Court Opinion

ID: 74847
Source: CourtListenerOpinion
Date Created: 2010-04-26 08:58:11+00
Date Added: 2024-06-11T15:00:27.971469
License: Public Domain

In Re: CELOTEX CORP., Debtor.

                                  Speights & Runyan, Plaintiff-Appellant,
                                                     v.

                   Celotex Corp., U.S. Trustee, Kevin E. Irwin, Defendants-Appellees.

                                               No. 98-3747.
                                      United States Court of Appeals,

                                              Eleventh Circuit.

                                               Sept. 18, 2000.

Appeal from the United States District Court for the Middle District of Florida. (No. 98-01522-CIV-T-26F),
Richard A. Lazzara, Judge.

Before BIRCH, RONEY and FAY, Circuit Judges.

        BIRCH, Circuit Judge:
        This case presents an issue of first impression for this circuit. We must decide whether a creditor's
attorney may recover fees and expenses for a "substantial contribution", 11 U.S.C. § 503(b)(3)(D), in a

bankruptcy proceeding where the creditor has an adverse interest to the debtor. We hold that he may recover
such fees and expenses. Accordingly, we REVERSE and REMAND.

                                             I. BACKGROUND
        Appellant, the law firm of Speights & Runyan ("S&R"), petitioned the bankruptcy court for an award
of attorneys' fees on the grounds that the firm and, in particular, attorney Daniel A. Speights, made a
substantial contribution to the successful approval of a consensual plan of reorganization in the Chapter 11

bankruptcy proceeding. The bankruptcy judge denied the award on the grounds that S&R had an adverse
interest to the debtors and that S&R's services were conducted on behalf of its clients and not for the

particular benefit of the estate. The bankruptcy judge also concluded that, should his decision be reversed

on appeal, S&R should be awarded compensation for 1,200 hours of work at a blended lodestar rate of

$225.00 per hour, or a total of $270,000.00. The district court affirmed, finding that the bankruptcy judge
did not abuse his discretion in refusing to award fees.

        S&R brought its petition at the conclusion of a lengthy and complex bankruptcy proceeding involving

claims for asbestos related property damage and personal injuries. The debtors, Celotex Corporation and its
subsidiary Carey Canada, Inc. ("Debtors"), filed voluntary petitions for reorganization under Chapter 11 of

the bankruptcy code in 1990. Over the next six years, several proposed plans for reorganization were put
forward by the debtors in an attempt to achieve a consensual plan. In addition to the debtors, the parties
involved in the negotiations included the unsecured creditors' committee, the unofficial committee of

co-defendants, the asbestos health claimants committee, the asbestos property damage claimants committee,

and the legal representative of unknown bodily injury claimants. S&R represented several individual
property damage claimants.

         After a plan of reorganization was approved, S&R filed an Amended Application and Declaration
for Attorneys' Fees (the "Application"), B.R. Doc. 11008,1 pursuant to 11 U.S.C. § 503(b)(3)-(4). The only
opposition to S&R's petition for administrative expenses came from the United States Trustee and the
Asbestos Settlement Trust. The debtors and several committee representatives filed affidavits or testified in

support of S&R's fee application.

                                              II. JURISDICTION
         As an initial matter, we note that this court has jurisdiction to hear this appeal pursuant to 28 U.S.C.
§ 158(d). Section § 158(d) grants us jurisdiction to hear appeals from final orders. In a bankruptcy case, a

final order is defined as an order that terminates any particular adversary proceeding. See In re Hillsborough

Holdings Corp., 116 F.3d 1391, 1393 (11th Cir.1997). The denial of S & R's fee petition is such an order,

and jurisdiction is appropriate.

                                        III. STANDARD OF REVIEW

         We review an award or refusal to award attorney's fees for abuse of discretion. In re Hillsborough

Holdings Corp., 127 F.3d 1398, 1401 (11th Cir.1997). A bankruptcy judge abuses his discretion if he fails

to apply the correct legal standard or his factual findings are clearly erroneous. Id. See also In re Prince, 40
F.3d 356, 359 (11th Cir.1994) (holding that we review factual findings for clear error and legal conclusions

de novo ).

                                    IV. SUBSTANTIAL CONTRIBUTION
A.       The Standard

         Section 503 of Chapter 11 of the bankruptcy code provides that certain administrative expenses "shall

be allowed" after notice and a hearing. 11 U.S.C. § 503(b) (emphasis added). Included in the list of

administrative expenses awarded under § 503(b) are the expenses incurred by "a creditor, an indenture trustee,

     1
    The record from the bankruptcy court was attached as an exhibit to R1-1 of the district court record.
For ease of reference, all record citations are provided by using the bankruptcy court document number.
an equity security holder, or a committee representing creditors or equity security holders ... in making a

substantial contribution in a case under Chapter 9 or 11 of this title...." Id. at § 503(b)(3)(D). Section

503(b)(4) provides for a related award of attorney fees. In creating these provisions, Congress did not
specifically define the term "substantial contribution." As such, a conflict has developed among the circuits

regarding whether the motivation behind a creditor's actions should disqualify him from receiving fees where

a contribution has been made to the resolution of the bankruptcy proceeding. Compare In re DP Partners,

Ltd., 106 F.3d 667, 673 (5th Cir.1997) (noting that the plain language of the statute does not require "a

self-deprecating, altruistic intent as a prerequisite to recovery ....") with Lebron v. Mechem Financial, Inc.,

27 F.3d 937, 944 (3d Cir.1994) (finding that the benefit to the estate "must be more than an incidental one"

arising out of the pursuit of self-interest) and In re Lister, 846 F.2d 55, 57 (10th Cir.1988) ("Efforts

undertaken by a creditor solely to further his own self-interest ... will not be compensable, notwithstanding
any incidental benefit accruing to the bankruptcy estate."). We find the logic of the Fifth Circuit, as stated

in DP Partners, compelling.

         In interpreting a statute, we begin by examining the text and assigning the "plain, ordinary, and most

natural meaning" to terms not otherwise defined in the text itself. Boca Ciega Hotel, Inc. v. Bouchard

Transp. Co., 51 F.3d 235, 237 (11th Cir.1995). In applying the plain meaning of the text, other circuits have

held that a substantial contribution is one that " 'foster[s] and enhance[s], rather than retard[s] or interrupt[s]

the progress of reorganization.' " In re Consolidated Bancshares, Inc., 785 F.2d 1249, 1253 (5th Cir.1986)

(quoting In re Richton Int'l Corp., 15 B.R. 854, 856 (Bankr.S.D.N.Y.1981)). See also Lebron, 27 F.3d at 944

(quoting Consolidated Bancshares ).

        The United States Trustee and the Asbestos Settlement Trust look beyond the plain language of the

statute and rely on Lister and Lebron to support their argument that the bankruptcy judge was correct in

considering S&R's motivation to determine whether the firm's actions "transcended self-protection." Lebron,
27 F.3d at 944. See also Lister, 846 F.2d at 57. This requirement is not indicated by the language of the

statute. Indeed, the Fifth Circuit rejected this argument, noting that "nothing in the Bankruptcy Code requires

a self-deprecating, altruistic intent as a prerequisite to recovery of fees and expenses under section 503." DP

Partners, 106 F.3d at 673.

         Examining a creditor's intent unnecessarily complicates the analysis of whether a contribution of

considerable value or worth has been made. The Third Circuit correctly observed that expenses are
reimbursable only if they " 'directly and materially contributed' to the reorganization." Lebron, 27 F.3d at

943 (quoting Steere v. Baldwin Locomotive Works, 98 F.2d 889, 891 (3d Cir.1938)). See also Lister, 846
F.2d at 57 (stating that the test is "whether the efforts of the applicant resulted in an actual and demonstrable

benefit to the debtor's estate and the creditors."). The degree of benefit conferred or contribution made is "not

diminished by selfish or shrewd motivations." DP Partners, 106 F.3d at 673. Accordingly, we adopt the

Fifth Circuit's holding "that a creditor's motive in taking actions that benefit the estate has little relevance in

the determination whether the creditor has ... ma[de] a substantial contribution to a case." Id.

        This holding is consistent with common sense. Congress chose to include creditors in the class of

those who may receive administrative expenses and fees for a substantial contribution, see 11 U.S.C. §

503(b)(3), and it is difficult to imagine a circumstance in which a creditor will not be motivated by

self-interest in a bankruptcy proceeding. To impose an altruism requirement on the ability to obtain

administrative expenses under § 503(b)(3)-(4) would effectively render the section meaningless as to
creditors.
B.      S&R's Fee Application
        Turning to the petition for fees in this case, we find that the bankruptcy judge should have awarded

fees to S&R for a substantial contribution. In his order denying the fee petition, the bankruptcy judge found

that S&R "did perform the services stated in court in this case" but nevertheless found that the substantial
contribution standard had not been met because S&R "had an adverse interest to the Debtors, and ... the end

result of Applicant's services were directed just as much toward Applicant's particular clients ... as compared
to the Debtors' estates...." Order Denying Speights & Runyan's Amended Application and Declaration for
Attorney's Fees (the "Order"), B.R.Doc. 11777, at 2. The bankruptcy judge also specifically rejected the

holding of DP Partners that we today adopt.            See Motions Hearing Transcript, Feb. 6, 1998 (the

"Transcript"), B.R. Doc. 11816, at 225-26. We have determined that the motive of the petitioner should not

be a factor in determining whether a substantial contribution has been made in the bankruptcy proceeding.

If S&R produced evidence that they performed services constituting a substantial contribution, then an award
of fees is appropriate.

         In its fee petition, S&R set out in some detail the work which the firm considered to be a substantial
contribution.2 See generally, Application, B.R. Doc. 11008. In addition, several parties involved in the

bankruptcy proceeding attested to the efforts of S&R to achieve a successful plan of reorganization. John

Kozyak, the Asbestos Property Damage committee representative, submitted an affidavit in support of the
fee petition which noted that S&R provided "extraordinary service" and that Speights "worked tirelessly for

several years ... to help the Debtors and other parties avoid an expensive, time consuming confirmation battle
and develop a nearly consensual, confirmable plan of reorganization." Statement in Support of Speights &

Runyan's Application and Declaration for Attorneys' fees, B.R. Doc. 11674, at 1. Kozyak also noted that S&R

did this work with no assurance that the firm would be compensated. See id. The Debtors also filed a

response to S&R's petition supporting the request and noting the "unique skill and expertise" contributed by

the firm. Debtors' Response to Speights & Runyan's Application and Declaration for Attorneys' Fees, B.R.
Doc. 11638, at 3.

        Evidence was also presented at a hearing on various fee petitions held by the bankruptcy judge. See

generally, Transcript, B.R. Doc. 11816. Speights testified that his actions went beyond simple representation

of his clients when he worked to create a consensual plan of reorganization, and that, without his

involvement, achievement of a consensual reorganization plan would not have been accomplished.3 See id.

at 86-88. This testimony was supported by testimony from other parties. Kozyak testified that Speights's
knowledge, experience and the respect that Speights had earned from other parties made progress toward

reorganization possible. See id. at 91-94. The Debtors' counsel, Mr. Warren, testified that the Debtors, while

opposed to most petitions for fee awards, supported S&R's application. See id. at 98-99. The Debtors

supported it because "the role that Mr. Speights played provide[d] the tangible and demonstrative benefit to

the estate and the creditors of the estate. Again, not just Mr. Speights' creditors." Id. at 101.

   2
    Specifically, the petition related Speights's prior experience with asbestos-related bankruptcies and
the degree of involvement of Speights, both in mediation (at the request of the Debtors) and in plan
negotiations with, among others, the representative of the bodily injury claimants. See Application, B.R.
Doc. 11008, at 1-3, 5-6.
   3
    Specifically, Speights testified as follows.

                 I could have represented my individual clients and ultimately gotten some money out of
                 this, pursuant to some plan or liquidation process, if a deal had not been made ... What I
                 was asked to do ... was to try to represent not only the claims of all property damage
                 claimants ... but to work with Celotex and [the bodily injury claimants] ... in trying to put
                 together ... a consensual plan....I will say but for my involvement I don't believe we
                 would have had this deal.

        Transcript, B.R. Doc. 11816, at 86-88.
        The representative of the bodily injury claimants, Mr. Locks, also testified that successful negotiation

of a consensual, and ultimately approved, plan of reorganization "couldn't have been done without Dan

Speights because he really understood how to do it...." Id. at 134. Indeed, the bankruptcy judge himself

noted that the case was "phenomenally unique. Three or four times larger than Manville with a heck of a lot

more people doing some really unique, again, energetic activities." Id. at 200.

        The Settlement Trust and United States Trustee opposed the petition. The United States Trustee filed

an objection with the court, which focused on specific expenses and fees which should not be allowed, but

the Trustee did not argue that S&R did not make a substantial contribution. See United States Trustee's

Objection to Speights & Runyan's Application and Declaration for Attorneys' Fees, B.R. Doc. 11667, at 2-3.

Indeed, at the hearing, the United States Trustee stated that "[w]e do believe they did contribute substantially
to the case." Transcript, B.R. Doc. 11816, at 151. The Settlement Trust included S&R's petition in its

"Omnibus Objection" to all administrative expense potions filed. See Omnibus Objection of the Asbestos

Settlement Trust to Various Administrative Claim Applications, B.R. Doc. 11219, at 20. In its briefs,
however, the Settlement Trust acknowledged that, because "the Trust did not participate in the bankruptcy

cases ... it does not have enough knowledge about the relative contributions of the Law Firm Claimants

[including S&R]" to effectively oppose the claims on the merits. Id.

        In sum, the evidence accepted as true by the bankruptcy judge was that S&R, and Speights in
particular, played a significant role in the successful negotiation of a consensual plan, and that a large portion

of credit for achievement of the plan was attributable to Speights because of his credibility and the experience

in asbestos-related bankruptcy that he brought to the process. In DP Partners, a substantial contribution was

found by the bankruptcy court where a creditor's intervention led to an increase in the asset pool of

$3,000,000. See 106 F.3d at 673. We refrain today from defining with specificity what constitutes a

substantial contribution. We do find, however, that where, as here, evidence supports the conclusion that

without S&R's efforts a reorganization plan may not have been achieved, a substantial contribution has been

demonstrated. Accordingly, we REVERSE the district court's decision.

                                            V. AMOUNT OF FEES

        Our inquiry does not end with the substantial contribution analysis. In an alternative holding, the

bankruptcy judge determined that, should S&R be found to have made a substantial contribution, then 1200
hours of S&R's work would be compensable under § 503(b)(4). Order, B.R. Doc. 11777, at 2. S&R does not
appeal that decision. S&R does challenge the lodestar rate of $225.00 per hour used by the bankruptcy judge

to determine the total dollar amount of fees.
         Section 503(b)(4) expressly provides that allowable attorney compensation should be "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...." 11 U.S.C. § 503(b)(4). This standard is identical to the standard in § 330(a)(1)

which provides for attorney's fees for counsel to the bankruptcy trustee. See 11 U.S.C. § 330(a)(1). In Grant

v. George Schumann Tire & Battery Co., 908 F.2d 874 (11th Cir.1990), we held that a judge must calculate

the hourly rate using twelve factors set forth in Johnson v. Georgia Highway Express, Inc., 488 F.2d 714 (5th

Cir.1974). See Grant, 908 F.2d at 877-78. In addition, a judge determining a fee award must explain how

his consideration of the Johnson factors affected the award. Id. In other words, the judge may not simply

announce the rate, but must also set out in the record how he determined that rate.
        In the Order, the bankruptcy judge did not explain how he determined that $225.00 per hour was the
appropriate rate at which to compensate S&R. Turning to the hearing transcript, the only reference to the

hourly rate determination is the following statement by the bankruptcy judge:
        [T]he lodestar for each firm would have been $225 an hour. I reject their mathematical blending
        hourly rate of $356 an hour or thereabouts. Not suggesting that none of those parties would be worth
        it, but that's not what we've been paying around here.

Transcript, B.R. Doc. 11816, at 227.
        We make no judgment as to the adequacy of the rate determined by the bankruptcy judge. It is

possible that he considered all of the appropriate factors in determining the rate set forth in the Order.
Nevertheless, because the record provides no explanation for the hourly rate chosen, we must REMAND this
case for determination of the appropriate hourly rate to be applied for the 1,200 hours of work for which S&R

is to receive compensation.

                                             VI. CONCLUSION
        We find that the bankruptcy judge abused his discretion by applying the wrong legal standard, and

the district court erred in finding no abuse of discretion. Accordingly, we REVERSE and REMAND for

further proceedings consistent with this opinion.

        RONEY, Circuit Judge, dissenting:
        I respectfully dissent. I would remand the case to the bankruptcy court to determine whether the

services for which Speights and Runyan seek to be compensated constitute a substantial contribution under
11 U.S.C. § 503(b)(3) & (4), under the correct legal standards. Assuming that the court correctly holds that

the bankruptcy court applied the wrong legal principle in examining the facts, that court should make the final
factual determination without that legal error, not this Court.