U.S. Commodity Futures Trading Commission v. Yellowstone Partners, Inc. et al

Filing 63

ORDER granting 60 Fourth MOTION for Allowance of Fees and 62 Fifth MOTION for Attorney Fees - For services rendered between July 11, 2011, and September 10, 2011, the receiver is ALLOWED $4,585.00 in professional fees and $15.21 in expenses. The receiver further is DIRECTED to provide a fourth interim receivership report and plan within thirty (30) days of date of entry of this order. Signed by Chief Judge Louise Wood Flanagan on 09/30/2011. (Baker, C.)

IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF NORTH CAROLINA

WESTERN DIVISION

NO.5:10-CV-85-FL

U.S. COMMODITY FUTURES
TRADING COMMISSION,
Plaintiff,
v.
YELLOWSTONE PARTNERS, INC.
and DENNIS TODD HAGEMANN,
Defendants.

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ORDER

This matter comes before the court on the third interim report (DE # 61), fourth interim
application for fees (DE # 60), and fifth interim application for fees (DE # 62) filed by L. Bruce
McDaniel, the receiver of defendants' assets. The court finds the receiver's third interim report to
be satisfactory and will allow his applications for fees.

BACKGROUND
On March 9, 2010, plaintiff filed complaint with this court seeking to restrain defendants
from violating the Commodity Exchange Act ("the Act"), 7 U.S.C. § 1 et seq., as amended. On
March 10, 2010, the court ordered statutory preliminary injunctive relief to prohibit dissipation of
assets. After defendants failed to appear, the court entered default judgment, permanently enjoining
defendants from further violating the Act and awarding a substantial civil monetary penalty as
well as ancillary equitable relief.
On March 31, 2011, upon motion of plaintiff, the court appointed Mr. McDaniel as
temporary receiver of defendants' assets. Among other things, the court directed the receiver to

assume full control of defendants' business affairs, to take possession of the funds and other asserts
in defendants' control, to collect money owed to defendants, and to engage the services of any
professional or specialist deemed advisable or necessary to perform his duties.
The receiver filed his first interim report on May 13,2011, in which he detailed steps taken
to fulfill his obligations as receiver. By order entered June 16, 2011, as amended by later order
entered June 20, 2011, the court allowed the receiver's first application for professional fees in the
amount of $7,045.00, and costs in the amount of $249.29. The court noted that, in light of the
limited assets of the receivership estate, the cap on fees of 5% of total receipts and disbursements
would soon be met. As such, the receiver was directed to move to increase the cap if necessary.
The receiver filed his second interim report on July 18,2011. By order entered August 10,
2011, the court allowed in part the receiver's second and third applications for fees. For services
rendered between May 11, 2011, and July 10, 2011, the court allowed receiver $9,960.00 in
professional fees and $212.51 in expenses. The court also increased the cap on professional fees to
ten percent (l 0%) of receipts and disbursements.

DISCUSSION
A.

Third Interim Receivership Report and Plan
The receiver's third interim report indicates that he has been diligent in carrying out the plan

identified in his prior report. Specifically, the receiver closed on Maryland realty.' Net proceeds
received therefrom amounted to $60,305.75.
Receivership real estate in Eastern North Carolina remains difficult to value. The receiver
indicates that he has hired a local attorney to determine not only the exact tracts of realty involved,

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By order entered July 20,2011, the court allowed the receiver's motion to sell this property.

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but also who owns and what encumbers them. The receiver reports incomplete paperwork and
multiple owners, and is pursuing a settlement to avoid further delays and costs. He warns that
barring a settlement, litigation could be quite costly in terms of legal fees.
The receiver continues to pursue the sale of a 2005 Aston Martin in his possession, which
is undergoing minor repairs in anticipation of a sale in the immediate future. The car's previous
bailee was paid a settlement value for incomplete repair work and accrued storage charges. Present
repair work is being done by another automotive broker and repair shop in Raleigh, North Carolina.
The receiver hopes to sell the car soon after repair.
All told, the receivership currently has approximately $228,000.00 on hand, with an
additional $20,000.00 to $30,000.00 anticipated from sale of the Aston Martin. (The value of the
North Carolina real estate is impossible to estimate at this point.) The receiver has received no new
documentation regarding anticipated claims on the receivership estate by defrauded investors. That
figure stands at approximately $1,505,000.00. The receiver estimates total receivership fees will run
between $28,000.00 and $35,000.00, with additional accounting fees ranging from $12,000.00 to
$15,000.00.
The receiver's progress thus far is satisfactory, but once again the court is concerned that the
receivership and accounting fees estimated by the receiver will outpace the cap on such fees imposed
and recently increased by the court, and will significantly reduce the amount available to the victims
of defendants' fraud. The receiver is directed to continue to consider how he may reduce further the
receivership fees in this case. The receiver is also directed to continue to work toward selling the
Aston Martin and obtaining a valuation and/or settlement regarding the real estate in Eastern North
Carolina. As before, the receiver is directed to file a supplemental receivership report and plan
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within thirty (30) days of date of entry of this order.

B.

Fourth and Fifth Interim Applications for Fees
In his fourth interim application, the receiver requests $2,770.00 in professional fees and

$7.31 for expenses. In his fifth application, he requests $1,815.00 in professional fees and $7.90 for
expenses. All told, these professional fees amount to $4,585.00, with expenses totaling $15.21,
covering work performed from July 11,2011, through September 10, 2011. The receiver calculated
his fees based upon 6.2 hours ofattorney services at $300.00 an hour, 25.1 hours ofreceiver services
at $100.00 per hour, and 4.3 hours of paralegal services at $50.00 an hour. The expenses relate to
photocopying and postage charges.
The court, in its initial order appointing the receiver, imposed a cap on fees in the amount
of five percent (5%) upon receipts and disbursements. In order dated August 10,2011, the court
increased the cap to ten percent (10%) upon receipts and disbursements. But even the new cap may
not be sufficient according to the receiver's current estimates. Based on the receiver's third interim
report, the court estimates that professional fees (including fees incurred by those employed by the
receiver) will be limited to $27,500.50; however, the receiver estimates that total receivership fees
will exceed $28,000.00 and that accounting fees will add between $12,000.00 and $15,000.00. 2
The court is not inclined to increase the cap again at this time. The receiver's diligent
administration of the estate is appreciated, but the focus of this court must be on maximizing the
disbursements to the victims of defendants' fraud.

2 The receiver reports $228,000.00 on hand and anticipates an additional $30,000, at most, from sale of the
Aston Martin. The court assumes that the previously awarded $17,005.00 was not included in the "cash on hand"
amount. Adding these three figures together, the court has arrived at estimated total receipts available for disbursement,
before fees and expenses, to be $275,005.00. Additional funds may be recovered from the sale of the North Carolina
properties, but the receiver does not appear optimistic.

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The court awards the requested $4,585.00 in professional fees and $15.21 in expenses. These
amounts are reasonable under the factors set forth by Barber v. Kimbrell's, Inc., 577 F.2d 216 (4th
Cir. 1978). The court notes that, adding these amounts to what has previously been allowed by the
court, the receiver's total compensation to date has been $21,590.00, with additional costs and
expenses in the amount of$477.01. The receiver therefore has approximately $5,910.50 remaining
on his "budget," absent additional revenue from the sale of the North Carolina properties.
CONCLUSION
For the reasons set forth above, the receiver's fourth (DE# 60) and fifth (DE# 62)
applications for fees are ALLOWED. For services rendered between July 11,2011, and September
10,2011, the receiver is ALLOWED $4,585.00 in professional fees and $15.21 in expenses. The
receiver further is DIRECTED to provide a fourth interim receivership report and plan within thirty
l30) days of date of entry of this order.
SO ORDERED, this the

3!J.l-

day of September, 2011.

EW.FLANAG
nited States District Judge

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