### In the 

# United States Court of A p peals For the Seventh Circuit

____________________ No. 14

- 2423

I N RE : S WEPORTS , L TD ., Debtor

- Appellee

.

A PPEAL OF : M UCH S HELIST , P

. C., et al

. , Creditors

- Appellant s

.

____________________ Appeal from t he United States Bankru ptcy Court for the Northern District of Illinois, Eastern Division

. No. 12

- 14254

— A. Benjamin Goldgar
, Bankruptcy Judge

.

____________________
A RGUED D ECEMBER 12, 2014

— D ECIDED J ANUARY 9, 2015

____________________

Before P OSNER , W ILLIAMS , and T INDER , Circ uit Judges

. P OSNER , Circuit Judge

. Before us is a direct appeal from the bankruptcy court for the Northern District of Illinois pursuant to 28 U.S.C. § 158(d)(2). The question it presents is the authority of a bankruptcy judge to make an award of fees afte r dismissal of the bankruptcy proceeding and the consequent revesting of the assets of the debtor’s e s tate in the debtor

. 11 U.S.C. § 349(b)(3). The fees in question are sought by the counsel (Neal L. Wolf) for
, and a financial a dvisor (Pierre Benoit , whom Wolf also represents) to , an Off i-2 No. 14

- 2423

cial Committee of Unsecured Creditors that the U.S. Trustee had a p pointed during the bankruptcy proceeding . 11 U.S.C. § 1102(a)(1). Wolf’s law firms (he has been a member of two law firms during this litigation ) and Benoit ’s financial adv isory firm ( Pierre Benoit & Associates, Inc .) are also parties to the appeal, but seek no additional relief and can therefore be ignored. To simplify the opinion further we’ll pretend that Wolf is the only appe l lant. The bankruptcy judge de nied the awards on the ground that, the bankruptcy having been dismissed, he had no j urisdiction to make such awards. He reasoned that the awards could be paid only out of the assets of the debtor’s estate, and there were no such assets now that the bankru p tcy had been dismissed and consequently all the a s sets of the debtor’s estate had been returned to the debtor. There is, however, as we’ll see, a critical difference , missed by the bankruptcy judge, between determining an entitlement to fees and o r dering payment of fees. Sweports, Ltd., owns patents and a subsidiary called UMF Corporation that manufactures a n timicrobial cleaning products; UMF apparently is Sweports’ principal asset. In April 2012 several judgment creditors of Sweports, repr esented by attor ney Wolf, petitioned the bankruptcy court in Chicago to place Sweports in Chapter 11 bankruptcy (reo rganization). Sweports co n sented , and became the debtor in possession, with its assets therefore constituting a debtor’s estate in bankruptcy. Sw e ports obje cted to Wolf’s retention as counsel to the Off i cial Committee of Unsecured Creditors
, on the ground that he had a conflict of interest b e cause he was continuing to repr e sent several of Sweports’ judgment creditors . B ut the ban k ruptcy judge ruled that there was noNo. 14

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conflict. Judgment creditors are unsecured ; Wolf did not represent any judgment creditors whose claims were a dverse to those of the unsecured creditors represented by the Official Committee

— indeed it’s unclear whether Wolf was still representing an y judgment creditors or other cred i tors when he agreed to represent the O f ficial Committee. Both Sweports and the Official Committee filed plans of reorganization . The bankruptcy judge rejected the plans. The U.S. Trustee then moved that Sweports’ bankrupt cy either be converted from Chapter 11 to Chapter 7 (liquidation) or dismissed. Neither Sweports nor the creditors favored co nversion, and so the bankruptcy judge dis missed the ban kruptcy.

That was on April 30, 2014
, and several weeks later Wolf filed with the bankruptcy court a motion seeking an award of a t torney’s fees and expenses totaling some $780,000 (we’re rounding off all dollar figures to the nearest $10,000) , all for his work for the Official Committee of Unsecured Creditors

. This was his second f ee r e quest for that work . An interim request for an award of fees and e x penses of some $41 0,000 had been made and granted earlier, while Sweports was in bankruptcy, but very little of it had been paid . As a r e sult Wolf’s final request, superse d ing the earl ier request, sought a total of more than $1.1 3 million

— plus some $100,000 in fees and expenses for B enoit, the financial consultant whom Wolf was and is representing. The creditors wanted the bankruptcy dismissed because they would of course remain credit ors of Sweports and thought they would do better suing it in state court immed iately rather than waiting to scrambl e for pieces of it if it were liquidated. That was not an option for Wolf except with r e-4 No. 14

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spect to his interim request for fees, since that had been granted before the bankruptcy proceeding was di s missed (and in fact Wolf has sued Sweports in an Illinois state court for the unpaid portion of those fees ) . U ntil and unless he r eceived a fee award from the bankruptcy judge , the remai ning amount of f ees and expenses that he was see k ing would not be a debt of Sweports, and so he would have no basis for pursuing a claim against the company in state court

. Wolf had not b e come a creditor of Sweports as a result of being hired by the Official Committee of Unsecured Creditors, e xcept with r e spect to the interim fee award, an administrative expense that the bankruptcy judge had already

— before dismissing the bankruptcy

— ordered Sw e ports to pay. With the dismissal of the bankruptcy, Sweports became liable in the ordinary way (that is, outside of bankruptcy procee dings) to pay the debts that it had had as debtor in possession. For “on dismissal a bankrupt is rei n vested with the estate, subject to all encumbrances which existed prior to the ban kruptcy. After an o r d er of dismissal, the debtor’s debts and property are subject to the general laws, unaffected by ban kruptcy concepts.” In re Income Pro p erty Builders, Inc. , 699 F.2d 963, 965 (9th Cir. 1982). The problem for Wolf is that the bankruptcy judge did not order S weports to pay the rest of the fee that Wolf had earned for his work for the Official Committee.

The bankruptcy judge refused to issue such an order not because he thought Wolf’s claim to the rest of the fee wit hout merit, but because he thought that havin g dismissed the bankruptcy he had no authority to issue any further order

r e lating to it . There was no longer a debtor in possession, no longer a debtor’s estate in bankruptcy, no longer any a s sets under the control of the bankruptcy court, and therefore, heNo. 14

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decided, no possible relief that he could grant Wolf. That
was incorrect. It’s true that with the bankruptcy dismissed the ban k ruptcy judge could no longer disburse assets of the debtor’s estate to anyone; it had no assets; it was d e funct. But the judge could determine that Wolf had a valid claim to a fee in the amount he was seeking. Such a ruling would create a debt of Sweports to Wolf, and if Sweports r e fused (as Wolf expects it would ) to pay , he could , like any other creditor, sue Sweports in state c ourt. Sweports thus is wrong to say as it does in its brief “that in the absence of an estate [in bankruptcy] to pay fees and expenses, the Bankruptcy Court could not grant mea n ingful relief to Wolf.” An order that Wolf could take into state court as a bas is for obtaining damages from Sweports would be mea n ingful relief. There would be nothing novel about such an order. A l most every damages suit that is resolved in favor of the plai n tiff ends not with a disbursement of money but with a judgment that establi shes a debt. If the defe n dant fails to pay, the plaintiff must initiate a further procee d ing to collect the judgment debt. The judgment to which Wolf was and is ent i tled would merely establish a debt ; to collect it he will undoubtedly have to initiate a co lle c tion suit in state court. The Bankruptcy Code authorizes fee

- and

- expense

awar ds to persons who provide assistance in a bankruptcy proceeding , see 11 U.S.C. § 330(a)(1) , and the J u dicial Code grants federal jurisdiction over all civil procee d ings “arisi ng in or related to cases under” the Ban k ruptcy Code. 28 U.S.C. § 1334 (b). Wolf has a civil proceeding, ari s ing in and related to Sweports’ bankruptcy, in which he is seeking from a bank ruptcy court an order that he can use to obtain cash elsewhere. The or der, if gran t ed, would confer a real value.6 No. 14

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It would therefore not be “moot,” as the bankruptcy judge said in embroidering his jurisdictional ru l ing.

Had Wolf sought such an order a few weeks earlier, b efore the bankruptcy proceeding was dismissed, the jud ge would doubtless have issued it . What caused Wolf to delay
, he explains, was his ethical obligations to the unsecured creditors that he represented as counsel to the Official Committee of Unsecured Creditors

. All Sweports’ u n secured creditors wanted the bankruptcy proceeding dismissed posthaste so that they could pursue their state remedies against Sweport s , which they couldn’t do until the procee ding was dismissed because until then litigation against Sw eports in other courts was stayed. 11 U.S.C. §§ 362 (a)(1), (2). Had Wolf moved before dismissal of the ban k ruptcy for his fee award for services to the Official Committee of Uns ecured Creditors, dismissal of the bankruptcy would have been delayed while the bankruptcy judge considered his r equest and Swepor ts’ opposition . The delay would have hurt the unsecured creditors

— Wolf’s direct or indirect clients. So
as not to delay the dismissal of the bankruptcy, he held off

on request ing an order for payment of the fees he was due. The postponement in filing his r equest until the ban kruptcy was dismissed hurt no one . It merely gave Sw e ports a shot at a windfall

— eliminating
, by appealing to a wooden

co n cept of jurisdiction
, a debt that it had incurred . A court loses juri s diction over a case when it issues a final ju dgment, which is to say a judgment that resolves the controversy b etween the parties. The order dismissing the bankruptcy didn’t do that. There was a loose end, left dangling

— Wolf’s claim for fees. He needed that ruling to be able to enforce the entitlemen t in state court.No. 14

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There is no novelty to the idea that a court has besides its ordinary jurisdiction a “clean

- up” jurisdiction (“ancillary” jurisdiction, it is commonly called) to take care of minor loose ends. It is implicit in two of the statutory provis ions we cited ea r lier, 11 U.S.C. § 330(a)(1) and 28 U.S.C. § 1334(b). Most though not all cases recognize that ban k ruptcy courts have such authority

. Compare In re 5900 Ass o ciates, Inc. , 468 F.3d 326, 330

– 31 (6th Cir. 2006); In re Taylor , 884 F.2d 478, 481 (9th Cir. 1989) , and In re Dahlquist , 751 F.2d 295, 298

– 99 (8th Cir. 1985), with In re Advanced Computer Techno l ogy Act, Inc.
, 2013 WL 5661203 (D. Puerto Rico Oct. 15, 2013) , and Iannini v. Winnecour , 487 B.R. 434, 438

– 40 (W.D. Pa. 2012). If the bankruptc y judge in this case , realizing that a request for fees would be coming from Wolf, had delayed the bankrup tcy, the creditors would as we said have been hurt. So a se nsible course of action was to dismiss the bankruptcy and leave for later a determination o f how much Sweports owed Wolf. An alternative would have been to lift the aut o matic stay of suits by creditors of a debtor that is in bankruptcy. The creditors, i n cluding Wolf, could then have proceeded with efforts to collect their debts even though the b ankrup tcy hadn’t yet been dis missed. But there’s no reason why dismissing the bankruptcy and leaving for later a determin ation by the bankruptcy judge of how much Sw e ports owed Wolf should be thought an alternative outside the judge’s jurisdi c tion. The jud ge suggested no reason

— just the bare
, formalist conclusion that with dismissal he had lost jurisdi ction to do anything further that would be related to the ban kruptcy

. Sweports argues that Wolf should have asked the ban kruptcy judge to “reserve” jurisdicti on over his fee request when the judge dismissed the bankruptcy. The bankruptcy8 No. 14

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judge made clear that he would refuse to reserve jurisdi ction

. And we can’t see what an explicit reservation would have done for anybody.

We’re left with no reason to think tha t Wolf should be disentitled , whether as a matter of statutory or constitutional interpretation or good sense, to pursue in the bankruptcy

c ourt his request for an award (not payment , but a determ ination of what he is owed ) of fees for his services to the Off icial Committee of Unsecured Cred i tors.

R EVERSED AND R EMAND ED

.