Lowe v. Sheinfeld, Maley

• Court: Court of Appeals for the Fifth Circuit
• Decided: August 30, 1996
• Docket: 96-50022
• Status: Unpublished

Opinion

UNITED STATES COURT OF APPEALS FIFTH CIRCUIT

____________

No. 96-50022 ____________

In re: DOUGLAS L. SAUNDERS, SR., Debtor.

JOHN PATRICK LOWE, Trustee,

Appellant,

versus

SHEINFELD, MALEY & KAY, P.C.,

Appellee.

__________________________________________________

Appeal from the United States District Court for the Western District of Texas (SA-93-CA-462) __________________________________________________

August 27, 1996

Before DAVIS, JONES, and EMILIO M. GARZA, Circuit Judges.

PER CURIAM:*

In this Chapter 7 bankruptcy case, Plaintiff John Patrick

Lowe, Trustee, filed an adversary proceeding seeking “Turnover of

Money, Avoidance of Lien and Avoidance of Pre-Petition Payments”

received by Defendant Sheinfeld, Maley & Kay, P.C. (“SMK”), counsel

for the debtor, Douglas L. Saunders, Sr. The lien at issue was

* Pursuant to Local Rule 47.5, the Court has determined that this opinion should not be published and is not precedent except under the limited circumstances set forth in Local Rule 47.5.4. Saunder’s interest in a partnership, Holiday Properties Management

(“HPM”), which he assigned to SMK to secure payment for SMK’s legal

services.1 In his complaint, Lowe sought to avoid the lien on the

grounds that it was unperfected and was thus an unsecured credit

interest.2 The bankruptcy court found: (1) that HPM was a

partnership; and (2) that the lien in question concerned an

interest in the partnership. However, the bankruptcy court

concluded that “SMK had a security interest in money,” and

therefore ruled that SMK’s lien was perfected.3 In re Saunders,

155 B.R. 405, 413 (Bankr. W.D. Tex. 1993). The bankruptcy court

dismissed Lowe’s complaint, and the district affirmed the ruling of

the bankruptcy court.

We review the legal conclusions of the bankruptcy court de

novo. In re Allison, 960 F.2d 481, 483 (5th Cir. 1992). We review

the findings of fact of the bankruptcy court for clear error. Id.

After careful review of the record and relevant case law, we hold

that the bankruptcy court did not err in finding that HPM was a

1 HPM’s sole asset was a piece of real property which the partnership leased to Holiday Inns of America, who built and operated a hotel on the property. 2 Prior to trial, the bankruptcy court entered an order regarding SMK’s application for approval of attorney’s fees. Lowe moved to alter or amend this order. Both the complaint in this adversary proceeding and Lowe’s motion were heard together.

3 The bankruptcy court based this ruling on Saunder’s letter, dated June 4, 1990, informing HPM that SMK had a security interest in the distribution of rents generated by the partnership.

-2- partnership, and that the lien in question secured an interest in

that partnership. However, we hold that the bankruptcy court did

err in concluding that the lien in question had been perfected.

Under Texas law, an interest in a partnership is properly

classified as a general intangible interest, not an interest in

money. In re Hartman, 102 B.R. 90, 94 (Bankr. N.D. Tex. 1989)

(interpreting Tex. Bus. & Comm. Code § 9.106). In order to

perfect a general intangible interest, a party must file a UCC-1

financing statement. Tex. Bus. & Comm. Code § 9.302. As the

bankruptcy court found, no such financing statement was filed in

this case. Therefore, the lien in question had not been perfected.

SMK argues, however, that the June 4, 1990 letter informed the

partnership of SMK’s interest in the “money” that would be received

as rentals attributable to Saunders’ interests in the hotel. The

partnership thereby allegedly became a bailee on notice of the

security interest, perfecting that interest upon possession as

specified by Tex. Bus. & Comm. Code § 9.305. This argument

critically fails to distinguish “money” as collateral from the

right to receive money in the future. Under the UCC, property

cannot be classified simultaneously as two different kinds of

collateral. Tex. Bus. & Comm. Code § 9.106 Comment. Further, “a

contractual right to obtain money at some future time is not the

same thing as money itself.” In re Vienna Park Properties, 976

-3- F.2d 106, 116 (2d Cir. 1992). As the Seventh Circuit explained,

“under the U.C.C., ‘money’ does not mean the right to receive money

but is limited to currency.” Christison v. U.S., 960 F.2d 613, 616

(7th Cir. 1992). SMK’s security interest was in a stream of future

revenue to be generated by the partnership, a stream which

constituted a general intangible interest that could only be

perfected by the filing of a UCC-1 financing statement.

Because SMK’s interest in the partnership income stream

was unperfected, at least some of the HPM rentals the law firm

received prepetition were preferences. On remand, the bankruptcy

court must re-assess the trustee’s preference claims.

The trustee also challenges the courts’ decision to award

SMK prepetition legal fees as a priority administrative expense

pursuant to 11 U.S.C. §§ 503(b) and 507(a). This decision was in

error to the extent that SMK’s prepetition services were not

directly related to Saunders’ personal bankruptcy case. See, e.g.,

In re Hemingway Transport, Inc., 954 F.2d 1 (1st Cir. 1992); In re

Kahler, 84 B.R. 721, 723 (Bankr. D. Colo. 1988). Section 330(a)

permits allowance of “actual, necessary services” performed for the

administration of the bankruptcy case. The services rendered by

SMK to Saunders in connection with the Boerne Stage Road and Elm

Creek bankruptcy cases, although perhaps helpful to debtor pre-

petition, were not “actual, necessary services” rendered to advance

Saunder’s personal bankruptcy. Put otherwise, there is no

-4- authority for treating services reviewable by the bankruptcy court

under § 329(b) as priority administrative expenses pursuant to §

503(b). On the contrary, § 503(b) affords priority status only to

fees awarded pursuant to § 330(a). On remand, the bankruptcy court

must reconsider what prepetition services performed by SMK properly

fit within the narrow standards of § 330(a).

For the foregoing reasons, the decision of the district court,

affirming the decision of the bankruptcy court, is REVERSED. In

addition, because the bankruptcy court based its findings on pre-

and post-petition disbursements to SMK on the fact that it found

that SMK’s lien was perfected, we REMAND the case to the bankruptcy

court for further proceedings with regard to the trustee’s

preference claims. We also REMAND the extent and amount of SMK’s

administrative priority claim for reconsideration.

REVERSED and REMANDED.

-5-