IN THE UNITED STATES BANKRUPTCY COURT FOR THE SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
IN RE: §
§
TAXMASTERS, INC. § CASE NO. 12-32065-H2
§
Debtor § (Chapter 7)
§
TRUSTEE’S APPLICATION TO EMPLOY MCFALL, BREITBEIL, & SMITH, P.C., AS TRUSTEE’S GENERAL COUNSEL
TO THE HONORABLE UNITED STATES BANKRUPTCY JUDGE:
Comes now, W. Steve Smith, Trustee (“Trustee”) of the estate of TaxMasters, Inc., and files this Trustee’s Application to Employ McFall, Breitbeil, & Smith, P.C., as Trustee’s General Counsel (the “Application”), respectfully showing unto the Court as follows:
PROCEDURAL AND FACTUAL BACKGROUND
1. TaxMasters, Inc. (the “Debtor”) filed its Chapter 11 bankruptcy petition on March 18, 2012. On April 20, 2012, this Court signed an order appointing W. Steve Smith (the “Trustee”) as Chapter 11 trustee. The Trustee eventually sought conversion of the estate, and on May 9, 2012, this Court entered an order converting this case to a Chapter 7 case. In conjunction with that order, the United States Trustee represented to the Court its desire that the Trustee continue as the Chapter 7 trustee.
REQUEST TO EMPLOY
2. The Trustee wishes to employ the law firm of McFall, Breitbeil, & Smith P.C. (the “Law Firm”) as attorneys for the Trustee. The Trustee requires counsel to assist in a variety of matters related to the administration of this case. Those matters include the liquidation of assets, the security and preservation of electronic data, the management of hard copy records, and
2 other related issues.
3. The estate, at this point, lacks sufficient funds to retain counsel pursuant to traditional arrangements.
4. Trustee has selected the Law Firm for many reasons:
a. The qualifications of the Law Firm compared to the complexities of the case.
i. W. Steve Smith has been licensed since 1971. After clerking for the 14th Court of Civil Appeals, he was employed by Woodard, Hall & Primm, P.C. He became a partner and section head of the firm’s bankruptcy and insolvency section. He served under the Bankruptcy Act as Trustee and was appointed to the Panel of Trustees in 1979. He has been appointed as a trustee in well over 20,000 Chapter 7 and Chapter 11 cases. At the requests of the State Securities Board and State Attorney General’s Office he has been appointed State Court Receiver in several cases. As a trustee and as a receiver, he and the firms at which he has worked have represented him in a majority of cases. He has also served as counsel to other trustees including Ben Floyd, Joe Hill, Daniel O’Connell, and Robbye Waldron. As trustee, receiver, and counsel, he has been involved in nearly every aspect of business and law. He has experience in avoidable transfers as he has successfully prosecuted hundreds, if not thousands, of preference, fraudulent transfer, and post-petition transfer actions. The Trustee also successfully prosecuted hundreds of cases of fraud, in many cases obtaining denials of discharge, and, on four occasions, provided the materials and assistance to send four debtors (or its principal) to jail. He served as Editor of NABTalk for five years and held other offices in the National Association of Bankruptcy Trustees, including that of president. He left Woodard, Hall & Primm, P.C. in 1992 and joined Bonham, Carrington & Floyd. He, Ben Floyd, and Randy Rios subsequently founded Floyd, Smith & Rios, P.C. In March, 1999, he established W. Steve Smith, P.C. which, as of October 1, 2007, merged with the Law Firm. W. Steve Smith is the shareholder who oversees the bankruptcy section of the Law Firm.
Blanche D. Smith graduated from the University of North Carolina with a Bachelor of Arts, With Distinction. While at South Texas College of Law, she received American Jurisprudence Awards for Legal Research and Writing I and Real Estate Finance, she served
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as Law Review, Articles Editor, 1990-1991, she received the Order of the Lytae, and she was named to Who’s Who Among American Law Students, 1990-1992 (she was later named to the National Registry of Who’s Who, 2000). She graduated cum laude from South Texas in 1992 and received her juris doctor. She was hired by Bonham Carrington & Floyd where she worked in its bankruptcy section, largely representing and/or working as co-counsel with W. Steve Smith and Ben Floyd in numerous bankruptcy cases, including the H.A. Lott Construction and Harven Michael McKenzie cases, both cases involving extremely complex litigation and many appeals. She moved with Ben Floyd, W. Steve Smith, and Randy Rios as the initial, sole associate, to Floyd, Smith & Rios, again assisting all three individuals in many bankruptcy cases involving all aspects of business and litigation. She has served many years as Associate Editor on ABI’s Web Site Editorial Board and has written several articles published in NABTalk.
Heather R. Potts, an associate within the Law Firm’s bankruptcy section, graduated from Baylor University, magna cum laude, with a Bachelor of Science. While at Baylor Law School, she was a member of the Moot Court Society and the Order of the Barristers. Ms. Potts has prosecuted bankruptcy appeals, arguing before the Fifth Circuit Court of Appeals, and has experience in avoidance of preferences, the recovery of fraudulent transfers, and securing court approval of complex asset sales and compromises.
Helen Barkhauer has served nearly seven years as Trustee Assistant to W. Steve Smith and as a paralegal. Her experience is largely business related, primarily in the finance and accounting areas, but she has now mastered many of the bankruptcy aspects and has been invaluable in reviewing extensive documentation and compiling the information needed for pleadings, discovery, and trial.
ii. At this point in time, the main issues in this case to be handled by general counsel largely relate to the day-to-day management of this case. There are large amounts of documents, electronic data, and equipment that must be managed, transferred, and/or destroyed. Furthermore, given the nature of the Debtor’s pre-petition business, there are a variety of issues related to consumer protection that must be addressed. The members of the Law Firm constituting the bankruptcy section have experience in managing bankruptcy
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estates. The list of complex cases in which the Law Firm now, or before, in which members of the Law Firm served as counsel, is extensive.
b. Whether the firm is regularly hired by others to handle similar litigation.
W. Steve Smith has represented Ben Floyd, Joe Hill, Daniel O’Connell, Robbye Waldron, and himself. Blanche Smith has represented W. Steve Smith and Ben Floyd, as Trustees. Since leaving Floyd, Smith, Rios and Wahrlich, P.C., the practice has been for the Trustee’s own firm and the Law Firm to represent the Trustee.
The Law Firm periodically takes on debtor and non-debtor clients in bankruptcy matters though the majority of its practice thus far has involved the representation of the Trustee in cases in which he has been appointed.
c. Whether the anticipated litigation predominately involves issues of bankruptcy law with which the law firm has particularized expertise.
As stated before, the majority of the work to be handled by the Law Firm will likely relate to the day-to-day management of this estate that goes beyond the traditional matters to be handled by a trustee independently. The members of the Law Firm have considerable experience with regard to the matters that have been identified. There is a possibility that, if additional information comes to light related to property transfers and/or related matters, the Trustee may have need for the Law Firm to address such additional issues.
d. Whether the time commitment required to handle the case is consistent with the size of the firm and the balance of the firm’s time commitments.
The Law Firm will be able to handle the case (outside of those matters assigned to special counsel) and still meet all of the Law Firm’s other commitments.
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The work to be performed in this case is substantial. As this case progresses, there may be additional legal work that must be performed that goes beyond the management of current issues being addressed by the Law Firm. The work currently being performed by the Law Firm and the matters that may require additional attention go far beyond that which is usually required in the administration of a chapter 7 case.
f. The availability of other qualified firms to handle the case.
Trustee is certain that there are other firms qualified to handle the legal issues of this case. In fact, the Trustee has already employed one other firm to serve as special counsel. However, it is oftentimes only the firms of the trustees or those lawyers formerly situated in the firm of a trustee who are willing or able to perform legal services “betting on the come,” even with a significant contingent fee factor. That would be especially true in this case without sufficient funds currently on hand in the estate and the indefinite nature of the potential recovery.
g. The rates charged by the firm compared to the rates charged by other qualified firms.
W. Steve Smith charges $425 per hour, Blanche D. Smith charges $385 per hour, Heather R. Potts charges $275 per hour, and Helen Barkhauer charges $95 per hour. Trustee is aware of the rates charged by other firms and believes that the Law Firm’s rates are consistent with the rates charged by other qualified firms.
h. Whether there will be material cost savings to the estate.
Trustee, whether he likes it or not, cannot turn off the legal side, as opposed to the Trustee side, of his brain. He constantly thinks as both a trustee and as a lawyer. However, when performing his trustee duties, as opposed to legal duties, he must account for the time only as trustee and not as his counsel. That does not mean that if he is subsequently appointed, he must disremember and learn anew as counsel. As counsel, he is able to function immediately with the knowledge accumulated or to be accumulated while being trustee. There is no down time while the information is imparted to new counsel and new counsel acts on it. Even when he, along with
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others of the Law Firm, serve as his counsel, he can impart what is necessary vis-à-vis what is delegated to do by Blanche D. Smith, Heather R. Potts, or Helen Barkhauer. A new law firm must spend valuable time to learn what Trustee knows already and then spend valuable time imparting that learning as needed in delegating to others in that outside firm.
Allowing Trustee’s Law Firm to serve as Trustee’s counsel will be a material cost savings.
i. Other case specific factors.
Trustee believes that the legitimate creditors of the estate, those currently known, and those not in the Trustee’s sights, will support employment of the Law Firm.
5. Trustee proposes that the Law Firm shall perform the professional services, if required, itemized below:
a. To assist the Trustee where necessary to negotiate and consummate sales of assets of the estate, including sales free and clear of liens, claims and encumbrances, and to institute any necessary proceedings in regard thereto;
b. To institute non-routine objections to proofs of claim asserted against the estate and to prosecute all contested objections to proofs of claim asserted against the estates;
c. To analyze, institute and prosecute actions regarding recovery of property of the estate and proceeds derived from the sale of property of the estate;
d. To analyze, institute and prosecute actions regarding avoidance of set-offs and avoidable transfers, including preferences and fraudulent transfers; e. To aid in the representation of the Trustee in any litigation against the
Trustee in the Trustee’s official capacity;
f. To analyze business associations of the Debtors to determine the interest of the estate and to institute and prosecute actions to effect the recovery of such interests;
g. To analyze, institute and prosecute actions regarding insider transactions and third party dealings;
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h. To assist in resolution of title problems, if any, associated with the estates’ property and recovery of such property;
i. To analyze and take whatever non routine steps are necessary or required in the assumption/rejection of executory contracts and leases, including negotiating matters related to administrative expenses relevant to such contracts and leases;
j. To assist the Trustee in management of the Debtor’s records, including hard copies and electronic data; and
k. To assist the Trustee in the set-of of procedures by which the estate’s creditors may be educated about the status of the bankruptcy estate’s administration and information regarding their rights in the context of the same.
The above-detailed work requires a significant commitment of time and resources to maximize the potential value to be garnered for the estate to maximize the payment to legitimate creditors of the estate.
6. To the best of the Trustee’s knowledge after diligent inquiry, the Law Firm has no connection with the Debtor, creditors, any other party in interest, their respective attorneys and accountants, the United States Trustee, or any person employed in the office of the United States Trustee. The connection of the Law Firm to the Trustee has been set forth in this Application.
7. Furthermore, as evidenced by Exhibit “A,” the Law Firm represents no interest adverse to Applicant as Trustee or the estate in the matters upon which it is to be engaged for Applicant as Trustee and its employment is necessary and would be in the best interest of the estate.
8. Pursuant to In re Gem Tire & Service Co., 117 B.R. 874 (Bankr. S.D. Tex. 1990), the Trustee makes full disclosure to this Court that he is a shareholder in the firm of McFall, Breitbeil, & Smith, P.C. Employment of a firm in which a duly appointed bankruptcy trustee is a
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shareholder or partner is authorized by 11 U.S.C. § 327(d) and case law interpretation of this section of the Bankruptcy Code.
9. Trustee certifies that the Law Firm is not being employed to perform duties required to be performed by the Trustee. Trustee has informed the Law Firm that if trustee duties are performed, the Law Firm may not be compensated by the bankruptcy estate.
10. Trustee intends to employ the Law Firm on an hourly basis, with the Law Firm’s compensation and reimbursement of fees and expenses to be subject to Court approval.
11. The Trustee requests that the Application be granted effective as of April 21, 2012.
WHEREFORE, PREMISES CONSIDERED, Trustee prays that he be authorized to employ and appoint, effective April 21, 2012, the Law Firm of McFall, Breitbeil, & Smith P.C. to represent the Trustee in this case and that Trustee have such other and further relief as is just.
DATED the 20th day of May, 2012.
Respectfully submitted,
By: /s/ W. Steve Smith W. STEVE SMITH State Bar No. 18700000 1331 Lamar Street, Ste. 1250 Houston, Texas 77010 Telephone: (713) 590-9300 Facsimile: (713) 590-9399 CHAPTER 7 TRUSTEE
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CERTIFICATE OF SERVICE
I hereby certify that true and correct copy of this application will be served on May 21, 2012, on all parties listed on the attached list via regular first class mail, postage prepaid, with the exception of an address marked with an asterisk (*) denoting the party will not receive this motion via U.S. Mail as previous mail has been returned. All ECF users registered in this case will receive electronic service of this filing on May 20, 2012.
/s/ Heather R. Potts Heather R. Potts
IN THE UNITED STATES BANKRUPTCY COURT FOR THE SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
IN RE: §
§
TAXMASTERS, INC. § CASE NO. 12-32065-H2
§
Debtor § (Chapter 7)
§
ORDER AUTHORIZING EMPLOYMENT OF GENERAL COUNSEL
The Court, having considered the Application to Employ McFall, Breitbeil, & Smith, P.C., (the “Law Firm”) as Trustee’s General Counsel filed by W. Steve Smith, Trustee, is of the opinion that the requested relief is in the best interest of the estate and its creditors; that the Law Firm represents no interest adverse to the estate in the matters upon which it is to be engaged and such employment is necessary and would be in the best interest of the estate and its creditors; and that the application should be approved. Accordingly, it is therefore
ORDERED THAT:
1. W. Steve Smith, Trustee of the above-named estate, is authorized to employ the Law Firm to represent him as Trustee in this case effective April 21, 2012, to perform professional services, including those listed below:
a. To assist the Trustee where necessary to negotiate and consummate sales of assets of the estate, including sales free and clear of liens, claims and encumbrances, and to institute any necessary proceedings in regard thereto; b. To institute non-routine objections to proofs of claim asserted against the
estate and to prosecute all contested objections to proofs of claim asserted against the estates;
c. To analyze, institute and prosecute actions regarding recovery of property of the estate and proceeds derived from the sale of property of the estate;
d. To analyze, institute and prosecute actions regarding avoidance of set-offs and avoidable transfers, including preferences and fraudulent transfers;
e. To aid in the representation of the Trustee in any litigation against the Trustee in the Trustee’s official capacity;
f. To analyze business associations of the Debtors to determine the interest of the estate and to institute and prosecute actions to effect the recovery of such interests;
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g. To analyze, institute and prosecute actions regarding insider transactions and third party dealings;
h. To assist in resolution of title problems, if any, associated with the estates’ property and recovery of such property;
i. To analyze and take whatever non routine steps are necessary or required in the assumption/rejection of executory contracts and leases, including negotiating matters related to administrative expenses relevant to such contracts and leases;
j. To assist the Trustee in management of the Debtor’s records, including hard copies and electronic data; and
k. To assist the Trustee in the set-of of procedures by which the estate’s creditors may be educated about the status of the bankruptcy estate’s administration and information regarding their rights in the context of the same.
2. The Law Firm shall not be compensated by the bankruptcy estate for performing
duties required to be performed by the Trustee.
3. All requests for compensation are subject to review and approval by the Court after notice and opportunity for hearing.
Signed this _____ day of ___________________, 2012.
DAVID R. JONES
Hector Duran
Office of the U.S. Trustee 515 Rusk Ave., Ste. 3516 Houston, TX 77002
Terry L. Abram
c/o Gross, Shuman, Brizdle, & Gilfillani 465 Main Street, Suite 600
Buffalo, NY 14203
Johnie J. Patterson
David Augustus The Spencer Law Firm 4635 SW Freeway, Ste. 900 Houston, TX 77027 Sharon E. Marshall 5837 Martel Ave. Dallas, TX 75206 Patrick R. Cox
c/o John Wesley Wauson Wauson Probus
1 Sugar Creek Center Blvd, Ste. 880 Sugar Land, TX 77478
Merchant Services, Inc. d/b/a EVO c/o Erin J. Jones
Mark Siurek
The State Bank of Texas c/o William A. (Trey) Wood III
The State Bank of Texas c/o Jason G. Cohen
Ms. Deena Wissore P.O. Box 2151
Running Springs, CA 92382
Securities & Exchange Commission c/o Jolene M. Wise
Harris County c/o John P. Dillman
Jeffrey A. Marks
Vorys, Sater, Seymour and Pease LLP 302 East Fourth St.
Suite 3500, Great American Tower Cincinnati, OH 45202
Kelly, Remmel & Zimmerman Merchant Service, Inc. d/b/a EVO c/o Timothy H. Norton
53 Exchange St. P.O. Box 597
