UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT _____________________
No. 01-50541 Summary Calendar _____________________
In The Matter of: TIPS IRON & STEEL CO., INC.,
Debtor. ______________________________________________
TIPS IRON & STEEL CO., INC.; 300 BAYLOR, INC.,
Appellants,
versus
ARTHUR ANDERSON, L.L.P.,
Appellee.
_________________________________________________________________
Appeals from the United States District Court for the Western District of Texas (A-01-CV-137-SS)
January 31, 2002 Before HIGGINBOTHAM, WIENER, and BARKSDALE, Circuit Judges.
PER CURIAM:*
Claiming the fee applications submitted by Arthur Andersen,
Inc. (Andersen), for performing accounting services for the
bankruptcy estate of Tips Iron & Steel, Inc. (Tips), were
excessive, unsubstantiated, and covered unnecessary services, 300
Baylor, Inc. (Baylor), asserts: the bankruptcy and district courts
applied the wrong legal standard in reviewing those applications;
* Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not be published and is not precedent except under the limited circumstances set forth in 5TH CIR. R. 47.5.4. those courts erred by not reducing the requests more than they did;
and the district court erred in awarding Andersen its attorney’s
fees and costs as a sanction for Baylor’s appealing the bankruptcy
court’s order. AFFIRMED.
I.
This appeal arises out of an involuntary Chapter 11 bankruptcy
proceeding commenced by Baylor’s principals against Tips. This
bankruptcy case is related to Baylor’s separate state court action,
which resulted in a judgment: awarding it $2.6 million; and
decreeing it the rightful owner of Tips. Upon obtaining that
judgment, Baylor moved the bankruptcy court to appoint a trustee
for Tips’ reorganization. The bankruptcy court granted the motion,
and the appointed trustee submitted an application to retain
Andersen to perform accounting services for the estate. Although
Baylor objected to the use of Andersen as too expensive, the
bankruptcy court approved the trustee’s request.
Andersen worked on the Tips project and subsequently filed fee
applications. Baylor filed objections to the applications, even
urging a “total denial of [Andersen’s] fees and expenses”. The
bankruptcy court held two hearings on the objections. During those
hearings, the court heard testimony from experts for Andersen and
Baylor, as well as from a court-appointed expert. In its final
order, the court: made detailed findings and conclusions
concerning the fees; made substantial reductions (approximately 40
2 percent of the requested fee); and awarded fees of $83,880.33, plus
expenses of $5,660.56.
Baylor appealed to the district court, including seeking
sanctions against Andersen. Baylor maintained the bankruptcy court
had failed to apply the correct legal standard, as established at
11 U.S.C. § 330(a)(1), in determining the fee. Section 330(a)(1)
provides, in pertinent part:
[T]he court may award to ... a professional person employed under section 327 or 1103–
(A) reasonable compensation for actual, necessary services rendered by the ... professional person ...; and
(B) reimbursement for actual, necessary expenses.
(Emphases added.)
In an extremely detailed and comprehensive opinion, Tips Iron
& Steel Co., Inc. v. Arthur Andersen, L.L.P., No. A-01-CA-137-SS
(W.D. Tex. 7 May 2001), the district court first held that what
Baylor claimed was a challenge to the legal standard applied was,
in reality, nothing more than a “challenge[] to the factual
findings of the bankruptcy court and/or objection[] to the amount
of fees awarded”. The district court noted that, at the hearing on
appeal, Baylor had repeatedly emphasized it had “no quarrel
whatsoever” with the bankruptcy court’s findings of fact. The
district court then reviewed the amounts awarded by the bankruptcy
court and found no abuse of discretion.
3 Moreover, the district court found Baylor’s contentions about
the fee award to be frivolous, offensive, and vexatious. Noting
“that a district court has the power to impose sanctions for a
frivolous bankruptcy appeal based upon either the inherent power of
the judiciary or the statutory authority of 28 U.S.C. § 1927”, In
re Sherk, 918 F.2d 1170, 1178 (5th Cir. 1990), abrogated on other
grounds, Taylor v. Freeland & Kronz, 503 U.S. 638 (1992), the
district court ordered, as a sanction, that Baylor and its counsel
pay Andersen’s reasonable attorney’s fees and costs for the appeal.
II.
“While we review the bankruptcy court’s findings of fact under
the clearly erroneous standard, we review the ultimate award of
fees under the abuse of discretion standard.” In re Anderson, 936
F.2d 199, 203 (5th Cir. 1991). “An abuse of discretion arises
where (1) the bankruptcy judge fails to apply the proper legal
standard or follows improper procedures in determining the fee
award, or (2) bases an award on findings of fact that are clearly
erroneous.” In re Evangeline Refining Co., 890 F.2d 1312, 1325
(5th Cir. 1989) (emphasis added).
A.
The precise merits issue that Baylor advances is less than
clear. Baylor maintains it is challenging the legal standard
applied by the district court — specifically, that the district
court applied only an “actual” standard as opposed to the
statutorily required “actual and necessary” standard. On the other
4 hand, the district court understood the challenge to be to the
factual findings or the fee amount. Regardless, the bankruptcy
court applied the proper legal standard, and the awarded fees are
not based on clearly erroneous factual findings. Accordingly, the
bankruptcy court did not abuse its discretion.
B.
As for the district court’s sanctioning Baylor and its
counsel, we again review for abuse of discretion. See FDIC v.
Calhoun, 34 F.3d 1291, 1297 (5th Cir. 1994) (“[S]anctions under ...
§ 1927 are reviewed under the abuse of discretion standard”.); Toon
v. Wackenhut Corr. Corp., 250 F.3d 950, 952 (5th Cir. 2001) (“This
Court reviews a district court’s imposition of sanctions pursuant
to its inherent powers for abuse of discretion.”). To justify the
use of the inherent sanctioning power, the district court “must
make a specific finding of bad faith”, Toon, 250 F.3d at 952, while
use of § 1927 “require[s] a detailed finding that the proceedings
were both ‘unreasonable’ and ‘vexatious.’” Calhoun, 34 F.3d at
1297 (quoting 28 U.S.C. § 1927).2 Finally, at least with respect
to sanctions imposed under § 1927, “we do not substitute our
2 28 U.S.C.
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UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT _____________________
No. 01-50541 Summary Calendar _____________________
In The Matter of: TIPS IRON & STEEL CO., INC.,
Debtor. ______________________________________________
TIPS IRON & STEEL CO., INC.; 300 BAYLOR, INC.,
Appellants,
versus
ARTHUR ANDERSON, L.L.P.,
Appellee.
_________________________________________________________________
Appeals from the United States District Court for the Western District of Texas (A-01-CV-137-SS)
January 31, 2002 Before HIGGINBOTHAM, WIENER, and BARKSDALE, Circuit Judges.
PER CURIAM:*
Claiming the fee applications submitted by Arthur Andersen,
Inc. (Andersen), for performing accounting services for the
bankruptcy estate of Tips Iron & Steel, Inc. (Tips), were
excessive, unsubstantiated, and covered unnecessary services, 300
Baylor, Inc. (Baylor), asserts: the bankruptcy and district courts
applied the wrong legal standard in reviewing those applications;
* Pursuant to 5TH CIR. R. 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 5TH CIR. R. 47.5.4. those courts erred by not reducing the requests more than they did;
and the district court erred in awarding Andersen its attorney’s
fees and costs as a sanction for Baylor’s appealing the bankruptcy
court’s order. AFFIRMED.
I.
This appeal arises out of an involuntary Chapter 11 bankruptcy
proceeding commenced by Baylor’s principals against Tips. This
bankruptcy case is related to Baylor’s separate state court action,
which resulted in a judgment: awarding it $2.6 million; and
decreeing it the rightful owner of Tips. Upon obtaining that
judgment, Baylor moved the bankruptcy court to appoint a trustee
for Tips’ reorganization. The bankruptcy court granted the motion,
and the appointed trustee submitted an application to retain
Andersen to perform accounting services for the estate. Although
Baylor objected to the use of Andersen as too expensive, the
bankruptcy court approved the trustee’s request.
Andersen worked on the Tips project and subsequently filed fee
applications. Baylor filed objections to the applications, even
urging a “total denial of [Andersen’s] fees and expenses”. The
bankruptcy court held two hearings on the objections. During those
hearings, the court heard testimony from experts for Andersen and
Baylor, as well as from a court-appointed expert. In its final
order, the court: made detailed findings and conclusions
concerning the fees; made substantial reductions (approximately 40
2 percent of the requested fee); and awarded fees of $83,880.33, plus
expenses of $5,660.56.
Baylor appealed to the district court, including seeking
sanctions against Andersen. Baylor maintained the bankruptcy court
had failed to apply the correct legal standard, as established at
11 U.S.C. § 330(a)(1), in determining the fee. Section 330(a)(1)
provides, in pertinent part:
[T]he court may award to ... a professional person employed under section 327 or 1103–
(A) reasonable compensation for actual, necessary services rendered by the ... professional person ...; and
(B) reimbursement for actual, necessary expenses.
(Emphases added.)
In an extremely detailed and comprehensive opinion, Tips Iron
& Steel Co., Inc. v. Arthur Andersen, L.L.P., No. A-01-CA-137-SS
(W.D. Tex. 7 May 2001), the district court first held that what
Baylor claimed was a challenge to the legal standard applied was,
in reality, nothing more than a “challenge[] to the factual
findings of the bankruptcy court and/or objection[] to the amount
of fees awarded”. The district court noted that, at the hearing on
appeal, Baylor had repeatedly emphasized it had “no quarrel
whatsoever” with the bankruptcy court’s findings of fact. The
district court then reviewed the amounts awarded by the bankruptcy
court and found no abuse of discretion.
3 Moreover, the district court found Baylor’s contentions about
the fee award to be frivolous, offensive, and vexatious. Noting
“that a district court has the power to impose sanctions for a
frivolous bankruptcy appeal based upon either the inherent power of
the judiciary or the statutory authority of 28 U.S.C. § 1927”, In
re Sherk, 918 F.2d 1170, 1178 (5th Cir. 1990), abrogated on other
grounds, Taylor v. Freeland & Kronz, 503 U.S. 638 (1992), the
district court ordered, as a sanction, that Baylor and its counsel
pay Andersen’s reasonable attorney’s fees and costs for the appeal.
II.
“While we review the bankruptcy court’s findings of fact under
the clearly erroneous standard, we review the ultimate award of
fees under the abuse of discretion standard.” In re Anderson, 936
F.2d 199, 203 (5th Cir. 1991). “An abuse of discretion arises
where (1) the bankruptcy judge fails to apply the proper legal
standard or follows improper procedures in determining the fee
award, or (2) bases an award on findings of fact that are clearly
erroneous.” In re Evangeline Refining Co., 890 F.2d 1312, 1325
(5th Cir. 1989) (emphasis added).
A.
The precise merits issue that Baylor advances is less than
clear. Baylor maintains it is challenging the legal standard
applied by the district court — specifically, that the district
court applied only an “actual” standard as opposed to the
statutorily required “actual and necessary” standard. On the other
4 hand, the district court understood the challenge to be to the
factual findings or the fee amount. Regardless, the bankruptcy
court applied the proper legal standard, and the awarded fees are
not based on clearly erroneous factual findings. Accordingly, the
bankruptcy court did not abuse its discretion.
B.
As for the district court’s sanctioning Baylor and its
counsel, we again review for abuse of discretion. See FDIC v.
Calhoun, 34 F.3d 1291, 1297 (5th Cir. 1994) (“[S]anctions under ...
§ 1927 are reviewed under the abuse of discretion standard”.); Toon
v. Wackenhut Corr. Corp., 250 F.3d 950, 952 (5th Cir. 2001) (“This
Court reviews a district court’s imposition of sanctions pursuant
to its inherent powers for abuse of discretion.”). To justify the
use of the inherent sanctioning power, the district court “must
make a specific finding of bad faith”, Toon, 250 F.3d at 952, while
use of § 1927 “require[s] a detailed finding that the proceedings
were both ‘unreasonable’ and ‘vexatious.’” Calhoun, 34 F.3d at
1297 (quoting 28 U.S.C. § 1927).2 Finally, at least with respect
to sanctions imposed under § 1927, “we do not substitute our
2 28 U.S.C. § 1927 provides:
Any attorney or other person admitted to conduct cases in any court of the United States or any Territory thereof who so multiplies the proceedings in any case unreasonably and vexatiously may be required by the court to satisfy personally the excess costs, expenses, and attorneys’ fees reasonably incurred because of such conduct.
5 judgment for that of the district court in enforcing acceptable
standards of conduct”. Travelers Ins. Co. v. St. Jude Hosp. of
Kenner, La., Inc., 38 F.3d 1414, 1417 (5th Cir. 1994).
The district court did not abuse its discretion in awarding
Andersen its reasonable attorney’s fees and costs. The court made
highly detailed and specific findings regarding the unreasonable
and vexatious nature of Baylor’s appeal from the bankruptcy court’s
order. After recounting the bankruptcy court’s depiction of
Baylor’s objections as “conclusory and inflammatory” and
“overstated to the extent that it reminds one of using a
sledgehammer to kill an ant”, the district court noted that Baylor
“continued their harassing litigation tactics[,] filing an appeal
riddled with misrepresentations and containing grounds for appeal
that can best be described as frivolous”. Requiring Baylor and its
counsel to pay Andersen’s reasonable attorneys fees and costs for
that appeal was appropriate and was not an abuse of the district
court’s discretion.
III.
For the foregoing reasons, the amended judgment (which
includes the sanctions award) is
AFFIRMED.