First Colonial Corp. of America, Matter of

• Decision Date: 10 January 1977
• Docket Number: Nos. 75-2260,75-2644,s. 75-2260
• Citation: 2 BCD 1633,544 F.2d 1291
• Parties: In the Matter of FIRST COLONIAL CORP. OF AMERICA, Bankrupt. AMERICAN BENEFIT LIFE INSURANCE COMPANY et al., Appellants-Cross-Appellees, v. Franz J. BADDOCK, Trustee, Appellee-Cross-Appellant. In the Matter of FIRST COLONIAL CORP. OF AMERICA, Bankrupt. Bert K. ROBINSON, Appellant, v. AMERICAN BENEFIT LIFE INSURANCE COMPANY et al., Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 1291

544 F.2d 1291

In the Matter of FIRST COLONIAL CORP. OF AMERICA, Bankrupt.

AMERICAN BENEFIT LIFE INSURANCE COMPANY et al., Appellants-Cross-Appellees, v. Franz J. BADDOCK, Trustee, Appellee-Cross-Appellant.

In the Matter of FIRST COLONIAL CORP. OF AMERICA, Bankrupt.

Bert K. ROBINSON, Appellant, v. AMERICAN BENEFIT LIFE INSURANCE COMPANY et al., Appellees.

Nos. 75-2260, 75-2644.

United States Court of Appeals, Fifth Circuit.

Jan. 10, 1977.

Floyd J. Falcon, Jr., Baton Rouge, La., Joe T. Pilcher, Jr., Selma, Ala., for American Benefit Life Ins.

Bert K. Robinson, W. P. Wray, Jr., Erwin A. La Rose, Baton Rouge, La., for Baddock.

R. Boatner Howell, Jr., pro se.

Franz Joseph Baddock, pro se.

Martin C. Schroeder, Jr., James F. Pierson, Jr., Baton Rouge, La., for appellee-cross-appellant in No. 75-2260 and appellant in No. 75-2644.

Appeals from the United States District Court for the Middle District of Louisiana.

Before COLEMAN, CLARK and TJOFLAT, Circuit Judges.

CLARK, Circuit Judge:

These appeals challenge awards of priority fees made by the bankruptcy judge ¹ to the attorneys for the trustee and a petitioning creditor from the bankruptcy estate. In No. 75-2644, Robinson, an attorney for the trustee, complains that the bankruptcy judge should have been more generous. In No. 75-2260, American Benefit Life Insurance Company (American Benefit), which owns fifty-five percent of the outstanding stock of the bankrupt, First Colonial Corporation of America (First Colonial), attacks the fees awarded to all of the attorneys on the grounds that they are excessive. ² Both appellants also argue that the bankruptcy judge failed to apply the requisite standards and follow proper procedures in determining the amounts of the fee awards. Baddock, the trustee in bankruptcy, who also served as an attorney for the trustee First Colonial was adjudged bankrupt September 8, 1970, on the basis of an involuntary petition filed by Baddock and Pierson earlier that year. ³ The examination was lengthy and complex. Because it appeared that First Colonial possessed viable causes of action against several corporations and private individuals, Baddock, in his capacity as trustee in bankruptcy, petitioned the bankruptcy judge for the appointment of an attorney to prosecute the plenary suits. When he encountered difficulty in obtaining the services of a single attorney willing to handle all of the claims, Baddock sought the appointment of several attorneys for specific purposes. The bankruptcy judge subsequently approved the applications of four attorneys recommended by Baddock Robinson, Howell, La Rose, and Baddock himself to serve as attorneys for the trustee.

cross-appeals in No. 75-2260, contending that he deserves a larger fee. When these objections were raised before the district court, he dismissed the appeals for lack of standing and, in the alternative, affirmed the orders of the bankruptcy judge. We reverse.

After approximately two years of discovery and pre-trial maneuvering, the plenary suits were consolidated for trial. On June 28 and July 1, 1974, shortly after the trial had begun, the district court directed the trustee to settle all of the bankrupt's claims for $600,000. Although the trustee and his attorneys strenuously objected because they believed that a much larger recovery would result if the cases proceeded through trial, the district court concluded that further prosecution of the suits would not benefit the creditors and that failure to accept the settlement promptly would delay, and possibly place in jeopardy, receipt by the estate of an asset sufficient to satisfy all of the claims timely filed by creditors.

On July 7, 1974, American Benefit moved for permission to intervene in the bankruptcy proceeding. No one expressed opposition at that time, and the bankruptcy judge immediately granted the request without affixing any limitations on its right to participate. During the early fall of 1974, the four attorneys for the trustee and the two attorneys for the petitioning creditor petitioned for awards of priority fees as compensation for work performed in connection with the plenary suits. ⁴ On November 18, American Benefit filed written opposition to the petitions and asked that the bankruptcy judge hold a hearing on the issue of the amount of compensation to be allowed each attorney. Without responding to this request, the bankruptcy judge granted the five petitions for compensation on December 13. ⁵ With the exception of the name of the petitioning attorney ^*, the date of his

                appointment, and the amount awarded, the five orders are identical.  6  They contain no explanation of the basis for the awards.  American Benefit moved for a stay of the orders pending appeal.  On December 31, the bankruptcy judge denied the motion on the ground that American Benefit lacked standing to appeal.  Robinson and American Benefit then attacked the awards in the district court.  After a brief hearing, the district court ruled on April 23, 1975, that (1) since none of the parties were creditors they had no standing to appeal from the fee awards, and (2) alternatively, if they had standing, that the bankruptcy judge had not erred in determining the size of the awards.  Robinson and American Benefit challenge these two rulings in their appeals
                

STANDING

Section 39(c) of the Bankruptcy Act, 11 U.S.C.A. § 67(c) (1968), provides that a "person aggrieved" by an order of a bankruptcy judge may appeal from the order to a district court. Section 25(a) of the Act, 11 U.S.C.A. § 48(a) (1953), states that an "aggrieved party" may appeal to a court of appeals from a district court order entered in connection with a bankruptcy proceeding. The rule in this circuit is that only those who have a "direct and substantial interest in the question appealed from" are "aggrieved" within the meaning of Section 25(a). In re American Bonded Mortgage Co., 453 F.2d 528, 530 (5th Cir. 1971); Edell v. Di Piazza, 345 F.2d 336 (5th Cir.), cert. denied, 382 U.S. 931, 86 S.Ct. 322, 15 L.Ed.2d 342 (1965). Since the term "person aggrieved" in Section 39(c) is less restrictive than the term "aggrieved party" in Section 25(a), if Robinson and American Benefit can establish their right to appeal under Section 25(a), it would follow both that the district court erred in holding that they had no standing to appeal from the orders of the bankruptcy judge and that they possess standing to challenge the district court's order in the court of appeals.

Since Robinson's fee was set by the bankruptcy judge, he obviously had a direct financial interest in the size of the award. Under Edell v. Di Piazza, supra, this interest is sufficient to permit him to appeal from the order fixing the amount of his fee. We have entertained similar appeals by attorneys for a trustee in bankruptcy in the past. See In re Bemporad Carpet Mills, Inc., 434 F.2d 988 (5th Cir. 1970).

Unless American Benefit possesses standing to challenge the other fee awards, only the reasonableness of the fee awarded to Robinson would be properly before us. The attorneys for the trustee, and the trustee himself, contend that American Benefit is not an "aggrieved party" within the meaning of Section 25(a). They argue that to permit American Benefit to appeal would be to allow any shareholder to challenge dispositions of assets affecting only the bankruptcy fund, and that such a rule would seriously interfere with the trustee's administration of the estate. Although the attorneys and the trustee are correct in stating that in the usual case the bankrupt and its shareholders do not have an interest in the disposition of the assets of the estate because Section 70 of the Bankruptcy Act, 11 U.S.C.A. § 110 (1963 & Supp.1976), vests title to those assets in the trustee, see, e. g., Edell v. Di Piazza, supra, this is hardly the usual case. In Massachusetts Mutual Life Insurance Co. v. Brock, 405 F.2d 429 (5th Cir. 1968), cert. denied, 395 U.S. 906, 89 S.Ct. 1748, 23 L.Ed.2d 220 (1969), we recognized that the interests of the bankrupt and the interest of those administering the estate diverge when the amount of the latter's compensation is at issue. In such circumstances it is the duty of the district court to "exercise its discretion for the double purpose of fairly treating the trustee and his counsel while at the same time doing equity to the debtor and creditors." Id. at 433. This duty cannot be adequately discharged unless representatives of the various interests are permitted to bring them to the attention of the court.

The possibility that we might create a dangerous precedent by allowing American Benefit's appeal is overdrawn. Here we have: (1) an involuntary bankruptcy proceeding in which (2) all claims timely advanced by creditors have been satisfied, and in which (3) the bankrupt is not insolvent. Thus the size of the awards of attorneys' fees directly affects the amount of residual assets available for return to the bankrupt and its shareholders upon the termination of the proceeding. In addition to these three factors, (4) the bankrupt has been abandoned by its officers and board of directors, and (5) the trustee has a personal financial stake in the disposition of a substantial portion of the controversy which is adverse to that of the bankrupt. In these circumstances, we refuse to allow the trustee to rely upon the general rule that he is the proper party to proceed on behalf of the whole community of interests of the bankrupt. See In re York International Building, Inc., 527 F.2d 1061, 1077 (9th Cir. 1973).

Rule 215(e) of the Rules of Bankruptcy Procedure provides that the court may authorize the trustee to act as his own attorney where such authorization is in the best interests of the estate. There is, therefore, no inherent impropriety in such an arrangement. But the rule does not resolve the problems that may arise when a trustee-attorney's personal interest in the amount of...