Speights & Runyan v. Butler (In re Celotex Corp.)

232 B.R. 488, 1998 U.S. Dist. LEXIS 22085
CourtDistrict Court, M.D. Florida
DecidedNovember 3, 1998
DocketNo. 98-1522-Civ-T-26F
StatusPublished

This text of 232 B.R. 488 (Speights & Runyan v. Butler (In re Celotex Corp.)) is published on Counsel Stack Legal Research, covering District Court, M.D. Florida primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Speights & Runyan v. Butler (In re Celotex Corp.), 232 B.R. 488, 1998 U.S. Dist. LEXIS 22085 (M.D. Fla. 1998).

Opinion

ORDER

LAZZARA, District Judge.

The law firm of Speights & Runyan (the Law Firm) appeals the Bankruptcy Court’s order denying its application for attorneys’ fees brought pursuant to the provisions of 11 U.S.C. § 503(b)(3)(D) & (4), which allow such fees to be awarded to a creditor’s attorney as administrative expenses of the bankrupt estate so long as the attorney makes a “substantial contribution” in the case. It contends that the Bankruptcy Court erred as a matter of law in determining that these statutory provisions did not apply to a creditor’s attorney and that, based on the record, it made a substantial contribution to the estate in the bankruptcy case involving the Celotex Corporation. The United States Trustee and the Asbestos Settlement Trust1 (the Ap-pellees) argue that the Bankruptcy Court’s determination to disallow fees to the Law Firm did not constitute an abuse of discretion.2 After a thorough review of the record and the controlling law, this Court concludes that the Bankruptcy Court did not abuse its discretion in denying fees to the Law Firm and thus affirms that decision.3

The Law Firm was involved in the proceedings before the Bankruptcy Court from the very inception of the case. Its involvement consisted of representing and protecting the interests of asbestos property damage claimants. It is undisputed that while acting in that capacity the Law Firm played a significant role in successfully negotiating a reorganization plan which was acceptable to the many competing interests involved in the case and in having that plan adopted by the Bankruptcy Court and approved by the United States District Court. Despite the fact that the Law Firm will ultimately receive fees from its clients once their claims are allowed, it brought an application for fees under the provisions of 503(b)(3)(D) & (4) claiming that because it had substantially contributed to the reorganization plan it was entitled to fees as administrative expenses of the bankrupt estate in the sum of either $557,789.90 (based on hourly rates when services were rendered) or $595,395.05 (based on current hourly rates). As it has done before this Court, the Law Firm relied principally on the case of In re DP Partners Ltd. Partnership, 106 F.3d 667 (5th Cir.1997) in support of its application to the Bankruptcy Court for fees. The Bankruptcy Court was unwilling, however, to follow a position taken by the Fifth Circuit in that case and denied the application based on other case law. The Law Firm now brings this appeal.

The Law Firm, as noted, partially based its application for fees on section 503(b)(3)(D) which provides in relevant part that “there shall be allowed administrative expenses, ..., including — the actual, necessary expenses, ..., incurred by— a creditor, ... in making a substantial contribution in a case under chapter 9 or 11 of this title.” (Emphasis added.) The other provision relied on by the Law Firm, section 503(b)(4), classifies attorney’s fees as falling within the ambit of allowable [491]*491administrative expenses under section 503(b)(3)(D).

Because the Congress did not define the critical term “substantial contribution,” it has fallen to the courts to develop the legal framework for assessing whether such a contribution has been made in a case. The underlying premise upon which that legal framework stands is that “[c]ompensation based on substantial contribution is designed to promote meaningful participation in the reorganization process, but at the same time, discourage mushrooming administrative expenses.” In re Granite Partners, L.P., 213 B.R. 440, 445 (Bankr.S.D.N.Y.1997) (citations omitted). Thus, “the substantial contribution provisions must be narrowly construed, and do not change the basic rule that the attorney must look to his own client for payment.” Id. (citations omitted).

As developed by the courts, the test for determining whether an applicant has substantially contributed to a case as contemplated by section 503(b)(3)(D) is “whether the efforts of the applicant resulted in actual and demonstrable benefit to the debtor’s estate and creditors.” In re Lister, 846 F.2d 55, 57 (10th Cir.1988). Furthermore, because “services engaged by creditors, creditor companies and other parties interested in a reorganization are presumed to be incurred for the benefit of the engaging party [they] are reimbursable if, but only if, the services ‘directly and materially contributed’ to the reorganization.” Lebron v. Mechem Fin., Inc., 27 F.3d 937, 943 (3d Cir.1994). In order for such services to qualify as substantial contributions to a case, they must be of the type that foster and enhance the progress of reorganization. Id. at 944. As will be explained below, however, there is a split of authority as to whether a bankruptcy court may consider a creditor’s motivation as a factor in determining the issue of whether a creditor has substantially contributed to the case to the extent that administrative expenses are allowable under section 503(b)(3)(D). Finally, the applicant bears the burden of proving to the Bankruptcy Court, by a preponderance of the evidence, that it made such a contribution. See In re Granite Partners, L.P., 213 B.R. at 447 (citing In re Lister, 846 F.2d at 57).

The standard of review which this Court must now utilize in evaluating the correctness of the Bankruptcy Court’s fee order is well established. That standard provides that such an order “will be reversed only if the court abused its discretion.” In re Red Carpet Corp. Of Panama City Beach, 902 F.2d 883, 890 (11th Cir.1990).4 Such an abuse of discretion occurs “if the judge fails to apply the proper legal standard or to follow proper procedure in making the determination, or bases an award upon findings of fact that are clearly erroneous.” Id.5 As recently articulated by the Eleventh Circuit, “[f]or a factual finding to be ‘clearly erroneous,’ the Court, after reviewing all of the evidence, must be left with a definite and firm conviction that a mistake has been committed.” United States v. Foster, 155 F.3d 1329, 1331 (11th Cir.1998). Furthermore, “[w]here the evidence has two possible interpretations, the ... court’s choice between them cannot be clearly erroneous.” Id. Thus, the “clearly erroneous” standard has been characterized by the Eleventh Circuit as “a very high standard, one we would rarely be likely to find, especially in a fees situation.” In re Hillsborough Holdings Corp., 127 F.3d 1398, 1401 (11th Cir.1997) (emphasis added).

The Law Firm’s first contention is that the Bankruptcy Court committed legal er[492]*492ror in rejecting the Fifth Circuit’s decision in

Free access — add to your briefcase to read the full text and ask questions with AI

Related

Cite This Page — Counsel Stack

Bluebook (online)
232 B.R. 488, 1998 U.S. Dist. LEXIS 22085, Counsel Stack Legal Research, https://law.counselstack.com/opinion/speights-runyan-v-butler-in-re-celotex-corp-flmd-1998.