Casco Northern Bank v. DN Associates

• Court: Court of Appeals for the First Circuit
• Decided: September 1, 1993
• Docket: 93-1307
• Status: Published

Opinion

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

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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.

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                                          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

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                                          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

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                                          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)).

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                                          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

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                                          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).
          _______________________________

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                                          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,

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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.

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                                          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  --

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                                          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

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                                          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
                         ______

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