Southwestern Media, Inc. v. Rau

Decision Date24 May 1983
Docket NumberNo. 81-5918,81-5918
Citation708 F.2d 419
PartiesSOUTHWESTERN MEDIA, INC., Plaintiff-Appellant, v. Albert M. RAU and Henry Jacobowitz, Defendants-Appellees.
CourtU.S. Court of Appeals — Ninth Circuit

Randall I. Barkan, Sternberg & Barkan, Oakland, Cal., for plaintiff-appellant.

Henry Jacobowitz, Kaplan, Jacobowitz, Hendricks & Bosse, P.A., Phoenix, Ariz., for defendants-appellees.

Appeal from the United States District Court for the District of Arizona.

Before DUNIWAY, SKOPIL, and FLETCHER, Circuit Judges.

FLETCHER, Circuit Judge:

This is an appeal from the district court's judgment enforcing the bankruptcy court's award of compensation to appellees, receiver-trustee Albert M. Rau and his attorney

                Henry Jacobowitz. 1   Appellee Jacobowitz moves to dismiss the appeal on the basis that the appellant named in the notice of appeal is Southwestern Media, Inc.  (Southwestern Media), an Arizona corporation, which has no standing to appeal because it was not a party to the proceedings before the district court.  Plaintiffs in the district court case were a group of minority shareholders, Southwestern Media Group (SWM Group).  We deny the motion to dismiss, affirm the award to Rau, and reverse and remand the award to Jacobowitz
                
FACTS

Southwestern Media, was formed in 1976 to buy and operate a radio station in Phoenix, Arizona. Southwestern Media purchased from KBUZ, Inc. (KBUZ) two broadcasting licenses and broadcasting equipment for $1,200,000, paying $200,000 down and issuing to KBUZ a promissory note for the $1,000,000 balance. The note was secured by the transferred assets, and the principal shareholders personally guaranteed $400,000 of the deferred purchase price.

On April 6, 1978, Southwestern Media filed a Chapter XI bankruptcy petition. At the time, the corporation had liabilities of $1,721,890 but assets at book of only $1,113,032, resulting in a deficit net worth of $608,858. On July 3, 1978, the SWM Group estimated the fair market value of the corporation's assets to be approximately $1,800,000.

Albert Rau was appointed receiver on June 26, 1978 and trustee on August 2, 1978. Attorney Henry Jacobowitz represented Rau in both of Rau's capacities.

When Rau began his duties, he found the corporation in serious financial difficulty and in danger of going off of the air, which would have decreased Southwestern Media's value. Rau kept the stations running while he and Jacobowitz looked for a purchaser. Tentative agreement was reached on a sale to Capitol Radio, Inc. This buyer agreed to purchase all assets for $1,500,000, subject to KBUZ's lien that secured a promissory note of $1,000,000 plus interest, and to assume the promissory note or issue its own note to the bankruptcy court.

Before this sale was confirmed, another prospective purchaser called the Forney Group made a more favorable offer, to purchase the station for $1,850,000, also subject to the lien securing the KBUZ note. The Forney Group, as had Capitol Radio, agreed to obtain the release of the two shareholders from their personal guarantees to KBUZ. KBUZ agreed not to oppose the sale as long as the Forney Group met certain conditions and assumed the promissory note. Provided the same conditions were met, KBUZ also agreed to reinstate the promissory note's term-payment provisions. The bankruptcy court approved and confirmed the sale. The Forney Group paid $160,000 down and later paid $142,000 in expense money, which the trustee used to operate the station. When the Forney Group could not post a letter of credit, the bankruptcy court cancelled the sale and ordered the trustee to refund the $160,000 down payment, but not the $142,000 expense money.

Rau was thus forced to raise $160,000 to repay to the Forney Group, and to find a new buyer. Meanwhile, as a result of a successful change in format, the value of the radio station licenses increased. Western Cities Broadcasting, Inc. (Western Cities) offered to purchase the station's licenses and other assets for $2,500,000 in cash, the assets to be transferred free and clear of all liens. The form of this transaction enabled the trustee to pay the outstanding balance on the KBUZ note, secure the release of the lien, and thereby eliminate On April 8, 1981, Rau and Jacobowitz applied for final compensation for their services in connection with the bankrupt estate. Rau requested $15,000 for his services as receiver and $66,020.06 for his fee as trustee. Jacobowitz asked for $5,000 for his work as attorney for Rau in his capacity as receiver and for a fee of $51,712.23 for his services on behalf of Rau in his capacity as trustee. The bankruptcy court approved these requested fees. In its order granting the fees, the court stated that the requested fees were "fair, reasonable and proper," and that the administration of the estate had been "very successful." The bankruptcy court further ordered $71,617.43 paid into the referees' salary and expense fund.

the need to obtain KBUZ approval of the buyer. In addition, the terms of the sale allowed the trustee to make the refund to the Forney Group and to pay for operating expenses. The bankruptcy court approved the sale to Western Cities on August 7, 1979. The sale was closed on February 15, 1980. On that same day, the remaining purchase price was collected and the KBUZ promissory note was paid. By the end of 1980, over $600,000 had been distributed to the two shareholder groups. All creditors were paid in full, and more money may be returned to the shareholders in the future.

The SWM Group of minority shareholders appealed from the fee awards to the district court, which affirmed. The SWM Group's attorney then filed a timely notice of appeal to this court. On the notice of appeal, "Southwestern Media, Inc.," rather than "the SWM Group," was listed as the appellant. We consider the variance to constitute a simple misnomer 2 and turn to the merits of the appeal.

DISCUSSION
I. Standard of Review

A trial court has discretion to determine reasonable compensation for services rendered in bankruptcy proceedings. See In re THC Financial Corp., 659 F.2d 951, 954 (9th Cir.1981), cert. denied, 456 U.S. 977, 102 S.Ct. 2244, 72 L.Ed.2d 852 (1982). Such a fee award will be upheld unless the awarding court abused its discretion or erroneously applied the law. See In re York International Building, Inc., 527 F.2d 1061, 1068 (9th Cir.1975). The bankruptcy court's findings of fact are binding on the district court and this court unless clearly erroneous. See In re Howell, 638 F.2d 81, 82 (9th Cir.1980). Because appellate courts are competent to assess the value of services rendered in a bankruptcy proceeding, however, we are not bound by the bankruptcy court's evidentiary finding that a particular fee rate is reasonable. See In re York International Building, Inc., 527 F.2d at 1068.

II. The Trustee's Fiduciary Duty

The SWM Group argues that Rau as trustee was guilty of a conflict of interest and breached his fiduciary duty by structuring the sale in a way that both increased his fee by $22,722, and cost the estate an additional $30,084 in extra commissions paid to the referees' salary and expense fund. 3

The appellants' challenge to the trustee's actions in this case is based upon the following theory. Under the Bankruptcy Act, a trustee's maximum compensation is calculated as a percentage of "all moneys disbursed or turned over by [the trustee] to any persons, including lienholders." 11 U.S.C. Sec. 76(c) (1976). When assets of the estate are sold free and clear of liens held by secured creditors, the entire sale price, including the amount used to pay off the liens, is counted for purposes of establishing the trustee's fee base. See 2 Collier on Bankruptcy p 326.01[b] (15th ed. 1982); see also H.R.Rep. No. 595, 95th Cong., 1st Sess. 327 (1977), U.S.Code Cong. & Admin.News 1978, p. 5787 (similar rule applies under Bankruptcy Reform Act). The appellants, however, contend that when an encumbered asset is sold to a third party purchaser subject to the existing lien, only the equity proceeds from the sale may be considered in calculating the trustee's maximum fee. Therefore, the appellants argue, by selling the radio station "free and clear" of the KBUZ lien, rather than "subject to" that lien, Rau as trustee chose to structure the transaction in a way that resulted in his own personal gain at the expense of the estate. The appellants maintain that this was a breach of fiduciary duty by the trustee.

The contention that a sale subject to existing liens does not incorporate the value of the encumbered portion of an asset into the trustee's fee base finds some support in existing authorities. See 2 Collier on Bankruptcy p 326.01[b] (15th ed. 1982); American Surety Co. v. Freed, 224 F. 333, 338-39 (3d Cir.1915). The proffered interpretation, however, is not necessarily consistent with the policy underlying the statutory provision allowing sale proceeds used to liquidate liens to be counted in determining the trustee's fee maximum. Under the old Bankruptcy Act as under the new Reform Act, the provision serves "the purpose of insuring to trustees compensation commensurate with the trustees' services." 2 Collier on Bankruptcy p 326.01[b], at 326-17 (15th ed. 1982). The statute recognizes that the trustee's administration of an estate containing encumbered assets may sometimes prove equally difficult and time-consuming as if the assets were unencumbered. Insofar as it is solely designed to procure a just fee for the trustee, this policy appears to be unaffected by whether the eventual disposition of the encumbered assets is "free and clear of" or "subject to" the liens. 4 For this reason, courts have sometimes treated the sale of an encumbered asset as one that includes a constructive disbursement to the lien creditor, even as to the portion of the asset's value that does not actually enter the estate and is not...

To continue reading

Request your trial
79 cases
  • Patterson v. Kelso
    • United States
    • U.S. District Court — Eastern District of California
    • August 1, 2016
    ...acting within court authorization) (citing Lonneker Farms, Inc. v. Klobucher, 804 F.2d 1096, 1097 (9th Cir. 1986); Sw. Media, Inc. v. Rau, 708 F.2d 419, 425 (9th Cir. 1983)), and other courts considering similar allegations against defendant have found him to be entitled to quasi-judicial i......
  • In re Republic Financial Corp.
    • United States
    • U.S. Bankruptcy Court — Northern District of Oklahoma
    • June 25, 1991
    ...McCombs, 751 F.2d 286, 287-288 (8th Circ.1984), In re Nucorp Energy, Inc., 764 F.2d 655, 657 (9th Circ.1985), Southwestern Media, Inc. v. Rau, 708 F.2d 419, 422 (9th Circ.1983), In re Western Real Estate Fund, Inc., 922 F.2d 592, 598 (10th Circ. 1990), In re Mullendore, 527 F.2d 1031, 1038 ......
  • Nucorp Energy, Inc., In re
    • United States
    • U.S. Court of Appeals — Ninth Circuit
    • June 25, 1985
    ...fees will not be disturbed on appeal absent an abuse of discretion or an erroneous application of the law. See Southwestern Media, Inc. v. Rau, 708 F.2d 419, 422 (9th Cir.1983); In re York International Building, Inc., 527 F.2d 1061, 1068 (9th Cir.1975). Luce, Forward contends that the bank......
  • Candler v. Arya
    • United States
    • U.S. District Court — Eastern District of California
    • February 28, 2020
    ...acting within court authorization) (citing Lonneker Farms, Inc. v. Klobucher, 804 F.2d 1096, 1097 (9th Cir. 1986); Sw. Media, Inc. v. Rau, 708 F.2d 419, 425 (9th Cir. 1983)), and other courts considering similar allegations against defendant have found him to be entitled to quasi-judicial i......
  • Request a trial to view additional results

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT