Court Opinion

ID: 769541
Source: CourtListenerOpinion
Date Created: 2012-04-18 10:01:32+00
Date Added: 2024-06-11T17:55:43.858377
License: Public Domain

219 F.3d 635 (7th Cir. 2000)
In the Matter of Milwaukee Engraving Company, Incorporated, Debtor.Appeal of Ira Bodenstein, United States Trustee.
No. 99-3738
In the United States Court of Appeals  For the Seventh Circuit
Argued May 16, 2000Decided July 13, 2000

Appeal of Ira Bodenstein, United States Trustee
Appeal from the United States District Court  for the Eastern District of Wisconsin.  No. 98-C-806--John W. Reynolds, Judge.
Before Easterbrook, Ripple, and Rovner, Circuit  Judges.
Easterbrook, Circuit Judge.

1
When Milwaukee  Engraving Co. entered bankruptcy, it was  represented by Maier McIlnay & Kerkman, Ltd.  (MMK). Section 327(a) of the Bankruptcy Code, 11  U.S.C. sec.327(a), permits a trustee or debtor in  possession to "employ one or more attorneys . .  . that do not hold or represent an interest  adverse to the estate, and that are disinterested  persons". Milwaukee Engraving filed an  application seeking to use MMK's services in the  bankruptcy proceeding. An accompanying affidavit  asserted that MMK was disinterested but revealed  that MMK represented Black Hawk Label, Inc., which  owed Milwaukee Engraving some $78,000. This would  not have been an interest "adverse to the estate"  if Black Hawk had been flourishing, but it was  not. Black Hawk (under joint ownership with  Milwaukee Engraving) was arranging to liquidate.  MMK represented Black Hawk in that endeavor and  had first dibs on the proceeds of any sale,  before the balance was distributed to Milwaukee  Engraving and Black Hawk's other creditors. The  United States Trustee objected to MMK's  employment, and the bankruptcy court concluded  that the law firm's interest in the proceeds from  the sale of Black Hawk's assets meant that MMK  represented an interest adverse to Milwaukee  Engraving. See 11 U.S.C. sec.101(14)(E).  Milwaukee Engraving acquiesced and engaged  another law firm.

2
Section 330(a)(1)(A) of the Code conditions  payment of "reasonable compensation for actual,  necessary services rendered by . . . [an]  attorney and by any paraprofessional person  employed by any such person" on approval under  sec.327, which MMK lacked. Nonetheless, MMK asked  the bankruptcy judge to approve payment of some  $15,000 for the professional services it had  rendered to Milwaukee Engraving between the  commencement of the case and the approval of its  replacement, about 20 days after the judge  concluded that MMK was not disinterested.  Bankruptcy Judge McGarity granted this  application, 230 B.R. 370 (Bankr. E.D. Wis.  1998), relying on 11 U.S.C. sec.503(b)(1)(A),  which permits the court to award as  administrative expenses "the actual, necessary  costs and expenses of preserving the estate,  including wages, salaries, or commissions for  services rendered after the commencement of the  case". The bankruptcy judge noted that MMK  provided legal services for a month between  filing and the decision under sec.327, observed  that these services were beneficial to the estate  despite MMK's interest in Black Hawk, and  concluded that it would be inequitable to deny MMK  compensation. She recognized, however, that  payment for legal services usually depends on  sec.sec. 327 and 330, and that sec.503(b)(2)  grants administrative priority to "compensation  and reimbursement awarded under section 330(a) of  this title". By making express provision for  employment under sec.327, payment under sec.330,  and priority under sec.503(b)(2), the Code  logically forecloses the possibility of treating  sec.503(b)(1)(A) as authority to pay (and give  priority to) claims that do not meet its  substantive requirements. Statutes directly  addressing a subject prevail over silences and  implications of other provisions. We so held, for  sec.sec. 327, 330, and 503 in particular, in In  re Singson, 41 F.3d 316, 320 (7th Cir. 1994), and  the bankruptcy judge acknowledged that the  language of Singson bars an award to MMK.

3
Nonetheless, she stated, Singson must be read  together with In re Grabill Corp., 983 F.2d 773,  777 (7th Cir. 1993), which raised the possibility  that sec.503(b)(1)(A) might provide independent  authority to compensate attorneys. Grabill added  that the sort of claim MMK makes--a request for  compensation by a firm disqualified by interest--  would not qualify under any approach, 983 F.2d at  777 ("The scattered cases, none at the court of  appeals level, that allow a lawyer to be  compensated who, lacking the requisite  disinterest, could not have been appointed seem  to us just plain wrong."), but the bankruptcy  judge thought that the "equities" of this case  justified disregarding this observation. The  district judge affirmed, concluding that for two  reasons he need not follow Singson. First, the  judge stated, Singson "made no mention of Grabill  in its discussion of sec.503." Second, Singson  involved an untimely request for approval, while  MMK sought approval at the outset of the case and  bore the effects of congestion in the bankruptcy  court's calendar.

4
Singson disposes of the question at hand. True,  the facts of Singson differ from the facts of  this case, but the legal issue is the same may a bankruptcy court compensate an attorney for  services despite denying an application under  sec.327? That issue was resolved in Singson,  which answered "no." Singson concluded that it  would vitiate the limitations of sec.327 if a  bankruptcy court could deny an application under  that section and order the estate to pay for the  legal services anyway. Moreover, the structure of  sec.503(b) strongly implies that professionals  eligible for compensation must receive it under  sec.503(b)(2)--which depends on authorization  under sec.330 or sec.1103(a) (and thus on  approval under sec.327). One might as well erase  sec.503(b)(2) from the statute if attorneys may  stake their claims under sec.503(b)(1)(A) even  when ineligible under sec.sec. 327, 330, and  503(b)(2). Our opinion in Singson did not spell  this out at length, but there was no need to do  so, for the subject had been covered by another  circuit, whose conclusion we endorsed. See In re  F/S Airlease II, Inc., 844 F.2d 99, 108-09 (3d  Cir. 1988), cited with approval in Singson, 41  F.3d at 320. Appellate opinions need not rehash  settled law to enjoy respect by district courts.  Brevity in stating a holding is a virtue, and a  decision's central conclusion is no less a  "holding" for being succinct.

5
Although the bankruptcy judge believed that  applying the Code literally would be inequitable,  "[b]ankruptcy courts are not authorized in the  name of equity to make wholesale substitution of  underlying law . . . but are limited to what the  Bankruptcy Code itself provides." Raleigh v.  Illinois Department of Revenue, 120 S. Ct. 1951,  1957 (2000). To the extent equity matters, the  claim here is weaker than the one rejected in  Singson, for in Singson the obstacle to payment  was delay in submitting an application for  approval. We held that only "excusable neglect"  justifies failure to present an application for  approval before performing legal services. We  concluded that the law firm in Singson had not  established "excusable neglect" and therefore  could not receive approval under sec.327. (It was  this conclusion that made it necessary to decide  whether the firm could be paid anyway under  sec.503(b)(1).) A timely application in Singson  likely would have been approved. Here, by  contrast, MMK is forbidden to represent the  debtor. Using sec.503(b)(1)(A) even to overcome  a procedural glitch was disapproved by Singson;  that holding logically entails the impropriety of  using sec.503(b)(1)(A) to defeat the principal  function of sec.327 by requiring the estate to  compensate a law firm that labored under a  conflict of interest.

6
The district judge believed that Singson need  not be followed because the portion of the  opinion dealing with sec.503(b)(1)(A) did not  discuss Grabill. This seriously misunderstands  the relation between holding (Singson) and dictum  (Grabill). A court need not rehash all prior  mentions of a topic. What the panel said in  Grabill was

7
It is a much more orderly system in which the  lawyer applies for approval before he starts  running up a large bill. Orderliness may not be  the highest value and there may be cases in which  time is so short that the lawyer must start work  before he can file the application--and perhaps  some bankruptcy judges, unlike the one in this  case, sit on such applications for a long time,  which could create great awkwardness. Perhaps in  a case in which the lawyer filed his application  as early as was practicable, could not defer  performing critical legal work for the debtor,  and had no reason to believe that his application  would be turned down--but it was, much later--  section 330 could be bent to allow compensation.  Conceivably section 503 of the Bankruptcy Code,  the general administrative-claims section, could  be used as a safety valve to relieve the rigidity  of section 330 in cases in which it would be  highly inequitable to deny a lawyer all  compensation for services that had conferred a  benefit on the debtor's estate and hence on the  unsecured creditors seeking to deny him that  compensation. Section 503(b)(1)(A), the only  possibly relevant subsection, authorizes payment  of the actual, necessary costs of preserving the  estate. This subsection might, in the context of  a Chapter 11 proceeding such as this, authorize  the payment of a claim that arose from a  transaction with the debtor in possession (that  is, a transaction after bankruptcy has been  declared) and was beneficial to the debtor in  possession. In re Jartran, Inc., 732 F.2d 584,  586 (7th Cir. 1984); see also In re Hemingway  Transport, Inc., 954 F.2d 1, 5-7 (1st Cir. 1992).  (We don't suppose it matters whether the  transaction is with someone who had rendered  similar services to the debtor before  bankruptcy.) We need not decide whether this  provision can be invoked by a lawyer who renders  postpetition services to the debtor that are not  authorized by section 330, or whether the regime  created by 330 is exclusive so far as lawyers'  services to the debtor is concerned. [The law  firm involved in this case] does not cite section 503.

8
983 F.2d at 777 (emphasis in original). This  invited parties to later cases to investigate and  brief the question, as the parties to Grabill had  not. When Singson arose more than a year later,  the parties did investigate and brief it. What  they discovered--what the panel in Grabill had  not known, given the absence of adversarial  presentation--was that the question had been  answered in other circuits. It was unnecessary  for Singson to discuss Grabill's ruminations.  That catalyst had its desired effect, the  question was briefed, and Singson was the result.  We cover Grabill now only to avoid the risk that  courts will ignore this decision, just as the  bankruptcy and district judges here decided that  they need not follow Singson, but by doing this  we do not mean to encourage lengthy explorations of dictum.

9
Just as Grabill is irrelevant to the  authoritative status of the later decision in  Singson, so In re Crivello, 134 F.3d 831 (7th  Cir. 1998), another case the bankruptcy judge  mentioned, is beside the point. A law firm  received approval under sec.327 and performed  services, but it later came to light that the  firm had prior connections with the debtor and  related parties, plus prepetition claims against  the debtor for legal work. Section 328(c)  provides that a court "may deny allowance of  compensation for services and reimbursement of  expenses of a professional person employed under  section 327 or 1103 of this title if, at any time  during such professional person's employment  under section 327 or 1103 of this title, such  professional person is not a disinterested  person, or represents or holds an interest  adverse to the interest of the estate with  respect to the matter on which such professional  person is employed." The legal dispute in  Crivello was whether sec.328(c) requires the  bankruptcy court to disallow all compensation for  legal work done. Emphasizing the word "may" in  sec.328(c), we held that a bankruptcy court has  discretion to allow some compensation for work by  a professional who was actually, but improperly,  engaged under sec.327. See 134 F.3d at 836-39. MMK  contends that if the law firm in Crivello could  receive payment despite a lack of disinterest, it  should be paid too; any other approach would  create an incentive to lie (or shade the truth)  in the initial application for employment. That  is worrisome--though the professional  consequences of deceit are not limited to a  reduction of fees in a single case, so Crivello  is unlikely to lead to fraud in order to get  around Singson. But whatever arguments one may  make as a matter of first principles, there is a  dispositive difference under the statute Congress  actually enacted. Crivello dealt with a firm  whose employment had been approved under  sec.327(a), and whose compensation then was  curtailed under sec.328(c). Section 330 expressly  permits payment in such cases, and sec.503(b)(2)  gives that debt administrative priority. MMK's  application under sec.327(a) was denied, so  neither sec.330 nor sec.503(b)(2) assists it.

10
Only one possibility remains to be considered.  Should we overrule Singson? MMK does not ask us to  take this step; its submission rests on the  proposition that Singson should be ignored  because it did not "overrule" Grabill. (How can  speculation be overruled?) At all events, it  would not be appropriate to change our view of  the relation among sec.sec. 327, 330, and 503(b).  All other appellate decisions on the subject come  out the way Singson did. See In re Keren Limited  Partnership, 189 F.3d 86, 88 (2d Cir. 1999); In  re F/S Airlease II, supra. Bankruptcy appellate  panels in two additional circuits have reached  the same conclusion. In re Monument Auto Detail,  Inc., 226 B.R. 219 (9th Cir. B.A.P. 1998); In re  Albrecht, 245 B.R. 666 (10th Cir. B.A.P. 2000).  Accord, 6 Collier on Bankruptcy  sec.943.03[3][b][i] (15th ed., rev. 2000).

Reversed