In Re: Top Grade SaUnited Statesge, Inc. ( 2000 )

Opinions of the United
2000 Decisions States Court of Appeals
for the Third Circuit
9-12-2000
In Re: Top Grade SaUnited Statesge, Inc.
Precedential or Non-Precedential:
Docket 99-5383
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Filed September 12, 2000
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
Nos. 99-5383/5402
IN RE: TOP GRADE SAUSAGE, INC.,
Debtor (99-5383)
IN RE: FORIST DISTRIBUTORS, INC.,
Debtor (99-5402)
HELLRING LINDEMAN
GOLDSTEIN & SIEGAL LLP,
Appellant
Appeal from the United States District Court
for the District of New Jersey
(D.C. Civil Action Nos. 99-cv-00393/4)
District Judge: Honorable John W. Bissell
Argued: January 27, 2000
Before: GREENBERG*, ROTH and STAPLETON,
Circuit Judges
(Filed: September 12, 2000)
_________________________________________________________________
* After this case was argued, but prior to the issuance of this opinion,
Judge Greenberg took senior status on June 30, 200 0.
James A. Scarpone, Esquire (Argued)
David Wolff, Esquire
Hellring, Lindeman, Goldstein &
Siegal
One Gateway Center, 8th Floor
Newark, New Jersey 07102
Attorneys for Appellants
Mary Ellen Tully, Esquire (Argued)
Rabinowitz, Trenk, Lubetkin & Tully,
P.C.
200 Executive Drive, Suite 225
West Orange, New Jersey 07052
Attorneys for Appellee, Katherine
A. Suplee Chapter 7 Trustee of
Top Grade Sausage, Inc.
Gary S. Jacobson, Esquire
Stuart G. Brecher, Esquire
Jacobson & Brecher, LLC
608 Sherwood Parkway
P.O. Box 1220
Moutainside, New Jersey 07092-
0220
Attorneys for Appellee, Albert
Russo, Chapter 7 Trustee for
Forist Distributors, Inc.
OPINION OF THE COURT
ROTH, Circuit Judge.
Prior to the passage of the Bankruptcy Reform Act of
1994, the Bankruptcy Code expressly authorized the
Bankruptcy Court to award fees and expenses from the
debtor's estate to the debtor's attorneys. The Reform Act
omitted debtors' attorneys from the list of officers eligible to
receive such an award. See 11 U.S.C. S 330 (1994). We are
now confronted with the inevitable question of whether a
debtor's attorney remains eligible for compensation from
the estate. We conclude that debtors' attorneys are still
2
eligible to receive compensation for fees and expenses
reasonably likely to benefit the estate. Under the specific
facts of this case, however, we conclude that the debtor's
attorneys' services were not reasonably likely to benefit the
estate. We will, therefore, affirm the denial of debtor's
attorneys' fees in toto for services rendered during the
Chapter 11 proceedings.
Jurisdiction was proper in the District Court pursuant to
28 U.S.C. SS 158(a)(1) and 1331. Jurisdiction is proper in
this Court pursuant to 28 U.S.C. SS 158(d) and 1291.
"Because the District Court sat as an appellate court,
reviewing an order of the Bankruptcy Court, our review of
the District Court's determinations is plenary." In re
Rashid, 210 F.3d 201, 205 (3d Cir. 2000). "In reviewing the
bankruptcy court's determinations, we exercise the same
standard of review as the district court." Fellheimer, Eichen
& Braverman, P.C. v. Charter Technologies, Inc., 57 F.3d
1215, 1223 (3d Cir. 1995). Therefore, we review the
Bankruptcy Court's legal determinations de novo, its
factual findings for clear error, and its exercise of discretion
for abuse thereof. In re Engel, 124 F.3d 567, 571 (3d Cir.
1997).
I. FACTS
The Lipari family owned and managed two successful
New Jersey businesses. Top Grade Sausage, Inc.,
manufactured and distributed sausage. Forist Distributors,
Inc., delivered lamb and veal to retailers. When the family
was confronted with considerable debt from the criminal
defense of the family patriarch, Joseph Lipari, Top Grade
and Forist (collectively "Debtors") filed separate voluntary
petitions for Chapter 11 bankruptcy protection. Because of
the commonality of parties and issues, the Bankruptcy
Court administered the two cases together.
Walder Sondak & Brogan, P.A., the law firm that
represented the father during his criminal trial and a
judgment creditor of both Debtors, filed a motion to appoint
a Chapter 11 trustee for both Debtors. The Bankruptcy
Court granted the motion, appointed a single Trustee for
the Debtors, and approved the Trustee's choice of counsel.
3
After appointment of the Trustee and Trustee's counsel, the
Debtors filed an Application for retention of Hellring,
Lindeman, Goldstein & Siegal as Debtors' counsel.
According to the Application, Hellring Lindeman was to (1)
advise the Debtors of their duties, (2) negotiate and
effectuate an arrangement with the creditors, (3) prepare
any necessary applications or other legal papers, (4) appear
before the Bankruptcy Court and protect the interests of
the Debtors, and (5) perform all other legal services for the
Debtors. The Bankruptcy Court granted the Debtors'
motion on November 18, 1996.
The attempted reorganization of the two companies was
unsuccessful and marred by acrimony and rancor. The
Trustee assumed control of the companies' operations.
Hellring Lindeman was required to address the many
conflicts that arose between the Lipari family and the
Trustee in the course of the daily operation of the
businesses. Hellring Lindeman also filed a reorganization
plan and disclosure statement.
As efforts to reach a reorganization plan proved to be
unsuccessful, Walder Sondak filed a motion to convert
Forist's Chapter 11 reorganization into a Chapter 7
liquidation. On June 30, 1997, the Bankruptcy Court
permitted the conversion. Top Grade continued to operate
and the parties continued to try to negotiate a
reorganization plan. When these efforts failed, the Trustee
closed Top Grade. On August 21, 1997, the Bankruptcy
Court converted Top Grade's Chapter 11 reorganization into
a Chapter 7 liquidation.
Following conversion of the Debtors' petitions, the
Bankruptcy Court fixed a deadline for the filing of Chapter
11 administrative claims. Hellring Lindeman filed Chapter
11 fee applications aggregating $ 80,959.75 in fees and
$1,403.98 in expenses. The Trustee, the United States
Trustee, and Walder Sondak filed objections to Hellring
Lindeman's fee application. Each set of objections was
limited to the compensability of specific entries.
The Bankruptcy Court conducted a single hearing to
consider all the fee applications. During its colloquy with
counsel, the Bankruptcy Court raised sua sponte the
4
question of whether Hellring Lindeman's Application should
be denied in toto. Specifically, the Bankruptcy Court was
concerned that Hellring Lindeman's representation of
debtors-out-of-possession was of no value to the estate.
During the hearing, Hellring Lindeman did not ask the
Court for additional time to address its concerns, nor did it
request a second hearing in the thirty-seven days between
the hearing and issuance of an opinion.
On December 3, 1998, the Bankruptcy Court issued its
ruling from the bench. A representative from Hellring
Lindeman was not present. The Bankruptcy Court
disallowed payment of any fees or expenses by the estate to
Hellring Lindeman for services rendered to the debtors
during the attempted reorganizations. The Bankruptcy
Court did permit some compensation for services rendered
after the debtors' petitions were converted to Chapter 7.
The Bankruptcy Court reasoned that for a debtor's
attorneys to receive compensation from the estate, they
must show that their services provided a benefit for the
estate. The Bankruptcy Court found that Hellring
Lindeman's services were either duplicative of services
rendered by the Trustee or rendered solely for the benefit of
the debtor and not of the estate.
Hellring Lindeman timely appealed to the District Court.
Hellring Lindeman claimed that the Bankruptcy Court's
decision to deny compensation in its entirely did not
comport with due process because Hellring Lindeman was
not notified of the Bankruptcy Court's position prior to the
hearing. Furthermore, Hellring Lindeman alleged that the
Bankruptcy Court erred by requiring Hellring Lindeman to
show an "actual benefit" to the estate rather than showing
that, at the time rendered, the services were reasonably
likely to benefit the estate.
The District Court affirmed the decision of the
Bankruptcy Court. In doing so, it raised for thefirst time
the issue of whether, pursuant to the 1994 amendment to
S 330(a)(1), a bankruptcy court may award fees to a debtor's
attorney. The District Court held that, despite the omission
of "debtor's attorney" from the amended language of the
statute, services by a debtor's attorney which benefit the
estate are compensable and that the omission of"debtor's
5
attorney" from the language of S 330(a)(1) was inadvertent.
Hellring Lindeman now appeals to this Court and raises the
same issues presented to the District Court.
II. EFFECT OF THE REFORM ACT AMENDMENT TO
S 330
Before we consider the constitutional adequacy of the
Bankruptcy Court's proceedings or the underlying merits of
Hellring Lindeman's request for fees and expenses, we must
decide if the attorney for a Chapter 11 debtor is statutorily
entitled to receive compensation from the estate. Prior to
1994, the answer was clear. Debtors' attorneys were among
four classes of officers to whom the Bankruptcy Court was
specifically authorized to award such compensation.1 See
11 U.S.C. 330. Congress, however, made sweeping changes
to the Bankruptcy Code with the passage of the Bankruptcy
Reform Act of 1994 (Reform Act), Pub.L. 103-394. See First
Merchants Acceptance Corp. v. J.C. Bradford & Co. , 198
F.3d 394, 400 n.2 (3d Cir. 1999) (listing some of the
changes codified in the Reform Act). Among the sections
amended by Congress was S 330, the statutory source for
compensating officers of the debtor's estate. Section 330
now reads in relevant part:
(a)(1) After notice to the parties in interest and the
_________________________________________________________________
1. The relevant section of the Bankruptcy Code provided that:
After notice to any parties in interest and to the United States
trustee and a hearing, and subject to sections 326, 328, and 329 of
this title, the court may award to a trustee, to an examiner, to a
professional person employed under section 327 or 1103 of this
title, or to the debtor's attorney--
(1) reasonable compensation for actual, necessary services rendered
by such trustee, examiner, professional person, or attorney, as the
case may be, and by any paraprofessional persons employed by
such trustee, 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
other than in a case under this title; and (2) reimbursement for
actual, necessary expenses.
11 U.S.C. S 330(a) (1994) (emphasis added).
6
United States Trustee and a hearing, and subject to
sections 326, 328, and 329, the court may award to a
trustee, an examiner, a professional person employed
under section 327 or 1103--
(A) reasonable compensation for actual, necessary
services rendered by the trustee, examiner,
professional person, or attorney and by any
paraprofessional person employed by any such
person; and
(B) reimbursement for actual, necessary expenses.
11 U.S.C. S 330. The amended section is remarkable for two
reasons. Missing from the list of officers eligible to receive
compensation is a debtor's attorney. Also, the penultimate
and ultimate class of officers are separated only by a
comma and not by the disjunctive "or." This omission
renders the section grammatically unsound. It has also led
to a split among courts considering whether debtors'
attorneys are still eligible to receive compensation from the
proceeds of the estate.
Some courts, led by the Courts of Appeals for the Fifth
Circuit and the Eleventh Circuit, have concluded that the
plain meaning of S 330(a) precludes the award of
compensation to debtors' attorneys. See In re Inglesby,
Falligant, Horne, Courington & Nash, P.C. v. Moore (In re
American Steel Product, Inc.), 197 F.3d 1354 (11th Cir.
1999); Andrews & Kurth L.L.P. v. Family Snacks, Inc. (In re
Pro-Snax Distributors, Inc.), 157 F.3d 414 (5th Cir. 1998).
Other courts, led by the Court of Appeals for the Ninth
Circuit, have looked beyond the omission and determined
that Congress's deletion of "debtor's attorney" from the
statute was inadvertent and thus courts should read
"debtor's attorney" back into the statute. See United States
Trustee v. Garvey, Schubert & Barer (In re Century Cleaning
Service, Inc.), 195 F.3d 1053 (9th Cir. 1999). See also In re
Ames Department Stores, Inc., 76 F.3d 66, 72 (2d Cir. 1996)
(stating in dictum that it was "inclined to agree" that
debtor's attorneys were still eligible after passage of the
Reform Act to receive compensation for their services and
7
expenses). This question of statutory construction is a
matter of first impression in this Court.2
We begin by looking at the language of the statute. See
Pennsylvania Dept. of Public Welfare v. Davenport , 495 U.S.
552, 557-58 (1990). When the language is unambiguous
and "the statutory scheme is coherent and consistent, there
generally is no need for a court to inquire beyond the plain
language of the statute." United States v. Ron-Pair
Enterprises, Inc., 489 U.S. 235, 240-41 (1989). After a close
analysis of the disputed section and its location in the
Bankruptcy Code, we find that, if the current version of the
_________________________________________________________________
2. We would not need to answer this complicated question here if
Hellring Lindeman qualified as a "professional person[ ] employed under
section 327 or 1103" pursuant to S 330. Unfortunately, Hellring
Lindeman does not qualify for compensation as a professional person.
Section 1103 is concerned with professional persons hired in support of
the creditors' and equity security holders' committees. Section 327
concerns the employment of professional persons by the trustee. This
section reads in pertinent part:
(a) Except as otherwise provided in this section, the trustee, with
the
court's approval, may employ one or more attorneys, accountants,
appraisers, auctioneers, or other professional persons, that do not
hold or represent an interest adverse to the estate, and that are
disinterested persons, to represent or assist the trustee in
carrying
out the trustee's duties under this title.
(b) If the trustee is authorized to operate the business of the
debtor
under section 721, 1202, or 1108 of this title, and if the debtor
has
regularly employed attorneys, accountants, or other professional
persons on salary, the trustee may retain or replace such
professional persons if necessary in the operation of such
business.
. . .
(e) The trustee, with the court's approval, may employ, for a
specified special purpose, other than to represent the trustee in
conducting the case, an attorney that has represented the debtor,
if
in the best interest of the estate, and if such attorney does not
represent or hold any interest adverse to the debtor or to the
estate
with respect to the matter on which such attorney is to be
employed.
Since it was the debtors, not the Trustee or a creditors' committee,
that retained Hellring Lindeman, Hellring Lindeman cannot show that it
was hired pursuant either to S 327 or to S 1103.
8
statute is read to omit "debtor's attorney," it is ambiguous
and inconsistent with other provisions of the Bankruptcy
Code.
The most striking effect caused by the omission is on the
internal consistency of S 330 itself. The section is comprised
of just one long sentence. The sentence begins by
delineating those officers to whom the District Court "may
award" payments. As emphasized above, "debtor's attorney"
is no longer included in this first list. But when the
sentence continues at subsection (a)(1)(A), the list of
potential fee recipients is unchanged from the previous
version of the subsection. The Bankruptcy Court is
authorized to award payment for services that are rendered
by "the trustee, examiner, professional person, or attorney
and by any paraprofessional person employed by any such
person." 11 U.S.C. S 330(a)(1)(A) (emphasis added). As S 330
now reads then, the second half of the sentence seems to
partially permit what the first half prohibits.
One possible explanation is that debtors' attorneys are
not the only attorneys whose services could benefit the
estate. Other officers of the estate must routinely hire
attorneys to help with the administration of the estate.
Those attorneys' services should be compensated. While
this is true, however, the present structure ofS 330 does
not support this conclusion. Prior to amendment, it was
undisputed that the repetition of officers inS 330(a)(1)(A)
was meant to parallel the officers previously listed in
S 330(a)(1). See In re Miller , 211 B.R. 399, 402
(Bankr.D.Kan. 1997).
Moreover, the current version uses the definite article
"the" to modify the officers listed in S 330(a)(1)(A) rather
than the indefinite articles "a," "an," or "any." Webster's
dictionary defines "the" as "a function word to indicate that
a following noun or noun equivalent is definite or has been
previously specified by context or by circumstance."
Webster's Ninth New Collegiate Dictionary 1222 (1989).
See also BLACK'S LAW DICTIONARY 1477 (6th ed. 1990)
("In construing statute, definite article ``the' particularizes
the subject which it precedes and is word of limitation as
opposed to indefinite or generalizing force ``a' or ``an'."). The
use of "the" in S 330(a)(1)(A) then refers to the universe of
9
officers listed in S 330(a)(1), thereby leaving the word
"attorney" in S 330(a)(1)(A) without prior reference.
See Miller, 211 B.R. at 402. See also In re Cohn, 54 F.3d
1108, 1115 (3d Cir. 1995) ("[C]ourts are obliged to give
effect, if possible, to every word Congress used.").
If, on the other hand, Congress had wished to authorize
payment for all attorney services performed for officers of
the estate, Congress should have modified "attorney" with
the indefinite article "any," as it did"paraprofessionals."
This modification would not, however, have been necessary
for payment of attorneys hired by the trustee because this
category of attorneys can be compensated as "professional
persons employed under section 327 or 1103 . . . ."3 11
U.S.C. S 330.
Some courts have sought to explain the retention of
"attorney" in S 330(a)(1)(A) by reference to S 330(a)(4)(B),
which was added in the Reform Act. Section 330(a)(4)(B)
provides that
[i]n a chapter 12 or chapter 13 case in which the
debtor is an individual, the court may allow reasonable
compensation to the debtor's attorney for representing
the interests of the debtor in connection with the
bankruptcy case based on the consideration of the
benefit and necessity of such services to the debtor and
other factors set forth in this section.
11 U.S.C. S 330(a)(4)(B). See e.g., Century Cleaning, 195
F.3d at 1064 (Thomas, J. dissenting); In re Fassinger, 191
B.R. 864, 865 (Bkrtcy.D.Or. 1996). These courts have
concluded that "attorney" in S 330(a)(1)(A) must reference a
debtor's attorney permitted compensation by S 330(a)(4)(B).
Moreover, courts have held that S 330(a)(4)(B) provided
_________________________________________________________________
3. The dissent in Century Cleaning, 195 F.3d at 1063, supported the
restrictive interpretation of "attorney" inS 330(a)(1)(A) by concluding
that
"it is entirely consistent . . . that Congress intended to eliminate
compensation as a matter of course, but wished to retain the avenue for
a Chapter 7 debtor's attorney to receive compensation on appointment
by the trustee when the debtor's attorney acts for the estate's benefit."
This explanation is faulty, however, because in such a situation the
debtor's attorney would be eligible for an award as a professional person
hired under section 327 or 1103.
10
further support for the conclusion that debtors' attorneys,
other than those mentioned within that subsection, are
precluded from the award of compensation for fees and
expenses based on the canon of statutory construction,
expressio unius est exclusio alterius. See Century Cleaning,
195 F.3d at 1057 n.3. This argument, however, ignores the
structure of S 330.
If S 330(a)(4)(B) is read without reference to the entire text
of S 330(a)(4), it could be read to provide a Chapter 12 or
Chapter 13 debtor's attorney a right to an award not shared
by that attorney's peers. However, when S 330(a)(4)(A) is
read in conjunction with the proceeding subsection,
S 330(a)(4)(B), it is clear that this was not Congress's intent.
Section 330(a)(4)(A) seeks to assure that only services that
are unique, necessary or reasonably likely to benefit the
debtor's estate are compensated. Section 330(a)(4)(B) sets
forth a more liberal standard for attorneys representing
individual debtors in a Chapter 12 or 13 bankruptcy
proceeding. "The fact that the statute employs a different
standard to determine the level of reimbursement for
Chapter 12 or Chapter 13 debtor's attorneys certainly does
not suggest that the other debtor's attorneys are not
entitled to reimbursement." Century Cleaning , 195 F.3d at
1057 n.3. Indeed, recognition by Congress that this discrete
class of debtors' attorneys need to be excepted from the
regular, more stringent standards for compensation
evidences Congress's belief that debtors' attorneys in
general remained eligible for compensation under the
customary standard. To then read S 330 to preclude
eligibility would create a glaring inconsistency in the
Bankruptcy Code.4
In addition, S 329 contemplates the prepetition payment
of fees to the debtor's attorney from the debtor, subject to
court review for reasonableness. Payment by the debtor of
a prepetition retainer would not remove those funds from
the property of the estate. This being the case, would S 330
prevent the prepetition retainer from being applied to
_________________________________________________________________
4. Moreover, Congress did not omit "debtor's attorney" from section
330(a)(1) and replace it with "debtor's attorney authorized under section
330(a)(4)(B)." The omission in 330(a)(1) was without qualification.
11
postpetition attorney services performed for the debtor? See
Miller, 211 B.R. at 402. If it did, this would create another
imponderable in the Bankruptcy Code.
Accordingly, because the statutory scheme would be
rendered inconsistent if we were to read S 330(a) to omit
debtors' attorneys and because the legislative history does
not manifest an intent by Congress to change the long-
standing practice of compensating debtors' attorneys,5 see
Century Cleaning, 195 F.3d at 1058-60 (comprehensively
detailing legislative history of the statute); see also
Dewsnup v. Timm, 502 U.S. 410, 419-420 (1992) ("[T]his
Court has been reluctant to accept arguments that would
interpret the Code, however vague the particular language
under consideration might be, to effect a major change in
pre-Code practice that is not the subject of at least some
discussion in the legislative history."), we conclude that
debtors' attorneys may still receive an award of
compensation from the estate for services rendered and
expenses incurred.
III. DID HELLRING LINDEMAN RECEIVE DUE PROCESS?
We now turn to the constitutional adequacy of the
proceeding in the Bankruptcy Court. Hellring Lindeman
alleges that the Bankruptcy Court did not provide it with
adequate notice and opportunity to be heard pursuant to
the Due Process Clause when, during the fee application
hearing, the Bankruptcy Court sua sponte raised doubts
about awarding a fee to Hellring Lindeman. Hellring
Lindeman argues that the timing of this notice did not
afford it the time needed to prepare an answer to the
Bankruptcy Court's position. For example, Hellring
Lindeman cites the fact that David Wolff of Hellring
Lindeman erroneously informed the Bankruptcy Court
during the hearing that Hellring Lindeman had not
submitted a reorganization plan.
_________________________________________________________________
5. Given the curious structure of the statute and the product of the
debtor, we cannot help but be reminded of an admonition often
attributed to Bismarck that "No man should see how laws or sausages
are made." See Community Nutrition Institute, et al. v. Block, 749 F.2d
50,
51 (D.C. Cir. 1984) (Scalia, J.).
12
Our examination of the record does not, however, bear
out the contention that Hellring Lindeman did not have an
opportunity to present to the Bankruptcy Court the extent
to which Hellring Lindeman's services benefitted the estate.
At the hearing, the Bankruptcy Judge expressed her
concerns that Hellring Lindeman's efforts had not
benefitted the estate and questioned Wolff about this:
[O]ne of my concerns in the [Chapter] 11-- and I'm not
sure it was fully addressed -- is the bottom line, you
guys represented a debtor-out-of-possession. Why am I
compensating you at all for the estate if I can't discern
any benefit? And I don't mean to be cutting you off at
the knees but if my whole concern is benefit, so what
did you guys do for me so-to-speak
JA at A-221. Wolff discussed the services rendered by
Hellring Lindeman, including the mistaken representation
that it had not submitted a reorganization plan, and
concluded by saying, "But with that, I'm finished, Your
Honor." JA at A-225. Hellring Lindeman did not attempt to
correct the erroneous statement about the reorganization
plan during the intervening 37-day period before the
Bankruptcy Court issued its ruling; nor did Hellring
Lindeman ask for the opportunity to expand upon the
explanation of benefit given by Wolff at the fee hearing.
We have previously noted that "the bankruptcy court has
the power and the duty to review fee applications,
notwithstanding the absence of objections by the United
States trustee . . . creditors, or any other interested party
. . . ." In re Busy Beaver Bldg. Centers, Inc., 19 F.3d 833,
848 (3d Cir. 1994). See 11 U.S.C. S 330(a)(2) ("The
[bankruptcy] court may, on its own motion . . . award
compensation that is less than the amount of compensation
that is requested."). We further noted that "the Code, see
SS 329(b), 330(a); see also Rule 2017(b) -- and perhaps
even the dictates of due process, see U.S. CONST., amend.
V -- mandates that the court allow the fee applicant an
opportunity, should it be requested, to present evidence or
argument that the fee application meets the prerequisites
for compensation; canons of fairness militate against
forfeiture of the requested fees simply because the court's
13
audit of the application uncovers some ambiguity or
objection." Busy Beaver, 19 F.3d at 846.
In Busy Beaver, the Bankruptcy Court sua sponte,
"issued an order denying compensation for certain services
performed by paraprofessionals . . . ." Id. at 838. The
aggrieved attorney did not have an opportunity to argue on
his behalf until he filed a motion for reconsideration. Here,
when faced with the Bankruptcy Court's objection to its fee,
Hellring Lindeman could have requested additional time to
prepare an answer to the objections. It did not do so. Nor,
did Hellring Lindeman request a further hearing. In Busy
Beaver, we stressed that a hearing should be held when
requested. Id. Although Hellring Lindeman had ample time
to correct the record or request a follow-up hearing, it
chose not to do so. Accordingly, Hellring Lindeman cannot
now demonstrate that it was not afforded due process.
IV. THE "REASONABLY LIKELY TO BENEFIT" TEST
The Bankruptcy Court applied a "benefits analysis test"
when evaluating Hellring Lindeman's fee application. See In
re Xebec, 147 B.R. 518 (Bankr. 9th Cir. 1990). According to
that test, the "attorney's services had to be identifiable,
tangible, and of material benefit to the estate in order to be
compensable." (Dec. 3, 1998 Tr. at 23). On appeal to the
District Court, Hellring Lindeman directed the Court to
S 330(a)(4)(A) which prohibits compensation for the
"unnecessary duplication of services; or . . . services that
were not- . . . reasonably likely to benefit the debtor's
estate; or . . . necessary to the administration of the case."
11 U.S.C. S 330(a)(4)(A) (emphasis added).
The District Court affirmed the Bankruptcy Court's
determination that a debtor's attorney seeking allowances
for services provided after appointment of a Chapter 11
Trustee must show an actual benefit to the estate"lest the
state be taxed twice for services that only the Trustee
should have rendered." We do not agree. Section
330(a)(4)(A) already protects the estate from the
unnecessary duplication of services. We will, therefore,
adopt the test proposed by Hellring Lindeman that its
application be evaluated pursuant to the standards set
14
forth in S 330(a)(4)(A) and not by some heightened standard
or by hindsight. Accordingly, the debtor's attorney must
show that the representation was reasonably likely to
benefit the debtor's estate.
Do Hellring Lindeman's services for the debtors during
the attempted reorganization meet the "reasonably likely to
benefit the debtor's estate" standard set forth in
S 330(a)(4)(A)? The Bankruptcy Court held that it "could
find no service that was not either A) . . . rendered solely to
the debtor out of possession and thereby by definition of no
benefit to the estate or B) . . . that was not duplicative of
a Trustee or Trustee's counsel duty. Therefore, I disallow
any fees to Hellring [Lindeman] in the Chapter 11 context."
JA at A-23. The District Court concurred but noted further
that even if the "reasonableness" test adopted were applied,
Hellring Lindeman still would not be eligible for an award
of fees and expenses from the estate. Our review of the
record convinces us that Hellring Lindeman's services do
not meet the "reasonableness" test.
It is primarily the duty of the Chapter 11 Trustee to help
the parties reach an acceptable reorganization plan. The
debtor's attorneys must bring something unique to the
negotiations in order to receive compensation from the
estate. Hellring Lindeman's fee application states, inter alia,
that its services to the debtors included: (1) meeting with
the debtor's principals to learn the history of the cases, (2)
reviewing the exhaustive pleadings of the case, (3) meeting
with the debtor's prior counsel to learn about the complex
background of the case, (4) preparing numerous pleadings,
(5) attending various court hearings, (6) conducting
numerous telephone conversations and meetings with
representatives of the debtors concerning diverse matters,
and (7) researching various legal issues. After a search of
the record, we are unable to ascertain any particular action
by the debtor's attorney that could not have been done by
the Trustee and his staff. Moreover, the Bankruptcy Court
found that it was the debtors who were inflexible and
insistent that Walder Sondak not be fairly compensated.
Given that finding, which is not clearly erroneous, along
with the nature of the services performed, it is difficult to
see how Hellring Lindeman's services could have been
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considered reasonably likely to benefit the estate. Cf. In re
Pro-Snax, 157 F.3d at 426 n.17 (commenting that even
under a reasonableness test the law firm should have
concluded that its services would be futile).
Hellring Lindeman also argues that the mere fact that it
was appointed by the Bankruptcy Court demonstrates that
its representation was reasonably likely to benefit the
estate. No such per se rule exists. It is the burden of the
debtor's attorneys to demonstrate that their representation
was reasonably likely to benefit the estate. Hellring
Lindeman did not do so.
V. CONCLUSION
In sum, we conclude that debtor's attorneys are eligible
for compensation from the estate when their services meet
the standards set forth in 11 U.S.C. S 330(a)(4)(A). We find,
however, that Hellring Lindeman's services do not rise to
meet that standard. Accordingly, we will affirm the
judgment of the District Court.
A True Copy:
Teste:
Clerk of the United States Court of Appeals
for the Third Circuit
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