Shareholders v. Sound Radio, Inc. ( 1997 )

Opinions of the United
1997 Decisions States Court of Appeals
for the Third Circuit
3-21-1997
Shareholders v. Sound Radio Inc
Precedential or Non-Precedential:
Docket 95-5174,95-5174
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UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 95-5174
SHAREHOLDERS;
SHERIDAN BROADCASTING CORP.,
v.
SOUND RADIO, INC.
ta WNJR, RADIO 1430;
DANIEL E. ROBINSON;
JEROME J. LA PENNA, ESQ.
SOUND RADIO, INC.
ta WNJR RADIO, 1430
Debtor
(D.C. No. 94-cv-00754)
SHERIDAN BROADCASTING CORP.
v.
SOUND RADIO, INC.;
JEROME J. LA PENNA
SOUND RADIO, INC.,
Debtor
(D.C. No. 94-cv-04638)
*Jerome J. LaPenna &
Associates, P.C.,
Appellant
*(Pursuant to F.R.A.P. 12(a))
Appellant.
On Appeal from the United States District Court
for the District of New Jersey
(D.C. Civil Action No. 94-cv-00754)
Argued June 4, 1996
Before: SCIRICA and ROTH, Circuit Judges
and O'Neill1, District Judge
(Opinion Filed March 21,1997 )
Harry Heher, Jr., Esq. (Argued)
Heher, Clarke & St. Landau
5 Independence Way
Princeton, NJ 08540
Attorney for Appellee Shareholders
Sherry A. Vetterlein, Esq. (Argued)
Buchanan Ingersoll Professional Corporation
1835 Market Street
Eleven Penn Center, 14th Floor
Philadelphia, PA 19103
Attorney for Sheridan Broadcasting Corporation
Honorable Thomas N. O'Neill, Jr., United States District
Court Judge for the Eastern District of Pennsylvania, sitting by
designation.
2
John C. Kennedy, Esq. (Argued)
O'Donnell, Kennedy, Vespole, Piechta & Trifiolis
414 Eagle Rock Avenue
West Orange, NJ 07052
Attorney for Jerome J. LaPenna & Associates, P.C.
OPINION OF THE COURT
ROTH, Circuit Judge:
Jerome J. LaPenna asks us to review a decision of the
district court, reducing substantial fee awards granted him by
the bankruptcy court in a protracted Chapter 11 proceeding.
LaPenna was the beneficiary of more than $600,000 in fees,
awarded for his services in the three capacities in which he
acted during the Chapter 11 reorganization of Sound Radio, Inc.
The district court found that the total amount of the fees was
unreasonable. In this appeal, we have had to determine, first of
all, whether there was any timely appeal of the bankruptcy
court’s fee awards. We concluded that one of the appellees did
file a timely appeal. This conclusion then permitted us to
inquire whether the bankruptcy court should have considered as a
whole the fees awarded to one person, acting in three capacities,
rather than considering each award separately, and also to
inquire whether the district court properly reduced LaPenna's
fees without remanding the case to the bankruptcy court for that
3
court to perform such a review. Because of the unusual nature of
the role played by LaPenna, in his performance of three different
functions in the reorganization, we conclude that his fees should
be viewed as a whole with a comprehensive evaluation of the
extent and nature of the various tasks he undertook in his three
capacities. We will remand this case to the district court with
instructions to remand it to the bankruptcy court to make an
overall determination of the reasonableness of the fees.
I. FACTS
On November 30, 1984, Sound Radio, Inc., an AM radio
station broadcasting under the call letters WNJR, filed its
Chapter 11 bankruptcy petition. Twelve years later, the
bankruptcy court closed the case. In re Sound Radio, Inc., No.
84-6261 (Bankr. D.N.J. Apr. 29, 1996). The proceedings have
already produced four published opinions and countless
unpublished rulings. See In re Sound Radio, 103 B.R. 521 (D.N.J.
1989) (affirming plan confirmation); In re Sound Radio, 145 B.R.
193 (Bankr. D.N.J. 1992) (considering applications for fees and
expenses by parties other than LaPenna); In re Sound Radio, 93
B.R. 849 (Bankr. D.N.J. 1988) (confirming plan of
reorganization); In re Sound Radio, 59 B.R. 87 (Bankr. D.N.J.
1986) (refusing to lift stay). Mindful of this extensive record,
we will limit our discussion to events linked directly to the
LaPenna fee dispute.
The Sound Radio bankruptcy was filed in 1984. After
4
bitter infighting among the shareholders, the reorganization plan
was confirmed on January 5, 1989. During the same period, the
shareholder disputes were the subject of litigation in the New
Jersey courts. The shareholders continued to cause difficulties
in the operation of Sound Radio after the plan confirmation. As
a consequence, the Official Unsecured Creditors Committee moved
for the appointment of a trustee. In October 1989, the
bankruptcy court agreed to name a trustee to manage the day-to-
day operations of Sound Radio. Sound Radio appealed this
decision to the district court, which modified the bankruptcy
court's order and provided for the appointment of a "Managing
Agent in lieu of a Trustee." In re Sound Radio, Inc., No. 84-
6261 (D.N.J. Dec. 22, 1989). The position of Managing Agent was
created to avoid the impact of 11 U.S.C. § 1104(a), which
arguably prevents the bankruptcy court from appointing an
operating trustee after a plan of reorganization has been
confirmed.2
On February 5, 1990, the bankruptcy court appointed
LaPenna as Managing Agent for Sound Radio. The appointment was
made pursuant to 11 U.S.C. § 327, which provides for the
employment of professional persons to represent or assist the
trustee in carrying out the trustee’s duties. Two days later,
Section 1104(a) provides in its opening sentence: “At any time after the commencement
of the case but before confirmation of a plan, on request of a party in interest or the United States
trustee, and after notice and a hearing, the court shall order the appointment of a trustee-- . . ..”
5
the court approved LaPenna's decision to act as his own counsel,
naming him Attorney for the Managing Agent. On September 19,
1990, the bankruptcy court clarified the powers and authority of
the Managing Agent, stating that the Managing Agent “has, and
since his appointment has had, all of the powers and authority of
a Trustee under Chapter 11 of the Bankruptcy Code.” On October
2, 1992, the court presented LaPenna with a third hat, making him
Sound Radio's Disbursing Agent.
The record is clear that the bankruptcy court was of
the opinion that LaPenna performed all of his duties with
considerable ability. However, LaPenna also sought substantial
compensation for his services.
During his tenure, LaPenna filed eleven fee
applications with the bankruptcy court. Four sought interim fees
as Attorney for the Managing Agent. Three sought supplemental
fees and one sought final fees in the same capacity. LaPenna
also filed for interim fees and final fees as Managing Agent, as
well as for final fees as Disbursing Agent.
The dates, substance, and dispositions of the eleven
fee petitions create a baffling trail of documents and docket
entries. LaPenna’s first series of applications for fees were
filed in his capacity as Attorney for the Managing Agent. An
application, requesting $17,050.00 in interim fees, was docketed
on July 13, 1990. It was awarded in full on September 27, 1990.
The next application, requesting $23,537.50 in fees and $72.25
6
in expenses, was docketed on December 6, 1990. It was granted in
full on March 21, 1991. A third application, requesting
$27,937.50 in interim fees and $329.08 in expenses, was docketed
on August 7, 1991. It was granted in full on October 17, 1991.
LaPenna next submitted a series of fee applications as
both Managing Agent and Attorney for the Managing Agent. On
November 20, 1991, LaPenna filed an application for interim
compensation as Managing Agent, seeking $65,000.00 in fees. The
court granted that application in full on December 16, 1991. On
January 24, 1992, LaPenna's filed his fourth application for
interim compensation as Attorney for the Managing Agent, seeking
$32,242.50 in fees and $845.02 in expenses. That request was
granted on March 31, 1992. On May 28, 1992, LaPenna applied for
final compensation in his capacity as Managing Agent, and on June
1, 1992, he applied for final compensation as Attorney for the
Managing Agent. The May 28 application sought $205,000.00 in
compensation in addition to the amounts already granted. The
June 1 application sought $75,357.50 in fees and $894.53 in
expenses, again in addition to what he had already received.
Certain of the Sound Radio shareholders objected to the
May 28 application as “premature.” On July 1, the bankruptcy
court granted the May 28 application but held back $30,000 of the
allowed compensation until the Managing Agent filed his final
report.3 On July 29, 1992, the court granted the June 1
Because non-final allowances of compensation are always subject to the court’s
7
application in full. Both orders were entitled “Order For Final
Compensation To Managing Agent.” No mention was made in either
order of final compensation to LaPenna in his capacity as
Attorney for the Managing Agent.
This omission was prescient. Over the next two years,
LaPenna filed three additional applications for fees as Attorney
for the Managing Agent. On December 11, 1992, LaPenna sought
$92,535.00 in "supplemental fees" and $2,481.55 in expenses.
After shareholder objection, this application was granted in the
reduced sum of $82,500 on March 31, 1993. On April 14, 1993,
LaPenna sought $55,830.00 in supplemental fees and $1,510.40 in
expenses. It was granted on June 9, 1993. On October 19, 1993,
in a “third interim supplemental” application, LaPenna sought
$18,250.00 in fees and $1,264.88 in expenses. On December 6,
1993, before the bankruptcy court ruled on the previous fee
application, LaPenna filed an application for final fees as
Disbursing Agent, seeking $10,485.12 and $32.80 in expenses. On
December 14, 1993, the bankruptcy court granted the October 19
request. The December 14 order bears the word "final," written
reexamination and adjustment at the conclusion of the case, the deferral of the completion of
payments to the Managing Agent until the filing of his final report would seem to preclude the
July 1, 1992, order from being regarded as a final, and thus appealable, order. See Matter of
Taxman Clothing Co., 49 F.3d 310, 314 (7th Cir. 1995) (“all awards of interim compensation are
tentative, hence reviewable--and revisable--at the end of the case”); 3 LAWRENCE P. KING,
COLLIER ON BANKRUPTCY (15th Ed. Rev. 1996) ¶ 331.04[1] (interim allowances are subject to
reexamination because all administrative expenses “must receive the court’s final scrutiny and
approval.”); ¶ 331.041[2] (“a party seeking to challenge an interim award is not entitled to an
immediate appeal.”)
8
in what appears to be the bankruptcy judge’s handwriting, above
the title, "Order Granting Allowances."4 On January 19, 1994,
the bankruptcy court granted the December 6 request for the final
fees as Disbursing Agent.
Prior to the current appeal, Sound Radio’s shareholders
had made only two challenges to the applications for fees. The
first, by a group of shareholders “Shareholders”) represented by
Harry Heher, Jr., Esq., was to the application of May 28, 1992,
as being premature. The second, by Sheridan Broadcasting
Corporation (“Sheridan”), was based on LaPenna’s failure to have
lesser paid associates undertake some of his duties as attorney
for the Managing Agent. This challenge resulted in the March
31, 1993, reduction of the allowance of fees from $92,535 to
$82,500.
The appellees are these two groups of Sound Radio’s
shareholders, Sheridan and Shareholders. Although the district
court consolidated their challenges in a single appeal, Sheridan
and Shareholders have reached this court by very different paths.
Shareholders’ appeal began with the bankruptcy court's
order of December 14, 1993, awarding LaPenna final fees as
Attorney for the Managing Agent. Harry Heher filed a Notice of
Appeal from that order on December 27, 1993. The district court
dismissed the appeal as untimely. In his brief before this
As we note above, the October 19, 1992, petition which requested this allowance was an
application for “interim supplemental” fees and expenses.
9
court, Heher explained the late filing by the fact that LaPenna
never distributed copies of the order to counsel. Joel R.
Glucksman, counsel to Sound Radio's former minority shareholder
and Board Chairman Daniel E. Robinson, eventually distributed the
order on December 30, 1993. It arrived at Heher's office on
January 5, 1994, nearly two weeks after the time for appeal had
expired. Heher, however, had not relied on LaPenna to distribute
the order. When no order arrived within a week of its entry,
Heher visited the Clerk's Office on December 22, 1993, and
obtained a copy. He circulated it among his clients, who
requested an appeal. Heher promptly prepared a Notice of Appeal,
intending to file it on the afternoon of Friday, December 24,
1993. Because of the Christmas holiday, Heher telephoned the
Clerk's Office to see if it was open. He received no answer.
Heher filed the Notice of Appeal at the start of business on
Monday morning, December 27. It bears a time stamp of 9:31 a.m.
On January 27, 1994, Heher filed an Amended Notice of
Appeal on behalf of Shareholders, changing the subject of the
appeal from the bankruptcy court's December 14 Order to its
January 19 Order, granting LaPenna fees as Disbursing Agent. The
district court treated this filing as a timely Notice of Appeal
from the January 19 Order.
Sheridan followed a different course. It did not file
any appeals from “final” fee orders. However, on May 23, 1994,
Sheridan filed a pleading styled
Motion of Sheridan Broadcasting for an Order (I) Determining the
10
Final Allowed Compensation to Managing Agent, Attorney
for Managing Agent and to Disbursing Agent, (II)
Directing Mr. LaPenna to Reimburse Debtor's Estate for
Unreasonable and Excessive Interim Compensation Paid to
Managing Agent, Attorney for Managing Agent, and
Disbursing Agent, (III) Providing for Final Accounting
and Distribution of Debtor's Estate and (IV)
Discharging Managing Agent, Attorney for Managing
Agent, and Disbursing Agent.
The bankruptcy court denied the motion on August 31, 1994.
Sheridan filed a timely Notice of Appeal.
The district court assumed jurisdiction over both
appeals. In an opinion filed December 9, 1994, the district
court explained its assertion of jurisdiction, consolidated the
cases, and directed the parties to file supplemental briefs on
the reasonableness of LaPenna's fees. By Opinion and Order of
February 10, 1994, the district court reduced those fees by
$101,195.00. LaPenna appealed.
I. JURISDICTION AND SCOPE OF REVIEW
The bankruptcy court exercised jurisdiction over this
case pursuant to 28 U.S.C. § 157. The district court asserted
appellate jurisdiction pursuant to 28 U.S.C. § 158(a). We have
jurisdiction over the appeal from the district court pursuant to
28 U.S.C. § 158(d). We exercise plenary review over the district
court's determinations and over the bankruptcy court's
conclusions of law. We review the bankruptcy court's findings of
fact for clear error. Fellheimer, Eichen & Braverman v. Charter
Technologies, Inc., 57 F.3d 1215, 1223 (3d Cir. 1995).
II. DISCUSSION
11
Put simply, this case is a comedy of errors. The
parties have repeatedly missed deadlines, misidentified important
facts, and filed cryptic and unhelpful pleadings. The bankruptcy
court struggled to maintain control over this twelve-year fiasco,
but its orders have not focussed on the overall performance of
Lapenna in his three capacities.
Although we would like to resolve this case cleanly and
put an end to twelve years of litigation, we cannot so easily cut
the Gordian knot. First, we have had to determine whether there
was a timely appeal to the district court. Having done so, we
next considered the manner in which the district court dealt with
the fee awards. Like the district court, we are concerned about
the total amount of fees awarded to LaPenna. In coming to this
conclusion, the district court correctly focussed on the
requirement that LaPenna’s professional services, in all
capacities, as a person appointed under § 327, be reasonable
under § 330: That they be “reasonable compensation for actual,
necessary services rendered by such trustee, examiner,
professional person, or attorney, as the case may be . . . based
on the nature, the extent, and the value of such services, the
time spent on such services, and the cost of comparable services
. . ..”
Nevertheless, we believe the district court overstepped
its bounds by reducing the fee award without a remand to the
bankruptcy court. Section 330(a) appears to permit a fee
12
applicant an opportunity to supplement a questioned application
and, in the face of an impending reduction by the court, to have
the opportunity for a hearing.5 See In re Busy Beaver Bldg.
Ctrs., Inc., 19 F.3d 833, 845 (3d Cir. 1994). The district court
reduced LaPenna’s awards without permitting him the opportunity
for a hearing to oppose the reduction or to establish the
reasonableness of his compensation. We will therefore reverse
the judgment of the district court and remand this case to the
district court to remand it to the bankruptcy court for a
detailed examination of LaPenna's fees and an assessment of their
overall reasonableness.
A. The Timeliness of the Appeals
We begin our examination of the merits of this appeal
with the question whether there was a timely appeal filed by
either appellant. We conclude that Shareholders' first appeal
was untimely but that their second appeal supported appellate
jurisdiction in the district court. We reject, however,
Sheridan's efforts to conjure up a novel mechanism for fee
review.
1.
Shareholders filed their first Notice of Appeal on
December 27, 1993. This appeal was untimely, an issue of law
that we have reviewed de novo. See In re Saunders, 31 F.3d 767,
Section 330(a) provides in part: “[a]fter notice . . . and a hearing . . ., the court may award . . .
reasonable compensation for actual, necessary services . . ..”
13
767 (9th Cir. 1994) (per curiam).
Shareholders' December 27 Notice appealed the order
filed on December 14, 1993. Bankruptcy Rule 8002(a) states, "The
notice of appeal shall be filed with the clerk within 10 days of
the date of the entry of the judgment, order, or decree appealed
from." Bankr. Rule 8002(a). This deadline is strictly
construed. In re Universal Minerals, Inc., 755 F.2d 309, 311 (3d
Cir. 1985). The failure to file a timely notice of appeal
creates a jurisdictional defect barring appellate review. Id. at
312.
6
The shareholders concede the December 24 deadline,
instead arguing that their failure to file was the product of
excusable neglect. The term “excusable neglect” appears in
Bankruptcy Rule 8002(c), which governs extensions of time for the
notice of appeal deadline. Rule 8002(c) provides:
The bankruptcy judge may extend the time for filing the notice of
appeal by any party for a period not to exceed 20 days
from the expiration of the time otherwise prescribed by
this rule. A request to extend the time for filing a
notice of appeal must be made before the time for
filing a notice of appeal has expired, except that a
request made no more than 20 days after the expiration
of the time for filing a notice of appeal may be
granted upon a showing of excusable neglect . . ..
Bankr. Rule 8002(c).
Had the argument been made, we might have been receptive to a suggestion that an early
closing of the Clerk's Office on Christmas Eve would constitute "other conditions [making] the
clerk's office inaccessible." This would extend the filing deadline until December 27. The
shareholders, however, have not made this argument, nor do we think they have established the
factual predicate to support it. Beyond counsel's claim of a single unanswered
phone call, there is no evidence that the office was in fact closed.
14
We believe the facts in this case could support a
finding of excusable neglect for the following reasons: The
finality (and hence appealability) of the December 14 order is a
handwritten addition, no copy of the order was sent to counsel,
counsel himself contacted the Clerk's Office and obtained a copy,
and, once the order was obtained by counsel, the Notice of Appeal
was filed without undue delay. See Pioneer Investment Servs. Co.
v. Brunswick Assocs., ___ U.S. ___, 113 S.Ct. 1489, 1496, 1499-
1500 (1993) (characterizing excusable neglect as an elastic
concept that encompasses inadvertence, mistake, or carelessness,
as well as circumstances beyond a party's control). Rule
8002(c), however, requires that even in cases of excusable
neglect, the issue must be raised and the appeal filed within the
30-day window of Rule 8002 (Rule 8002(a)’s 10 days for the appeal
+ 8002(c)’s 20 days for the extension). See, e.g., Dyotherm
Corp. v. Turbo Machine Co., 434 F.2d 65 (3d Cir. 1970; In re
Botany Indus. Inc., 19 B.R. 599 (Bkrtcy. Pa. 1982). The rule
does not allow a party to claim excusable neglect after the 30
days have expired.
Here, Shareholders did not raise excusable neglect in
connection with an appeal within the time limits of Rule 8002(c).
We cannot find excusable neglect when that issue is raised for
the first time after the expiration of Rule 8002's 30 day period.
The December 27 appeal was untimely, and as a consequence we
lack jurisdiction over it.
15
1.
We reach a different conclusion regarding Shareholder's
second attempt at appeal. The Notice filed on January 27, 1994,
appealed the bankruptcy court's January 19 order. It was
therefore filed at the eight-day mark, within Rule 8002(a)'s
requirements. Although counsel styled it an "Amended Notice of
Appeal," this title description is not determinative. It is
clear from the language of the notice that Shareholders were
appealing the January 19 Order. We hold, therefore, that the
appeal of the January 19 Order was timely.
2.
We now turn to Sheridan's appeal. While Shareholders
attempted to secure appellate review through traditional methods,
Sheridan blazed its own procedural trail. On May 23, 1994,
Sheridan filed the "Motion for Order Determining the Final
Allowed Compensation to Managing Agent, Attorney for Managing
Agent, and Disbursing Agent . . .." It then appealed the denial
of that order.
Sheridan cited no rule, statute, precedent, or other
authority supporting the use of such a motion as a vehicle to
challenge the perviously awarded fees. The motion seems to have
appeared out of nowhere with no warning that it was coming and no
procedural basis upon which to justify its appearance.
Sheridan's brief on appeal adds nothing to explain the basis for
the motion. Sheridan's motion appears to be little more than an
16
attempt to circumvent established procedures of appellate review.
Aside from certified interlocutory appeals, an issue
not raised by this case, the appellate jurisdiction of the
district court and the court of appeals in bankruptcy matters is
limited by statute to final decisions, judgments, orders, and
decrees of the bankruptcy courts. See 28 U.S.C. § 158(a)
(district court); 28 U.S.C. § 158(d) (court of appeals). Appeals
from final orders are governed by the time periods of Rule 8002.
Our examination of Sheridan’s appeal convinces us that
it is improper. On the one hand, if Sheridan's motion sought an
independent determination on fees from the bankruptcy court, the
denial of that motion was not a final order appealable under 28
U.S.C. § 158. On the other hand, if Sheridan's motion sought to
challenge earlier orders purporting to be final orders awarding
fees, then the motion was untimely. In either case, the district
court had no jurisdiction to hear the appeal.
Rather than responding to these problems directly,
however, Sheridan makes two arguments in favor of its novel
procedure. First, it claims that the filing of eleven fee
applications by one individual wearing three different hats
prevented any challenge until all fees had been awarded. Only
then could Sheridan review the applications, compare them, and
ensure that LaPenna had not double-billed for the same services
on multiple applications. The district court found this argument
persuasive. We disagree with the district court’s conclusion,
17
however, because LaPenna had received “final” awards for all his
services more than ten days prior to the filing of Sheridan’s
motion.
Although we are sympathetic to Sheridan's difficulties-
-the fee applications and allowances in this case will never be
cited as models of clarity--we cannot endorse the route that
Sheridan took. Sheridan's proper course was to file a notice of
appeal from any order, denominated a final order, to which
Sheridan had objections. Final usually does mean final. A
party foregoes such an appeal at its peril. Far from preventing
a challenge, the entry of an order, entitled “final,” which
grants a confusing fee application, should have suggested the
filing of an appeal.
This brings us to Sheridan's second argument. Sheridan
claims that none of the orders entered in this case were final
orders; hence, its method of appeal was not barred. Sheridan's
belief, however, that the bankruptcy court's orders were not
final does not justify its resort to a novel motion. Certain of
the orders were labeled final, and Sheridan should have
challenged those orders as they appeared. Sheridan's subjective
belief in the finality of the orders has no bearing on the
jurisdictional determination.
In reaching these conclusions, we have considered the
practical problems that Sheridan faced. We believe that Sheridan
could have addressed these problems by objections to interim
18
allowances and by an appeal of the final award. Sheridan could
easily have addressed its concerns about over-billing and double-
billing by objecting to the fee applications that it found
problematic. If the bankruptcy court rejected its arguments,
Sheridan could have filed a timely appeal to the district court
and ultimately to us. Sheridan cannot obtain review at its
leisure by crafting a novel pleading that lacks any basis in law.
B. The Scope of the Appeal
Having concluded that Shareholders did file a timely
appeal of the January 19 Order, we now turn to the question of
the scope of that appeal. As we discuss above, LaPenna acted in
three different capacities during the Sound Radio reorganization:
Managing Agent, Attorney to the Managing Agent, and Disbursing
Agent. At the time that the fee applications were filed, none of
the shareholders asked for an overall review of LaPenna’s
performance of those functions or of the fee awards for them.
Nor did the bankruptcy court perform such a review sua sponte.
In January 1993, when the last of the awards was made, we had not
specifically ruled on the question of whether such an independent
review by the bankruptcy court was necessary, or even
permissible. In March 1994, however, we issued our opinion in In
re Busy Beaver Bldg. Ctrs., Inc., 19 F.3d 833 (3d Cir. 1994). In
Busy Beaver, we not only clarified the authority of the
bankruptcy court to review fee requests sua sponte, we went
further and held that
the bankruptcy court has a duty to review fee applications,
19
notwithstanding the absence of objections by the . . .
creditors, or any other interested party, a duty which
the Code does not expressly lay out but which we
believe derives from the court’s inherent obligation to
monitor the debtor’s estate and to serve the public
interest.
19 F.3d at 841. In light of such a duty to review, it would have
been appropriate for the bankruptcy court on its own initiative
to have examined the fee awards, including whether LaPenna, in
fulfilling three different functions in the Sound Radio
reorganization, correctly allocated his different tasks to the
proper function and whether the fee for each function, as well as
the total fees awarded, accurately reflected LaPenna’s various
responsibilities.7 Moreover, in light of our determination,
since Busy Beaver, that Shareholder’s appeal of the last of the
orders awarding compensation to LaPenna was a valid appeal, we
find that it is proper now to direct the bankruptcy court to
perform a Busy Beaver review of all the interim allowances La
Penna received in order that the court may evaluate LaPenna’s
overall performance of his three functions. In addition, because
of the interrelationship of the roles LaPenna performed, we
conclude that a Busy Beaver review of his fees must consider his
overall performance, its contribution to the resolution in the
case, and the correct attribution of each role to the fee awarded
for it.
Although we decided Busy Beaver after January 19, 1993, the basis for the duty we
described in Busy Beaver was extant in 1993. As we discussed in Busy Beaver, Bankruptcy Rule
2017(b), 11 U.S.C. § 330(a), and 11 U.S.C. § 105(a) provide “clear and compelling authority for
the bankruptcy court’s sua sponte review of fee or expense applications.” 19 F.3d at 841.
20
In coming to a conclusion that a review is needed, we
note that the record before us reveals at least four orders that
purport to be final fee awards. Two of these orders, dated July
1 and July 29, 1992, claim to award LaPenna final fees in his
role as Managing Agent. Although the July 1 order is designated
“Final’ in its title, a handwritten addition delays completion of
the payment to the Managing Agent until he has submitted his
final report. As Sheridan has complained in its fee motion, as
of May 20, 1994, a final accounting had not been submitted by
LaPenna. In regard to the July 29 order, LaPenna argues on
appeal that it is actually a final order awarding him final fees
as Attorney for the Managing Agent. If so, then it conflicts
with the December 14, 1993, order that purports to accomplish the
same thing. The finality of the December 14 order is itself
undermined because the word "final" is written in by hand above
the title. We thus might have two final orders for LaPenna as
Managing Agent and two final orders as Attorney for the Managing
Agent. We might also have no final orders for LaPenna in either
capacity. In addition, as a practical matter, many of the
allegedly final orders do not appear to be truly final. For
example, following the July 29, 1992, "final" order, which
LaPenna now claims granted him final fees as Attorney for the
Managing Agent, he continued to perform services and received
four additional fee awards in that role. We have difficulty
viewing an order as final when the subject of that order remains
21
an active participant in a still very active case.
Fortunately, we have only one final order for LaPenna
as Disbursing Agent. This January 19, 1993, order for the
Disbursing Agent fee is also the last of the awards made by the
bankruptcy court, and apparently the last one it intended to
make. For that reason, under the facts of this unusual case, we
have determined it to be the “final” order which permits an
appeal of the overall compensation allowed to LaPenna in his
triple capacities.
For the above reasons, we find the bankruptcy court's
approach to the so-called final orders inconsistent with the
procedures it should have followed prior to entering a truly
final order. A given fee application must be examined not only
on its own terms but also in light of prior awards. See 11
U.S.C. § 330(a)(5) ("[t]he court shall reduce the amount of
compensation awarded . . . by the amount of any interim
compensation awarded under section 331, and, if the amount of
such interim compensation exceeds the amount of compensation
awarded under this section, may order the return of the excess to
the estate"); see also In re Leedy Mortgage Co., 126 B.R. 907(Bankr. E.D. Pa. 1991) (examining total fee at conclusion of
case; revisiting interim awards); cf. In re Public Service Co.,
138 B.R. 660 (Bankr. D.N.H. 1992) (explaining that interim fees
are an allowance to be credited as part of final fee award for
entire case). Moreover, when a professional agent or attorney is
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performing multiple functions, it may be advisable to examine
each of the fees awarded to such an applicant to ensure that they
are properly attributed to the appropriate function. Before
awarding a final fee, the bankruptcy court should evaluate the
services performed by the professional in toto to make an overall
determination of the awards which are merited by the entire
course of services. No such calculation took place in this case.
An additional concern that we have with the total
amount of the fee awards arises from the fact that LaPenna was in
effect a trustee, albeit he was titled Managing Agent. LaPenna
appears to concede that his fees as Managing Agent should be
computed according to the provisions of 11 U.S.C. § 326 which
sets limitations on the compensation of trustees. His November
19, 1991, and the May 27, 1992, applications for compensation for
the Managing Agent were based on the trustee’s commissions set
forth in § 326(a). There is disagreement among the parties,
however, as to whether the $8,100,000 basis upon which these
commissions were computed was the appropriate figure. This
element of the basis for the Managing Agent fee would also be
appropriate to consider in a review of the fees.
Because of these problems, we have doubts regarding
LaPenna's overall fee award. The district court shared our
concern, and it took steps to review and reduce the fee. While
we agree with the district court's assessment of the case, we
cannot agree with the procedure it followed. The district court
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reviews the proceedings of the bankruptcy court in an appellate
capacity. A Busy Beaver fee examination, which may entail the
taking of evidence, including testimony and fact-finding by the
court, is inappropriate for an appellate tribunal. Nor can such
a fee dispute be resolved on the briefs. Once the district court
found the bankruptcy court's treatment of the fee issue
inadequate, its proper course was to remand the case to the
bankruptcy court with instructions to perform a Busy Beaver
evaluation. Because the district court relied on supplemental
briefing to reach an independent determination on the
reasonableness of LaPenna's fees, we will vacate its judgment.
I. CONCLUSION
We will remand this case to the district court with
instructions to remand it to the bankruptcy court to undertake a
Busy Beaver evaluation of the propriety of LaPenna's total fee
award. In making this calculation, the bankruptcy court must
consider all fees awarded to LaPenna in each of his three
capacities. The bankruptcy court should then enter a final award
that delineates LaPenna's appropriate compensation in his various
capacities based on his performance throughout the case.
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