The opinion of the court was delivered by: Shira A. Scheindlin, U.S.D.J.
By Order entered December 21, 2010, this Court appointed Melanie L. Cyganowski as Receiver in this matter, authorizing her "to administer and collect" certain interest of Stanley E. Thomas and S. Thomas Enterprises of Sacramento, LLC (together, the "Debtors") "to the extent necessary to satisfy" the $13,534,904.04 joint and several judgment entered against them by this Court on October 12, 2010 (the "Judgment").*fn1 In the same Order, and upon Judgment Creditors' ("Creditors") request, this Court held Thomas in contempt of Court.*fn2
Now before the Court are (1) the Receiver's Application for Allowance of Commission, Fees, Costs, and Expenses ("Receiver's Application")*fn3 and (2) Creditors' Application for Award of Attorneys' Fees Incurred in Addressing Defendant Thomas's Contempt as Compensation for Creditors' Expenses as Aggrieved Parties ("Creditors' Application").*fn4 For the reasons that follow, the Receiver's Application is granted in its entirety, and the Creditors' Application is granted in part.
The background of this case, and the reasons for my appointment of a Receiver and decision to hold Thomas in contempt, are laid out in great detail in the December 21st Appointment and Contempt Order, and are further reflected in the transcript of an Oral Argument held in this Court on December 17, 2010, on an Order to Show Cause issued at Creditors' request.*fn5 In short, after this Court entered the Judgment against Debtors on October 12, 2010, they appealed.
However, because they did not file a supersedeas bond, Creditors' enforcement of the Judgment during the pendency of the Appeal was not stayed. Accordingly, a Restraining Notice was served upon Debtors on October 29, 2010, forbidding Debtors to make or suffer any sale, assignment, transfer, or interference with any property in which he or it had an interest.
Thomas violated the Restraining Notice.*fn6 As a result, Creditors' Georgia counsel (SGR) and New York counsel (Tashjian & Padian ("T&P")) "settled on a multi-state strategy" to address Thomas's conduct.*fn7 SGR would seek emergency relief from the federal court in Atlanta, and would work with T&P in New York to prepare papers seeking to have Thomas held in contempt for violating the restraining notices. In accordance with that strategy, T&P requested an Order to Show Cause (1) why Debtors should not be (i) enjoined from taking certain actions with respect to four specific properties controlled by Debtors, (ii) ordered to turn over the Certified Checks, and (iii) ordered to turn over stock certificates of any of the companies in which Debtors held interests ("Debtors' interests"); (2) why this Court should not appoint a Receiver to administer and collect Debtors' interests; and (3) why Thomas should not be held in contempt of court. I granted the Order on December 12, 2010.*fn8
Following briefing and oral argument, I appointed Cyganowski Receiver "[p]ursuant to Fed. R. Civ. P. 64 and CPLR § 5228(a)," and authorized her to administer and collect Debtors' interests in (i) any of the LTDs and (ii) any other limited-company or corporation ("Debtors' interests") to the extent necessary to satisfy the Judgment; Debtors retain the power to improve, lease, repair, and/or sell those interests for the purpose of satisfying the Judgment, but may do so only with the prior approval of the Receiver.*fn9 I indicated that
[t]he Receiver is entitled to reimbursement by Debtors for necessary expenses and a commission of Eight Hundred and Thirty-Five Dollars ($835) per hour, not to exceed five percent of the sums received and disbursed by her, and is authorized to engage and employ persons, including accountants, attorneys, investigators and experts, to assist in the carrying out of her duties and responsibilities, such individuals to be reimbursed for necessary expenses and compensated at an hourly rate.
I also ordered Debtors immediately to turn over to the Receiver any stock certificates representing Debtors' interests and held Thomas in civil contempt of Court. I ordered Thomas to purge his contempt either by (1) unwinding the transaction that led to the encumbrance of the Cayman Islands Land or (2) posting a supersedeas bond in the full amount of the Judgment ("Appeal Bond"). Thomas was also ordered to pay ten thousand dollars per day for each day after December 20, 2010 until January 20, 2011 that he remained in contempt, and to be jailed for every day following January 20, 2011 that he remained in contempt. In an order dated December 30, 2010, I clarified that Thomas was to pay his contempt fines to the Receiver ("12/30 Order").
The same day, Debtors moved the United States Court of Appeals for the Second Circuit to stay enforcement of the payment provisions of the Appointment and Contempt Order and the 12/30 Order (together, the "Contempt Orders") (the "Stay Motion"). The Second Circuit stayed enforcement conditioned on Debtors' filing a supersedeas bond in the amount of one-hundred thousand dollars. On January 5, 2011, Debtors filed a supersedeas bond in that amount (the "Stay Bond"), but both the Receiver and Creditors alleged deficiencies in such bond as not in conformance with either the Contempt Orders or the Second Circuit's order. In an attempt to remedy the deficiencies in the bond, the Receiver filed an opposition to the Stay Motion in the Second Circuit (the "Stay Opposition") on the grounds that the bond: (a) omitted from its factual recitations that it was issued with respect to the appeal from the contempt order and did not set forth the purpose of the Bond; (b) did not recite that, in accordance with the Court's Orders, the one-hundred thousand dollars should be paid to the Receiver upon the determination by the Second Circuit -- were it to so decide -- that the appeal was denied; and (c) did not make clear whether the Stay Bond would be available to pay the full amount of the daily contempt fees which, by the time the Stay Motion was decided, would likely be far in excess of one-hundred thousand dollars.
After the filing of the Stay Opposition, Creditors requested that the Second Circuit adjourn adjudication of the Stay Motion to afford Thomas additional time to secure financing and take steps to purge his contempt by posting a bond for the full amount of the Judgment by January 20, 2011. By Order dated January 11, 2011, the Second Circuit agreed to adjourn its hearing of the Stay Motion and granted a stay of enforcement of the payment provisions of the Contempt Orders for nine days conditioned on the Debtors' posting a second supersedeas bond for ninety-thousand dollars.
Also during this same time period, Creditors requested that the Receiver and her counsel review and authorize various proposed settlements involving assets owned by Thomas and his affiliated entities. In connection with one such proposed settlement, on January 18, 2011, the Receiver received $19,866.15 in proceeds, to be held in escrow, as a condition of her having authorized a sale of certain restrained real property controlled by Thomas located in Sarasota, Florida. In addition, Thomas sought authority from the Receiver and the Court to consummate the sale of certain real property he controlled in the Cayman Islands (the "Cayman Islands Sale") so that he could obtain the funds necessary to secure the ultimate satisfaction in full of the Judgment and all expenses associated with it, thereby (a) purging his contempt, (b) staying all further enforcement of the Judgment during the pendency of the appeal to the Second Circuit, and (c) obtaining a release of all restraints presently in effect arising from the entry of the Judgment and related proceedings.
On January 18, 2011, I entered an order signed on January 14, 2011 (the "Settlement Order") lifting the restraints contained in the prior Orders of this Court to the extent of permitting Thomas to consummate and close on the Cayman Islands Sale enabling Thomas to provide the Receiver with fourteen million dollars to be held in escrow. Thereafter, Thomas closed and consummated the Cayman Islands Sale and caused fourteen million dollars to be delivered to the Receiver on January 18, 2011, which funds were held in escrow by the Receiver. In the Settlement Order, I directed the Receiver to hold in escrow all proceeds not used to procure a conforming Appeal Bond, which proceeds would be available to pay
(i) such fees, costs, and expenses of the Receiver and her counsel as shall be allowed by the Court on application by the Receiver . . . , and (ii) such other amounts as the Court may award in favor of any party hereto upon application to the Court . . . .*fn10
All remaining amounts, I directed, were to be "remitted by the Receiver to Thomas upon the termination of the Receivership, or further Order of this Court."*fn11
As part of the global settlement entered into by the parties pursuant to the Settlement Order, the Receiver also withdrew a "limited objection" she had filed to the Disclosure Statement for the Rim Debtors' Third Amended Joint Plan of Reorganization (the "Plan") in their consolidated Northern District of Georgia Chapter 11 bankruptcy cases. The Rim Debtors' proposed Plan contemplated the disposition of assets of the Debtors (particularly of Thomas) that were restrained by the terms of the Appointment Order.
On February 8, 2011, I entered another order directing the Receiver to release from escrow and remit to a named surety sufficient funds to obtain a supersedeas bond in the amount of the Judgment and to pay the surety's premium for issuance of the appeal bond ("Bond Order").*fn12 After the Receiver paid the surety for the face amount of the bond and the premium, $369,915.11 remained in escrow held by the Receiver.*fn13 In accordance with the Bond Order, Creditors calculated that over a period of two years, $64,967.54 in post-judgment interest would accrue on the Judgment (the "Interest Amount").*fn14
A. Receiver's Application
The Receiver now applies for allowance of payment of $299,519.55,
providing as support a detailed list of professional services
rendered; computerized time records; a summary sheet of the attorneys
and paraprofessionals and their corresponding initials, billing rates,
and the number of hours incurred by Receiver's Counsel, along with
computerized time records of Counsel; and a computerized printout of
the disbursements of the Receiver and her Counsel, actually and
necessarily incurred in the performance of the Receiver's duties.
Debtors object to the Receiver's Application, maintaining that it
should be rejected in its entirety because (1) the Rules of the Chief
Judge of the New York State
Court of Appeals "preclude a receiver from using the services of his
or her law firm in the absence of a 'compelling reason'"*fn15
and (2) the Receiver "improperly seeks reimbursement for
services that her own submissions demonstrate fall well beyond the
appropriate scope of her appointment."*fn16
1. Applicability of the Rules of the Chief Judge of New York
Section 36.2 of Title 22 of the New York Compiled Codes, Rules and Regulations governs "Appointments by the Court." Subsection (c)8 of ...