United States District Court, D. Nevada
ORDER AFFIRMING BANKRUPTCY COURT ORDER
P. GORDON UNITED STATES DISTRICT JUDGE.
Three Twenty-One Capital Partners, LLC appeals the bankruptcy
court’s order denying a motion to surcharge the secured
creditor’s collateral for fees and expenses that Three
Twenty-One incurred in providing services to debtor U.S.A.
Dawgs, Inc. Three Twenty-One sought to recover its fees out
of the proceeds from the sale of the debtor’s assets.
Those assets constituted collateral of the secured creditor,
appellee GemCap Lending I, LLC. GemCap opposed the motion.
The bankruptcy court approved Three Twenty-One’s fee
application but denied the motion to surcharge.
Twenty-One argues on appeal that the bankruptcy proceedings
were structured in a manner that made Three
Twenty-One’s services essential to the resolution of
the proceedings through a sale of the debtor’s assets,
which Three Twenty-One conducted. It argues that its services
provided a quantifiable benefit to GemCap and preserved
GemCap’s collateral; thus, GemCap would receive a
windfall if Three Twenty-One’s fees and expenses were
not surcharged to the sale proceeds. It argues the bankruptcy
court erred by denying the surcharge motion.
responds that under the relevant statutory provision, only
the trustee may seek a surcharge, so Three Twenty-One lacks
standing to appeal. Alternatively, GemCap argues that even if
Three Twenty-One has standing, it cannot meet its burden of
showing the bankruptcy court committed clear error in finding
that Three Twenty-One failed to show its fees were reasonable
or that it provided a concrete and quantifiable benefit to
GemCap. Finally, GemCap contends that even if Three
Twenty-One overcame these hurdles, Three Twenty-One has used
the incorrect formula in determining what amount of fees it
could surcharge. Three Twenty-One did not file a reply brief.
to appeal a bankruptcy court order is limited to
“person[s] aggrieved” by that order. Matter
of Point Ctr. Fin., Inc., 890 F.3d 1188, 1191 (9th Cir.
2018). A person is aggrieved if it is “directly and
adversely affected by” the bankruptcy court’s
order, meaning the court’s order “diminish[ed]
the appellant’s property, increase[d] its burdens, or
detrimentally affect[ed] its rights.” In re Thorpe
Insulation Co., 677 F.3d 869, 884 (9th Cir. 2012).
debtor and Three Twenty-One sought to surcharge expenses
under 11 U.S.C. § 506(c). That statute provides:
The trustee may recover from property securing an allowed
secured claim the reasonable, necessary costs and expenses of
preserving, or disposing of, such property to the extent of
any benefit to the holder of such claim, including the
payment of all ad valorem property taxes with respect to the
payment of these ‘reasonable and necessary’
expenses out of the secured property of a creditor is known
as a surcharge.” In re Debbie Reynolds Hotel &
Casino, Inc., 255 F.3d 1061, 1064 (9th Cir. 2001). The
statute unambiguously provides that only the trustee or a
debtor-in-possession may pursue a surcharge. Hartford
Underwriters Ins. Co. v. Union Planters Bank, N.A., 530
U.S. 1, 6 & n.3 (2000); In re Debbie Reynolds Hotel
& Casino, Inc., 255 F.3d at 1066.
bankruptcy court, the debtor-in-possession and Three
Twenty-One filed a joint motion for surcharge. ECF No. 10 at
540-47. But only Three Twenty-One filed the appeal. ECF Nos.
1; 9. GemCap argues that because Three Twenty-One is not the
trustee or debtor-in-possession, it lacks standing to appeal
the order denying the surcharge. Three Twenty-One does not
respond to this argument, so it has not met its burden of
demonstrating that it was directly and adversely affected by
the bankruptcy court’s order. See Matter of
Fondiller, 707 F.2d 441, 443 (9th Cir. 1983) (stating
that to have standing to appeal, the appellant bore the
burden of showing she was directly and adversely affected by
the bankruptcy court’s order).
extent Three Twenty-One has standing,  I affirm the
bankruptcy court’s order for the reasons set forth
below. I review the bankruptcy court’s factual findings
for clear error and its conclusions of law de novo. In re
Compton Impressions, Ltd., 217 F.3d 1256, 1260 (9th Cir.
obtain a surcharge, the debtor and Three Twenty-One had to
show that the expenses they sought to surcharge against
GemCap’s collateral “were reasonable, necessary,
and beneficial to [GemCap’s] recovery, or that [GemCap]
caused or consented to those expenses.” Id.
“To satisfy the benefit test of section 506(c), [Three
Twenty-One] must establish in quantifiable terms that it
expended funds directly to protect and preserve the
collateral.” Id. (quotation omitted). Even if
Three Twenty-One makes this showing, the “amount of
[GemCap’s] benefit limits [Three Twenty-One’s]
recovery of expenses.” Id. at 1261.
bankruptcy court found that GemCap did not consent to the
expenses. ECF No. 10 at 688. That finding is not clearly
erroneous because GemCap opposed the employment of Three
Twenty-One from the outset and continuously objected
throughout the proceedings. See, e.g., ECF Nos. 10
at 84-100, 731; 22-1 at 12-16, 59-77; 22-6 at 12; 24 at 87;
24-2 at 43-66.
the bankruptcy court’s finding that Three Twenty-One
did not provide a quantifiable benefit to GemCap is not
clearly erroneous. ECF No. 10 at 685-88. GemCap initially
objected to the debtor using GemCap’s cash collateral
because it believed it was not adequately protected. ECF No.
22-1 at 59-77, 95-107. Three Twenty-One and the debtor
represented to the bankruptcy court that GemCap was
adequately protected. ECF No. 23-1 at 71, 79. GemCap gave
notice it was prepared to make a credit bid of $4.3 million,
which was more than what was obtained at the auction. ECF
Nos. 22-1 at 22; 26 at 58, 60; 26-4 at 54-57. In the
meantime, the debtor expended GemCap’s cash collateral
and operated at a loss. See, e.g., ECF No. 26-2 at
152. Consequently, it was not clearly erroneous to conclude
that GemCap suffered a detriment (or at least no quantifiable
benefit) from Three Twenty-One’s participation when
GemCap could have foreclosed or credit bid on its secured
interest at the outset, which is what GemCap wanted to do.
See In re Compton Impressions, Ltd., 217 F.3d at
THEREFORE ORDERED that the bankruptcy court’s order
denying the motion for surcharge is AFFIRMED. The clerk of