Pierson & Gaylen v. Creel & Atwood

785 F.2d 1249, 1986 U.S. App. LEXIS 23422, 14 Bankr. Ct. Dec. (CRR) 401
CourtCourt of Appeals for the Fifth Circuit
DecidedMarch 28, 1986
DocketNo. 85-1626
StatusPublished
Cited by1 cases

This text of 785 F.2d 1249 (Pierson & Gaylen v. Creel & Atwood) is published on Counsel Stack Legal Research, covering Court of Appeals for the Fifth Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Pierson & Gaylen v. Creel & Atwood, 785 F.2d 1249, 1986 U.S. App. LEXIS 23422, 14 Bankr. Ct. Dec. (CRR) 401 (5th Cir. 1986).

Opinion

EDITH HOLLAN JONES, Circuit Judge:

Court-approved counsel for the debtor and non-court approved counsel for a group of disgruntled shareholders appeal from an order of the district court, 49 B.R. 467 (Bankr.N.D.Tex.1985), which affirmed the bankruptcy court’s determination of their fee applications. Whether the bankruptcy court abused its discretion or clearly erred in denying compensation claimed for professional services rendered by the shareholders’ attorneys pursuant to 11 U.S.C. §§ 503(b)(3)(D) and 503(b)(4) (1984) and in failing to provide a bonus to debtor’s counsel are the principal issues in this case. With one exception, we find ample support in the record for the lower courts’ conclusions.

I. BACKGROUND

The debtor, Consolidated Bancshares, Inc. (Consolidated or debtor), is a holding company for shares of Abilene National Bank (ANB). In the early 1980’s, ANB experienced financial difficulties (largely because of oil-related loans), and after a series of adverse bank examinations, the FDIC demanded that the bank raise an additional $30,000,000 capital. Principals of Consolidated contracted for a $16,000,-000 capital infusion and requested additional time to raise the rest of the requirement.

Refusing to grant the extension, of time, the regulatory agencies gave ANB an ultimatum: ANB could either be closed immediately and taken over by federal agencies, or it could be acquired by Mercantile Texas Corporation in satisfaction of a note. The officers of Consolidated decided to and did transfer ownership of ANB to Mercantile.

Some of Consolidated’s shareholders disagreed with this course of action and filed a shareholders’ derivative suit in state court in September, 1982 against Consolidated, certain of its officers and directors, and Mercantile. The shareholders, referred to as the “Grubbs group,” have been represented by the law firms of Ray & Terrell, and Pierson & Gaylen, appellants herein. On a defense motion, venue of the lawsuit was transferred to Dallas County, Texas. No further action in this lawsuit was undertaken until after the bankruptcy petition was filed. The shareholders removed the lawsuit to bankruptcy court in the fall of 1984. A scheduling conference was set in the adversary proceeding but was never held because of the filing of a plan of reorganization.

On December 3, 1982, the instant Chapter 11 case was filed. An equity shareholders’ committee (the Committee) was formed to represent the interests of all shareholders of the debtor,1 and the bankruptcy court authorized the Committee to retain counsel on May 9, 1983 to further these interests.

The debtor instituted two lawsuits against Mercantile Bank which questioned the stock transfer. Debtor commenced an adversary proceeding for damages from Mercantile exceeding $56,000,000 under a fraudulent conveyance theory. In a separate adversary proceeding, the debtor successfully sought to enjoin Mercantile from foreclosing under certain stock pledges.

Sometime during the summer of 1984, the debtor, banks, and Committee began negotiations which culminated in the filing of a proposed plan of reorganization. The plan called for a global settlement of the three lawsuits pending among the debtor, the Bank and the Grubbs group. It provided that all creditor claims would be satisfied in full and that the shareholders would receive benefits from a settlement fund which initially totalled $5.4 million. Additionally, all three lawsuits would be dismissed with prejudice.

The Grubbs group objected to confirmation of the plan by attacking the bankruptcy court’s power to settle the derivative [1252]*1252lawsuit over their opposition. The court overruled this objection at the close of the confirmation hearing, confirmed the plan, and the three lawsuits were dismissed shortly thereafter. The order of confirmation has not been appealed.

II. STANDARD OF REVIEW

This court reviews the bankruptcy court’s findings of fact under the clearly erroneous standard, see Bankr.R.P. 8013; Richmond Leasing Co. v. Capital Bank, N.A., 762 F.2d 1303, 1308 (5th Cir.1985), but the bankruptcy court’s conclusions of law are subject to de novo review. Richmond Leasing Co., 762 F.2d at 1307. This court is mindful of the fact that, absent such errors, “district courts and bankruptcy judges have broad discretion in determining the amount of attorneys’ fees to award as compensation for services performed in connection with bankruptcy proceedings, and their exercise of that discretion will not be disturbed by an appellate court absent a showing that it was abused.” In re First Colonial Corp. of America, 544 F.2d 1291, 1298 (5th Cir.), cert. denied, 431 U.S. 904, 97 S.Ct. 1696, 52 L.Ed.2d 388 (1977).

III. THE GRUBBS GROUP FEE APPLICATION

Grubbs’s attorneys filed fee applications seeking from this bankruptcy estate an allowance of $231,947.50 for their services. The Committee, the debtor and the United States Trustee for the Northern District of Texas unanimously contested the applications. After a hearing, the bankruptcy court refused to award fees because it could not “find that [the Grubbs group attorneys’] actions made a ‘substantial contribution’ to the proceeding.” The court based this finding on several factors. First, an equity security holders’ Committee, appointed by the bankruptcy court, officially represented all shareholders of the estate. Therefore, any work performed by the attorneys for the Grubbs shareholder group after the formation of the committee had resulted in a needless duplication of time and effort. Second, the bankruptcy court found that the shareholder suit was not handled in the most expeditious and efficient manner and was motivated by Grubbs’s personal interest in ANB and not for the benefit of the Chapter 11 estate. Third, the bankruptcy court found that the derivative action was merit-less because the pending state lawsuit became property of the estate once the bankruptcy petition was filed. As such, the lawsuit could have been dismissed for lack of a proper party plaintiff, i.e., the debtor, and therefore had little value to the bankruptcy estate.

The Grubbs group attorneys contend that the bankruptcy court erred for three reasons. First, they believe their derivative action was the real motivating factor behind the filing and confirmation of a successful plan, hence its pursuit made a substantial contribution to the estate. Second, the bankruptcy court erred legally because its opinion assumed a duplication of services without comparing the Grubbs attorneys’ activities with those of the court-appointed Committee. Finally, the Grubbs group argues that the bankruptcy court erred as a matter of law because it did not “[opine] as to the value of the derivative action.”

The applicable sections of the Bankruptcy Code provide that the court may award the actual, necessary expenses incurred by a creditor, including his attorneys’ fees, if he has made “a substantial contribution in a case under chapter 9 or 11 of this title.” 11 U.S.C. §§ 503(b)(3)(D), 503(b)(4) (1984).

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785 F.2d 1249, 1986 U.S. App. LEXIS 23422, 14 Bankr. Ct. Dec. (CRR) 401, Counsel Stack Legal Research, https://law.counselstack.com/opinion/pierson-gaylen-v-creel-atwood-ca5-1986.