In re T & D Tool, Inc.

• Decision Date: 07 March 1991
• Docket Number: Civ. A. No. 90-7214.
• Parties: In re T & D TOOL, INC.
• Court: U.S. District Court — Eastern District of Pennsylvania

125 B.R. 116 (1991)

In re T & D TOOL, INC.

Civ. A. No. 90-7214.

United States District Court, E.D. Pennsylvania.

March 7, 1991.

Jeffrey V. Matteo, Fox and Fox, Norristown, Pa., for T & D Tool, Inc.

Stephen Raslavich, Broad and Chestnut Sts., James J. O'Connell, Asst. U.S. Trustee, Philadelphia, Pa., for trustee.

MEMORANDUM AND ORDER

HUTTON, District Judge.

Presently before the Court is the unopposed appeal of Fox & Fox, counsel for debtor, T & D Tool & Die, Inc. ("Tool & Die" or the "debtor"), from an Order of the Bankruptcy Court for the Eastern District of Pennsylvania, Scholl, J., dated September 20, 1990. The appellant seeks an order directing the Bankruptcy Court to award $4,053.00 as compensation for legal services rendered the debtor in connection with the underlying bankruptcy proceeding. For the following reasons, the Bankruptcy Court's Order of September 20, 1990 is REVERSED in part and AFFIRMED in part, and REMANDED for proceedings consistent with this decision.

I. FACTS

Fox & Fox is a law firm located at 706 One Montgomery Plaza in Norristown, Pennsylvania. On December 11, 1989, Tool & Die authorized the firm to file a voluntary petition for Chapter 11 bankruptcy. The petition was filed with the Bankruptcy Court on December 14, 1989 designating Jeffrey V. Matteo, Esquire ("Matteo") of Fox & Fox as Tool & Die's counsel.

On May 10, 1990, the Tool & Die filed a motion to have Fox & Fox appointed as counsel. The motion specified, in relevant part, as follows:

2. Moving party requires the assistance of counsel to prepare the Petition, Statements and Schedules, Disclosure Statement, Reorganization Plan, Motion for Approval of Disclosure Statement, and needs the services of counsel to negotiate with creditors, secure acceptances for the plan of reorganization, and defend the debtor against adversary proceedings filed by creditors and holders of executory contracts.

3. T & D Tool & Die, Inc. has no connection with Fox & Fox, other than representation in this matter, and for representation in a previous Chapter 11 Bankruptcy proceeding. Debtor has no interest to the law firm of Fox and Fox.¹

* * * * * *

5. Debtor paid Fox & Fox a retainer of $1,500 on December 12, 1986, out of which Fox & Fox paid the Chapter 11 filing fee on December 14, 1989. Debtor agreed that counsel would bill debtor at the rate of $100.00 per hour, and that counsel would work against the unused portion of the retainer and would bill the debtor if additional fees earned, all of which is subject to later approval of this Court.

6. Counsel for the debtor will file an application for counsel fees at the time of, or shortly after, confirmation of the reorganization plan.

Record on Appeal, Document # 30.

By notice from the Clerk of the Bankruptcy Court dated May 21, 1990, creditors and parties in interest were informed of the debtor's motion for appointment of Fox & Fox as counsel. The notice, in pertinent part, reads as follows:

Any creditor or party in interest may file an answer, objections or other responsive pleading, or request a hearing, stating the reasons why a hearing is necessary, with the Clerk, U.S. Bankruptcy Court, 3726 U.S. Courthouse, 601 Market Street, Philadelphia, PA 19106, and serve a copy on the counsel forth applicant, whose name an address appear below,² on or before 20 days from the date of this notice.

In the absence of the foregoing answers, objections, responsive pleadings or requests for hearing, counsel for the debtor shall certify that fact within twenty-five days from the date of this notice, the absence of such filing and serving, and the Court may, upon consideration of the record, grant the application.

Record on Appeal, Document # 34.

On May 24, 1989, Fox & Fox filed a Praecipe To Convert To Chapter 7. Record on Appeal, Document # 32. By Order of the Bankruptcy Court dated June 1, 1990, the Chapter 11 reorganization was converted to a Chapter 7 liquidation. Record on Appeal, Document # 35.

On June 19, 1990, Matteo filed a certification with the Bankruptcy Court indicating that no answer, objection, other responsive pleading or request for a hearing had been served upon debtor's counsel. The certification also requested that the motion for appointment of counsel be granted. Record on Appeal, Document # 36.

On August 15, 1990, the Bankruptcy Court mailed an Amended Notice of Application for Compensation which provided as follows:

To the Debtor, Counsel for the Debtor, all Creditors and Parties in interest, NOTICE IS GIVEN THAT:

Debtor\'s counsel does hereby seek approval of compensation of $4,053.00 representing a fee of $3,450.00 and expenses of $603.00 through July 31, 1990.

The counsel fee and expenses requested in connection with the Chapter 11 case is $3,142.00, representing a fee of $2,575.00 and expense of $567.00

The counsel fee and expenses requested in connection with the Chapter 7 case of $875.00, representing a fee of $875.00 and expense of $36.00 through July 31, 1990.

The attorney\'s fee herein is based on 34½ hours. This includes 25¾ spent in connection with the Chapter 11 case, and 8¾ hours spent n connection with the Chapter 7 case. Petitioner\'s normal rate for matters of average difficulty is One Hundred Dollars ($100.00 per hour).

Any creditor or party in interest may file an answer, objections or other responsive pleading, or request a hearing, stating the reasons why a hearing is necessary, with the Clerk, U.S. Bankruptcy Court, 3726 U.S. Courthouse, 601 Market Street, Philadelphia, PA 19106, and serve a copy on the counsel forth applicant, whose name an address appear below,³ on or before 20 days from the date of this notice.

In the absence of the foregoing answers, objections, responsive pleadings or requests for hearing, counsel for the debtor shall certify that fact within twenty-five days from the date of this notice, the absence of such filing and serving, and the Court may, upon consideration of the record, grant the application.

Record on Appeal, Document # 65.

On September 13, 1990, Fox & Fox certified to the Bankruptcy Court that no answer, objection, other responsive pleading or request for a hearing had been received. The certification requested, inter alia, that the fees in the case be approved. Record on Appeal, Document # 69.

By Order dated September 20, 1990, the Bankruptcy Court denied the request for fees in connection with the Chapter 11 case. The Bankruptcy Court reasoned that the Fox & Fox was never appointed counsel for the debtor in the Chapter 11. With regard to the Chapter 7, the Bankruptcy Court awarded Fox & Fox $475.00 in counsel fees plus $24.00 in costs. This appeal followed.

II. DISCUSSION

A. Standard

A district court's review on the bankruptcy court's factual findings is under the clearly erroneous standard. F/S Airlease II, Inc. v. Simon, 844 F.2d 99, 103 (3d Cir.), cert. denied, 488 U.S. 852, 109 S.Ct. 137, 102 L.Ed.2d 110 (1988). Conclusions of law are subject to plenary review. Id.; see also Matter of Highway Truck Drivers and Helpers Local Union, 98 B.R. 698, 702 (E.D.Pa.), vacated on other grounds, 888 F.2d 293 (3d Cir.1989). The bankruptcy court has broad discretion to deny attorney's fees, and the bankruptcy court's decision in that regard will be disturbed on appeal only upon a showing of abuse of discretion. In re Lawrence A. Paster, 119 B.R. 468, 469 (E.D.Pa.1990) (11 U.S.C. § 330) (citing In re Metro Transp. Co., 107 B.R. 50, 51 (E.D.Pa.1989)); In re Philadelphia Athletic Club, Inc., 38 B.R. 882, 883 (Bankr.E.D.Pa.1984) (11 U.S.C. § 328(c)).

B. Analysis

A debtor-in-possession is afforded certain rights, powers and duties under the Bankruptcy Code. 11 U.S.C. § 1107 (1979 & Supp.1990). Section 1107(a) provides as follows:

Subject to any limitations on a trustee serving in a case under this chapter, and to such limitation or conditions the court prescribes, a debtor in possession shall have all the rights, other than the right to compensation under section 330 of this title, and powers, and shall perform all the functions and duties, except the duties specified in sections 1106(a)(2), (3), and (4), of this title, of a trustee serving in a case under this chapter.

11 U.S.C. § 1107(a) (Supp.1990). With court approval, a trustee under Chapter 11 may employ attorneys to assist in the performance of the trustee's duties. 11 U.S.C. § 327 (1979 & Supp.1990). Section 327(a) provides:

(a) Except as otherwise provide in this section, the trustee, with the court\'s approval, may employ one or more attorneys, accountants, appraisers, auctioneers, or other professional persons, that do not hold or represent an interest adverse to the estate, and that are disinterested persons, to represent or assist the trustee in carrying out the trustees\' duties under this title.

11 U.S.C. § 327(a)(1979). See also Bankruptcy Rule 2014(a).

Section 327 is applicable to debtors in possession seeking appointment of counsel under § 1107. In re Auto West, Inc., 43 B.R. 761, 762 n. 2 (Bankr.D.Utah 1984); see also Temp-Way Corp v. Continental Bank, (In re Temp-Way Corp.), 95 B.R. 343, 345 (E.D.Pa.1989) (Bechtle, J.). Accordingly, an attorney for the debtor must meet the requirements of § 327(a). In re Watson, 94 B.R. 111, 114 (Bankr.S.D. Ohio 1988), reconsideration denied, 102 B.R. 112 (Bankr.S.D.Ohio 1989); In re Giant Markets, Inc., 28 B.R. 335, 336 (Bankr. M.D.Pa.1983). This includes the requirement that attorneys obtain court authorization before performing services for a debtor in possession. In re Fruits Int'l, Inc., 87 B.R. 769, 771 (Bankr.D.P.R.1988). Bankruptcy Courts are entitled to disallow any compensation to attorneys who provide services to Chapter 11 debtors without court approval. In re Lewis, 30 B.R. 404, 405 (Bankr.E.D.Pa.1983) (citing In re Hydrocarbon Chemicals, Inc., 411 F.2d 203 (3d Cir.), cert. denied, 396 U.S. 823, 90 S.Ct. 76, 24 L.Ed.2d 74 (1969); In re Calpa Prods. Co., 411 F.2d 1373 (3d Cir.1969)); see also Ibbetson v....