Free Objection - District Court of Arizona - Arizona

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Paul Sala, State Bar #11693 ALLEN & SALA, P.L.C. 1850 N. Central Ave. Suite 1150 Phoenix, Arizona 85004 Ofc: (602) 256-6000 Fax: (602) 252-4712 Email: [email protected] Attorneys for Jill Ford, Chapter 7 Trustee for Technology Systems International, Inc. UNITED STATES DISTRICT COURT DISTRICT OF ARIZONA In re: Solinvest Group, Ltd., Plaintiff, vs. Technology Systems International, Inc., et al., Defendant Jill Ford, the Chapter 7 Trustee ("Trustee") for Defendant Technology Systems International, Inc. ("Defendant" or "TSI"), by and through her undersigned attorneys, hereby respectfully objects to the Amended Motion (`Motion") for Attorney Fees and Costs by Solinvest Group LTD., a British Virgin Islands entity ("Plaintiff"). This objection specifically concerns the fees and costs for services rendered by attorney Michael Simes. In the Motion, Plaintiff seeks the award and payment of attorneys' fees and costs totaling $301,002.56 relating to a default judgment obtained against the Defendant. The Trustee believes that the fees and costs requested greatly exceed the reasonable amount for which the TSI bankruptcy estate should be liable. Specifically, the Trustee objects to Plaintiff's fee request because (i) the Motion requests fees incurred in the TSI bankruptcy case in contravention of this Court's prior Order, and (ii) the fees requested are excessive and unreasonable. This objection is supported by the following Memorandum of Points and Authorities.
\\BFS-9000\Documents\6000\6100\6137-Ford\203-Technology Systems International, Inc\District - Solinvest Group, Ltd v Technology Systems International, Inc\Obj.Simes Fee App.doc

United States District Court Case No. 02-2641-PHX-ROS OBJECTION TO AMENDED MOTION FOR ATTORNEY FEES AND COSTS BY SOLINVEST GROUP (REGARDING MICHAEL SIMES)

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MEMORANDUM OF POINTS AND AUTHORITIES Division of District Court and Bankruptcy Court Fees. On October 18, 2005, this Court entered an Order instructing the Plaintiff to ". . . submit to this Court a revised request for fees containing only work done in this [District] Court." See October 18, 2005 Court Order, Docket # 65, lines 20-22. This Court concluded that the

Bankruptcy Court should address the issue of fees for work done in connection with the Bankruptcy. The ruling was clear that this Court believed that the Bankruptcy Court was in the best position to determine whether the work done by Plaintiff made a "substantial contribution" to the bankruptcy proceedings under 11 U.S.C. § 503(b)(3)(d). Notwithstanding the Court's mandate, Plaintiff seeks approval of fees for work performed in the Bankruptcy Court. 1 Although the Plaintiff purports to separate the total amount of fees incurred in the District Court and in the Bankruptcy Court, the Plaintiff seeks an award by the District Court of all fees incurred for work done in both Courts. To circumvent this Court's Order, Plaintiff states that "Solinvest does NOT seek this Court to award it the attorneys' fees it has incurred in connection with the First Bankruptcy and the Second Bankruptcy ". . . Solinvest seeks this award [of fees incurred in the First and Second Bankruptcy] as a compensatory civil contempt sanction against TSI." See Motion, page 25, ¶119. No matter how the Plaintiff frames its request, Plaintiff is still seeking an award of fees that were incurred in connection with the Bankruptcy proceedings. Such a request, no matter how presented, directly contravenes the Court's clear and unambiguous October 18, 2005 order and must be denied. A. Sanctions are not appropriate To the extent Plaintiff is seeking an award of its bankruptcy fees as a sanction, the request must be denied as being procedurally defective and being an improper request of this Court in light of TSI's pending bankruptcy case. Plaintiff's request for a civil contempt sanction is procedurally defective under FRCP 11(b)(1)(A). Rule 11 requires that a motion for sanctions must be made separately from other
The Defendant's bankruptcy petition was filed December 3, 2003, thereby staying further action in the District Court. Nonetheless, Plaintiff seeks an award from this Court for 832.8 hours of time, totaling $208,225 in fees, for time spent after the Bankruptcy filing.
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motions or requests. Such a request must be served in accordance with Rule 5, but shall not be filed with the Court unless, within 21 days after service of the motion, the challenged offense is not withdrawn or corrected. Here, Plaintiff has not properly sought a request for sanctions. The request is brought in an attempt to circumvent the Court's request that Plaintiff seek an award of bankruptcy related fees from the Bankruptcy Court. The Plaintiff has failed to provide the Trustee with the "safe harbor" period of 21 days to correct any offense. Plaintiff's request for a civil contempt sanction further fails to state with specificity the specific sanctionable conduct. Rule 11 requires that a request for sanctions shall describe the specific conduct alleged to violate the Rule. See FRCP 11(1)(A). Plaintiff in its motion states only that "TSI has submitted various pleadings to this Court in violation of FRCP Rule 11." See Plaintiff's amended motion, page 30, ¶133. Plaintiff's request seems to assume sanctionable conduct despite there being no ruling by either this Court or the Bankruptcy Court of sanctionable or contemptuous conduct. Absent a proper request and the identity of specific wrongful conduct, the sanction request must be denied. Finally, the Plaintiff has improperly sought a sanction award in this Court. TSI is the debtor in a pending Chapter 7 bankruptcy case. As such, the Bankruptcy Court is the proper place to pursue claims against TSI. As the Bankruptcy Court has not been asked to consider the sanction clam or to modify the automatic stay to allow this Court to determine the issue, Plaintiff's attempt to pursue a sanction claim is stayed pursuant to 11 U.S.C. § 362 and must be denied. II. Reasonableness of Counsel Fees. The Trustee objects to the reasonableness of the fees requested by the Plaintiff both in total and if properly divided between pre and post bankruptcy time periods. The Defendant's bankruptcy petition was filed December 3, 2003, thereby staying further action in this Court. Nonetheless, Plaintiff seeks an award from this Court for 832.8 hours of time, totaling $208,225 in fees, for time spent after the date of the Bankruptcy filing. In percentage terms, the post bankruptcy fees make up over 69% of Plaintiff's requested fees. While the Trustee agrees that

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Plaintiff is entitled to an award of reasonable attorney fees (see A.R.S. §12-341.01), the Court may adjust downward the "lodestar" request where warranted. See In re Nucorp Energy, Inc. 764 F.2d 655 (9th Cir. 1985). In this case, the Trustee believes that a substantial downward adjustment is warranted as the time expended by Plaintiff is excessive and unreasonable. As the Court is aware, Plaintiff's action was a simple breach of contract action relating to a promissory note. Plaintiff obtained a default judgment against the Defendant and ultimately received payment of 100% of its claim in the Defendant's bankruptcy case. Despite the rather common nature of the action, and the Court's instruction to seek only non-bankruptcy fees in this Court, Plaintiff has attached over 100 pages of billing entries to the Motion. The Trustee asserts that such billings are unreasonable in relation to the underlying legal matter and that a fee and cost award of over $300,000.00 cannot be justified in this case. To analyze the reasonableness of Plaintiff's fees, the Trustee has broken the time entries into the following four time blocks: (1) The filing of the Complaint until the entry of Defendant's default (pre-bankruptcy); (2) the date of the default to the date of the Defendant's bankruptcy filing (pre-bankruptcy); (3) the filing of the Defendant's initial bankruptcy case through confirmation of a Plan of Reorganization (post-bankruptcy); and (4) post confirmation time (post-bankruptcy). Viewing Plaintiff's time entries in the four segregated blocks illustrates the unreasonableness of the requested fees. Block 1 Time Period ­ Initial Meeting to Default Judgment.
Period of Time. Total Time. Total Bill w/o costs. $16,581.16 Time spent researching motions 6.5 hours Time spent drafting motions. 11 hours Miscellaneous hours. 36 hours

12/4/025/23/03. Initial attorney meeting to date of entry of default judgment.

64 hours.

Explanation of Block 1. Block 1 covers the period of time from when Plaintiff engaged Michael Simes to the date that the Court entered default against the Defendant. The underlying claim is for breach of a promissory note and Plaintiff recovered judgment by default.

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Accordingly, the Trustee does not believe that fees of $16,581.16 are commensurate with the complexity and nature of tasks involved in this time block. During this time block, the Plaintiff filed three pleadings with the Court: A December 31, 2002, Complaint for Breach of a Promissory Note, a January 3, 2003, Amended Complaint, and an April 9, 2003, Motion for Default Judgment. The Trustee contends that an uncontested action on a promissory note is not a complex matter and that drafting pleadings related to this type of action are not complex in nature. As noted in the Motion, Plaintiff's counsel is an experienced attorney who justifies an hourly rate of $250.00 per hour based upon his experience. Despite that experience, the Plaintiff spent approximately 11 hours drafting the complaint and application for default, and 6.5 hours researching the motion for default and motion for application of default. Moreover, Plaintiff's attorney spent 9.8 hours preparing for, and

reviewing notes from, a FRCP 16 meeting on a complaint to which Defendant did not answer.2 While the Plaintiff should be awarded reasonable fees for preparing the Complaint and obtaining a default, the time Plaintiff's attorney spent on these matters is excessive and should be reduced substantially. The Trustee believes that fees of $5,000.00 would be appropriate for the reasonable and necessary actions to bring the Complaint and obtain the Defendant's default. Block 2 Time Period ­ Default to Bankruptcy Filing.
Period of Time 5/24/0312/3/03. Date after default entered to date TSI filed for Bankruptcy. Total Time. 196.9 hours Total Bill w/o costs. $49,175.00 Time spent on research. See explanation. Time spent drafting motions. See explanation. Miscellaneous hours. See explanation.

Explanation of Block 2. Block 2 covers the period from the entry of Defendant's default through the filing of the Defendant's Chapter 11 Bankruptcy Petition. Plaintiff's requested fees during this time period total $49,175.00. Due to the block billing method used on Plaintiff's
Plaintiff's counsel also spent 4 hours researching the Arizona Bulk Sales Act and approximately 8 hours researching the Arizona Uniform Fraudulent Transfer Act. Given counsel's experience level and the gravamen of the Complaint, these amounts are excessive. Moreover, Plaintiff spent 6.8 hours on work connected to the election of a new board of directors for TSI. These efforts do not appear to be related to the obtaining or collection of the promissory note and are not reasonable.
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invoices, the Trustee has difficulty ascertaining how much time was spent on any one task. The Trustee believes, however, that the total bill for this time period is excessive and should be greatly reduced. Some examples of excessive time entries during this period are set forth as follows: 1. Writ of Execution. The Plaintiff's attorney spent 7 hours researching a Writ of

Execution. See 7/19/03 invoice entry. Then 7 more hours were spent drafting the motion for Leave of Court to file Writ of Execution.3 See July 20th and 21st invoice entries. Another 10 hours (approximately) was spent on issues regarding the Writ of Execution including more research. See August 18th and 19th invoice entries. In total, Plaintiff's counsel spent the majority of 24 hours researching and drafting a Writ of Execution. The Trustee believes this is an excessive amount of time spent on this task given its level of complexity and the experience level of the Plaintiff's attorney. 2. Attorney Client Privilege. Throughout this time block are approximately 14

hours of invoice entries for researching issues of attorney client privilege. Again, the Trustee believes this is an excessive amount of time spent on this task given its level of complexity and the experience level of the Plaintiff's attorney. 3. Reply in Support of Motion for Turnover. During the week of October 16,

2003 through October 20, 2003, Plaintiff's attorney spent 40 hours working solely on this case at 8 hours per day. Of the 40 hours, Plaintiff's attorney spent 24 hours drafting a Reply in Support of Motion for Turnover. The Trustee believes that these invoice entries are excessive. The Trustee further notes that given the amount of time spent it would be nearly impossible for Plaintiff's attorney to tend to other matters pending in his office. 4. Motion for Contempt. Plaintiff's attorney spent 21 hours researching and

drafting a Motion for Contempt. See entries between 11/11/2003 and 11/18/2003. Of the 21 hours, 14 hours were spent on research. The Trustee contends that a motion for contempt should not require 14 hours of legal research or 7 hours of drafting time.
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The billing invoices use block billing and do not specify how much time was spent on each task. The Trustee is unable to ascertain the exact amount of time spent on research regarding a Writ of Execution.

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As noted above, the Trustee does not dispute that the Plaintiff should be awarded reasonable attorney fees for the pre-bankruptcy work identified in the time period in Block 2. The Trustee contends, however, that $49,175.00, is excessive and not reasonable for the tasks identified and accomplished. During the period covered by Block 2, Plaintiff obtained a Default Judgment and pursued collection by way of a writ of execution on stock. The reasonable cost for such actions should be between 1/10th and 1/5th of the amount sought. Block 3 Time Period ­ Bankruptcy Filing to Plan Confirmation.
Period of Time Total Time. Total Bill w/o costs. Time spent on researching bankruptcy procedure and issues. 102 hours Time spent drafting documents. Miscellaneous hours.

Bankruptcy Ct.
12/9/0312/24/04.

381.9 hours

$95,475.00

Filing of Bankruptcy to day Plan is Confirmed.

94.8 hours drafting 7 documents in Bankruptcy Court.

30 hours Handling various elements of shareholder action of TSI.

Explanation of Block 3. Block 3 relates to time spent during the bankruptcy case. Plaintiff expended $95,475.00 during the bankruptcy period prior to the confirmation of TSI's plan of reorganization. All the fees in Block 3 were incurred post-bankruptcy, while this matter was stayed. In light of this Court's October 18 Order, the Trustee objects to the awarding of any fees and costs for work performed during Block 3. If the Court considers Plaintiff's request for fees incurred during the period covered by Block 3, the Trustee objects to their reasonableness and requests time to seek approval from the Bankruptcy Court to employ an expert witness to assist this Court in determining the appropriate bankruptcy fees.4 The Trustee contends that an attorney familiar with bankruptcy law would not incur fees of $95,475.00 pursuing the collection of an unsecured claim in a Chapter 11 bankruptcy case. Much of the time spent by Plaintiff's counsel was spent researching basic bankruptcy procedure and drafting basic bankruptcy documents. If Plaintiff's counsel was

unfamiliar with bankruptcy procedure and practice, he could and should have associated himself
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Pursuant to 11 U.S.C. § 327(a), the Trustee must seek Bankruptcy Court approval to employ professionals and experts.

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with competent counsel or requested that a creditor's committee be appointed. Instead, counsel expended approximately 102 hours conducting research to become competent with bankruptcy law and procedure. Moreover, Plaintiff's counsel spent 94.8 hours drafting pleadings such as motions to appoint a Chapter 11 Trustee and to convert the case, and an objection to a disclosure statement (and motion seeking reconsideration of the order granting its approval). Such amounts are excessive not only because of the amount of time expended but also where the likelihood of success was low in light of the larger issues pending in the bankruptcy unrelated to Plaintiff's judgment claim. Plaintiff's attorney's hours in Block 3 were excessive by a factor of between five and ten over those that would be charged by an experienced bankruptcy attorney with the same billing rate. Block 4 Time Period ­ Post Confirmation to the Present.
Period of Time Total Time. Total Bill w/o costs. Time spent on research and reconstruction of attorney fees. 115 hours Time spent drafting 4 motions. 215.2 hours. P's attorney drafted a motion for attorney fees, a reply in support of fees, a comprehensive supplement for fees and the amended motion for fees. Miscellaneous hours.

12/25/04Present. After confirmation of Chapter 11 Plan to Present.

450.9 hours.

$112,750.00

67 hours. Proxy deal and litigation before the District Court of Nevada.

Explanation of Block 4: Block 4 contains the greatest amount of time billed by Plaintiff's attorney; almost 75% of the time relates to fee applications. The Trustee cannot see how an award of over $80,000.00 for the pursuit of fees can be reasonable. Moreover, the time expended in Block 4 occurred after TSI's bankruptcy filing and should, based on this Court's prior order, be sought in the Bankruptcy Court. In the past year, Plaintiff's attorney has billed a total of 450.9 hours. Of this time, counsel spent at least 300 hours researching and reconstructing attorney fees and drafting 4 motions for an award of attorney fees. Of the $112,750.00 requested in fees for this time period $82,500.00 (300 hours at $250.00 an hour) directly relates to recovery of an award of attorney

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fees. The Trustee contends that the time Plaintiff spent attempting to recover fees is far in excess of what should be considered reasonable. This is especially true where the bulk of the

applications consist of monthly computer generated bills and not newly created exhibits. After the initial motion for fees was filed, the remaining three motions all dealt with supplementing or amending the original motion. Moreover, despite having already expended numerous hours preparing three requests for fees, Plaintiff's counsel spent 67.9 hours drafting the amended motion. The time required for this motion should have been far less, particularly in light of the Court's Order that the application only seek fees for work done in the District Court. Other time within Block 4 is objectionable and unreasonable. Numerous hours were spent by Plaintiff's attorney between January 21, 2005 and February 5, 2005 that do not relate to collection activities. Between January 21, 2005 and January 31, 2005 Plaintiff's attorney spent 13 hours on work in connection with a "proxy deal." The total bill for this work was $3,250.00. This fee request should be denied as it is not related to the collection of the judgment or any work performed before the District Court. The Trustee objects to the block billing invoice entries in the Block 4 time period. Beyond creating fee applications, much of the time spent in Block 4 relates to litigation before the Federal District Court in Nevada; litigation unrelated to Plaintiff's promissory note claim. The billing records for the time period between March 1 through March 19 contains block billing entries primarily related to the Nevada action totaling 47.2 hours and $11,800.00. The Trustee is unable to determine how much time was apportioned to any one individual task since the Plaintiff fails to set forth with any specificity actual time spent for any given task. Absent Plaintiff separating individual time entries, no basis exists to award such lumped fees. The Trustee concedes that Plaintiff may receive an award of attorney fees which includes time spent preparing fee applications. A total of $82,550.00 is unreasonable to prepare fee applications. Of the remaining time in Block 4, the bulk was spent on an action unrelated to Plaintiff's judgment claim. Reducing time for preparing fee applications to a reasonable time of 20 hours, would equate to a fee of $5,000.00 for the time set forth in Block 4. ///

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III.

Conclusion. Plaintiff's requested fees must be substantially reduced. Initially, any request for fees in

connection with Bankruptcy work (however framed) should be denied and referred to Judge Hollowell for decision.5 The Court should approve fees of no more than $15,000.00 for

obtaining a default judgment against the Defendant and pursuing a writ of execution prior to the TSI bankruptcy filing. Fees beyond such amounts should not be awarded absent an evidentiary hearing, and after providing the Trustee with the opportunity to obtain Bankruptcy Court approval for the employment of expert witnesses. DATED: January 2, 2006. ALLEN & SALA, P.L.C. /s/ PS #11693 Paul Sala 1850 N. Central Ave. Suite 1150 Phoenix, Arizona 85004 Counsel for Trustee Jill Ford COPIES of the foregoing emailed on January 2, 2006 to: Michael Simes, Esq. Michael Simes, LLC 903 S. Rural Road, Suite 101-323 Tempe, AZ 85281 [email protected] Jeffrey M. Proper, Esq. JEFFREY M. PROPER, PLLC 3550 N. Central Avenue, Suite 1200 Phoenix, AZ 85012 [email protected] /s/ Sherry Gomez

Should the Court be inclined to award any fees for the time expended after the bankruptcy filing, the Trustee believes that $15,000 would be an appropriate award for such efforts.

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