1According to DP it filed for bankruptcy, with the approval of

the creditor holding the notes, to modify the terms of

approximately $65,000,000 in loans. A Chapter 11 proceeding was

required for modification because certain loan restrictions

prevented voluntary changes. 

1

United States Court of Appeals,

Fifth Circuit.

No. 95-11110.

In the Matter of DP PARTNERS LTD. PARTNERSHIP, Debtor.

HALL FINANCIAL GROUP, INC., Appellant,

v.

DP PARTNERS, LTD. PARTNERSHIP; Sussex Properties, Inc.,

Appellees.

Feb. 28, 1997.

Appeal from the United States District Court for the Northern

District of Texas.

Before POLITZ, Chief Judge, and JOLLY and BARKSDALE, Circuit

Judges.

POLITZ, Chief Judge:

This appeal requires the determination of the appropriate

procedures for granting a creditor administrative fees,

specifically attorney's fees, under 11 U.S.C. § 503 of the

Bankruptcy Code. Concluding that the courts a quo erred in their

construction of that section we vacate the judgment appealed and

remand for further proceedings consistent herewith.

Background

DP Partners Limited Partnership in 1993 filed a Chapter 11

petition after defaulting on note payments on real estate in Texas

and Arizona.1 DP filed its first plan of reorganization in
 

2At or near the time Hall Financial Group joined the bidding

DP amended its plan to provide for approximately $46,700,000 in

payments. 

 

3DP contends that HFG bought into the bankruptcy so that it

could bid on the apartment properties at bargain prices. According

to DP, HFG "bought a ticket to an auction." 

 

4This figure conceivably might be as high as $12,500,000.

Originally, the DP plan provided for $37,300,000 in payments. HFG

responded with a plan providing for approximately $46,500,000 in

payments. The DP plan that was finally confirmed provided for

$49,800,000 in payments. 

2

February 1994, providing for approximately $37,000,0002 in payments

to its creditors. Hall Financial Group, recognizing that the

proposed plan undervalued DP's property holdings, acquired three

small unsecured claims, thus becoming a creditor.3 HFG

subsequently proposed a competing plan, setting off a bidding war.

After several amendments the DP plan prevailed. Due in part to

HFG's participation the final amended plan provided approximately

$3,000,000 more for the creditors than the previous version.4 In

the process, however, HFG incurred $150,700 in attorney's fees.

On September 15, 1994, after plan confirmation but before the

administrative claim deadline, HFG moved for attorney's fees under

11 U.S.C. § 503(b)(3)-(4). DP timely objected. The bankruptcy

court held a hearing and determined that HFG was entitled to only

$12,500. The court stated that HFG would have been entitled to all

of its fee claim had it given DP a "warning" before confirmation

that it intended to seek such reimbursement. In the absence of

such notice, the court reasoned, DP properly relied on the lack of

a large administrative claim in formulating its plan. In so

holding, the bankruptcy court relied on two New Hampshire cases
 

5In re Diberto, 164 B.R. 1 (Bankr.D.N.H.1993); In re Public

Serv. Co., 160 B.R. 404 (Bankr.D.N.H.1993) 

 

611 U.S.C. § 503(b) (1993 & Supp.1996) (emphasis added). 

 

7United States v. American Trucking Ass'ns, 310 U.S. 534, 542,

60 S.Ct. 1059, 1063, 84 L.Ed. 1345 (1940). 

 

8Id. 

 

9Sierra Club v. Train, 557 F.2d 485 (5th Cir.1977). 

3

which implied a notice requirement in 11 U.S.C. § 503.5 Both HFG

and DP appealed to the district court which summarily affirmed. On

appeal to this court DP contends that the district court erred in

affirming the $12,500 fee award because HFG waived its right to

claim expenses and failed to make a substantial contribution

warranting an award of fees and expenses. HFG contends that the

district court erred in holding that 11 U.S.C. § 503 requires

advance warning of administrative claims.

Analysis

Generally, 11 U.S.C. § 503 provides that "[a]fter notice and

a hearing, there shall be allowed administrative expenses" for

entities falling into certain categories.6 In interpreting

statutes, a court's function "is to construe the language so as to

give effect to the intent of Congress."7 The most compelling

demonstration of congressional intent is the wording of the

statute.8 Use of the word "shall" connotes a mandatory intent.9

The court is bound by the plain language of the statute especially

where, as here, there is nothing in the statute or its legislative
 

10Id.; see also Louisiana Credit Union League v. United

States, 693 F.2d 525 (5th Cir.1982); cf. Demarest v. Manspeaker,

498 U.S. 184, 111 S.Ct. 599, 112 L.Ed.2d 608 (1991) (noting that

where terms in a statute are unambiguous, courts must apply them as

written). 

 

1111 U.S.C. § 503(a). 

 

1211 U.S.C. § 503(b)(3)(D). 

 

1311 U.S.C. § 503(b)(4). 

4

history to indicate a contrary intent.10 Therefore, under the plain

language of the statute, if HFG meets the requirements of section

503, it shall recover administrative expenses. This statutory

mandate permits of no discretionary calls by the courts.

Section 503 first requires that HFG file a timely request for

administrative expenses or be excused therefrom for cause.11

Thereafter, following notice and a hearing, HFG must prove that its

claimed expenses and fees are compensable under one or more

subsections in section 503(b). Specifically at issue in this

appeal are subsections (b)(3)(D) and (b)(4). Those two

subsections, read in conjunction with section 503(b), provide that

compensable administrative expenses include "the actual, necessary

expenses ... incurred by ... a creditor ... in making a substantial

contribution in a case under chapter 9 or 11 of this title"12 and

"reasonable compensation for professional services rendered by an

attorney or an accountant of an entity whose expense is allowable

under paragraph (3) of this subsection."13 Thus, if HFG files a

timely motion for administrative expenses falling into the above

categories, the bankruptcy judge should determine the expenses that

were actual, necessary expenses under subsection (b)(3)(D), and the
 

14This novel, implied notice requirement is not to be confused

with the notice required in 11 U.S.C. § 1129(a)(4). That provision

requires a plan proponent to disclose its intent to recover fees

and expenses through the plan it proposes. 11 U.S.C. § 1125(b)

requires the plan proponent to disclose this intent in both its

plan and the disclosure statement. HFG, as a plan proponent,

complied with both of these statutes. 

 

15160 B.R. 404 (Bankr.D.N.H.1993). 

 

16Id. at 455. 

5

amount of reasonable fees for professional services under

subsection (b)(4).

Timely Filing for Administrative Expenses.

The question of the appropriate timing of a request for

administrative fees and expenses is res nova for this court. Both

the bankruptcy and district courts determined that HFG was required

to give advance warning that it would seek a substantial

administrative claim prior to confirmation,14 relying primarily upon

In re Public Serv. Co.15 That case involved facts somewhat similar

to the instant appeal in that a losing bidder in the plan

confirmation process sought reimbursement for administrative fees

incurred during the confirmation dispute. Initially the bankruptcy

court denied the motion for fees, holding that the creditor failed

to make a substantial contribution to the Chapter 11 proceedings.

As an alternative holding, the bankruptcy judge determined that to

be entitled to fees the creditor had to give advance warning of its

intent to seek expenses to the court and the debtor "prior to the

bidding process by an appropriate motion,"16 reasoning that

nondisclosure of large claims can potentially wreak havoc in the

bidding process by making otherwise competitive plans economically
 

17See S.Rep. No. 989, 95th Cong., 2d Sess. 66 (1978) (stating

that "the Rules of Bankruptcy Procedure will specify the time, the

form, and the method of such a filing"), reprinted in 1978

U.S.C.C.A.N. 5787, 5852; H.R.Rep. No. 595, 95th Cong., 1st Sess.

355 (1977) (same), reprinted in 1978 U.S.C.C.A.N. 5963, 6311. 

 

183 Collier on Bankruptcy ¶ 503.1, at 503-4 n. 2c (Lawrence P.

King ed., 15th ed. 1994) (noting that the Bankruptcy Reform Act of

1994 sets no time limit for filing administrative claims). 

6

unfeasible after confirmation. The court observed that scheming

litigants might artificially inflate their bids in an attempt to

escalate bidding, knowing that, at a minimum, their fees for the

inflated, unrealistic bid would be reimbursed. In essence, the

court apparently was impressed that the risk of noncompensation for

administrative fees would provide a desirable check on fees and

expenses and would keep bidding honest.

We find this well-intentioned attempt at equity to be at odds

with the clear statutory language. Section 503 makes two

references to the timing of requests for administrative fees.

First, section 503(a) states that "[a]n entity may timely file a

request for payment of an administrative expense, or may tardily

file such request if permitted by the court for cause." This

provision appears intentionally vague and broad. Legislative

history reveals that Congress intended to leave the setting of

specific filing deadlines to the Rules of Bankruptcy Procedure.17

The Rules of Bankruptcy Procedure, in turn, largely defer that duty

to the bankruptcy judges.18 As a result, bankruptcy judges have,

for some time, been accorded discretion in setting
 

19Id. (noting that because nothing in the Bankruptcy Rules or

Code sets deadlines for filing administrative claims, bankruptcy

judges "may set such deadlines on a case by case basis").

Administrative expense claims are to be distinguished from other

claims against the estate for which a creditor must timely file a

proof of claim under 11 U.S.C. § 501. See NL Indus., Inc. v. GHR

Energy Corp., 940 F.2d 957 (5th Cir.1991) (holding that an

administrative expense claimant need not file a proof of claim

under section 501 to be entitled to reimbursement of expenses

incurred to benefit the debtor's estate), cert. denied, 502 U.S.

1032, 112 S.Ct. 873, 116 L.Ed.2d 778 (1992). 

7

administrative-claim bar-dates.19 In the present case that deadline

was 60 days after the effective date of the plan.

The second reference to the timing of requests for fees is

found in section 503(b) which provides, "After notice and a

hearing, there shall be allowed, administrative expenses...." This

notice requirement does not mandate "advance warning" of intent to

file a claim for fees before plan confirmation processes begin.

Rather, "after notice" merely refers to sending notice of the

application and hearing on fees so that interested parties can

contest their reasonableness. Succinctly stated, the section

503(b) notice requirement proscribes ex parte fee determinations—it

does not require preconfirmation warning of intent to seek fees and

expenses.

In the present case, no one disputes that HFG requested

administrative fees and expenses well within the 60-day bar date

for such claims. The Bankruptcy Code and Rules require nothing

more. Further, nothing in the Bankruptcy Code and Rules suggested

to HFG that after it made a substantial contribution, its claim for

administrative fees and expenses would be barred by some implied

advance warning requirement.
 

20In re Consolidated Bancshares, Inc., 785 F.2d 1249, 1253 (5th

Cir.1986) (internal quotation marks omitted) (citations omitted).

 

21Id. (internal quotation marks omitted) (citations omitted).

 

22See, e.g., Lebron v. Mechem Fin., Inc., 27 F.3d 937 (3d

Cir.1994); In re Lister, 846 F.2d 55, 57 (10th Cir.1988) (holding

that "[a]dministrative expenses ... are compensable under 11 U.S.C.

§ 503(b)(3)(D), if those expenses are incurred in efforts which

were intended to benefit, and which did directly benefit, the

bankruptcy estate"). 

8

Substantial Contribution.

 "[T]he policy aim of authorizing fee awards to creditors is

to promote meaningful creditor participation in the reorganization

process."20 Thus, a claimant is entitled to administrative fees and

expenses if these costs are incurred in making a substantial

contribution to a Chapter 9 or 11 case. Generally, services which

make a substantial contribution are those which "foster and

enhance, rather than retard or interrupt the progress of

reorganization."21 Beyond that general statement, however, the

concept of substantial contribution is not defined in this circuit.

Though legislative history is of little help in divining a precise

measure of substantial contribution, decisions from other circuits

appear to distinguish between creditors' actions that

"incidentally" benefit the estate and creditors' actions that

directly and demonstrably benefit the estate.22 In essence, these

cases examine a creditor's motivation in expending the time and

fees at issue: if a creditor is actively and exclusively pursuing

its own self interest, any benefits accruing to the debtor's estate

or other creditors are merely incidental benefits; these are not
 

23Crane v. Commissioner, 331 U.S. 1, 6, 67 S.Ct. 1047, 1050-51,

91 L.Ed. 1301 (1947). 

 

24Webster's Third New International Dictionary 2280 (4th

Ed.1976). Legislative history, albeit scant, also supports this

construction:

The phrase "substantial contribution in the case" is

derived from Bankruptcy Act §§ 242 and 243. It does not

require a contribution that leads to confirmation of a

plan, for in many cases, it will be a substantial

contribution if the person involved uncovers facts that

would lead to a denial of confirmation, such as fraud in

connection with the case.

H.R.Rep. No. 595, 95th Cong., 1st Sess. 355 (1977), reprinted

in 1978 U.S.C.C.A.N. 5963, 6311. In the present case, HFG

uncovered a fraudulent transfer, and its other actions led

directly to the confirmation of a plan. HFG admits that these

actions were motivated by self interest. Certainly, if

Congress intended to withhold reimbursement for administrative

9

deemed substantial. DP relies heavily upon this theory in opposing

HFG's request for additional fees. Indeed, HFG concedes that its

actions were motivated by economic self interest.

 Initially, we note that nothing in the Bankruptcy Code

requires a self-deprecating, altruistic intent as a prerequisite to

recovery of fees and expenses under section 503. Rather, section

503 patently states that a creditor is entitled to actual and

necessary expenses "incurred ... in making a substantial

contribution in a case under chapter 9 or 11." Finding no

statutory definition and nothing in the entire statutory scheme or

legislative history to indicate a contrary intent, we abide by the

canon that words in a statute are to be given their "ordinary,

everyday" meaning.23 Thus, the phrase "substantial contribution"

in section 503 means a contribution that is "considerable in

amount, value or worth."24 The benefits, if any, conferred upon an
expenses under these circumstances, at least some indication

of that intent would appear in the statute or its legislative

history. 

10

estate are not diminished by selfish or shrewd motivations. We

therefore hold that a creditor's motive in taking actions that

benefit the estate has little relevance in the determination

whether the creditor has incurred actual and necessary expenses in

making a substantial contribution to a case.

The development of a more concrete standard of substantial

contribution is best left on a case-by-case basis. At a minimum,

however, the court should weigh the cost of the claimed fees and

expenses against the benefits conferred upon the estate which flow

directly from those actions. Benefits flowing to only a portion of

the estate or to limited classes of creditors are necessarily

diminished in weight. Finally, to aid the district and appellate

courts in the review process, bankruptcy judges should make

specific and detailed findings on the substantial contribution

issue.

In the present case, the bankruptcy court specifically found

that HFG made a substantial contribution in DP's Chapter 11 case,

stating that "HFG's participation in the case did benefit the

Estate and make a substantial contribution in terms of (a)

discovery of the fraudulent conveyance potential litigation and its

benefit going to the secured creditor; (b) termination of

exclusivity; and (c) causing the Debtor to change its plan."

These findings are supported by the evidence and were not clearly

erroneous. HFG's participation in the confirmation fight resulted
 

2511 U.S.C. § 503(b)(3)(D). 

 

26In re Lister; see also In re Consolidated Bancshares

(holding that substantial contribution is a question of fact). 

11

in at least a $3,000,000 benefit to all creditors of the estate.

Determining Whether Claimed Expenses are Actual and Necessary, and

Whether Professional Fees are Reasonable

Finally, claimants successfully complying with the foregoing

requirements will have to prove that claimed expenses were actual

and necessary and that any fees are reasonable. Section

503(b)(3)(D) provides that compensable administrative expenses

include "the actual, necessary expenses ... incurred by ... a

creditor ... in making a substantial contribution in a case under

chapter 9 or 11."25 This provision requires the bankruptcy judge

to scrutinize claimed expenses for waste and duplication to ensure

that expenses were indeed actual and necessary. It also requires

the judge to distinguish between expenses incurred in making a

substantial contribution to the case and expenses lacking that

causal connection, the latter being noncompensable. Necessarily,

the bankruptcy court enjoys broad discretion in making these

determinations.26

A closely-related but separate provision is subsection

(b)(4), authorizes an administrative fee award for professional

services as follows:

reasonable compensation for professional services rendered by

an attorney or an accountant of an entity whose expense is

allowable under paragraph 3 of this subsection, based on the

time, the nature, the extent, and the value of such services,

and the cost of comparable services other than in a case under

this title, and reimbursement for actual, necessary expenses
 

2711 U.S.C. § 503(b)(4). 

 

28488 F.2d 714 (5th Cir.1974). 

 

29In re Lawler, 807 F.2d 1207 (5th Cir.1987). 

 

30Id.; In re Lister. 

12

incurred by such attorney or accountant.27

This provision is expressly dependent upon a claimant qualifying

for an administrative expense award in subsection (3), which

requires that expenses, other than professional fees, be actual and

necessary. Whether Congress intended to impose different standards

by using the words "actual and necessary" in one provision and

"reasonable" in another is unclear. The import of subsection (4),

however, is clear. Congress intended for the judge to evaluate the

listed factors in setting a reasonable fee. Because all of these

factors are subsumed in the Johnson v. Georgia Highway Express28

attorney's fees analysis, Johnson and progeny govern an award of

fees in the present case.29 This determination, like the inquiry

in subsection (3), is a matter committed to the sound discretion of

the bankruptcy court.30

Conclusion

HFG filed its claim by an appropriate motion before the

administrative claim bar date. It is entitled to actual and

necessary expenses incurred in making a substantial contribution to

DP's Chapter 11 reorganization, including reasonable professional

fees. We therefore VACATE the $12,500 fee award and REMAND for the

setting of a fair and reasonable fee herein.