Opinion ID: 745895
Heading Depth: 1
Heading Rank: 1

Heading: facts

Text: 5 Western Farm Credit Bank is a secured lender to Hamakua Sugar Co., which held as collateral a security interest in substantially all real estate and personal property of Hamakua. Feder & Mills is a law firm employed by the debtor pursuant to court approval. Other professionals also so employed were Carlsmith Ball Wichman Case & Ichiki (Carlsmith), special counsel to Hamakua during its bankruptcy, and Coopers & Lybrand LLP (Coopers), who acted as a financial adviser. Unpaid professional fees incurred in the Chapter 11 proceedings at the time this appeal was filed amounted to approximately $4.5 million. 6 Under the Chapter 11 bankruptcy supervision, the bankruptcy court approved a plan in which the Bank established a Carve-Out Fund from the Bank's cash collateral to cover the professional fees and other costs of the orderly shut-down of Hamakua's operations. 7 After attempts to work out a settlement among the debtor, the Bank, and the professionals had failed, the bankruptcy court, in December 1993, approved the final fee applications of the professionals. Because there was insufficient cash in the carve-out fund to pay all fees in full, the court suggested a pro rata payment that would exhaust the available fund and leave the remainder of the unpaid fees to abide the ultimate disposition of assets, if any, that might remain after the proceedings were concluded. The Bank and Hamakua earlier had decided upon a form of a release (Original Release) which the bank would require from each professional before payment. After the attempted settlement had failed, the Bank decided that the Original Release would not protect it from claims against its collateral for future work done by the professionals in winding up the bankruptcy. The bank thus insisted upon a new, broader form of release (New Release) before it would disburse the pro-rata payments to the professionals from the budgeted cash collateral. Carlsmith and Coopers tendered the New Release, but Feder & Mills did not. The Bank refused any payment from the Carve-Out Fund. 8 In May 1995, Carlsmith, Coopers, and Feder & Mills filed a motion in bankruptcy court seeking their portions of the Carve-out Fund. The bankruptcy court awarded fees to Carlsmith and Coopers, but not to Feder & Mills. It held that Feder & Mills could not participate in the distribution of the Carve-Out Fund until they released the bank from all future claims. The parties dispute whether Feder & Mills agreed to execute the Original Release. It is clear, however, that they refused to sign the new form proposed by the bank. 9 Feder & Mills appealed to the district court, which reversed the bankruptcy court and awarded the fees. The district court held that nothing in the record required a general release of the bank as a condition of receipt of the approved pro-rata payment. The bank paid Feder & Mills and then appealed to this court. Feder & Mills moved to dismiss the appeal on the ground that they had been paid and the matter was moot.