Red Carpet Corp. of Panama City Beach v. Miller, 82-5111

• Citation: 708 F.2d 1576
• Decision Date: 05 July 1983
• Docket Number: No. 82-5111,82-5111
• Parties: 8 Collier Bankr.Cas.2d 1391, Bankr. L. Rep. P 69,283 In re RED CARPET CORPORATION OF PANAMA CITY BEACH, Appellant, v. John S. MILLER and B.K. Roberts, etc., et al., Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (11th Circuit)

Page 1576

708 F.2d 1576

8 Collier Bankr.Cas.2d 1391, Bankr. L. Rep. P 69,283

In re RED CARPET CORPORATION OF PANAMA CITY BEACH, Appellant, v. John S. MILLER and B.K. Roberts, etc., et al., Appellees.

No. 82-5111.

United States Court of Appeals, Eleventh Circuit.

July 5, 1983.

Barrett, Bajoczky & Barrett, R. Vinson Barrett, Albert Craig Penson, Tallahassee, Fla., for appellant.

Roberts, Miller, Baggett, LaFace, Richard & Wiser, Barry Richard, Tallahassee, Fla., for appellees.

Appeal from the United States District Court for the Northern District of Florida.

Before GODBOLD, Chief Judge, HENDERSON and CLARK, Circuit Judges.

PER CURIAM:

In July 1976, appellant Red Carpet Corporation filed a petition for Chapter XI Reorganization. In August 1976, the debtor corporation retained John Miller as its attorney. Mr. Miller represented the corporation during the confirmation of its reorganization plan and in various adversary proceedings. In April 1979, the corporation dismissed Mr. Miller. Mr. Miller then filed an application for fees and reimbursement of costs in an amount in excess of $37,000. In March 1980, the bankruptcy court held an evidentiary hearing on Mr. Miller's fee application. In April 1980, before the bankruptcy court had ruled on the fee application, appellant filed a Motion to Surcharge Attorney for Debtor in Possession, alleging negligence, improper fee splitting, improper fee arrangements, and breach of trust by Mr. Miller and his firm. Appellant sought to have Mr. Miller held personally liable for money damages--surcharged--in the same way that bankruptcy trustees and receivers have been in the past.

On June 29, 1981, the bankruptcy court determined that it had no jurisdiction to enter a money judgment against an attorney for a debtor in possession. The bankruptcy court noted that appellant debtor had raised most of the instant affirmative allegations in its defense against appellee Miller's application for attorney's fees. The bankruptcy court stated that, consonant with its jurisdiction, it would still consider those allegations, together with evidence presented to support them, when it considered Mr. Miller's fees application. With regard to that application, the bankruptcy court had heard evidence on the questions of negligence, improper fee splitting, improper fee arrangements and breach of trust. On December 14, 1981, the bankruptcy court issued its order allowing Mr. Miller attorney's fees and expenses. An appeal of that decision is now pending in the district court. (N.D.Fla., No. MCA-82-205). In this opinion, we do not consider the issues which the bankruptcy court treated in that second order, and which are not before this court.

On December 16, 1981, the district court affirmed the bankruptcy court's order in the instant case, noting that the parties agreed that the bankruptcy court retained jurisdiction to require appellee to return fees already awarded as well as to deny appellee fees on future petitions. Thus, the district court properly recognized that a bankruptcy court can deny an attorney for a debtor in possession his fees on account of his wrongdoing or negligence but cannot additionally assess against him money damages for losses due to such wrongdoing or negligence. We affirm.

Let us note some of the law by which a bankruptcy court, under the old act, could deny an attorney his fees. Under the old bankruptcy rules, a bankruptcy court may deny allowance of any compensation to any attorney employed by a trustee or receiver if such an attorney holds an interest adverse to the interests of the bankruptcy estate. Rules Bankr.Proc., Rule 215(b), 11 U.S.C.A. (1977). A bankruptcy court may deny compensation to an attorney who has split his fee. Rules Bankr.Proc., Rule 219(d), 11 U.S.C.A. (1977). Further, this court has declared that a determination of reasonable compensation for attorneys in bankruptcy proceedings requires attention to the standards of Johnson v. Georgia Highway Express, 488 F.2d 714, 720 (5th Cir.1974). ¹ Matter of First Colonial Corp. of America, 544 F.2d 1291 (5th Cir.1977). In First Colonial, the court, in describing the process of fee determination, said simply, "Once the nature and extent of the services rendered have been determined, the bankruptcy judge must assess the value of those services." 544 F.2d at 1300. Thus, under First Colonial, the judge must gauge the quality of the legal work. 544 F.2d at 1300. Poor quality which is the consequence of wrongful conduct or negligence could result in the denial of any fee a debtor's attorney seeks.

However, a bankruptcy court cannot order money damages against an attorney for a debtor in possession. A bankruptcy trustee is liable for wrongful conduct or negligence, and he may be surcharged. 12 Collier on Bankruptcy p 216.05 (14th ed. 1978). Similarly, a bankruptcy receiver may be held personally liable. 12 Collier on Bankruptcy p 201.15 (14th ed. 1978). For example, it is the duty of a bankruptcy trustee to collect the assets of the debtor, and if he fails to do so, he may be charged with the value of the assets that never came into his possession. Leonard v. Vrooman, 383 F.2d 556 (9th Cir.1967). Appellant asserts that, because attorneys for the debtor-in-possession are officers of the court and have obligations to the estate, they can be surcharged for the exact loss due to their wrongful conduct or negligence, in the same way that trustees and receivers, as officers of the court with obligations to the estate, can be surcharged. This argument represents too broad a simplification.

The law regarding surcharge of bankruptcy trustees and receivers already extends well beyond the language of the bankruptcy statutes. One commentator has noted:

The bankruptcy trustee and receiver are creatures of the Bankruptcy Act. Their actual nature, however, is shaped by the peculiar needs and purposes of bankruptcy, and inadequacies in the Act itself. The Act, while enumerating many of the specific duties, rights, and powers of trustees and receivers in bankruptcy, was not designed to be nor has it proven to be the final word in all questions concerning the personal liability of bankruptcy officers. Rather, courts have found it necessary...