Shulkin, Hutton & Bucknell (SHB) and Russell Nogg (Nogg), attorneys for the debtor-in-possession, seek attorneys fees in this failed chapter 11 case. The Small Business Administration (SBA), the United States Trustee and the case trustee all object to allowance of the fees as well as disbursement of any allowed fees from the attorneys' remaining retainers.

      This court has reviewed the fee applications and finds the requested fees of $19,260.00 and expenses of $192.08 for Russell Nogg to be reasonable and allowable. SHB's fees in the sum of $16,407.75 and costs in the sum of $1,007.20 are reasonable and allowed.

      As there are no unencumbered assets in the estate, allowance of such fees is authorized but payment is doubtful. The issue presented by the parties is whether or not the attorneys' remaining fees may be paid from their retainers. SHB received a retainer of $18,500.00 pre-petition. They have $4,300.00 remaining in it after deducting previously allowed fees. Nogg received         1 ABR 297  $15,000.00 pre-petition and has about $2,000.00 of that sum remaining plus $2,452.95 which was transferred post-petition. I will allow the attorneys to apply their pre-petition retainers to their fees. Mr. Nogg will have to turn his post-petition collection of $2,452.95 over to the trustee, however.

Cash Collateral

       The SBA argues that the retainers are cash collateral subject to their security interest. The SBA could well be right. It had a pre-petition security interest in virtually all of the debtor's assets. The retainers were paid to the debtor's counsel when the debtor was in default of its obligations to the SBA and its predecessors in interest. Under A.S. § 45.09.306(b) "... a security interest continues in collateral notwithstanding sale, exchange, or other disposition of it unless the disposition was authorized by the secured party . . . ."

        Now is not the time to raise this issue, however. Counsel for the debtor duly disclosed their retainers in documents filed with this court in 1989. Prior fee applications have been allowed. The SBA has never challenged the retainers at any time prior to the latest hearing on fees, over a year after the petition was filed. The SBA has slept on its rights. The attorneys for the debtor have justifiably relied upon the retainers and the SBA's failure to object. Moreover, the SBA has failed to prove their

        1 ABR 298  security interest attached to "identifiable proceeds" in the retainers. Matter of Gibson Products of Arizona, 543 F.2d 652 (9th Cir. 1976), cert. denied 430 U.S. 946 (1977).

        Nor does the post-petition payment of $2,452.95 to Nogg appear improper as to the SBA. The SBA's post-petition security interests only attach to "accounts receivable" per the parties' October 6, 1989 letter agreement. The monies paid Nogg arose from a preference action, not an account receivable. Additionally there has been no tracing by the SBA as required by Gibson Products. The objections of the SBA to the application of the retainers to the fees are without merit.

General Objections

        The United States Trustee and the case trustee allege that the whole of the retainers should be turned over to the trustee. I disagree. While the pre-petition retainers are property of the estate, they are subject to the attorney's lien of A.S. § 34.35.430(2), as to pre-petition services as well as post-petition services which are duly approved and allowed by the court. In re Burnside Steel Foundary Co., 90 B.R. 942 (Bankr. N.D. Ill. 1988). The debtor's attorney is a secured creditor, secured by a pre-petition possessory security interest in cash or an authorized post-petition retainer.

        1 ABR 299 
        I reject the case trustee's broad interpretation of In re Sea-Catch, Inc., 36 B.R. 226 (Bankr. D. Alaska 1983). Sea-Catch did not involve a pre-petition retainer. The attorneys in Sea-Catch received funds after conversion of a chapter 7 case without court authority. Sea-Catch does not require the turnover of a pre-petition retainer when it is applied to allowable fees.

        The trustee is correct, however, as to the post-petition transfer to Nogg. Nothing in the court's file indicates that such a transfer was approved at any time. The transfer to Nogg is an unauthorized transfer barred by Section 549 of the Code and Sea-Catch. These funds should be turned over to the trustee.

Therefore, it is hereby ordered:

        (1)    Reasonable attorney's fees in the sum of $19,260.00 and expenses in the sum of $192.08 are allowed for Russell Nogg;

        (2)    Reasonable attorney's fees are allowed for Shulkin, Hutton & Bucknell in the sum of $16,407.75 together with costs in the sum of $1,007.20;

        (3)    Russell Nogg and Shulkin, Hutton & Bucknell may apply their pre-petition retainers to the fees they have earned;

        (4)    Russell Nogg shall turn over the sum of $2,452.95 to the trustee; and

        (5)    The attorneys shall have a chapter 11 administrative claim for the fees allowed herein together with any unpaid fees arising from prior applications, less the applied retainers.

        1 ABR 300 

        DATED:    January 15, 1991.

DONALD MacDonald IV
United States Bankruptcy Judge