PUBLISH
IN THE UNITED STATES COURT OF APPEALS FILED FOR THE ELEVENTH CIRCUIT U.S. COURT OF APPEALS ELEVENTH CIRCUIT SEPTEMBER 18, 2000 _______________ THOMAS K. KAHN CLERK No. 98-3747 _______________
D. C. Docket No. 98-01522-CIV-T-26F
IN RE: CELOTEX CORP.,
Debtor.
SPEIGHTS & RUNYAN,
Plaintiff-Appellant,
versus
CELOTEX CORP., U.S. TRUSTEE, KEVIN E. IRWIN, Defendants-Appellees.
______________________________
Appeal from the United States District Court for the Middle District of Florida ______________________________ (September 18, 2000)
Before BIRCH, RONEY and FAY, Circuit Judges.
BIRCH, Circuit Judge: This case presents an issue of first impression for this circuit. We must
decide whether a creditor’s attorney may recover fees and expenses for a
“substantial contribution”, 11 U.S.C. § 503(b)(3)(D), in a bankruptcy proceeding
where the creditor has an adverse interest to the debtor. We hold that he may
recover such fees and expenses. Accordingly, we REVERSE and REMAND.
I. BACKGROUND
Appellant, the law firm of Speights & Runyan (“S&R”), petitioned the
bankruptcy court for an award of attorneys’ fees on the grounds that the firm and,
in particular, attorney Daniel A. Speights, made a substantial contribution to the
successful approval of a consensual plan of reorganization in the Chapter 11
bankruptcy proceeding. The bankruptcy judge denied the award on the grounds
that S&R had an adverse interest to the debtors and that S&R’s services were
conducted on behalf of its clients and not for the particular benefit of the estate.
The bankruptcy judge also concluded that, should his decision be reversed on
appeal, S&R should be awarded compensation for 1,200 hours of work at a
blended lodestar rate of $225.00 per hour, or a total of $270,000.00. The district
court affirmed, finding that the bankruptcy judge did not abuse his discretion in
refusing to award fees.
S&R brought its petition at the conclusion of a lengthy and complex
2 bankruptcy proceeding involving claims for asbestos related property damage and
personal injuries. The debtors, Celotex Corporation and its subsidiary Carey
Canada, Inc. (“Debtors”), filed voluntary petitions for reorganization under
Chapter 11 of the bankruptcy code in 1990. Over the next six years, several
proposed plans for reorganization were put forward by the debtors in an attempt to
achieve a consensual plan. In addition to the debtors, the parties involved in the
negotiations included the unsecured creditors’ committee, the unofficial committee
of co-defendants, the asbestos health claimants committee, the asbestos property
damage claimants committee, and the legal representative of unknown bodily
injury claimants. S&R represented several individual property damage claimants.
After a plan of reorganization was approved, S&R filed an Amended
Application and Declaration for Attorneys’ Fees (the “Application”), B.R. Doc.
11008,1 pursuant to 11 U.S.C. § 503(b)(3)-(4). The only opposition to S&R’s
petition for administrative expenses came from the United States Trustee and the
Asbestos Settlement Trust. The debtors and several committee representatives
filed affidavits or testified in support of S&R’s fee application.
1 The record from the bankruptcy court was attached as an exhibit to R1-1 of the district court record. For ease of reference, all record citations are provided by using the bankruptcy court document number.
3 II. JURISDICTION
As an initial matter, we note that this court has jurisdiction to hear this
appeal pursuant to 28 U.S.C. § 158(d). Section § 158(d) grants us jurisdiction to
hear appeals from final orders. In a bankruptcy case, a final order is defined as an
order that terminates any particular adversary proceeding. See In re Hillsborough
Holdings Corp., 116 F.3d 1391, 1393 (11th Cir. 1997). The denial of S&R’s fee
petition is such an order, and jurisdiction is appropriate.
III. STANDARD OF REVIEW
We review an award or refusal to award attorney’s fees for abuse of
discretion. In re Hillsborough Holdings Corp., 127 F.3d 1398, 1401 (11th Cir.
1997). A bankruptcy judge abuses his discretion if he fails to apply the correct
legal standard or his factual findings are clearly erroneous. Id. See also In re
Prince, 40 F.3d 356, 359 (11th Cir. 1994) (holding that we review factual findings
for clear error and legal conclusions de novo).
IV. SUBSTANTIAL CONTRIBUTION
A. The Standard
Section 503 of Chapter 11 of the bankruptcy code provides that certain
administrative expenses “shall be allowed” after notice and a hearing. 11 U.S.C. §
503(b) (emphasis added). Included in the list of administrative expenses awarded
4 under § 503(b) are the expenses incurred by “a creditor, an indenture trustee, an
equity security holder, or a committee representing creditors or equity security
holders . . . in making a substantial contribution in a case under Chapter 9 or 11 of
this title . . . .” Id. at § 503(b)(3)(D). Section 503(b)(4) provides for a related
award of attorney fees. In creating these provisions, Congress did not specifically
define the term “substantial contribution.” As such, a conflict has developed
among the circuits regarding whether the motivation behind a creditor’s actions
should disqualify him from receiving fees where a contribution has been made to
the resolution of the bankruptcy proceeding. Compare In re DP Partners, Ltd., 106
F.3d 667, 673 (5th Cir. 1997) (noting that the plain language of the statute does not
require “a self-deprecating, altruistic intent as a prerequisite to recovery . . . .”)
with Lebron v. Mechem Financial, Inc., 27 F.3d 937, 944 (3d Cir. 1994) (finding
that the benefit to the estate “must be more than an incidental one” arising out of
the pursuit of self-interest) and In re Lister, 846 F.2d 55, 57 (10th Cir. 1988)
(“Efforts undertaken by a creditor solely to further his own self-interest . . . will not
be compensable, notwithstanding any incidental benefit accruing to the bankruptcy
estate.”). We find the logic of the Fifth Circuit, as stated in DP Partners,
compelling.
In interpreting a statute, we begin by examining the text and assigning the
5 “plain, ordinary, and most natural meaning” to terms not otherwise defined in the
text itself. Boca Ciega Hotel, Inc. v. Bouchard Transp. Co., 51 F.3d 235, 237 (11th
Cir. 1995). In applying the plain meaning of the text, other circuits have held that
a substantial contribution is one that “‘foster[s] and enhance[s], rather than
retard[s] or interrupt[s] the progress of reorganization.’” In re Consolidated
Bancshares, Inc., 785 F.2d 1249, 1253 (5th Cir. 1986) (quoting In re Richton Int’l
Corp., 15 B.R. 854, 856 (Bankr. S.D.N.Y. 1981)). See also Lebron, 27 F.3d at 944
(quoting Consolidated Bancshares).
The United States Trustee and the Asbestos Settlement Trust look beyond
the plain language of the statute and rely on Lister and Lebron to support their
argument that the bankruptcy judge was correct in considering S&R’s motivation
to determine whether the firm’s actions “transcended self-protection.” Lebron, 27
F.3d at 944. See also Lister, 846 F.2d at 57. This requirement is not indicated by
the language of the statute. Indeed, the Fifth Circuit rejected this argument, noting
that “nothing in the Bankruptcy Code requires a self-deprecating, altruistic intent
as a prerequisite to recovery of fees and expenses under section 503.” DP Partners,
106 F.3d at 673.
Examining a creditor’s intent unnecessarily complicates the analysis of
whether a contribution of considerable value or worth has been made. The Third
6 Circuit correctly observed that expenses are reimbursable only if they “‘directly
and materially contributed’ to the reorganization.” Lebron, 27 F.3d at 943 (quoting
Steere v. Baldwin Locomotive Works, 98 F.2d 889, 891 (3d Cir. 1938)). See also
Lister, 846 F.2d at 57 (stating that the test is “whether the efforts of the applicant
resulted in an actual and demonstrable benefit to the debtor’s estate and the
creditors.”). The degree of benefit conferred or contribution made is “not
diminished by selfish or shrewd motivations.” DP Partners, 106 F.3d at 673.
Accordingly, we adopt the Fifth Circuit’s holding “that a creditor’s motive in
taking actions that benefit the estate has little relevance in the determination
whether the creditor has . . . ma[de] a substantial contribution to a case.” Id.
This holding is consistent with common sense. Congress chose to include
creditors in the class of those who may receive administrative expenses and fees
for a substantial contribution, see 11 U.S.C. § 503(b)(3), and it is difficult to
imagine a circumstance in which a creditor will not be motivated by self-interest in
a bankruptcy proceeding. To impose an altruism requirement on the ability to
obtain administrative expenses under § 503(b)(3)-(4) would effectively render the
section meaningless as to creditors.
B. S&R’s Fee Application
Turning to the petition for fees in this case, we find that the bankruptcy
7 judge should have awarded fees to S&R for a substantial contribution. In his order
denying the fee petition, the bankruptcy judge found that S&R “did perform the
services stated in court in this case” but nevertheless found that the substantial
contribution standard had not been met because S&R “had an adverse interest to
the Debtors, and . . . the end result of Applicant’s services were directed just as
much toward Applicant’s particular clients . . . as compared to the Debtors’ estates
. . . .” Order Denying Speights & Runyan’s Amended Application and Declaration
for Attorney’s Fees (the “Order”), B.R.Doc. 11777, at 2. The bankruptcy judge
also specifically rejected the holding of DP Partners that we today adopt. See
Motions Hearing Transcript, Feb. 6, 1998 (the “Transcript”), B.R. Doc. 11816, at
225-26. We have determined that the motive of the petitioner should not be a
factor in determining whether a substantial contribution has been made in the
bankruptcy proceeding. If S&R produced evidence that they performed services
constituting a substantial contribution, then an award of fees is appropriate.
In its fee petition, S&R set out in some detail the work which the firm
considered to be a substantial contribution.2 See generally, Application, B.R. Doc.
11008. In addition, several parties involved in the bankruptcy proceeding attested
2 Specifically, the petition related Speights’s prior experience with asbestos-related bankruptcies and the degree of involvement of Speights, both in mediation (at the request of the Debtors) and in plan negotiations with, among others, the representative of the bodily injury claimants. See Application, B.R. Doc. 11008, at 1-3, 5-6.
8 to the efforts of S&R to achieve a successful plan of reorganization. John Kozyak,
the Asbestos Property Damage committee representative, submitted an affidavit in
support of the fee petition which noted that S&R provided “extraordinary service”
and that Speights “worked tirelessly for several years . . . to help the Debtors and
other parties avoid an expensive, time consuming confirmation battle and develop
a nearly consensual, confirmable plan of reorganization.” Statement in Support of
Speights & Runyan’s Application and Declaration for Attorneys’ fees, B.R. Doc.
11674, at 1. Kozyak also noted that S&R did this work with no assurance that the
firm would be compensated. See id. The Debtors also filed a response to S&R’s
petition supporting the request and noting the “unique skill and expertise”
contributed by the firm. Debtors’ Response to Speights & Runyan’s Application
and Declaration for Attorneys’ Fees, B.R. Doc. 11638, at 3.
Evidence was also presented at a hearing on various fee petitions held by the
bankruptcy judge. See generally, Transcript, B.R. Doc. 11816. Speights testified
that his actions went beyond simple representation of his clients when he worked
to create a consensual plan of reorganization, and that, without his involvement,
achievement of a consensual reorganization plan would not have been
9 accomplished.3 See id. at 86-88. This testimony was supported by testimony from
other parties. Kozyak testified that Speights’s knowledge, experience and the
respect that Speights had earned from other parties made progress toward
reorganization possible. See id. at 91-94. The Debtors’ counsel, Mr. Warren,
testified that the Debtors, while opposed to most petitions for fee awards,
supported S&R’s application. See id. at 98-99. The Debtors supported it because
“the role that Mr. Speights played provide[d] the tangible and demonstrative
benefit to the estate and the creditors of the estate. Again, not just Mr. Speights’
creditors.” Id. at 101.
The representative of the bodily injury claimants, Mr. Locks, also testified
that successful negotiation of a consensual, and ultimately approved, plan of
reorganization “couldn’t have been done without Dan Speights because he really
understood how to do it . . . .” Id. at 134. Indeed, the bankruptcy judge himself
noted that the case was “phenomenally unique. Three or four times larger than
3 Specifically, Speights testified as follows.
I could have represented my individual clients and ultimately gotten some money out of this, pursuant to some plan or liquidation process, if a deal had not been made . . . What I was asked to do . . . was to try to represent not only the claims of all property damage claimants . . . but to work with Celotex and [the bodily injury claimants] . . . in trying to put together . . . a consensual plan. . . .I will say but for my involvement I don’t believe we would have had this deal.
Transcript, B.R. Doc. 11816, at 86-88.
10 Manville with a heck of a lot more people doing some really unique, again,
energetic activities.” Id. at 200.
The Settlement Trust and United States Trustee opposed the petition. The
United States Trustee filed an objection with the court, which focused on specific
expenses and fees which should not be allowed, but the Trustee did not argue that
S&R did not make a substantial contribution. See United States Trustee’s
Objection to Speights & Runyan’s Application and Declaration for Attorneys’
Fees, B.R. Doc. 11667, at 2-3. Indeed, at the hearing, the United States Trustee
stated that “[w]e do believe they did contribute substantially to the case.”
Transcript, B.R. Doc. 11816, at 151. The Settlement Trust included S&R’s
petition in its “Omnibus Objection” to all administrative expense potions filed.
See Omnibus Objection of the Asbestos Settlement Trust to Various
Administrative Claim Applications, B.R. Doc. 11219, at 20. In its briefs, however,
the Settlement Trust acknowledged that, because “the Trust did not participate in
the bankruptcy cases . . . it does not have enough knowledge about the relative
contributions of the Law Firm Claimants [including S&R]” to effectively oppose
the claims on the merits. Id.
In sum, the evidence accepted as true by the bankruptcy judge was that
S&R, and Speights in particular, played a significant role in the successful
11 negotiation of a consensual plan, and that a large portion of credit for achievement
of the plan was attributable to Speights because of his credibility and the
experience in asbestos-related bankruptcy that he brought to the process. In DP
Partners, a substantial contribution was found by the bankruptcy court where a
creditor’s intervention led to an increase in the asset pool of $3,000,000. See 106
F.3d at 673. We refrain today from defining with specificity what constitutes a
substantial contribution. We do find, however, that where, as here, evidence
supports the conclusion that without S&R’s efforts a reorganization plan may not
have been achieved, a substantial contribution has been demonstrated.
Accordingly, we REVERSE the district court’s decision.
V. AMOUNT OF FEES
Our inquiry does not end with the substantial contribution analysis. In an
alternative holding, the bankruptcy judge determined that, should S&R be found to
have made a substantial contribution, then 1200 hours of S&R’s work would be
compensable under § 503(b)(4). Order, B.R. Doc. 11777, at 2. S&R does not
appeal that decision. S&R does challenge the lodestar rate of $225.00 per hour
used by the bankruptcy judge to determine the total dollar amount of fees.
Section 503(b)(4) expressly provides that allowable attorney compensation
should be “based on the time, the nature, the extent, and the value of such services,
12 and the cost of comparable services other than in a case under this title . . . .” 11
U.S.C. § 503(b)(4). This standard is identical to the standard in § 330(a)(1) which
provides for attorney’s fees for counsel to the bankruptcy trustee. See 11 U.S.C. §
330(a)(1). In Grant v. George Schumann Tire & Battery Co., 908 F.2d 874 (11th
Cir. 1990), we held that a judge must calculate the hourly rate using twelve factors
set forth in Johnson v. Georgia Highway Express, Inc., 488 F.2d 714 (5th Cir.
1974). See Grant, 908 F.2d at 877-78. In addition, a judge determining a fee award
must explain how his consideration of the Johnson factors affected the award. Id.
In other words, the judge may not simply announce the rate, but must also set out
in the record how he determined that rate.
In the Order, the bankruptcy judge did not explain how he determined that
$225.00 per hour was the appropriate rate at which to compensate S&R. Turning
to the hearing transcript, the only reference to the hourly rate determination is the
following statement by the bankruptcy judge:
[T]he lodestar for each firm would have been $225 an hour. I reject their mathematical blending hourly rate of $356 an hour or thereabouts. Not suggesting that none of those parties would be worth it, but that’s not what we’ve been paying around here.
Transcript, B.R. Doc. 11816, at 227.
We make no judgment as to the adequacy of the rate determined by the
bankruptcy judge. It is possible that he considered all of the appropriate factors in 13 determining the rate set forth in the Order. Nevertheless, because the record
provides no explanation for the hourly rate chosen, we must REMAND this case
for determination of the appropriate hourly rate to be applied for the 1,200 hours of
work for which S&R is to receive compensation.
VI. CONCLUSION
We find that the bankruptcy judge abused his discretion by applying the
wrong legal standard, and the district court erred in finding no abuse of discretion.
Accordingly, we REVERSE and REMAND for further proceedings consistent with
this opinion.
14 RONEY, Circuit Judge, dissenting:
I respectfully dissent. I would remand the case to the bankruptcy court to
determine whether the services for which Speights and Runyan seek to be
compensated constitute a substantial contribution under 11 U.S.C. § 503(b)(3) &
(4), under the correct legal standards. Assuming that the court correctly holds that
the bankruptcy court applied the wrong legal principle in examining the facts, that
court should make the final factual determination without that legal error, not this
Court.