In Re: Top Grade Sausage, Inc., Debtor (99-5383)

227 F.3d 123, 2000 U.S. App. LEXIS 22907, 36 Bankr. Ct. Dec. (CRR) 194, 2000 WL 1281484
CourtCourt of Appeals for the Third Circuit
DecidedSeptember 12, 2000
Docket99-5383, 99-5402
StatusPublished
Cited by57 cases

This text of 227 F.3d 123 (In Re: Top Grade Sausage, Inc., Debtor (99-5383)) is published on Counsel Stack Legal Research, covering Court of Appeals for the Third Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
In Re: Top Grade Sausage, Inc., Debtor (99-5383), 227 F.3d 123, 2000 U.S. App. LEXIS 22907, 36 Bankr. Ct. Dec. (CRR) 194, 2000 WL 1281484 (3d Cir. 2000).

Opinion

OPINION OF THE COURT

ROTH, Circuit Judge.

Prior to the passage of the Bankruptcy Reform Act of 1994, the Bankruptcy Code expressly, authorized the Bankruptcy Court to award fees and expenses from the debtor’s estate to the debtor’s attorneys. The. Reform Act omitted debtors’ attorneys from the list' of officers eligible to receive such an award. See 11 U.S.C. § 330 (1994). We are now confronted with the inevitable question of whether a debt- or’s attorney remains eligible for compensation from the estate. We conclude that debtors’ attorneys are still 2 eligible to receive compensation for fees and expenses reasonably likely to benefit the estate. Under the specific facts of this case, however, we conclude that the debtor’s attorneys’ services were not reasonably likely to benefit the estate. We will, therefore, affirm the denial of debtor’s attorneys’ fees in toto for services rendered during the Chapter 11 proceedings.

Jurisdiction was proper in the District Court pursuant to 28 U.S.C. §§ 158(a)(1) and 1331. Jurisdiction is proper in this Court pursuant to 28 U.S.C. §§ 158(d) and 1291. “Because the District Court sat as an appellate court, reviewing an order of the Bankruptcy Court, our review of the District Court’s determinations is plenary.” In re Rashid, 210 F.3d 201, 205 (3d Cir.2000). “In reviewing the bankruptcy court’s determinations, we exercise the same standard of review as the district court.” Fellheimer, Eichen & Braverman, P.C. v. Charter Technologies, Inc., 57 F.3d 1215, 1223 (3d Cir.1995). Therefore, we review the Bankruptcy Court’s legal determinations de novo, its factual findings for clear error, and its exercise of discretion for abuse thereof. In re Engel, 124 F.3d 567, 571 (3d Cir.1997).

I. FACTS

The Lipari family owned and managed two successful New Jersey businesses. Top Grade Sausage, Inc., manufactured and distributed sausage. Forist Distributors, Inc., delivered lamb and veal to retailers. When the family was confronted with considerable debt from the criminal defense of the family patriarch, Joseph Lipari, Top Grade and Forist (collectively *126 “Debtors”)' filed separate voluntary petitions for Chapter 11 bankruptcy protection. Because of the commonality of parties and issues, the Bankruptcy Court administered the two cases together.

Walder Sondak & Brogan, P.A., the law firm that represented the father during his criminal trial and a judgment creditor of both Debtors, filed a motion to appoint a Chapter 11 trustee for both Debtors. The Bankruptcy Court granted the motion, appointed a single Trustee for the Debtors, and approved the Trustee’s choice of counsel. After appointment of the Trustee and Trustee’s counsel, the Debtors filed an Application for retention of Hellring, Lindeman, Goldstein & Siegal as Debtors’ counsel. According to the Application, Hellring Lindeman was to (1) advise the Debtors of their duties, (2) negotiate and effectuate an arrangement with the creditors, (3) prepare any necessary applications or other legal papers, (4) appear before the Bankruptcy Court and protect the interests of the Debtors, and (5) perform all other legal services for the Debtors. The Bankruptcy Court granted the Debtors’ motion on November 18, 1996.

The attempted reorganization of the two companies was unsuccessful and marred by acrimony and rancor. The Trustee assumed control of the companies’ operations. Hellring Lindeman was required to address the many conflicts that arose between the Lipari family and the Trustee in the course of the daily operation of the businesses. Hellring Lindeman also filed a reorganization plan and disclosure statement. .

As efforts'to reach a reorganization plan proved to be unsuccessful, Walder Sondak filed a motion to convert Forist’s Chapter 11 reorganization into a Chapter 7 liquidation. On June 30, 1997, the Bankruptcy Court permitted the conversion. Top Grade continued to operate and the parties continued to try to negotiate a reorganization plan. When these efforts failed, the Trustee closed Top Grade. On August 21, 1997, the Bankruptcy Court converted Top Grade’s Chapter 11 reorganization into a Chapter 7 liquidation.

Following conversion of the Debtors’ petitions, the Bankruptcy Court fixed a deadline for the filing of Chapter 11 administrative claims. Hellring Lindeman filed Chapter 11 fee applications aggregating $ 80,959.75 in fees and $1,403.98 in expenses. The Trustee, the United States Trustee, and Walder Sondak filed objections to Hellring Lindeman’s fee application. Each set of objections was limited to the compensability of specific entries.

The Bankruptcy Court conducted a single hearing to consider all the fee applications. During its colloquy with counsel, the Bankruptcy Court raised sua sponte the question of whether Hellring Linde-man’s Application should be denied in toto. Specifically, the Bankruptcy Court was concerned that Hellring Lindeman’s representation of debtors-out-of-possession was of no value to the estate. During the hearing, Hellring Lindeman did not ask the Court for additional time to address its concerns, nor did it request a second hearing in the thirty-seven days between the hearing and issuance of an opinion.

On December 3, 1998, the Bankruptcy Court issued its ruling from the bench. A representative from Hellring Lindeman was not present. The Bankruptcy Court disallowed payment of any fees or expenses by the estate to Hellring Lindeman for services rendered to the debtors during the attempted reorganizations. The Bankruptcy Court did permit some compensation for services rendered after the debtors’ petitions were converted to Chapter 7. The Bankruptcy Court reasoned that for a debtor’s attorneys to receive compensation from the estate, they must show that their services provided a benefit for the estate. The Bankruptcy Court found that Hellring Lindeman’s services were either duplicative of services rendered by the Trustee or rendered solely for the benefit of the debtor and not of the estate.

*127 Hellring Lindeman timely appealed to the District Court. Hellring Lindeman claimed that the Bankruptcy Court’s decision to deny compensation in its entirely did not comport with due process because Hellring Lindeman was not notified of the Bankruptcy Court’s position prior to the hearing.

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Bluebook (online)
227 F.3d 123, 2000 U.S. App. LEXIS 22907, 36 Bankr. Ct. Dec. (CRR) 194, 2000 WL 1281484, Counsel Stack Legal Research, https://law.counselstack.com/opinion/in-re-top-grade-sausage-inc-debtor-99-5383-ca3-2000.