementioned issues.
New Orleans, Louisiana, October 18, 2011.

__________________________________
LANCE M. AFRICK
UNITED STATES DISTRICT JUDGE

7