Court Opinion

ID: 37426
Source: CourtListenerOpinion
Date Created: 2010-04-25 19:52:59+00
Date Added: 2024-06-11T17:15:41.934599
License: Public Domain

United States Court of Appeals
                                                                          Fifth Circuit
                                                                       F I L E D
                         REVISED DECEMBER 30, 2004
                                                                      December 20, 2004
                 IN THE UNITED STATES COURT OF APPEALS
                                                                    Charles R. Fulbruge III
                          FOR THE FIFTH CIRCUIT                             Clerk
                          __________________________

                             Nos. 03-10268, 04-10173
                          __________________________

In The Matter Of: COHO ENERGY INC
                                                                             Debtor
             ___________________________________________________

GIBBS & BRUNS LLP
                                                                    Cross-Appellee,
versus

COHO ENERGY INC
                                                         Appellee – Cross-Appellant,
versus

THOMAS & CULP LLP
                                                       Appellant – Cross-Appellee.
             ___________________________________________________

COHO ENERGY INC
                                                         Appellee – Cross-Appellant,
versus

GIBBS & BRUNS LLP
                                                                    Cross-Appellee,
THOMAS & CULP LLP
                                                         Appellant – Cross-Appellee.

  __________________________________________________________________________

In The Matter Of: COHO ENERGY, INC; COHO RESOURCES, INC
                                                                            Debtors
             ___________________________________________________

GIBBS & BRUNS, LLP
                                                                          Appellee,

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versus

THOMAS & CULP LLP
                                                                                            Appellant.
                  ___________________________________________________

                         Appeals from the United States District Court
                              For the Northern District of Texas
                  ___________________________________________________

Before BENAVIDES, DENNIS, and CLEMENT, Circuit Judges.

EDITH BROWN CLEMENT, Circuit Judge:

         The following case arises from two law firms’ consecutive representation of a single debtor

in a settlement of a breach of contract by a capital venture firm. Both firms and the debtor appeal the

firms’ fee awards from bankruptcy court, and one firm appeals the subsequent settlement between

the other two parties. For the reasons below, this Court dismisses the settlement appeal and affirms

the district court’s fee award.

                                  I. FACTS AND PROCEEDINGS

         Coho Energy, Inc. (“Coho”) is a publicly traded oil and gas exploration and production

company. In March, 1999, after a contract dispute for an infusion of capital from Hicks, Muse, Tate

& Furst Equity (“Hicks Muse”), Coho hired law firm Thomas & Culp (“Thomas”) to represent Coho

in the resulting litigation. Thomas agreed to represent Coho for a thirty-percent contingent fee.

Approximately three months later, Coho filed for Chapter 11 bankruptcy protection. The bankruptcy

court approved Thomas as counsel in the Hicks Muse litigation and approved the contingent fee

arrangement under 11 U.S.C. § 328 (authorizing the bankruptcy court to approve professionals’

fees).

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        Upon confirmation of Coho’s Chapter 11 Plan of Reorganization, the bankruptcy court

appointed a new CEO and President, Michael Y. McGovern. He immediately wrote to the

bankruptcy judge to address “problems that have arisen in the relationship between Coho and its

counsel in the litigation involving Hicks, Muse.” Coho subsequently fired Thomas and hired another

law firm, Gibbs & Bruns (“Gibbs”) to continue the Hicks Muse litigation. The bankruptcy court

again approved a thirty-percent contingency fee arrangement, this time with Gibbs.

        Coho and Thomas could not agree on what fees Thomas was owed for its work to prepare

the litigation before it was fired. The fee agreement between Coho and Thomas contained an

arbitration clause. Thomas moved the bankruptcy court for arbitration of the fee dispute in October,

2000. The court largely adopted Thomas’s recommended order in January, 2001, which identified

three discrete issues for the panel of arbitrators to decide: first, whether Thomas was terminated “for

cause;” second, the reasonable fee that Thomas would be paid under a theory of quantum meruit; and

third, the reasonably estimated sum of money Thomas would have earned under the contingent fee

contract if it had not been fired (damages). The panel concluded in July, 2001 that Thomas was fired

for cause, that the value of quantum meruit was $2.9 million and that, in the alternative, full contract

damages were equal to $5.9 million. During the arbitration, Coho, represented by Gibbs, settled with

Hicks Muse for $8.5 million. The arbitrators had not been informed of this settlement.

        In January, 2002, the bankruptcy court heard a motion by Thomas to enforce the arbitration

panel’s quantum meruit finding, a motion by Coho to approve its $8.5 million settlement with Hicks

Muse, and the application of Gibbs for its thirty-percent stake in the outcome of the Hicks Muse

settlement according to its fee agreement. There was no objection either to Gibbs’s application for

$2.55 million—the thirty percent of the $8.5 million settlement—and the court awarded the amounts

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on January 10, 2002. Also on January 10, 2002, the bankruptcy court reduced Thomas’s arbitrated

award of $2.9 million to $2.55 million due to the “unanticipated developments” of the low settlement

amount, according to 11 U.S.C. § 328(a). On January 22, 2002, Thomas objected in the Northern

District of Texas to the bankruptcy court’s reduction of the arbitration award. On January 28, 2002,

Coho moved the bankruptcy court to set aside the judgment and recommended that Thomas receive

$956,000 in fees. Thomas replied, again arguing for the original arbitration award of $2.9 million.

        On March 11, the bankruptcy court issued its final order, providing that the two law firms

would split a single fee of $2.55 million. It calculated the fees using the $2.9 million amount that the

arbitration panel awarded to Thomas and then adding to that amount $1.9 million, which the court

believed would be an equally reasonable fee to pay Gibbs. Then, the bankruptcy court took the

percentage of the total $4.9 million of each firm’s quantum meruit amount and multiplied those

percentages by $2.55 million, which is 30% of the Hicks Muse settlement amount. Based on this

calculation, it ordered that $1,540,625 be paid to Thomas and $1,009,375 to Gibbs. Thomas and

Coho cross-appealed this decision. On February 28, 2003, the district court found that, as to

Thomas’s fees, the bankruptcy court acted on a timely-filed motion and did not abuse its discretion.

Thomas and Coho then appealed to this Court.

        Also on February 28th, 2003, the district court vacated the bankruptcy court’s reduction in

Gibbs’s fees for lack of jurisdiction. Co ho appealed that decision. On March 7, 2003, Gibbs and

Coho settled for $2.3 million. The bankruptcy court denied this settlement agreement on June 16,

2003. Gibbs appealed that decision to the district court, which affirmed the settlement, awarding

Gibbs $2.3 million. Thomas then appealed that settlement and that appeal was challenged by Gibbs

                                                   4
for lack of standing. Both sides briefed the motion to dismiss the appeal for lack of standing and that

appeal was consolidated into the instant case.

                                           II. DISCUSSION

A. Thomas Has No Standing to Appeal the Gibbs/Coho Settlement

1. Standard of Review

        “In ruling on a motion to dismiss for want of standing, bot h the trial and reviewing courts

must accept as true all material allegations of the complaint, and must construe the complaint in favor

of the complaining party.” Rohm & Hass Tex., Inc. v. Ortiz Bros. Insulation, Inc., 32 F.3d 205, 207

(5th Cir. 1994) (quoting Warth v. Seldin, 422 U.S. 490, 501 (1975)) (internal quotations omitted).

This Court uses a permissive standard to assess the actuality of the harm alleged by appellant for the

purpose of standing. Id.

2. Analysis

        Bankruptcy courts are not authorized by Article III of the Constitution, and as such are not

presumptively bound by traditional rules of judicial standing. Rohm , 32 F.3d at 210 n.18. Instead,

standing in bankruptcy court originally was governed by the statutory “person aggrieved” test. 11

U.S.C. § 67(c) (1976) (“A person aggrieved by an order of a referee may . . . file with the referee a

petition for review . . . .”) (repealed 1978). Congress did not include this provision when the code

was revamped in 1978. Notwithstanding its repeal, courts subsequently have found that this test

continues to govern standing. Rohm, 32 F.3d at 210 n.18 (“Although the applicable statute has since

been repealed, bankruptcy courts still limit appellate standing to those ‘aggrieved.’”); In re Hipp, Inc.,

859 F.2d 374, 375 (5th Cir. 1988) (citing a pre-1978 case, In re First Colonial Corp., 544 F.2d 1291,

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1296 (5th Cir. 1977)); see also In re Westwood Cmty. Two Ass’n, 293 F.3d 1332, 1335 (11th Cir.

2002); In re P.R.T.C., Inc., 177 F.3d 774, 777 (9th Cir. 1999).

        The “person aggrieved” test is an even more exacting standard than traditional constitutional

standing. See, e.g., P.R.T.C., 177 F.3d at 777 (“To prevent unreasonable delay, courts have created

an additional prudential standing requirement in bankruptcy cases: The appellant must be a ‘person

aggrieved’ by the bankruptcy court’s order.”) (emphasis added). The “case or controversy” limitation

of Article III dictates that the alleged harm is “fairly traceable” to the act complained of. See, e.g.,

Logan v. Burgers Ozark Country Cured Hams, Inc., 263 F.3d 447, 460 (5th Cir. 2001). Because

bankruptcy cases typically affect numerous parties, the “person aggrieved” test demands a higher

causal nexus between act and injury; appellant must show that he was “directly and adversely

affected pecuniarily by the order of the bankruptcy court” in order to have standing to appeal. In re

Fondiller, 707 F.2d 441, 443 (9th Cir. 1983).

        Thomas fails to demonstrate standing because Thomas is not “directly and adversely affected

pecuniarily by” the order. In re Cajun Elec. Power Co-op., Inc., 69 F.3d 746, 749 (5th Cir. 1995);

see also Rohm, 32 F.3d at 210 n.18. In Rohm, a debtor that had disavowed any claims to an

interpleaded fund disputed the bankruptcy court’s order of priority for the distribution to debtor’s

creditors, arguing for standing based on the different remedies available to the each of the creditors,

not all of whom would have their claims satisfied. 32 F.3d at 207. This Court denied standing

because the debtor was not a claimant to the fund and, as such, was only indirectly affected by the

order establishing priority. Id. at 212.

        Thomas’s claim to injury due to exhaustion of the fund through the settlement is both indirect

and improbable. Even Thomas’s appellate brief admits that its best argument for standing is

                                                   6
speculative: “[I]f it prevails on appeal, [Thomas’s] interest is more than $3.4 million plus accruing

attorneys’ fees and interest. Because [Thomas’s] interest has no ceiling given its claim for accruing

attorneys’ fees, the possibility exists, albeit perhaps remotely, that monies payable to the attorneys

could exceed monies held in the registry of the court.” (emphasi s added). According to Coho’s

bankruptcy plan, three groups are entitled to a share of the Hicks Muse litigation settlement: Gibbs,

Thomas and the Former Coho Shareholders. The Former Coho Shareholders’ twenty-percent interest

of the $8.5 million settlement equals $1.7 million. Thus, after the subtraction of the proposed Gibbs

settlement and the Former Coho Shareholders’ share, there would remain $4.5 million out of which

to pay Thomas’s high estimate of $3.4 million plus interest. A remote possibility does not constitute

injury under Rohm’s “person aggrieved” test.

        Thomas argues that because it is a claimant to the funds, the facts of Rohm are distinguishable

and, instead, Ergo Science, Inc. v. Martin should apply. 73 F.3d 595 (5th Cir. 1996). In Ergo, the

party seeking standing, ETI, was, like Thomas, a claimant of the disputed funds. Id. at 596. After

disavowing its interest in the funds deposited in the court’s registry, ETI attempted to revive its claim

on the funds after it failed to settle with a creditor. Id. at 596–97. The court affirmed ETI’s standing

to object to the court’s finding that it had no interest in the funds, but denied the appeal on the merits.

Id. at 597–99. Regardless, even under Ergo, Thomas’s conjectural injury as a claimant to the fund,

described supra, is too tenuous to support “aggrieved person” standing.1 The Court in Ergo

determined that Ergo was “not faced with a hypothetical or indirect injury as in Rohm, but a real and

        1
        Moreover, Thomas’s argument fails because the arbitration was not binding and the
bankruptcy court judge did not abuse his discretion in reducing Thomas’s fee. That fee could not
be exhausted by the proposed settlement. This conclusion is discussed infra.

                                                    7
immediate injury.” Ergo Science v. Martin, 73 F.3d 595, 597 (5th Cir. 1996). Even a claimant to

a fund must show a realistic likelihood of injury in order to have standing. Thomas has not done so.

       Because Thomas’s appeal of the Gibbs-Coho settlement fails, there are no remaining issues

as to the Gibbs-Coho settlement, which was appealed to this Court as Gibbs & Bruns, L.L.P. v.

Thomas & Culp, L.L.P., No. 04-10173. The resolution of this case also renders moot the remaining

issues with regard to Gibbs’ fee in Gibbs & Bruns, L.L.P. v. Coho Energy, Inc. v. Thomas & Culp,

L.L.P., No. 10268. As such, t he only remaining issue is the bankruptcy court’s modification of

Thomas’s fee award.

B. The Bankruptcy Court Appropriately Modified Thomas’s Attorney’s Fees Award

1. Standard of Review

       We review the award of attorneys’ fees for abuse of discretion. In re Barron, 225 F.3d 583,

585 (5th Cir. 2000); In re Fender, 12 F.3d 480, 487 (5th Cir. 1994). The legal conclusions that

guided the bankruptcy court’s determinations, however, we review de novo. In re Barron, 225 F.3d

at 585 (citing In re Coastal Plains, Inc., 179 F.3d 197, 205 (5th Cir. 1999)); Tex. Secs., Inc., 218
F.3d 443, 445 (5th Cir. 2000). To this end, we must be certain to determine that the discretion

employed by the lower courts was based on appropriate determinations of law.

2. Analysis

       Thomas argues that the arbitration to which Thomas and Coho submitted was binding and,

in the alternative, t hat the bankruptcy court abused its discretion in reducing the award. The

bankruptcy code manifests a strong policy of maintaining jurisdiction and control over the payment

of professionals’ fees. E.g., 11 U.S.C. § 330 (setting forth the factors for “reasonable compensation”

of professionals). When this fee discretion began to dissuade professionals from offering their

                                                  8
services to debtors, Congress passed section 328(a) of the bankruptcy code, which allowed

professionals to have greater certainty as to their eventual payment. In re Nat’l Gypsum Co., 123
F.3d 861, 862 (5th Cir. 1997). Under section 328(a), a fee agreement approved by the bankruptcy

court could be reduced only if the terms of the contract were “improvident in light of developments

not capable of being anticipated at the time of the fixing of such terms and conditions.” 11 U.S.C.

§ 328(a). So, even if the bankruptcy court acts to “guarantee” attorney’s fees, it reserves the power

to alter them. Moreover, in the instant case, the bankruptcy court did not even appear to aim to cede

control over the award to the arbitration panel because it sought counsel from the arbitration panel

on only three questions.

       Thus, the relevant argument from Thomas is not whether or not the arbitration was found to

be binding; rather, it is whether this arbitration award can be modified under the unanticipatable

developments exception of 11 U.S.C. § 328(a). Thomas argues that this Court has set a high

standard for proving that the terms and conditions of a professional’s court-approved employment

contract are improvident in light of unanticipatable developments. In Barron, this Court vacated the

bankruptcy court’s reduction of the fees of an attorney’s court-approved contract because that court

used the wrong legal standard. 225 F.3d at 586. The bankruptcy court corrected its mistake on

remand, identifying specific developments that it had not anticipated. In re Barron, 325 F.3d 690,

693 (5th Cir. 2003) (explaining that the bankruptcy court indicated that it had not anticipated (1) the

amount of the recovery, (2) the relative ease of the success, and (3) the ease of collection). Again

this Court reversed, noting that no reason was given that these developments could not be

anticipated, and that, therefore, the lower court had abused its discretion by finding these facts to be

developments incapable of being anticipated. Id.

                                                   9
       This Court has iterated the improvident exception rule on a number of occasions and in

several different contexts, including (1) the interplay between Section 328 and Section 330, see, e.g.,

In re Nat’l Gypsum Co., 123 F.3d 861, 862–63 (5th Cir. 1997); (2) the correct standard for the

improvidence exception, see, e.g., Barron, 225 F.3d at 586; and (3) mandating the presence of

findings, see, e.g., Tex. Secs., 218 F.3d at 446. When Barron returned to this Court on appeal, with

the original “unforeseen developments” recast as developments incapable of being anticipated, this

Court rejected the bankruptcy court’s reasoning. Barron, 325 F.3d at 694. That case gives guidance,

however, only as to what developments do not fall into the category in the statute of “not capable of

being anticipated”:

       First, that it “did not anticipate the substantial amount of the subsequent recovery;”
       second, t hat the adversary proceedings became a “slam dunk;” and third, that the
       judgment was collected from Mr. Barron with “relative ease.” The bankruptcy court
       stated that it did not actually anticipate these developments at the time, but,
       apparently because of the lack of clarity in our previous opinion, it failed to explain
       why these developments were incapable of being anticipated at the time the award
       was approved. We hold, as a matter of law, that none of these facts or developments
       was “not capable of being anticipated” within the meaning of Section 328(a).

Id.

       The final order of the bankruptcy court in the instant case used the correct legal standard and

cited three developments not capable of being anticipated: “(1) the arbitration panel finding that

[Thomas] was terminated for ‘cause;’ (2) the amount of hours that [Thomas] had put into the case

prior to [Gibbs] employment, which was not known to the Debtor or the Court at the time [Gibbs’s]

employment application was approved; and (3) the amount of compensation under quantum meruit

found by the arbitration panel . . . .” In its appeal, Thomas does not argue effectively as to why the

bankruptcy court did not appropriately categorize these developments as unanticipatable. As to the

size of the quantum meruit compensation awarded by the arbitration panel, which was 114% the size

                                                  10
of the full contingency fee that Thomas would have received if it had seen the case to completion,

Thomas simply states, “it is anticipatable that a judge might disagree with the results of arbitration

. . . .”

           Although Barron set a high standard fo r a Section 328(a) adjustment, the findings of the

bankruptcy court in the instant case, employing the correct legal standard, do not amount to an abuse

of discretion. One of the findings of the arbitration panel was that the full amount Thomas would be

entitled to under t he contract would be $5.9 million. This shows that the arbitration panel was

operating on the assumption that the total settlement would be approximately $20 million. That the

arbitration panel would be kept so ill-informed as to use figures two and a half times in excess of the

actual amount qualifies as an unanticipatable development within the discretion of a bankruptcy

court’s findings of fact.

                                         III. CONCLUSION

           For the foregoing reasons, Thomas’s appeal of the Coho-Gibbs settlement is DISMISSED

and the decision of the district court regarding Thomas’s fees is AFFIRMED.

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