Court Opinion

ID: 2968140
Source: CourtListenerOpinion
Date Created: 2015-09-22 04:19:20.724229+00
Date Added: 2024-06-11T11:40:44.803266
License: Public Domain

PUBLISHED

UNITED STATES COURT OF APPEALS
                 FOR THE FOURTH CIRCUIT

In Re: COMPUTER LEARNING CENTERS,        
INCORPORATED,
                          Debtor.

H. JASON GOLD, Former Chapter 7
Trustee; GOLD, MORRISON &
LAUGHLIN, P.C.,
                Plaintiffs-Appellants,

                                         
                  v.
                                                  No. 03-1289
RON GUBERMAN, Creditor
Committee,
                            Creditor,
DONALD F. KING; W. CLARKSON
MCDOW, JR.,
                        Trustees.

STEVEN H. GOLDBLATT,
                   Amicus Curiae.
                                         
            Appeal from the United States District Court
         for the Eastern District of Virginia, at Alexandria.
               Claude M. Hilton, Chief District Judge.
                  (CA-02-1582-A; 01-80096-RGM)

                       Argued: March 18, 2005

                       Decided: May 13, 2005

     Before NIEMEYER, LUTTIG, and KING, Circuit Judges.
2                IN RE: COMPUTER LEARNING CENTERS
Dismissed and remanded with instructions by published opinion.
Judge Niemeyer wrote the opinion, in which Judge Luttig and Judge
King joined.

                             COUNSEL

ARGUED: H. Jason Gold, WILEY, REIN & FIELDING, L.L.P.,
McLean, Virginia, for Appellants. Kathy J. Huang, Student Counsel,
GEORGETOWN UNIVERSITY LAW CENTER, Appellate Litiga-
tion Program, Washington, D.C., for Amicus Curiae. ON BRIEF:
Raymond R. Pring, Jr., Dylan G. Trache, WILEY, REIN & FIEL-
DING, L.L.P., McLean, Virginia, for Appellants. Steven H. Goldblatt,
Director, Nathan J. Novak, Student Counsel, Randi L. Wallach, Stu-
dent Counsel, GEORGETOWN UNIVERSITY LAW CENTER,
Appellate Litigation Program, Washington, D.C., for Amicus Curiae.

                              OPINION

NIEMEYER, Circuit Judge:

   In the Chapter 7 bankruptcy proceeding of Computer Learning
Centers, Inc. ("CLC"), the bankruptcy court entered an order dated
August 9, 2002, awarding "interim" fees to the trustee and trustee’s
counsel, as well as to the accountants. The awards were made for the
period that ended at the time the trustee resigned (because of a con-
flict of interest) and a successor trustee was appointed. By order dated
January 31, 2003, the district court affirmed the bankruptcy court’s
order.

   The former trustee and trustee’s counsel have now appealed the
district court’s order to this court, raising issues about the amount of
the fees awarded. We conclude, however, that the bankruptcy court’s
order was not a final order under 28 U.S.C. § 158(a) and that, there-
fore, the district court’s order was not a final order in the bankruptcy
case that is reviewable by this court under § 158(d). Accordingly, we
dismiss this appeal without reviewing the merits of the questions
                 IN RE: COMPUTER LEARNING CENTERS                     3
raised and remand with instructions to the district court to vacate its
January 31, 2003 order for lack of jurisdiction.

                                   I

   CLC formerly operated a computer training school with 9000 stu-
dents and 1600 employees at 25 locations nationwide. When CLC
filed a voluntary petition under Chapter 7 of the Bankruptcy Code in
January 2001, the bankruptcy court appointed H. Jason Gold as Chap-
ter 7 trustee. With the bankruptcy court’s permission, Trustee Gold
then employed his law firm, Gold, Morrison & Laughlin P.C.
("GM&L"), as trustee’s counsel. When, in April 2002, GM&L
merged into Wiley, Rein & Fielding LLP, conflicts of interest arose
for Gold, and accordingly he resigned as trustee in July 2002.

   During his tenure as trustee, Gold enjoyed substantial success in
increasing the value of CLC’s estate. Through special counsel
retained by him, Gold was able to negotiate with the United States
Department of Education for its unencumbering of certain CLC assets
that had become "tainted" due to CLC’s unfulfilled liabilities to the
federal government. He was then able to generate approximately $22
million in proceeds from the disposal of those assets. In addition,
Gold operated CLC’s collection division for 15 months, collecting
$3.4 million of the approximately $8 million in outstanding CLC stu-
dent loans and ultimately selling the remaining receivables for $2.2
million. Trustee Gold was also involved in the establishment and
operation of a records retention center to centralize and organize
CLC’s student and business records. According to Gold, "the CLC
case has been considered to be one of the most complex Chapter 7
bankruptcy cases ever filed in the region." He said that, even though
some persons considered it a "no asset" case, "[he] turned the case
into a success . . . acknowledged by virtually all major parties to the
case."

   For his work, Trustee Gold filed four interim fee applications with
the bankruptcy court. In his first application, he requested and was
awarded $134,441, the maximum allowable to trustees under § 326(a)
of the Bankruptcy Code, based on the estate’s disbursements as of
that time.* Gold’s second, third, and fourth fee applications were

  *Section 326(a) provides in relevant part:
   (a) In a case under chapter 7 or 11, the court may allow reason-
4                 IN RE: COMPUTER LEARNING CENTERS
addressed in the bankruptcy court’s August 9, 2002 order. They
requested a total of $164,792, and the bankruptcy court awarded Gold
a total of $167,835. Of the $167,835 awarded, however, the bank-
ruptcy court allowed immediate disbursement of only $116,340, not-
ing that the balance owed to Gold would be payable upon further
order of the court as additional funds came into the estate and the
maximum allowable trustee compensation under § 326(a) of the
Bankruptcy Code correspondingly increased. The bankruptcy court
also observed that since Gold had been forced to resign as trustee and
a successor trustee had been appointed, it was impossible to deter-
mine, at that time, the total trustees’ fees that would be incurred in the
case. "A problem may arise," the court explained, "if the total trust-
ees’ fees exceed the allowable maximum provided by § 326(a)."
Accordingly, the court made clear that the fees awarded were "provi-
sional only and [might] be adjusted at the conclusion of the case."

   Trustee Gold’s law firm, GM&L, likewise submitted a series of fee
applications to the bankruptcy court. In its first application, GM&L
requested $205,632 in fees and $33,491 in expenses. The bankruptcy
court awarded GM&L the full fees and reduced the expenses to
$22,752. GM&L’s second through sixth applications, which requested
a total of $285,796 in fees plus $52,086 in expenses, were addressed
in the bankruptcy court’s August 9, 2002 order. The bankruptcy court
awarded GM&L a total of $254,630 in fees, and of that amount, it
characterized $25,873 as attributable to services properly performable
by the trustee, not trustee’s counsel. That amount was therefore sub-
ject to the aggregate cap on trustees’ fees. Of the $52,086 claim for

    able compensation under section 330 of this title of the trustee
    for the trustee’s services, payable after the trustee renders such
    services, not to exceed 25 percent on the first $5,000 or less, 10
    percent on any amount in excess of $5,000 but not in excess of
    $50,000, 5 percent on any amount in excess of $50,000 but not
    in excess of $1,000,000, and reasonable compensation not to
    exceed 3 percent of such moneys in excess of $1,000,000, upon
    all moneys disbursed or turned over in the case by the trustee to
    parties in interest, excluding the debtor, but including holders of
    secured claims.
11 U.S.C. § 326(a) (emphasis added).
                 IN RE: COMPUTER LEARNING CENTERS                     5
expenses, the bankruptcy court awarded GM&L $33,322. In its order,
the bankruptcy court ordered disbursement of all sums allowed to
GM&L, except for $7,356 of the fee award, stating that this amount
"shall be payable only upon further order of this court as the maxi-
mum compensation allowable for trustee fees . . . is increased." As
with its award to Trustee Gold, the bankruptcy court stated that it was
awarding GM&L "interim fees" and that "[a]ll fees awarded [were]
provisional and [were] subject to disgorgement."

   In addressing Trustee Gold and GM&L’s fee applications, the
bankruptcy court employed the lodestar method, beginning with a
determination of the allowable hourly rate. The court noted that
"[n]either the trustee nor his law firm [had] presented any evidence
on [the prevailing market rate for attorneys’ fees]" and rejected the
$295 per hour rate claimed by Gold and GM&L. The court explained
that it was in an "excellent position to evaluate the prevailing market
rate for attorney’s fees by virtue [of] the innumerable fee applications
presented to the court" and concluded that $265 per hour was the
"current prevailing rate." Rejecting any enhancement of the lodestar,
the court observed that "the size of the estate and the concomitant
complexity are fully accounted for in the compensation of the profes-
sionals by the additional hours expended to meet these challenges."

  Trustee Gold and GM&L appealed the August 9, 2002 fee award
order to the district court, and the district court summarily affirmed
by an order dated January 31, 2003, "on the sound reasoning of the
Bankruptcy Court." The district court concluded that the bankruptcy
court’s findings "were neither clearly erroneous, nor contrary to law."

   From the district court’s January 31, 2003 order, Trustee Gold and
GM&L filed this appeal. They contend that the bankruptcy court mis-
construed and misapplied 11 U.S.C. § 326(a); that the bankruptcy
court erred in establishing $265 as a prevailing market rate for attor-
neys’ fees; that the bankruptcy court improperly denied reimburse-
ment for computer assisted legal research and, in doing so, subtracted
the incorrect amount from GM&L’s expenses when excluding that
research; and that the bankruptcy court erred in denying them com-
pensation for preparing fee applications for other professionals. Ste-
ven H. Goldblatt, Esquire, whom we appointed as amicus curiae to
respond to the appellants’ arguments, contends, among other things,
6                IN RE: COMPUTER LEARNING CENTERS
that this court does not have subject matter jurisdiction over this
appeal because the bankruptcy court’s order allowing interim fees
was an interlocutory order not subject to appeal under 28 U.S.C.
§ 1291 or 28 U.S.C. § 158(d).

                                   II

   At the outset, we determine whether we have jurisdiction to review
the district court’s order, which depends on whether the district court
had jurisdiction to review the bankruptcy court’s August 9, 2002
order. See 28 U.S.C. § 158(a), (d). Section 158(a) of Title 28 gives
district courts jurisdiction to hear appeals "from final judgments,
orders, and decrees" entered by bankruptcy courts, and § 158(d) gives
courts of appeals jurisdiction over "appeals from all final decisions,
judgments, orders, and decrees entered" by district courts reviewing
bankruptcy court decisions under § 158(a). Thus, if, in this case, the
bankruptcy court’s fee-award order was not final, the district court did
not have subject matter jurisdiction to review it on appeal, and the
district court’s order was not a final order in the bankruptcy case giv-
ing us jurisdiction to review it on appeal.

   The concept of finality in bankruptcy cases "has traditionally been
applied ‘in a more pragmatic and less technical way . . . than in other
situations.’" A.H. Robins Co., Inc. v. Piccinin, 788 F.2d 994, 1009
(4th Cir. 1986) (quoting In Re Amatex Corp., 755 F.2d 1034, 1039
(3d Cir. 1985)). Accordingly, "orders in bankruptcy cases may be
immediately appealed if they finally dispose of discrete disputes
within the larger case." In re Saco Local Dev. Corp., 711 F.2d 441,
444 (1st Cir. 1983) (Breyer, J.); see also A.H. Robins Co., 788 F.2d
at 1009 (citing with approval then-Judge Breyer’s characterization of
"finality" in Saco).

   Consistent with this "pragmatic" view of finality in the bankruptcy
context, "several cases [have] recognize[d] that a bankruptcy court’s
order of compensation may be considered final ‘where the order con-
clusively determine[s] the entire section 330 compensation to be paid’
to the attorneys." In re Boddy, 950 F.2d 334, 336 (6th Cir. 1991)
(quoting In re Spillane, 884 F.2d 642, 644 (1st Cir. 1989)). Such com-
pensation orders, however, are not normally so conclusive, and "an
interim award of compensation granted by a bankruptcy court in an
                  IN RE: COMPUTER LEARNING CENTERS                     7
ongoing bankruptcy proceeding generally is an interlocutory order not
subject to review in [the court of appeals]." Id. (emphasis added). The
interim fee order becomes final only "when it is no longer subject to
modification by the bankruptcy court." Id.; see also Cluck v. Osherow
(In re Cluck), 101 F.3d 1081, 1082 (5th Cir. 1996) (noting that
"[e]very circuit which has addressed this issue has concluded that an
interim award of compensation granted by a bankruptcy court in an
ongoing bankruptcy proceeding generally is an interlocutory order
which is not subject to review"); In re Dahlquist, 751 F.2d 295, 297
(8th Cir. 1985) (noting that "orders granting interim compensation in
an ongoing bankruptcy proceeding generally are considered to be
interlocutory in nature," but that finality really depends on the "cir-
cumstances of the case").

   Turning to the circumstances before us, Trustee Gold and GM&L
acknowledge that the bankruptcy court entered an "interim" fee award
order that was subject to "disgorgement." But they argue that the
interlocutory designation in the order was only a formality that cannot
realistically govern whether the order in this case was in fact final.
Gold and GM&L specifically deny the possibility that the bankruptcy
court might have to order them to disgorge the disbursed awards to
cover other claims. Because fees are priority claims, they note, the
bankruptcy court would also have to order disgorgement from all of
the priority creditors to whom $3.2 million has already been dis-
bursed. They argue,

    Other than a mere remote "possibility," there is not a scin-
    tilla of evidence that would support any theory of disgorge-
    ment. While Mr. Gold complied with the bankruptcy judge’s
    request that he personally guarantee payment of any disgor-
    gement order, the fact remains that the possibility of disgor-
    gement is extremely remote in this case.

   The interim nature of the bankruptcy court’s award, however, is
more real and more complex than the appellants have allowed, as was
recognized by the bankruptcy court itself. While it is true that neither
Gold nor GM&L continues to serve and therefore earn fees, the bank-
ruptcy proceeding itself continues. And although it is likely that addi-
tional funds will come into the estate, making it unlikely that the court
will have to order the disgorgement of already authorized awards,
8                IN RE: COMPUTER LEARNING CENTERS
such an assessment does not make the fee awards of the August 9,
2002 order final. The awards are subject to reevaluation and therefore
to either reduction or indeed enhancement. This lack of finality is
manifested in several respects.

   First, as to each award, the bankruptcy court characterized the
award as "interim" in nature, meaning that it was subject to reevalua-
tion.

  Second, the awards, although authorized, were not to be paid in full
but were subject to payment "upon further order of [the bankruptcy]
court." Accordingly, portions of the awards to both Trustee Gold and
GM&L have yet to be disbursed.

   Third, the bankruptcy court recognized that total trustees’ fees are
capped by § 326(a) at a percentage of the total amounts distributed by
the estate. Because Gold’s fees must be calculated together with his
successor’s fees based on the total disbursements, Gold’s fees could
be reduced. As the bankruptcy court stated:

    The trustee has been allowed interim compensation as
    trustee and additional compensation will be allowed at this
    time. It cannot be determined at this time what additional
    trustee fees may be incurred to complete this case. If the
    trustee’s fees for the trustee and his successor are less than
    the maximum allowable by § 326(a), each trustee will be
    fully compensated. However, a problem may arise if the
    total trustees’ fees exceed the allowable maximum. If the
    trustee had continued to serve as trustee to the completion
    of this case and the total fees exceeded the maximum allow-
    able by § 326(a), only he would have been affected. With
    the appointment of a successor trustee, the successor trust-
    ee’s fees may be affected by the cap on trustee fees. In these
    circumstances, the fees awarded today are provisional only
    and may be adjusted at the conclusion of the case.

(Emphasis added). Thus, at this point, there is simply no way to know
now what the total trustees’ fees will be or what the § 326(a) cap will
amount to. We agree with Collier’s observation that "[o]nly after a
case is closed (and the total disbursements or plan payments can be
                 IN RE: COMPUTER LEARNING CENTERS                     9
determined) can the compensation payable be allocated to a particular
trustee." 3 Collier on Bankruptcy ¶ 326.03[1][a] (Alan N. Resnick et
al. eds., 15th ed. rev. 2004).

   Fourth, the court recognized that legal fees and trustees’ fees had
become mixed together, so that some of the legal fees were for trust-
ee’s work and therefore would be subject to the cap imposed by
§ 326(a). As the bankruptcy court observed, the award to GM&L "in-
clude[d] those fees payable to [GM&L] that are attributable to the
trustee and are included in the calculation of the maximum allowable
fees under § 326(a)."

   And fifth, independent from the effect of the § 326(a) cap on the
trustees’ fees, 11 U.S.C. § 330(a)(5) makes clear the provisional
nature of the entirety of the funds actually disbursed both to Gold and
to GM&L. Section 330(a)(5) provides for the return of excess dis-
bursements to the estate in the event that the interim awards allowed
under § 331 exceed the bankruptcy court’s final awards. See 3 Collier
on Bankruptcy, supra, ¶ 331.03[3].

   For all of these reasons, the bankruptcy court summarized, "The
interim fee applications of . . . the trustee’s law firm and the trustee
will be provisionally allowed as set forth above." (Emphasis added).
And it is apparent that the court’s fee awards were not just formally
provisional — they actually depended on completion of the adminis-
tration of the debtor’s estate.

   At oral argument, the appellants contended that the bankruptcy
court’s order was final because the bankruptcy judge "has made a
final determination as to methodology, as to how to approach trustee
commissions." This, however, misses the point because even though
the bankruptcy court may have determined its methodology, the
amounts of the fees to be awarded under the methodology would still
be dependent on other factors that have yet to be finally determined.
Indeed, it should not be forgotten that at the conclusion of the bank-
ruptcy case and in light of the trustees’ success, the bankruptcy court
might well wish to provide bonuses to Gold and GM&L under the
lodestar method. That the bankruptcy court remains free to act in this
manner — to increase or decrease amounts previously awarded on an
10                IN RE: COMPUTER LEARNING CENTERS
interim and provisional basis — only underscores the nonfinal nature
of its August 9, 2002 order.

                                   III

   The appellants contend, alternatively, that we have jurisdiction
under the "collateral order doctrine." Under the collateral order doc-
trine, interlocutory orders of the bankruptcy court are appealable if
they "conclusively determine [a] disputed question, resolve an impor-
tant issue completely separate from the merits of [an] action, and [are]
effectively unreviewable on appeal from a final judgment." Grundy
Nat’l Bank v. Looney (In re Looney), 823 F.2d 788, 791 (4th Cir.
1987) (quoting Coopers & Lybrand v. Livesay, 437 U.S. 463, 468
(1978)) (internal quotation marks omitted). Given the provisional
nature of the bankruptcy court’s fee and expense awards and the
bankruptcy court’s complete freedom to alter the awards at any time
up until the bankruptcy case closes, the August 9, 2002 order has not
"conclusively determined" anything. In addition, both Gold and
GM&L remain free at the conclusion of CLC’s Chapter 7 proceeding
to appeal their final awards to the district court.

                                   IV

    For the reasons given, we conclude that the bankruptcy court’s
August 9, 2002 order was not a final order under 28 U.S.C. § 158(a)
and that therefore the district court did not have jurisdiction to review
it. We also conclude, for the same reason, that the district court’s Jan-
uary 31, 2003 order was not a final order in this bankruptcy case and
that therefore we lack subject matter jurisdiction to review it now on
appeal. See 28 U.S.C. § 158(d). Accordingly, we dismiss this appeal
and remand the case to the district court with instructions to vacate
its January 31, 2003 order for lack of jurisdiction.

                                         DISMISSED AND REMANDED
                                                WITH INSTRUCTIONS