Court Opinion

ID: 2962112
Source: CourtListenerOpinion
Date Created: 2015-09-21 20:52:52.260339+00
Date Added: 2024-06-11T15:02:02.700631
License: Public Domain

USCA1 Opinion

	

                            UNITED STATES COURT OF APPEALS                                FOR THE FIRST CIRCUIT                                 ____________________        No. 93-1307                                        IN RE:                       DN ASSOCIATES, D/B/A ATLANTIC MOTOR INN                                      __________                              CASCO NORTHERN BANK, N.A.,                                      Appellant,                                          v.                   DN ASSOCIATES, D/B/A ATLANTIC MOTOR INN, ET AL.,                                      Appellees.                                 ____________________                     APPEAL FROM THE UNITED STATES DISTRICT COURT                              FOR THE DISTRICT OF MAINE                     [Hon. Morton A. Brody, U.S. District Judge]                                            ___________________                                 ____________________                                        Before                           Selya and Stahl, Circuit Judges,                                            ______________                             and Fuste,* District Judge.                                         ______________                                 ____________________            Robert J. Keach with whom Foley, Hoag  & Eliot, Roger A.  Clement,            _______________           ____________________  __________________        Jr., and Verrill & Dana were on brief for appellant.        ___      ______________            Peter J. DeTroy with  whom James D. Poliquin and Norman, Hanson  &            _______________            _________________     _________________        DeTroy were on brief for appellee DN Associates.        ______            Stephen G. Morrell and Eaton, Peabody,  Bradford & Veague, P.A. on            __________________     ________________________________________        brief for appellees The Pilot Group and Joseph V. O'Donnell.                                 ____________________                                  September 1, 1993                                 ____________________        ____________________        *Of the District of Puerto Rico, sitting by designation.                    FUSTE, District Judge.  Casco Northern Bank ("Casco" or                    FUSTE, District Judge.                           ______________          "creditor") appeals an order by  the United States District Court          for the District of Maine affirming the bankruptcy  court's award          of   attorney's  fees   and   expenses  to   counsel  and   other          professionals  of  debtor  DN  Associates  ("DN  Associates"   or          "debtor").  After thoroughly  reviewing the record on appeal,  we          affirm the district court's order allowing the fees and expenses.          affirm                                          I.                                          I.                                      Background                                      Background                                      __________                    We  briefly  outline   the  dispositive   facts.     DN          Associates,  a limited partnership  organized in Maine, purchased          the Atlantic Motor Inn immediately before the severe real-estate-          value plunge in  New England,  and ended up  filing a Chapter  11          bankruptcy petition on April 19, 1991.  DN Associates' attempt at          Chapter  11   reorganization  came   on  the  heels   of  Casco's          commencement  of an  action in  state court  to foreclose  on its          mortgage of  the  Atlantic Motor  Inn  property.   DN  Associates          wanted to  reorganize itself and  avoid losing the  investment of          its limited partners by turning its investment into a  profitable          venture under the protection of  the bankruptcy laws.  Throughout          the ensuing bankruptcy proceedings, DN Associates was represented          by James D. Poliquin, of the law firm of Norman,  Hanson & DeTroy          ("debtor's counsel" or "DN's counsel").                      On  August  19,  1991,  DN  Associates,  as  debtor  in          possession, filed its first proposed reorganization  plan; Casco,          a  secured creditor and lender of last resort, objected and moved                                         -2-                                          2          for an appointment of  a trustee or,  in the alternative, to  end          debtor's period of exclusivity for proposing a resolution.  Casco          indicated  it would present a plan that provided for 100% payment          to unsecured creditors.   On September  13, 1991, the  bankruptcy          court terminated  DN Associates' exclusivity  under the rationale          that the  plans offered by  DN Associates and  by Casco  would be          best considered  simultaneously.   DN Associates filed  its first          amended plan on  October 5,  1991, and Casco  filed its  proposed          financial  plan on November 25,  1991.  Both  plans provided 100%          payment to unsecured creditors, but DN Associates' proposal would          have retained  the interests  of the  limited partners  through a          recapitalization proposal.  Casco's plan differed in that  it did          not  retain the  interests of  the limited  partners and  did not          attempt to salvage DN  Associates' business operation.  Following          Casco's filing, DN Associates  proceeded to offer three different          amended plans as alternatives to Casco's proposed financial plan.                    On April  17, 1992,  the bankruptcy court  confirmed an          amended version of the plan  proposed by Casco, thereby rejecting          DN  Associates'  various   reorganization  alternatives.     Soon          thereafter,  DN's  counsel filed  an  additional fee  application          seeking approval  of $62,898.65 in  fees of  attorneys and  other          professionals incurred  between September  3, 1991 and  April 17,          1992.1  In  the bankruptcy court, Casco objected  to both the fee          award  and  the  subsequent application  and  sought  not  only a                                        ____________________               1Debtor's counsel  had already been  compensated for $35,000          in fees and expenses incurred before September 3, 1991.                                         -3-                                          3          disallowance of the final  fee award, but  also a return of  fees          previously awarded.  The  rationale behind Casco's opposition was          its  understanding  that  the  debtor's continued  opposition  to          Casco's  perfectly-reasonable plan and  the repeated proposing of          alternative plans by debtor's counsel to save the interest of the          limited  partners was adverse to the  estate.  On the other hand,          debtor's counsel insisted that his efforts were beneficial to the          estate  and expected  to be  compensated for  his efforts  by the          bankruptcy  court.    The  record indicates  that  at  least  one          partially-secured creditor, GIAC, represented by Attorney Fred W.          Bopp, agreed  in the bankruptcy proceedings  that the persistence          of  DN's  counsel  in   offering  alternatives  to  Casco's  plan          positively affected the final resolution of the dispute.                    On  August  20,  1992, the  bankruptcy  court overruled          Casco's objections and awarded  the requested amount of fees  and          expenses  to DN's counsel and  to the other  professionals.  Five          days later, Casco appealed the bankruptcy court's decision to the          district  court, arguing that  DN's counsel represented interests          adverse to the estate,  and that such rendered services  were not          necessary  and did not benefit the estate as required by statute.          On March  10, 1993, the  district court  affirmed the  bankruptcy          court,  finding  that the  bankruptcy  judge had  not  abused his          discretion or erred in applying the law.                      Casco  now appeals  the district  court's order  on the          following  four issues:   First, whether as  a matter  of law the          district  court erred in its  choice of the  relevant standard of                                         -4-                                          4          review;  second,  whether as  a matter  of  law the  lower courts          applied the  wrong standard in ascertaining  whether DN's counsel          and  other professionals  performed "actual,  necessary services"          resulting in benefit to  the bankruptcy estate under 11  U.S.C.            330(a); third, whether as a matter  of law the lower courts erred          by  applying  the  incorrect  standard for  determining  if  DN's          counsel represented an interest adverse to the estate with regard          to the prohibitions detailed  at 11 U.S.C.   328(c);  and fourth,          in  the  alternative,  whether  the  district  court  abused  its          discretion   in   determining  that   DN's   counsel   and  other          professionals performed "actual, necessary services" resulting in          benefit to the estate as required by 11 U.S.C.   330(a).                                         II.                                         II.                         Relevant Bankruptcy Code Provisions                         Relevant Bankruptcy Code Provisions                         ___________________________________                    Section 323  (a) of the  Bankruptcy Code states  that a          trustee  is the  fiduciary  of a  bankrupt  estate, 11  U.S.C.             323(a),  and  11  U.S.C.    1107(a)  provides  that  a debtor  in          possession  has   similar  rights   and  powers  as   a  trustee.          Bankruptcy  courts  are  given  the  discretionary  authority  to          compensate professionals  employed under  11 U.S.C.    327  by an          estate  trustee or  debtor in  possession for  "actual, necessary          services"  from   estate  assets   and  to   similarly  reimburse          professionals  for "actual,  necessary  expenses."   11 U.S.C.             330(a)(1) - (2); see  also 11 U.S.C.   331  (interim compensation                           ___  ____          by application of professional).   By the same  token, bankruptcy          courts  must limit or deny such remuneration if the professionals                                         -5-                                          5          at  issue  are found  not to  be  "disinterested" persons2  or if          their work does not "benefit" the estate or creditors.  11 U.S.C.             328(c).  However,  courts may grant attorney's  fees even if a          conflict of interest is demonstrated, as long as such an award is          sensible  in  light of  the circumstances.    See In  re Kendavis                                                        ___ _______________          Industries Int'l, Inc., 91 B.R. 742, 761 (Bankr.N.D.Tex. 1988).          ______________________                                         III.                                         III.                                  Standard of Review                                  Standard of Review                                  __________________                    In  appeals of  bankruptcy court  holdings, "we  review          legal determinations de  novo and factual  findings on a  clearly                               __  ____          erroneous standard."  In re Gonic Realty Trust, 909 F.2d 624, 626                                ________________________          (1st Cir. 1990); see also In re G.S.F. Corp., 938 F.2d 1467, 1474                           ________ __________________          (1st Cir. 1991)  ("the court of appeals independently reviews the          bankruptcy  court's  decision,  applying  the  clearly  erroneous          standard to findings of fact and de novo review to conclusions of                                           __ ____          law .  . .  . ");  In re Spillane,  884 F.2d  642, 646  (1st Cir.                             ______________          1989); Boston and Maine Corp.  v. Moore, 776 F.2d 2, 6  (1st Cir.                 ________________________________          1985).                      When   we   scrutinize   factual   determinations   and          discretionary judgments made  by a bankruptcy judge,  such as may          be involved in calculating and fashioning appropriate fee awards,          we give considerable deference to the bankruptcy court:                                        ____________________               2This   category   of    professionals   encompasses    both          "disinterested" persons  as well  as persons lacking  an "adverse          interest."  See In re Hub Business Forms, Inc., 146 B.R. 315, 318                      ___ ______________________________          (Bankr.D.Mass. 1992)  (quoting In  re Martin, 817  F.2d 175,  180                                         _____________          (1st Cir. 1987)).                                         -6-                                          6                       Historically, bankruptcy  courts have been                    accorded wide discretion  in connection  with                    fact-intensive matters, and in regard  to the                    terms  and  conditions of  the  engagement of                    professionals .  . . .   The bankruptcy judge                    is on the front line, in the best position to                    gauge the ongoing interplay of factors and to                    make the delicate judgment calls which such a                    decision entails.          In re Martin, 817 F.2d 175,  182 (1st Cir. 1987); see also Boston          ____________                                      ________ ______          and Maine Corp.  v. Moore, 776 F.2d 2,  6 (1st Cir. 1985).   This          _________________________          observation is a  reiteration of  what Judge Brody  noted in  his          affirmance of the instant  bankruptcy court decision that "[such]          courts are traditionally granted broad  discretion in determining          reasonable  fee  awards."    Casco  Northern  Bank,  N.A.  v.  DN                                       ____________________________________          Associates,  No. 92-0219-B, slip op.  at 3 (D.Me.  Mar. 10, 1993)          __________          (citing In re Casco  Bay Lines, Inc., 25 B.R. 747, 753 (Bankr.1st                  ____________________________          Cir. 1982)).  Keeping the relevant standards in mind, we now move          on to a review of the issues raised in the instant appeal.                                         IV.                                         IV.                                      Discussion                                      Discussion                                      __________                    We  summarize and  dispose  of appellant's  substantive          arguments.  We  do not  reach the question  of Casco's  appellate          standing raised  sua sponte  by  this court.   After  all, it  is                           ___ ______          settled  that  an  appellate  court, confronted  by  a  difficult          jurisdictional  or quasi-jurisdictional  question, may  forgo its          resolution   if  the  merits   of  the   appeal  are,   as  here,          straightforward and  easily resolved  in favor  of  the party  or          parties  to whose  benefit  the objection  to jurisdiction  would                                         -7-                                          7          redound.   See  Norton  v. Mathews,  427  U.S. 524,  532  (1976);                     ___  __________________          Secretary of the Navy v. Avrech, 418 U.S. 676, 677-78 (1974).          _______________________________                                         -8-                                          8          A.  General Standard of Review          A.  General Standard of Review              __________________________                    At the  outset, appellant contends as  a general matter          that the district court applied incorrect standards of  review in          analyzing the instant  bankruptcy court decision.   We find  this          argument  to  be  without merit.    A  district  court reviews  a          bankruptcy court's judgment in the same manner in which we review          lower court  proceedings.  "Findings of  fact . . .  shall not be          set  aside unless clearly  erroneous .  . . .  "  Fed.  R. Bankr.          8013; see North Atl. Fishing, Inc. v. Geremia, 153 B.R. 607, ___,                ___ ___________________________________          1993   U.S.  Dist.   LEXIS  5984,  *7   (D.R.I.  May   4,  1993).          Applications of law are  reviewed de novo and are set  aside only                                            __ ____          when   they  are  made  in  error  or  constitute  an  "abuse  of          discretion."  In re Gonic Realty Trust, 909 F.2d 624, 626-27 (1st                        ________________________          Cir. 1990);  In re Carter, 100 B.R. 123, 125 (D.Me. 1989).  These                       ____________          standards were correctly applied by the district court.          B.  Legal Standard Applied to the Award of Fees          B.  Legal Standard Applied to the Award of Fees              ___________________________________________                    Appellant-creditor  Casco  also  objects  to  the legal          standard  employed  by  the   district  court  in  reviewing  the          bankruptcy court's determination that debtor's counsel and  other          professionals were disinterested persons under 11 U.S.C.   328(c)          and performed "actual, necessary services" resulting in a benefit          to the estate pursuant to 11 U.S.C.   330(a).   Casco also argues          that the  bankruptcy  court erred  in its  finding that  debtor's          counsel's work actually benefitted the estate.                    The thrust of Casco's argument is that the perseverance          of  DN's  counsel  in  submitting  revised  reorganization plans,                                         -9-                                          9          following  the proposal  of Casco's plan,  created no  benefit to          creditors   and   demonstrated   that  DN's   counsel   was   not          disinterested, since it  sought to preserve investors'  interests          at  the expense of the estate.   The district court held that the          bankruptcy court's August 20, 1992 decision adequately  explained          the reasoning for full payment of fees to DN's  counsel and other          professionals.    We  agree  with  both the  bankruptcy  and  the          district  court's assessment on this issue.  DN's counsel's plans          provided 100%  payment to  unsecured creditors just  like Casco's          proposal; thus, the fact  that DN's counsel's proposals attempted          to maintain the  viability of investments made  by DN Associates'          limited  partners and also the integrity  of the overall business          operation does  not signify  that DN's  counsel failed to  remain          disinterested or held  an adverse  interest to the  estate.   The          bankruptcy  court concluded  in its  factual findings  that "DN's          course was consistent  with its  fiduciary duties to  all of  the          estate's  constituencies."   In re  DN Associates,  No. 91-20417,                                       ____________________          slip op.  at 10 (Bankr.D.Me. Aug.  20, 1992).  We  agree with the          bankruptcy court that                     [i]t would be unfortunate if  courts, looking                    only at plan provisions removed from context,                    concluded as a matter  of law that a conflict                    of interest existed whenever a debtor and its                    counsel,  in the face of creditor opposition,                    pursued a reorganization strategy that, while                    providing   for   creditors   in  a   fashion                    consistent with Chapter 11 priorities, sought                    to  adjust   the  rights  and   relations  of                    parties-in-interest so that the  interests of                    equity interest holders could be preserved.                                         -10-                                          10          Id.   at  12-13  (cited  in  Casco  Northern  Bank,  N.A.  v.  DN          ___                          ____________________________________          Associates,  No. 92-0219-B, slip op. at 6 (D.Me. Mar. 10, 1993)).          __________          In addition, regarding  determinations of  a "materially  adverse          interest" pursuant to  11 U.S.C.    327(a), we  have rejected  an          "inflexible", "per se" standard.  See In re Martin, 817 F.2d 175,                                            ___ ____________          183  (1st Cir.  1987).   The  bankruptcy  court was  in the  best          position  to  observe  and  analyze DN's  counsel's  actions  and          proposals, and that court found that "DN's plan sought to achieve          none  of  [its]  results by  denying  creditors  their  due.   DN          proposed that  unsecured creditors be paid in  full shortly after          confirmation; that  Casco retain its  collateral and be  paid its          secured claim; and that administrative claims be fully paid."  In                                                                         __          re  DN Associates, No. 91-20417, slip op. at 10 (Bankr.D.Me. Aug.          _________________          20,  1992).  We find nothing in  the record that would lead us to          conclude that the bankruptcy court erred or abused its discretion          in  arriving at its legal determination that DN's counsel was not          acting  adversely to the estate.   As a matter of law, therefore,          we affirm what both  the bankruptcy court and the  district court          decided, that DN's counsel was a disinterested person and held no          adverse interest to the estate.                    Both  before  the  district  court  and  the  court  of          appeals,  Casco has  argued that  the bankruptcy  court  erred in          finding that DN's counsel's actions, following Casco's submission          of a viable plan, constituted a  benefit to the estate.  We, like          the  district  court,  have  interpreted  the bankruptcy  court's          lengthy  discussion of  interest  and disinterest  to address  --                                         -11-                                          11          implicitly  if  not  explicitly  --  the  benefit  issue.     The          bankruptcy  court  enumerated  several  arguably  intangible, but          nevertheless  real, benefits  to the  estate from  DN's counsel's          proposals:    The  plans  attempted  to  protect  all  interested          parties, including creditors and debtor's investors, see In re DN                                                               ___ ________          Associates, No. 91-20417, slip op. at 10-13 (Bankr.D.Me. Aug. 20,          __________          1992);  DN's counsel's  "persistent" actions  "spurred"  Casco to          develop its own plan -- the reorganization eventually approved by          the bankruptcy court, see  id. at 20; and the  resulting zealous,                                ___  ___          but reasonable, competition between  plans and their drafters was          constructive.   See id.   Moreover, as already  advanced, counsel                          ___ ___          for one of the  partially-secured creditors, GIAC, testified that          the  efforts of  DN's  counsel prompted  a  benefit in  that  the          pressure  of DN  Associates' proposals  created an  atmosphere of          constructive  competition  up  until  the  "eleventh  hour"  that          improved Casco's final  amended plan.     The bankruptcy  court's          determinations regarding benefit were highly  fact-intensive, and          there  is no  evidence in the  record that such  findings of fact          were clearly erroneous.   We cannot  disturb both the  bankruptcy          and  district courts' decisions finding  as a matter  of fact and          law  that the work performed by DN's counsel between September 3,          1991 and April 17, 1992 provided a benefit to the estate.                                          V.                                          V.                                     Conclusion                                       Conclusion                                     __________                    The relevant findings of fact with  respect to both the          issue  of  adverse interest  and benefit  to  the estate  are not                                         -12-                                          12          clearly erroneous.   The application of law to  the facts is well          within the range of discretion  that we afford bankruptcy courts.          We, therefore, affirm the decision of the court below.                          affirm                         ______                                         -13-                                          13