In Re: First Merchants Acceptance Corporation, Debtor v. J. C. Bradford & Co.

198 F.3d 394, 1999 WL 1140769
CourtCourt of Appeals for the First Circuit
DecidedJanuary 20, 2000
Docket98-5377
StatusPublished
Cited by41 cases

This text of 198 F.3d 394 (In Re: First Merchants Acceptance Corporation, Debtor v. J. C. Bradford & Co.) is published on Counsel Stack Legal Research, covering Court of Appeals for the First Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
In Re: First Merchants Acceptance Corporation, Debtor v. J. C. Bradford & Co., 198 F.3d 394, 1999 WL 1140769 (1st Cir. 2000).

Opinion

OPINION OF THE COURT

SLOVITER, Circuit Judge.

This appeal raises a statutory interpretation question of first impression in this court and, as far as can be ascertained, in any of the courts of appeals. At issue is whether the 1994 amendment to § 503 of the Bankruptcy Code which added the authorization for reimbursement of expenses to a member of a creditors committee thereby also authorized reimbursement of attorney’s fees incurred by such a member. The District Court 1 ruled that the *396 Code prohibits any reimbursement of professional fees incurred by committee members. The creditor appeals.

I.

First Merchants Acceptance Corp. (“FMAC” or “the Debtor”), a company that purchases used-car loans from auto dealers, filed a petition for reorganization under Chapter 11 of the Bankruptcy Code on July 11, 1997. Appellant J.C. Bradford & Co. (“Bradford”), which holds a number of FMAC promissory notes, is a general unsecured creditor of FMAC. Bradford states that the assets and liabilities of FMAC were each over $100 million and that there were between 200 and 299 creditors.

Shortly after the petition was filed the United States Trustee formed an eight-member committee of unsecured creditors (“the committee”). Bradford, being a holder of one of the largest claims against the Debtor, was appointed to the committee and served as its chairman.

Pursuant to § 1103(a) of the Bankruptcy Code, which permits the committee to employ attorneys and other professionals with the approval of court, the committee filed two successive applications with the District Court to retain the services of two firms as legal counsel. The District Court in successive orders granted the applications to employ the law firm of Pepper, Hamilton & Scheetz LLP (now Pepper Hamilton LLP) and Faegre & Bensen LLP as counsel.

Bradford retained the law firm of Bass, Berry & Sims, PLC (“Bass”), as its own counsel in the course of the bankruptcy. Bass had apparently represented Bradford with respect to the notes before the bankruptcy. According to Bradford, Bass was retained by Bradford to assist it both in its capacity as a creditor and as a member and chair of the committee. Bradford also contends that some services Bass performed were with the knowledge of, and at the request of, the committee’s counsel and members of the committee.

The District Court approved a Chapter 11 plan for FMAC on March 16, 1998. Shortly thereafter, Bradford applied for reimbursement, as an administrative expense, of some of the attorney’s fees it paid to Bass that it incurred as a member and the chairman of the committee. Applications for reimbursement for legal services and financial services were also filed by the Debtor and by the committee as a whole. The District Court approved the applications filed by the Debtor and the committee, but denied Bradford’s application. In so doing, the court reasoned that the relevant statutory provisions, 11 U.S.C. § 503(b)(3) and (4), were ambiguous with .respect to whether an individual committee member may obtain reimbursement for professional fees and that the legislative history and the policies of the Bankruptcy Code suggest that Congress intended to prohibit recovery of such fees as administrative expenses. See In Re First Merchants Acceptance Corp., No. 97-1500, slip op. at 5-8 (Bankr.D. Del. June 26, 1998) (herein slip op.). Bradford timely appealed this decision.

II.

Bradford’s position is based squarely on the language of the statute. It contends that § 503(b) of the Code, as amended in 1994, expressly permits a member of a creditors committee to recover reasonable compensation for professional services incurred in its capacity as a member of that committee. It argues that because the meaning of the statute is clear on its face, our inquiry should be limited to the text of the provision, without recourse to other evidence of congressional intent.

The Debtor, following the District Court’s reasoning, urges that the 1994 amendment to §-503(b) created an ambiguity in the statute because § 503(b)(4) authorizes fees for reimbursable professional services rendered by the attorney of an “entity,” but a “member of a commit *397 tee” is not included within the definition of an “entity” in § 101(15) of the Code. The Debtor then argues that as a result of this ambiguity we can resort to the statute’s purpose and its legislative history to ascertain whether a member of a committee is included within an “entity.” The Trustee, who also urges affirmance, places her principal emphasis on the argument that Bradford’s reading of the statute is demonstrably at odds with the purpose of the Bankruptcy Code as a whole and the legislative history of § 503(b)(3)(F). She argues that the better reading of § 503(b) would not allow recovery of attorney’s fees by a member of a committee.

A.

THE TEXT OF THE STATUTE

We turn first to the text of § 503(b)(3)(F) and § 503(b)(4) because their interaction is central to this appeal. Section 503(b)(3) lists those entities who are entitled to recover as administrative expenses their “actual, necessary expenses” (other than the professional fees specified in subsection (b)(4)). That section reads:

(b) After notice and a hearing, there shall be all owed, administrative expenses ... of this title, including—
(3) the actual, necessary expenses, other than compensation and reimbursement specified in paragraph (4) of this subsection, incurred by—
(A) a creditor that files a petition under section 303 of this title;
(B) a creditor that recovers, after the court’s approval, for the benefit of the estate any property transferred or concealed by the debtor;
(C) a creditor in connection with the prosecution of a criminal offense relating to the case or to the business or property of the debtor;
(D) a creditor, an indenture trustee, an equity security holder, or a committee representing creditors or equity security holders other than a committee appointed under section 1102 of this title, in making a substantial contribution in a case under chapter 9 or 11 of this title;
(E) a custodian superseded under section 543 o f this title, and compensation for the services of such custodian; or
(F) a member of a committee appointed under section 1102 of this title, if such expenses are incurred in the performance of the duties of such committee[.]

11 U.S.C. § 503. It was Subsection (F), the last of the six subsections, that was added to § 503 by the Bankruptcy Reform Act of 1994, Pub.L. No. 103-394, § 110, 108 Stat. 4106, 4113. It is that section that authorizes members of creditors committees (who are among those who are “appointed under section 1102”) to recover their “actual” and “necessary expenses.” No party to this appeal questions that.

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Cite This Page — Counsel Stack

Bluebook (online)
198 F.3d 394, 1999 WL 1140769, Counsel Stack Legal Research, https://law.counselstack.com/opinion/in-re-first-merchants-acceptance-corporation-debtor-v-j-c-bradford-ca1-2000.