Court Opinion

ID: 26583
Source: CourtListenerOpinion
Date Created: 2010-04-25 08:54:13+00
Date Added: 2024-06-11T11:49:56.645467
License: Public Domain

UNITED STATES COURT OF APPEALS
                              FOR THE FIFTH CIRCUIT
                              _____________________

                                     No. 01-50541
                                   Summary Calendar
                                _____________________

              In The Matter of: TIPS IRON & STEEL CO., INC.,

                                                                         Debtor.
              ______________________________________________

              TIPS IRON & STEEL CO., INC.; 300 BAYLOR, INC.,

                                                                    Appellants,

                                        versus

                            ARTHUR ANDERSON, L.L.P.,

                                                                       Appellee.

_________________________________________________________________

               Appeals from the United States District Court
                     for the Western District of Texas
                              (A-01-CV-137-SS)

                         January 31, 2002
Before HIGGINBOTHAM, WIENER, and BARKSDALE, Circuit Judges.

PER CURIAM:*

       Claiming the fee applications submitted by Arthur Andersen,

Inc.       (Andersen),    for    performing    accounting   services    for   the

bankruptcy       estate    of    Tips   Iron   &   Steel,   Inc.   (Tips),    were

excessive, unsubstantiated, and covered unnecessary services, 300

Baylor, Inc. (Baylor), asserts: the bankruptcy and district courts

applied the wrong legal standard in reviewing those applications;

       *
      Pursuant to 5TH CIR. R. 47.5, the court has determined that
this opinion should not be published and is not precedent except
under the limited circumstances set forth in 5TH CIR. R. 47.5.4.
those courts erred by not reducing the requests more than they did;

and the district court erred in awarding Andersen its attorney’s

fees and costs as a sanction for Baylor’s appealing the bankruptcy

court’s order.     AFFIRMED.

                                   I.

     This appeal arises out of an involuntary Chapter 11 bankruptcy

proceeding commenced by Baylor’s principals against Tips.            This

bankruptcy case is related to Baylor’s separate state court action,

which resulted in a judgment:           awarding it $2.6 million; and

decreeing it the rightful owner of Tips.          Upon obtaining that

judgment, Baylor moved the bankruptcy court to appoint a trustee

for Tips’ reorganization. The bankruptcy court granted the motion,

and the appointed trustee submitted an application to retain

Andersen to perform accounting services for the estate.          Although

Baylor objected to the use of Andersen as too expensive, the

bankruptcy court approved the trustee’s request.

     Andersen worked on the Tips project and subsequently filed fee

applications.     Baylor filed objections to the applications, even

urging a “total denial of [Andersen’s] fees and expenses”.            The

bankruptcy court held two hearings on the objections. During those

hearings, the court heard testimony from experts for Andersen and

Baylor, as well as from a court-appointed expert.            In its final

order,   the    court:    made   detailed   findings   and    conclusions

concerning the fees; made substantial reductions (approximately 40

                                    2
percent of the requested fee); and awarded fees of $83,880.33, plus

expenses of $5,660.56.

      Baylor appealed to the district court, including seeking

sanctions against Andersen. Baylor maintained the bankruptcy court

had failed to apply the correct legal standard, as established at

11 U.S.C. § 330(a)(1), in determining the fee.               Section 330(a)(1)

provides, in pertinent part:

           [T]he court may award to ... a professional
           person employed under section 327 or 1103–

                 (A) reasonable compensation for actual,
           necessary services rendered by the ...
           professional person ...; and

                 (B) reimbursement for actual, necessary
           expenses.

(Emphases added.)

      In an extremely detailed and comprehensive opinion, Tips Iron

& Steel Co., Inc. v. Arthur Andersen, L.L.P., No. A-01-CA-137-SS

(W.D. Tex. 7 May 2001), the district court first held that what

Baylor claimed was a challenge to the legal standard applied was,

in   reality,   nothing   more   than       a   “challenge[]    to   the   factual

findings of the bankruptcy court and/or objection[] to the amount

of fees awarded”.    The district court noted that, at the hearing on

appeal,   Baylor   had    repeatedly    emphasized      it     had   “no   quarrel

whatsoever” with the bankruptcy court’s findings of fact.                      The

district court then reviewed the amounts awarded by the bankruptcy

court and found no abuse of discretion.

                                        3
     Moreover, the district court found Baylor’s contentions about

the fee award to be frivolous, offensive, and vexatious.             Noting

“that a district court has the power to impose sanctions for a

frivolous bankruptcy appeal based upon either the inherent power of

the judiciary or the statutory authority of 28 U.S.C. § 1927”, In

re Sherk, 918 F.2d 1170, 1178 (5th Cir. 1990), abrogated on other

grounds, Taylor v. Freeland & Kronz, 503 U.S. 638 (1992), the

district court ordered, as a sanction, that Baylor and its counsel

pay Andersen’s reasonable attorney’s fees and costs for the appeal.

                                    II.

     “While we review the bankruptcy court’s findings of fact under

the clearly erroneous standard, we review the ultimate award of

fees under the abuse of discretion standard.”          In re Anderson, 936

F.2d 199, 203 (5th Cir. 1991).            “An abuse of discretion arises

where (1) the bankruptcy judge fails to apply the proper legal

standard or follows improper procedures in determining the fee

award, or (2) bases an award on findings of fact that are clearly

erroneous.”    In re Evangeline Refining Co., 890 F.2d 1312, 1325

(5th Cir. 1989) (emphasis added).

                                     A.

     The precise merits issue that Baylor advances is less than

clear.    Baylor maintains it is challenging the legal standard

applied by the district court — specifically, that the district

court    applied   only   an   “actual”    standard   as   opposed   to   the

statutorily required “actual and necessary” standard. On the other

                                     4
hand, the district court understood the challenge to be to the

factual findings or the fee amount.         Regardless, the bankruptcy

court applied the proper legal standard, and the awarded fees are

not based on clearly erroneous factual findings.         Accordingly, the

bankruptcy court did not abuse its discretion.

                                    B.

     As   for   the   district   court’s   sanctioning   Baylor   and   its

counsel, we again review for abuse of discretion.            See FDIC v.

Calhoun, 34 F.3d 1291, 1297 (5th Cir. 1994) (“[S]anctions under ...

§ 1927 are reviewed under the abuse of discretion standard”.); Toon

v. Wackenhut Corr. Corp., 250 F.3d 950, 952 (5th Cir. 2001) (“This

Court reviews a district court’s imposition of sanctions pursuant

to its inherent powers for abuse of discretion.”).         To justify the

use of the inherent sanctioning power, the district court “must

make a specific finding of bad faith”, Toon, 250 F.3d at 952, while

use of § 1927 “require[s] a detailed finding that the proceedings

were both ‘unreasonable’ and ‘vexatious.’”         Calhoun, 34 F.3d at

1297 (quoting 28 U.S.C. § 1927).2        Finally, at least with respect

to sanctions imposed under § 1927, “we do not substitute our

     2
      28 U.S.C. § 1927 provides:

                Any attorney or other person admitted to
           conduct cases in any court of the United
           States or any Territory thereof who so
           multiplies the proceedings in any case
           unreasonably and vexatiously may be required
           by the court to satisfy personally the excess
           costs,   expenses,    and   attorneys’   fees
           reasonably incurred because of such conduct.

                                     5
judgment for that of the district court in enforcing acceptable

standards of conduct”.        Travelers Ins. Co. v. St. Jude Hosp. of

Kenner, La., Inc., 38 F.3d 1414, 1417 (5th Cir. 1994).

     The district court did not abuse its discretion in awarding

Andersen its reasonable attorney’s fees and costs.                   The court made

highly detailed and specific findings regarding the unreasonable

and vexatious nature of Baylor’s appeal from the bankruptcy court’s

order.     After recounting the bankruptcy court’s depiction of

Baylor’s    objections       as     “conclusory      and      inflammatory”    and

“overstated      to   the   extent    that    it    reminds    one    of   using   a

sledgehammer to kill an ant”, the district court noted that Baylor

“continued their harassing litigation tactics[,] filing an appeal

riddled with misrepresentations and containing grounds for appeal

that can best be described as frivolous”. Requiring Baylor and its

counsel to pay Andersen’s reasonable attorneys fees and costs for

that appeal was appropriate and was not an abuse of the district

court’s discretion.

                                       III.

     For   the    foregoing       reasons,    the   amended     judgment    (which

includes the sanctions award) is

                                                                      AFFIRMED.

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