Modanlo v. Rose

Filing 30

MEMORANDUM OPINION AND ORDER granting 25 Appellee's Motion to Dismiss; directing the Clerk to close this case. Signed by Judge Paul W. Grimm on 7/2/2018. (c/m 07/02/2018 - jf3s, Deputy Clerk)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
Southern Division
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NADER MODANLO,
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Appellant,
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United States District Court
Case No.: PWG-17-2544

v.
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CHERYL E. ROSE, CHAPTER 7
TRUSTEE OF THE ESTATE OF
FINAL ANALYSIS, INC.,

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Appellee.
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MEMORANDUM OPINION AND ORDER
In a protracted Chapter 7 bankruptcy proceeding in the United States Bankruptcy Court
for the District of Maryland, Offit Kurman, P.A. (“Offit Kurman”) served as Special Counsel to
Cheryl E. Rose, the Chapter 7 Trustee of the Estate of Final Analysis, Inc. (“Trustee”). In re
Final Analysis, Inc., Bankr. Case No. 01-20139 TJC. Offit Kurman and the Trustee’s prior
special counsel filed a series of applications for compensation for services rendered, see, e.g.,
ECF Nos. 3-57, 3-70, 3-76, 4-79 (Seventh Application, Eighth Application, Ninth and Final
Application, Tenth and Final Application), culminating in a July 13, 2017 Final Application for
Compensation and Reimbursement of Expenses of Offit Kurman, P.A. as Special Counsel to
Cheryl E. Rose, Chapter 7 Trustee, ECF No. 3-42. On August 21, 2017, the Bankruptcy Court
signed an Order Granting Application for Compensation for Offit Kurman, P.A. as Special
Counsel to Cheryl E. Rose, Chapter 7 Trustee (“Order Granting Application”), which was
entered on the docket the next day. ECF No. 1-1.

Nader Modanlo, a principal of the Debtor, has filed an appeal from that Order Granting
Application, ECF No. 1, and Offit Kurman has filed a Motion to Dismiss Appeal, ECF No 25,
which the parties fully briefed, ECF Nos. 28, 29. Having reviewed the parties’ briefs and the
record, I find oral argument unnecessary. See Fed. R. Bankr. P. 8012; Loc. R. 105.6. I conclude
that this Court has jurisdiction over the appeal and that Modanlo waived his right to challenge
the compensation and fees awarded in the Order Granting Application. Accordingly, Offit
Kurman’s Motion IS GRANTED, and Modanlo’s appeal IS DISMISSED.
Jurisdiction
Offit Kurman argues that this Court lacks jurisdiction to hear Modanlo’s appeal because
the Order Granting Application was not a final, appealable order. Appellee’s Mot. 1. Although
Appellee presents this as a second, alternative argument, jurisdiction must be addressed as a
threshold matter. See Steel Co. v. Citizens for a Better Envir., 523 U.S. 83, 94–95 (1998)
(“‘Without jurisdiction the court cannot proceed at all in any cause. Jurisdiction is power to
declare the law, and when it ceases to exist, the only function remaining to the court is that of
announcing the fact and dismissing the cause.’ Ex parte McCardle, 7 Wall. 506, 514, 19 L.Ed.
264 (1868). ‘On every writ of error or appeal, the first and fundamental question is that of
jurisdiction, first, of this court, and then of the court from which the record comes. This question
the court is bound to ask and answer for itself, even when not otherwise suggested, and without
respect to the relation of the parties to it.’ Great Southern Fire Proof Hotel Co. v. Jones, [177
U.S. 449, 453 (1900)]. The requirement that jurisdiction be established as a threshold matter
‘spring[s] from the nature and limits of the judicial power of the United States’ and is ‘inflexible
and without exception.’ Mansfield, C. & L.M.R. Co. v. Swan, 111 U.S. 379, 382, 4 S.Ct. 510,
511, 28 L.Ed. 462 (1884).”).

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Pursuant to 28 U.S.C. § 158(a), this Court has jurisdiction to hear appeals
(1) from final judgments, orders, and decrees;
(2) from interlocutory orders and decrees issued under section 1121(d) of title
11 increasing or reducing the time periods referred to in section 1121 of such
title; and
(3) with leave of the court, from other interlocutory orders and decrees;
of bankruptcy judges [in this District] entered in cases and proceedings referred to
the bankruptcy judges under section 157 of [Title 28].
28 U.S.C. § 158(a). “Thus, by statute, an appeal of right exists only from a final judgment, and
any other appeal, i.e., from an interlocutory order, may lie only upon obtaining leave of the
court.” Kore Holdings, Inc. v. Rosen (In re Rood), 426 B.R. 538, 546 (D. Md. 2010).
In the context of a bankruptcy case, “the concept of finality . . . has traditionally been
applied ‘in a more pragmatic and less technical way in bankruptcy cases than in other
situations.’” A .H. Robins Co., Inc. v. Piccinin, 788 F.2d 994, 1009 (4th Cir. 1986). Indeed,
“Congress has long provided that orders in bankruptcy cases may be immediately appealed if
they finally dispose of discrete disputes within the larger case.” Bullard v. Blue Hills Bank, –––
U.S. ––––, ––––, 135 S. Ct. 1686, 1692 (2015) (quoting Howard Delivery Serv., Inc. v. Zurich
Am. Ins. Co., 547 U.S. 651, 657 n.3 (2006)). This is because “[a] bankruptcy case involves ‘an
aggregation of individual controversies,’ many of which would exist as stand-alone lawsuits but
for the bankrupt status of the debtor.” Id. (quoting 1 Collier on Bankr. ¶ 5.08[1][b], at 5–42
(16th ed. 2014)). Under this more relaxed standard, a bankruptcy “order is final and appealable
if it (i) finally determines or seriously affects a party’s substantive rights, or (ii) will cause
irreparable harm to the losing party or waste judicial resources if the appeal is deferred until the
conclusion of the bankruptcy case.” Kore Holdings (In re Rood), 426 B.R. at 547.

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Here, the order appealed from is an order granting an application for compensation for a
professional. It is true that “[t]h general rule is that interim awards of attorney’s fees are
interlocutory orders and therefore not immediately appealable as a matter of right under 28
U.S.C. § 158(a).” In re Glob. Marine, Inc., 108 B.R. 1009, 1010 (S.D. Tex. 1988) (emphasis
added) (citing In re Int’l Envtl. Dynamics, Inc., 718 F.2d 322, 325 (9th Cir. 1983); Callister v.
Ingersoll–Rand Financial Corp. (In re Callister), 673 F.2d 305, 307 (10th Cir. 1982); In re Dencol Cartage & Distribution, Inc., 20 B.R. 645 (D. Colo. 1982)). But, Offit Kurman’s application
was a “Final Application.”
Certainly, Offit Kurman argues that, even though it titled its application as a “Final
Application,” after the application was filed,
the Trustee learned of a new asset and, with Modanlo’s consent, the Estate
performed additional work to bring more funds into the Estate from an
unexpected source. Furthermore, the Estate incurred additional fees to address
Modanlo’s communication opposing the Application as well as to participate in
the appeal of the Order. As a result of Modanlo’s breach of the Agreement, the
Estate may recover the fees expended to administer the Estate and to address the
breach of the Agreement. The new, additional fees are damages permitted by
contract to the Estate and continue so long as Modanlo objects to applications for
compensation by the professionals and/or appeals such decisions.
Appellee’s Mot. 8. In its view, “[t]hese additional services show that the Order was not final.”
Id. It is true that this is not the first “final” application Offit Kurman has filed. See Ninth and
Final Application; Tenth and Final Application. And, on the day after the Bankruptcy Court
signed the Order Granting Application, the Trustee did file a Motion to Sell Known or Unknown
Claims, Property Rights, Assets, Which Have Not Been Previously Sold, Assigned or
Transferred, ECF No. 4-108, continuing the activities in the bankruptcy proceeding. Yet, Offit
Kurman does not identify any authority holding that later docket filings change the final nature
of a previously signed order.

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And, although neither party has provided any case law or statute specifically addressing
the appealability of a bankruptcy court’s order on a final application for compensation, the same
reasoning that makes an interim award not immediately appealable suggests that a final award is
immediately appealable: “The Bankruptcy Court retains jurisdiction over [interim] awards and
can make adjustments by means of future awards or amendments of prior ones until it rules upon
a final application for compensation.” In re Glob. Marine, Inc., 108 B.R. at 1010 (emphasis
added) (citing 11 U.S.C. § 331; Callister, 673 F.2d at 306–07; 3 Collier on Bankr. § 331.03 at
331–8 & 9 (15th ed. 1987)). Moreover, a bankruptcy court’s order on a final application for
compensation “dispose[s] of [a] discrete dispute[] within the larger case.” See Bullard, 135 S. Ct.
at 1692. Further, it “finally determines” Offit Kurman’s entitlement to compensation, and
delaying resolution would waste judicial resources because the amount of compensation to Offit
Kurman affects the amount available for distribution to creditors. See Kore Holdings (In re
Rood), 426 B.R. at 547. I am satisfied that this Court has jurisdiction over Modanlo’s appeal.
See Bullard, 135 S. Ct. at 1692; Kore Holdings (In re Rood), 426 B.R. at 547; In re Glob.
Marine, Inc., 108 B.R. at 1010.
Waiver
Offit Kurman also argues that “the Trustee, the Appellant and his related entities entered
into a settlement agreement dated October 6, 2004 (‘Agreement’) to resolve their differences and
to prevent further conflict during the administration of the Estate,” and that “Agreement barred
Modanlo from filing certain pleadings during the administration of the bankruptcy estate,
including the right to object to the application for compensation of the Trustee or Special
Counsel.” Appellee’s Mot. 3. It relies on Section 3 of the Agreement, which provides:
Modanlo Group Objections & Further Participation in the Bankruptcy
Proceedings.
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(a) It is expressly acknowledged and understood that this settlement will
completely end any and all participation by the Modanlo Group and the Trustee
against one another in the bankruptcy court and otherwise. To that end, upon final
judicial approval of this Agreement each member of the Modanlo Group will
withdraw all pending objections and shall agree to refrain from participating in
any future FAI proceedings in any way adverse to the Estate or the Trustee
including future objections to administrative fees. Notwithstanding the foregoing,
the Modanlo Group will be permitted to take those actions directly related to
seeking recovery of their proofs of claims including objecting to proofs of claims
filed by other creditors as provided in Subsection 2 above.
Agr. § 3, ECF No. 25-1 (emphasis added). The Bankruptcy Court agreed that “Modanlo . . .
contractually bargained away his right to object to the compensation of professionals as a
creditor in this case in a Settlement Agreement dated October 66, 2004, and approved by th[e]
[Bankruptcy] Court.” Order Granting Application 1.
Modanlo now is objecting to the award of administrative fees to Offit Kurman. Thus, the
issues to be resolved are (1) whether Modanlo’s appeal of this fees award qualifies as a “future
proceeding[] in any way adverse to the Estate or the Trustee,” and (2) whether Offit Kurman, as
Special Counsel to the Trustee, can enforce the Agreement. This Court “reviews a bankruptcy
court’s findings of fact for clear error and conclusions of law de novo.” Rosen v. Kore Holdings,
Inc. (In re Rood), 448 B.R. 149, 157 (D. Md. 2011); see In re Official Comm. of Unsecured for
Dornier Aviation (N. Am.), Inc., 453 F.3d 225, 231 (4th Cir. 2006). Also, this Court reviews the
bankruptcy court’s application of law to fact for abuse of discretion. Coggins & Harman, P.A. v.
Rosen (In re Rood), No. DKC-12-1623, 2013 WL 55650, at *2 (D. Md. Jan. 2, 2013).
Pursuant to 11 U.S.C. § 327, and with exceptions not relevant here,
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.

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11 U.S.C. § 327(a). The Trustee employed Offit Kurman pursuant to this provision. See Ninth
and Final Application ¶ 5 (“The Applicant [James M. Hoffman, Esq. and Offit Kurman] submits
this Ninth and Final Application for Compensation and Reimbursement of Expenses necessarily
incurred by Applicant in their representation of the Trustee pursuant to Sections 327, 328 and
330 of the Bankruptcy Code.”); see also id. ¶¶ 2–3 (“The Trustee sought the retention of
Applicant: (a) to appear for, prosecute, defend and represent the Trustee’s interest in suits arising
in or related to this case; (b) to investigate and prosecute potential fraudulent conveyance
actions, preference actions, and any other avoidance actions; (c) to assist in the preparation of
pleadings, motions, notices and orders regarding matters as are required for the orderly
administration of this Estate; and (d) to consult with and advise the Trustee in connection with
the liquidation of the property of the Estate . . . . The Applicant was retained as special counsel to
the Trustee pursuant to an Order entered by this Court on December 14, 2001 . . . .”). Counsel
appointed under this section “assist with certain preferential, avoidance, turnover or other
litigation matters for the benefit of the estate.” In re Spence, 497 B.R. 99, 104 (Bankr. D. Colo.
2013) (“Allowing Chapter 7 trustees to employ independent counsel ensures diligent, effective
and expeditious management and administration of a bankruptcy case.”); see also In re
Chewning & Frey Sec., Inc., 328 B.R. 899, 918 (Bankr. N.D. Ga. 2005) (“In bankruptcy, . . . the
purpose and function of counsel for the trustee is to benefit the estate. In fact, all administrative
claimants assist the debtor in maintaining or augmenting the size of the estate, thereby increasing
distribution to creditors.”). Thus, as Special Counsel, Offit Kurman works for the benefit of the
Estate and the Trustee, and an action adverse to the Trustee’s representative clearly also is an
action adverse to the Trustee. Therefore, in the Agreement, Modanlo waived his right to object
to the administrative fee award or pursue this appeal. See Agr. § 3.

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As for enforcing this waiver, I note that the Agreement itself provides that it “shall be
binding upon and inure to the benefit of, and be enforceable by, the parties hereto, their
respective heirs, legal representatives, successors and assigns.” Agr. § 13 (emphasis added).
The Trustee is a party to the Agreement, see id. at 1, and Offit Kurman is her legal
representative, Ninth and Final Application ¶¶ 2, 3, 5. Therefore, Offit Kurman may enforce the
Agreement. See Agr. § 13. Consequently, even though this Court has jurisdiction to hear the
appeal, Modanlo has waived his right to challenge the compensation and fees awarded in the
Order Granting Application.
Conclusion
Accordingly, I will grant Appellee’s Motion, ECF No. 25, and dismiss this appeal.

ORDER
For the reasons stated in this Memorandum Opinion and Order, it is, this 2nd day of July,
2018, hereby ORDERED that
1. Appellee’s Motion to Dismiss Appeal, ECF No. 25, IS GRANTED;
2. This Appeal IS DISMISSED;
3. The Clerk SHALL CLOSE this case; and
4. The Clerk SHALL MAIL a copy of this Memorandum Opinion and Order to
Appellant.

/S/
Paul W. Grimm
United States District Judge
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