Court Opinion

ID: 9701183
Source: CourtListenerOpinion
Date Created: 2023-08-25 22:09:11.285454+00
Date Added: 2024-06-11T18:21:20.624352
License: Public Domain

RUSSELL, Bankruptcy Judge,
dissenting:
I respectfully dissent. The bankruptcy court was clearly correct when it held:
The Application seeks fees of $102,-753.50 and costs of $3,181.04. The sole basis upon which the Application might be granted is under Section 503(b)(4) of the Bankruptcy Code. In effect, that section allows recovery of “reasonable compensation for professional services by an *82attorney” of a creditor whose expense is allowed under Section 503(b)(3). That section, in part, allows creditors to recover certain expenses “in making a substantial contribution in a case.” This court concludes, as a matter of law, for an attorney to recover compensation for professional services under Section 503(b) (Jf) the attorney must represent a creditor who has an allowable claim under Section 503(b)(3). Here, no member of the Handel Group holds a claim under Section 503(b)(3). Therefore, this court can not grant the Application as a matter of law.
Minute Order filed on January 29,1997, page 2 (emphasis added).
Section 503(b) could not be clearer. It provides, in pertinent part:
(b) After notice and a hearing, there shall be allowed administrative expenses, other than claims allowed under section 502(f) of this title, including—
(3) the actual, necessary expenses, other than compensation and reimbursement specified in paragraph (4) of this subsection, incurred by—
(D) a creditor, an indenture trustee, an equity security holder, or a committee representing creditors or equi- ' ty security holders other than a committee appointed under section 1102 of this title, in making a substantial contribution in a case under chapter 9 or 11 of this title;
(4) 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 incurred by such attorney or accountant;
(Emphasis added.)
The majority would simply strike the relevant portion of subsection (b)(4), which provides: “of an entity whose expense is allowable under paragraph (3) of this subsection,
The majority gives lip service to the obvious by stating:
Certainly we recognize the Congressional goal of limiting administrative expense— sections 503(b)(3)(D) and (b)(4) have been described as “an accommodation between the twin objectives of encouraging ‘meaningful creditor participation in the reorganization process,’ and ‘keeping fees and administrative expenses at a minimum so as to preserve as much of the estate as possible for the creditors.’
The majority then holds: “Nevertheless, we do not agree that Congress intended to do so in such a capricious manner.”
The majority later states:
We then are faced with one of those “rare cases” in which a literal interpretation is not warranted in light of the absurdity of the result and arrival at the appropriate result requires a more liberal reading of the statute. These situations are infrequent but not unheard of.
Finally, the majority concludes:
We are reluctant to stray from a strict interpretation, and yet are compelled to in order to avoid a result which would clearly run afoul of Congressional intent.
To support its conclusion that a literal application of Section 503(b)(4) would produce an “absurd” or a “capricious” result, the majority conjured up a hypothetical situation in which Creditor A incurred no expense and its attorney was therefore not entitled to compensation under Section 503(b)(4), whereas Creditor B incurred the expense of a 32 cent stamp and its attorney was therefore entitled to compensation under Section 503(b). Based on this hypothetical, the majority concludes that the statute produces an absurd result and should not be followed.
*83It is a simple matter to read and understand the requirements of Section 503(b). Application of the section according to its terms does not “run afoul” of any Congressional intent of which I am aware. To begin with, the requirement that a creditor have an administrative claim is consistent with the obvious Congressional intent to limit administrative expenses. Whether an attorney for a creditor with a 32 cent stamp expense could be compensated under Section 503(b)(4) remains a question, inter alia, of the reasonableness of the fees in question, but does not render the statute absurd or capricious.
The Code and Rules draw numerous lines. The fact that a line that is reasonably drawn will adversely affect the rights of a party who falls on the wrong side of the line does not mean that the line was improperly drawn. If this were the case, then much of the Code and the Rules would be invalid. Indeed, most statutes would be rendered invalid if one were to follow the majority’s logic. This is demonstrated by the following two examples of a seemingly endless “parade of horri-bles” that would result from its logic.
As one example, the fact that an otherwise preferential transfer was made 91 days prior to the petition, or an otherwise fraudulent transfer was made one year and one day prior to the petition, does not invalidate the time limitations merely because the transfers could have been avoided had they been made one day later.
As a second example, Section 303(b) requires at least three petitioning creditors in an involuntary case if a debtor has twelve or more creditors. Some courts have held that creditors claiming insignificant amounts should not be included in determining the total number of creditors. See, e.g., Denham v. Shellman Grain Elevator, Inc., 444 F.2d 1376 (5th Cir.1971). But even these courts have not invalidated the requirement of three creditors, because a small creditor might make the difference in placing a debtor into an involuntary bankruptcy.
The majority of courts have rejected Denham and applied the statute as written. See In re Okamoto, 491 F.2d 496 (9th Cir.1974); In re Rassi, 701 F.2d 627 (7th Cir.1983); Theis v. Luther, 151 F.2d 397 (8th Cir.1945), cert. denied, 327 U.S. 781, 66 S.Ct. 681, 90 L.Ed. 1009 (1946).
An argument similar to the one raised in the present appeal was raised by the petitioning creditor in Rassi, and was rejected by the Seventh Circuit:
The Bank alleges that the Rassis owe it in excess of $450,000.00. It would make little sense for this petitioner to be blocked from relief because the Rassis owe $10.00 to a doctor and $9.93 for magazines. This reasoning has convinced some courts to exclude claims which appear de minimus.
However, regardless of how wise and salutary exclusion of small, recurring claims might be, Congress has not specifically authorized exclusion, and in the absence of any indication that Congress intended this exclusion, we have no authority to engraft it onto those that Congress expressly provided. We hold that bona fide small, recurring claims must be included in the § 303(b)(2) count.
701 F.2d at 632 (citations omitted). The Bank in Rassi never argued that the requirement of three petitioning creditors should be stricken from the statute because the involuntary petition could be blocked by the existence of several small creditors.
The Ninth Circuit in Okamoto concluded:
We are not persuaded by Denham, for it appears to us that the Denham court ignored unambiguous Congressional direction. The Congress has explicitly prescribed the procedure that must be followed when less than three creditors join in the petition. In such circumstances the Act provides that the alleged bankrupt must have less than twelve creditors and expressly excludes certain types of creditors from the required computation. Since Congress made no distinction between large and small claims, we cannot arrogate unto ourselves the power to do so and thereby engraft an additional exception to the *84Act. Hornblower’s argument properly should be addressed to the Congress.
491 F.2d at 498 (emphasis added).
The above cases demonstrate that legislation is the function of Congress, not the courts. As stated by the United States Supreme Court in U.S. v. Ron Pair Enterprises, Inc., 489 U.S. 235, 109 S.Ct. 1026, 103 L.Ed.2d 290 (1989):
The plain meaning of legislation should be conclusive, except in the “rare cases [in which] the literal application of a statute will produce a result demonstrably at odds with the intentions of its drafters.” Griffin v. Oceanic Contractors, Inc., 458 U.S. 564, 571, 102 S.Ct. 3245, 3250, 73 L.Ed.2d 973 (1982).
489 U.S. at 242, 109 S.Ct. at 1030-31.
It is clear to me that the line drawn in Section 503(b) is a very reasonable attempt by Congress to limit administrative expenses under Section 503(b)(4) to attorneys for creditors with claims under Section 503(b)(3). Indeed, the matter before this court is exactly the type of case Congress most likely had in mind. Congress obviously did not want attorneys making administrative claims when their efforts mainly benefited the attorneys. In this case, the creditors were not personally liable for the fees. The ability of the attorneys to be compensated was totally contingent on the allowance of the fees under Section 503(b)(4).
Therefore, I would AFFIRM the bankruptcy court’s denial of the Application.