Case 2:14-bk NB Doc 862 Filed 11/19/14 Entered 11/19/14 09:41:59 Desc Main Document Page 1 of 12

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1 Main Document Page of 0 0 DAVID M. REEDER, ESQ. (California State Bar No. 0 REEDER LAW CORPORATION CENTURY PARK EAST, SUITE 00 LOS ANGELES, CA 00 PHONE: (0 - FAX: ( david@reederlaw.com Attorneys for The Hot Dog on a Stick Employee Stock Ownership Plan In re: HDOS ENTERPRISES, UNITED STATES BANKRUPTCY COURT CENTRAL DISTRICT OF CALIFORNIA LOS ANGELES DIVISION Debtor-in-Possession. Case No.: :-bk-0-nb [Chapter ] OPPOSITION OF THE HOT DOG ON A STICK EMPLOYEE STOCK OWNERSHIP PLAN TO THE: ADDITIONAL FEES AND COSTS INCLUDED IN THE REPLY OF SCOULER & COMPANY, LLC TO OPPOSITIONS OF UNITED STATES TRUSTEE AND THE HOT DOG ON A STICK EMPLOYEE STOCK OWNERSHIP PLAN TO THE FINAL FEE APPLICATION OF SCOULER & COMPANY, LLC; SUPPLEMENTAL FINAL FEE APPLICATION OF SCOULER & COMPANY, LLC; AND ADDITIONAL FEES AND COSTS INCLUDED IN THE SECOND SUPPLEMENTAL DECLARATION OF DAN SCOULER IN SUPPORT OF SCOULER & COMPANY, LLC S FINAL FEE APPLICATION Hearing Date: November 0, 0 Time: 0:00 a.m. Courtroom:

2 Main Document Page of 0 0 TO THE HONORABLE NEIL W. BASON, UNITED STATES BANKRUPTCY JUDGE: Equity security holder The Hot Dog on a Stick Employee Stock Ownership Plan (the ESOP, the owner of 00% of the stock of the reorganized debtor, hereby submits its oppositions to the following items filed by Scouler & Company, LLC ( Scouler : Additional Fees And Costs Included In The Reply Of Scouler & Company, LLC To Oppositions Of United States Trustee And The Hot Dog On A Stick Employee Stock Ownership Plan To The Final Fee Application Of Scouler & Company, LLC; Supplemental Final Fee Application of Scouler & Company, LLC; and Additional Fees And Costs Included in The Second Supplemental Declaration of Dan Scouler in Support Of Scouler & Company, LLC s Final Fee Application, and in support thereof states as follows: I. INTRODUCTORY STATEMENT Due to Scouler s multiple requests for substantially more fees, this opposition to the Scouler s first and second supplements to what was to have been a final fee application is not a sur-reply, but instead is the ESOP s first and only opportunity, at the pleading level, to staunchly oppose Scouler s attempt to pile on more fees. Here the professionals, including Scouler, appear to sense that a very profitable case is about to fade away, and are losing no opportunity to bill the last dollar before the gate closes. Most egregious of the piling on engaged on by Scouler is an attempt to be compensated in the total amount of $,0.0 for its final fee application. A final fee application is not a cottage industry or a profit center. Experience and common sense dictate that such an extravagant amount should not be allowed, and a more down-to-earth amount should be awarded.

3 Main Document Page of 0 0 II. FACTS A. The First Scouler Final Fee Application On October, 0, Scouler filed a pleading styled Scouler & Company s Final Application For the Allowance of Professional Compensation and Reimbursement of Expenses for the Period February to September 0, 0 (the First Scouler Final Fee Application. The ESOP filed an extensive and detailed opposition to the First Scouler Final Fee Application on November, 0. B. The Second Scouler Final Fee Application Then, on November, 0, Scouler filed a pleading styled Reply of Scouler & Company, LLC to Oppositions of United States Trustee and The Hot Dog on a Stick Employee Stock Own, Ownership Plan to the Final Fee Application of Scouler & Company, LLC; Supplemental Declaration of Daniel Scouler; and Declaration of Kern Gillette in Support Thereof (the Second Scouler Final Fee Application, wherein Scouler sought additional fees somewhere between $,.00 (using the rate charged by Scouler during the case and $,0.00 (using the premium rate/fee enhancement rate to which the ESOP has objected. Nearly all of these fees were for preparation of the First Scouler Final Fee Application. The fees were not, however, really for preparation of the final fee application, since Scouler hired outside counsel for that task, but seems more in the nature of high-priced litigation support. C. The Third Scouler Final Fee Application Finally, on November, 0, Scouler filed another pleading styled Second Supplemental Declaration of Dan Scouler in Support of Scouler & Company, LLC s Final Fee Application (the Third Scouler Final Fee Application. Therein, Scouler seeks, at this late date, the allowance of its outside counsel s fees of $,0.00 and costs of $., for a total of $,0.. Additionally, Scouler seeks yet another $,-$,000 for Scouler personnel for preparing the Reply Brief [Third Scouler Final Fee Application at paragraph ]. It was, of course, outside counsel that prepared the reply brief. Apparently Scouler wishes to be

4 Main Document Page of 0 0 compensated, at a premium rate which it has never before charged in the case, for acting as client regarding work done by its outside counsel. The time entries for Scouler s outside counsel [Third Scouler Final Fee Application at Exhibit A ] fail to show either the hourly rate of the timekeeper or the total fees generated by the billing entry, as is the standard for professionals filing fee applications before the United States Bankruptcy Court for the Central District of California. Nor is there any summary or table showing the hourly rates, total hours and total fees for timekeepers. Thus, the time entries for outside counsel do not meet the threshold requirements to which employed professionals are held in fee applications before this Court. By all indications, the Third Scouler Final Fee Application appears to be Scouler s final final fee application. D. Totals - Scouler Final Fee Applications The total of additional fees and costs sought in Scouler s Second and Third Final Fee Applications that pertains to its final fee applications is : Scouler & Co., LLC Fee Application Fees sought for fee application tasks Scouler shown at premium rates Costs sought for fee application tasks Total Second Final Fee Application $,0.00 $0 $,0.00 Third Final Fee Application Outside $,0.00 $. $,0. Counsel fees Third Final Fee Application Scouler $,.0 Not Applicable $,.0 fees Totals $,.0 $. $,0.0 Since there is inconsistency between the amount of fees stated in the Second Scouler Final Fee Application at page, lines -, and the fees shown in Exhibit I, the amount appearing in the text will be used.

5 Main Document Page of 0 0 Based on the foregoing, Scouler s tally for fees sought in its First, Second and Third Final Fee Applications, as stated in its various applications are as follows: Scouler & Co., LLC Final Fee Application Fees Sought Costs Sought Totals (Calculated at premium/fee enhancement rate First Final Fee Application $,0.00 $,. $,. Second Final Fee Application $,0.00 n/a $,0.00 Third Final Fee Application $,.00 $. $,. Total $,0.00 $,. $,. III. OBJECTIONS TO SCOULER S SECOND AND THIRD FINAL FEE APPLICATIONS A. The fees sought for Scouler timekeepers in the Second Scouler Final Fee Application for preparation of a fee application actually prepared by outside counsel are highly excessive. The ESOP agrees that the Court is best suited to determine reasonable fees for the preparation of fee applications. In the Second Scouler Final Fee Application, Scouler, which did not prepare the First Scouler Final Fee Application, seeks a whopping $,0.00 in fees (premium rate for what amounts to litigation support in preparing the First Scouler Final Fee Application. None of the time referenced above was in support of Scouler s reply to the ESOP, since Scouler s time included in Exhibit I cuts off at October, 0, the date that the First Scouler Final Fee Application was filed. In short, very little more need be said about the excessive nature of $,0 for preparation of a final fee application that was actually prepared by outside counsel. A fee application requires assembly of relevant data, most of which is kept in the ordinary course of business, and in the case of a professional assisted by outside counsel, same integration with

6 Main Document Page of 0 0 counsel. Should this translate into a $,0 charge? It should not, and such a request should be substantially reduced. Scouler, most likely anticipating the Court s concern with this level of billing for a fee application not prepared by Scouler, does state that additional time was spent in anticipation of objections by the ESOP [ This Final Application took more time than most in anticipation of the ESOP s Opposition Second Scouler Final Fee Application at page, lines -]. This assumes that a lower level of detail can be included in a fee application if the professional is expecting only judicial scrutiny, and not an objection by a party-in-interest. Such a position is indefensible and should not be factored into the appropriateness of Scouler s billing practices. Scouler also make the incorrect statement that To prepare this reply, Scouler had to review and comment on all issues raised by the ESOP, returning to case records repeatedly [Second Scouler Final Fee Application at page, lines -]. This is belied by the fact that, as is clear from Exhibit I, the additional $,0 sought by Scouler only includes time for the period ending on October, 0, the date of the filing of the First Scouler Final Fee Application. The ESOP filed its opposition on November, 0. Thus, a reply to the ESOP simply was not a component of the additional amount sought in the Second Scouler Final Fee Application. B. Scouler s outside counsel fees finally disclosed in the Third Scouler Final Fee Application should be reduced. Scouler s seeks a total of $,0.00 for fees incurred by its outside counsel in preparing a single fee application and briefing a single reply. Counsel did file three pleadings when two would most likely have sufficed. Looking to the reasonableness requirement for billing regarding fee applications, the ESOP contends that this amount is excessive, and should be reduced commensurately by the Court. Neither Scouler nor outside counsel can be heard to complain that Scouler s fees were increased due to the possibility of an opposition. The level of detail required for final fee applications seeking nearly $,000,000 does not vary based on the possibility of an opposition. Thus, Scouler and outside counsel should be held to the same

7 Main Document Page of 0 0 standard as all professionals preparing fee applications in the bankruptcy court, and not attempt to use a perceived looming threat of an opposition as grounds for excessive charges. C. Scouler s total of $,0.0, for a single fee application, shocks the conscience. The amount of $,0 for the preparation of a single fee application shocks the conscience. Fees that are so unreasonable as to shock the conscience can absolve the court from making a detailed analysis of the fees. Sun Publishing Co., Inc. vs Mecklenberg News, Inc. F. d ( th Cir. (once that court determines that the fees sought shock the conscience it can forego a more exhaustive multi-component Johnson analysis. Here, although the ESOP does not seek total disallowance of the fees for the final fee application, it contends that, given the facts of the case, the amount sought shocks the conscience, and based thereon, the fees sought for the final fee application should be greatly reduced. D. Scouler has not shown that its fees for defending its fee application are compensable Although Scouler alluded to compensation for defending its attorney s fees in the First Scouler Final Fee Application, there was no case or controversy before the Court regarding any actual fees to which the ESOP could respond. Now that such fees have been put before the Court in the Third Scouler Final Fee Application, the matter can now be addressed by the ESOP. Scouler cites In re Smith, F.d ( th Cir. 00 for the proposition that fees incurred in defending and litigating over fee applications is compensable. This is an over A review of the Scouler shows that Scouler seeks reimbursement from outside counsel for. hours of time spent of litigating its fee applications. Since, as set out above, the time entries of outside counsel show no hourly rate, quantifying such services is difficult. Using outside counsel s blended hourly rate of $/hour, using the only two known factors regarding outside counsel s fees, hours and total fees, the total spent on litigation is $,.0. Added to this is all of Scouler s own time from the Third Scouler Final Fee Application ($,.0 gives a total of not less than $,.0 spent litigating over the Scouler fee application.

8 Main Document Page of 0 0 simplification. What is telling about the th Circuit s holding in Smith, however, is that the th Circuit rejected any per se rule regarding the allowability of such fees. The Smith court stated: While Nucorp suggests that time and expenses spent litigating a fee application may be compensated, in Boldt v. Crake (In re Riverside-Linden Investment Co., F.d 0, (th Cir., we rejected the per se award of administrative fees arising from litigation of a fee application. We distinguished Nucorp on the basis that unlike the presentation and preparation of the fee application itself, there is no statutory or Bankruptcy Rule requirement that attorneys for the debtor oppose objections [by other parties] to [their] fee application. Id.... Thus, to be compensated for the time and expenses spent litigating a fee application, the fee applicant must demonstrate that the services for which compensation is sought satisfy the requirements of section 0(a((A and that its case exemplifies a set of circumstances where the time and expense incurred by the litigation is necessary within the meaning of section 0(a( Smith v. Edwards & Hale (In re Smith, F.d,, (th Cir. 00 Smith merely stands for the proposition that fees for defending/litigating fee applications are not forbidden. Final discretion rests with the bankruptcy court in determining the benefit to anyone other than the applicant, the necessity, whether the opposition resisted by the The holding in Smith has been criticized by at least one Circuit Court. See, Asarco, L.L.C. v. Jordan Hyden Womble Culbreth & Holzer, P.C. (In re Asarco, L.L.C., F.d, 0 (th Cir. 0( In the absence of explicit statutory guidance, requiring professionals to defend their fee applications as a cost of doing business is consistent with the reality of the bankruptcy process. The perverse incentives that could arise from paying the bankruptcy professionals to engage in satellite fee litigation are easy to conceive..

9 Main Document Page of 0 professional was frivolous, and whether the professional was successful in defending its fees. In re Smith, F.d at -. Here, the opposition filed by the ESOP was meritorious, as compared to the type of frivolous opposition which concerned the Smith court. The opposition went to such items as Scouler s seeking a fee enhancement of $,, or, in the alternative, an award at rates never before charged or even contemplated by Scouler in the case. Also the target of the ESOP s opposition were outlandish travel time from far parts of the country to Los Angeles and back, as well as time spent in such travel. Scouler has failed to show the benefit of its litigation fees sought in the First Scouler Final Fee Application, as required under both Smith and U.S.C. 0(a, nor is there any basis for deeming the ESOP s opposition frivolous. Based thereon, the fees sought by Scouler for defending its final fee applications should be denied if full. E. Conclusion Based on the foregoing, and based on the reasoning set out in the ESOP s original opposition filed on November, 0, the Court should make appropriate reductions and disallowances regarding the fees and costs sought by Scouler. 0 Dated: November, 0 REEDER LAW CORPORATION /s/ DAVID M. REEDER DAVID M. REEDER Attorney for The Hot Dog on a Stick Employee Stock Ownership Plan

10 Main Document Page 0 of In re: CHAPTER: HDOS ENTERPRISES, CASE NO.: :-bk-0-nb Debtor-in-Possession. PROOF OF SERVICE OF DOCUMENT I am over the age of and not a party to this bankruptcy case or adversary proceeding. My business address is: Reeder Law Corporation 0 Century Park East, Suite 00 Los Angeles, CA 00-0 A true and correct copy of the foregoing document entitled (specify: OPPOSITION OF THE HOT DOG ON A STICK EMPLOYEE STOCK OWNERSHIP PLAN TO THE: ADDITIONAL FEES AND COSTS INCLUDED IN THE REPLY OF SCOULER & COMPANY, LLC TO OPPOSITIONS OF UNITED STATES TRUSTEE AND THE HOT DOG ON A STICK EMPLOYEE STOCK OWNERSHIP PLAN TO THE FINAL FEE APPLICATION OF SCOULER & COMPANY, LLC; SUPPLEMENTAL FINAL FEE APPLICATION OF SCOULER & COMPANY, LLC; AND ADDITIONAL FEES AND COSTS INCLUDED IN THE SECOND SUPPLEMENTAL DECLARATION OF DAN SCOULER IN SUPPORT OF SCOULER & COMPANY, LLC S FINAL FEE APPLICATION will be served or was served (a on the judge in chambers in the form and manner required by LBR 00-(d; and (b in the manner stated below:. TO BE SERVED BY THE COURT VIA NOTICE OF ELECTRONIC FILING (NEF: Pursuant to controlling General Orders and LBR, the foregoing document will be served by the court via NEF and hyperlink to the document. On November, 0, I checked the CM/ECF docket for this bankruptcy case or adversary proceeding and determined that the following persons are on the Electronic Mail Notice List to receive NEF transmission at the addresses stated below: Service information continued on attached page. SERVED BY UNITED STATES MAIL: On, I served the following persons and/or entities at the last known addresses in this bankruptcy case or adversary proceeding by placing a true and correct copy thereof in a sealed envelope in the United States mail, first class, postage prepaid, and addressed as follows. Listing the judge here constitutes a declaration that mailing to the judge will be completed no later than hours after the document is filed. Service information continued on attached page. SERVED BY PERSONAL DELIVERY, OVERNIGHT MAIL, FACSIMILE TRANSMISSION OR (state method for each person or entity served: Pursuant to F.R.Civ.P. and/or controlling LBR, on November, 0, I served the following persons and/or entities by personal delivery, overnight mail service, or (for those who consented in writing to such service method, by facsimile transmission and/or as follows. Listing the judge here constitutes a declaration that personal delivery on, or overnight mail to, the judge will be completed no later than hours after the document is filed. Service information continued on attached page I declare under penalty of perjury under the laws of the United States of America that the foregoing is true and correct. November, 0 Jessica L. Evans /s/ JESSICA L. EVANS Date Printed Name Signature This form is mandatory. It has been approved for use by the United States Bankruptcy Court for the Central District of California. June PROOF.SERVICE

11 Main Document Page of In re: CHAPTER: HDOS ENTERPRISES, CASE NO.: :-bk-0-nb Debtor-in-Possession. SERVICE LIST Michael Avanesian Allison R Axenrod allison@claimsrecoveryllc.com Lindsey F Baker lbaker@fbtlaw.com Dustin P Branch dustin.branch@kattenlaw.com, jessica.mickelsen@kattenlaw.com;brian.huben@kattenlaw.com;adelle.shafer@kattenlaw.co m;donna.carolo@kattenlaw.com Jeffrey W Broker jbroker@brokerlaw.biz John P Byrne John.Byrne@byrnelaw.biz Edwin K Camson camson@drumcapital.com, camson@drumcapital.com Sara Chenetz schenetz@perkinscoie.com, dlax@perkinscoie.com Jeffrey W Dulberg jdulberg@pszjlaw.com Scott Ewing contact@omnimgt.com, sewing@omnimgt.com;katie@omnimgt.com Jerome Bennett Friedman jfriedman@flg-law.com, msobkowiak@flglaw.com;jmartinez@flg-law.com;sbiegenzahn@flg-law.com;rfranzoia@flg-law.com Todd R Gabriel tgabriel@sparberlaw.com Matthew A Gold courts@argopartners.net Ronald E Gold rgold@fbtlaw.com Michael I Goldberg info@sonarcredit.com Richard H Golubow rgolubow@winthropcouchot.com, pj@winthropcouchot.com;vcorbin@winthropcouchot.com David Guess dguess@ktbslaw.com Christopher V Hawkins Hawkins@sullivanhill.com, bkstaff@sullivanhill.com;vidovich@ecf.inforuptcy.com;hawkins@ecf.inforuptcy.com;miller ick@sullivanhill.com Brian L Holman b.holman@mpglaw.com Joan Huh joan.huh@boe.ca.gov Dare Law dare.law@usdoj.gov Lori A Lewis lewisl00@mail.maricopa.gov Michael Y Lo michaellolaw@yahoo.com, bklolaw@gmail.com Scotta E McFarland smcfarland@pszjlaw.com, smcfarland@pszjlaw.com Thor D Mclaughlin tmclaughlin@allenmatkins.com, igold@allenmatkins.com Jessica Mickelsen jessica.mickelsen@kattenlaw.com, adelle.shafer@kattenlaw.com;ecf.lax.docket@kattenlaw.com Kevin M Newman knewman@menterlaw.com, kmnbk@menterlaw.com Randy P Orlik rorlik@coxcastle.com Boris Orlov orlov.boris@dol.gov Ernie Zachary Park ernie.park@bewleylaw.com Kristen N Pate ggpbk@ggp.com Jeffrey N Pomerantz jpomerantz@pszjlaw.com David M Reeder david@reederlaw.com, jessica@reederlaw.com This form is mandatory. It has been approved for use by the United States Bankruptcy Court for the Central District of California. June PROOF.SERVICE

12 Main Document Page of In re: CHAPTER: HDOS ENTERPRISES, CASE NO.: :-bk-0-nb Debtor-in-Possession. James S Riley tgarza@sierrafunds.com Mark S Rosen marksrosen@aol.com, pattielawofficemarkrosen@aol.com Marc Rosenthal mrosenthal@marlinleasing.com Peter J Rudinskas pjr.legal@gmail.com Norman D Schoenfeld lsi@liquiditysolutions.com David B Shemano DBShemano@rkmc.com Howard Steinberg steinbergh@gtlaw.com, laik@gtlaw.com;lalitdock@gtlaw.com Ronald M Tucker rtucker@simon.com, cmartin@simon.com;psummers@simon.com;bankruptcy@simon.com United States Trustee (LA ustpregion.la.ecf@usdoj.gov Howard J Weg HJWeg@rkmc.com Gilbert B Weisman notices@becket-lee.com Jonathan M Weiss jweiss@ktbslaw.com Andrew F Whatnall awhatnall@daca.com Eric R Wilson kdwbankruptcydepartment@kelleydrye.com Rebecca J Winthrop rebecca.winthrop@nortonrosefulbright.com, darla.rodrigo@nortonrosefulbright.com Served by Personal Delivery Honorable Neil W. Bason United States Bankruptcy Court Central District of California Roybal Federal Building E. Temple St., Ste. Los Angeles, CA 00- Served by Attachment Attorneys for Professional Scouler & Company, LLC Sara L. Chenetz, Esq. Perkins Coie LLP Century Park East, Suite 00 Los Angeles, CA 00 schenetz@perkinscoie.com This form is mandatory. It has been approved for use by the United States Bankruptcy Court for the Central District of California. June PROOF.SERVICE