Consolidated Bancshares, Inc., Matter of
| Decision Date | 28 March 1986 |
| Docket Number | No. 85-1626,85-1626 |
| Citation | 785 F.2d 1249,14 B.C.D. 401 |
| Parties | , Bankr. L. Rep. P 71,061 In the Matter of Consolidated Bancshares, Inc., d/b/a Consolidated Investors, Inc., Debtor. Pierson & Gaylen, Ray & Terrell & Grubbs, et al., Plaintiffs-Appellants Cross- Appellees. v Creel & Atwood and Jack Bryant, Defendants-Appellees Cross-Appellants. Summary Calendar. |
| Court | U.S. Court of Appeals — Fifth Circuit |
Garrett & Settle, Gregory A. Whittmore, Rufus S. Garrett, Jr., Fort Worth, Tex., for plaintiffs-appellants cross-appellees.
William T. Neary, Atty.-Advisor, Dallas, Tex., amicus for neither party Acting U.S. Trustee for North Texas.
Jack Bryant pro se.
Paul B. Geilich, John B. Atwood, III, Dallas, Tex., for Creel & Atwood and Jack Bryant.
Appeals from the United States District Court for the Northern District of Texas.
Before RUBIN, JOHNSON and JONES, Circuit Judges.
Court-approved counsel for the debtor and non-court approved counsel for a group of disgruntled shareholders appeal from an order of the district court, 49 B.R. 467 (Bankr.N.D.Tex.1985), which affirmed the bankruptcy court's determination of their fee applications. Whether the bankruptcy court abused its discretion or clearly erred in denying compensation claimed for professional services rendered by the shareholders' attorneys pursuant to 11 U.S.C. Secs. 503(b)(3)(D) and 503(b)(4) (1984) and in failing to provide a bonus to debtor's counsel are the principal issues in this case. With one exception, we find ample support in the record for the lower courts' conclusions.
The debtor, Consolidated Bancshares, Inc. (Consolidated or debtor), is a holding company for shares of Abilene National Bank (ANB). In the early 1980's, ANB experienced financial difficulties (largely because of oil-related loans), and after a series of adverse bank examinations, the FDIC demanded that the bank raise an additional $30,000,000 capital. Principals of Consolidated contracted for a $16,000,000 capital infusion and requested additional time to raise the rest of the requirement.
Refusing to grant the extension of time, the regulatory agencies gave ANB an ultimatum: ANB could either be closed immediately and taken over by federal agencies, or it could be acquired by Mercantile Texas Corporation in satisfaction of a note. The officers of Consolidated decided to and did transfer ownership of ANB to Mercantile.
Some of Consolidated's shareholders disagreed with this course of action and filed a shareholders' derivative suit in state court in September, 1982 against Consolidated, certain of its officers and directors, and Mercantile. The shareholders, referred to as the "Grubbs group," have been represented by the law firms of Ray & Terrell, and Pierson & Gaylen, appellants herein. On a defense motion, venue of the lawsuit was transferred to Dallas County, Texas. No further action in this lawsuit was undertaken until after the bankruptcy petition was filed. The shareholders removed the lawsuit to bankruptcy court in the fall of 1984. A scheduling conference was set in the adversary proceeding but was never held because of the filing of a plan of reorganization.
On December 3, 1982, the instant Chapter 11 case was filed. An equity shareholders' committee (the Committee) was formed to represent the interests of all shareholders of the debtor 1 and the bankruptcy court authorized the committee to retain counsel on May 9, 1983 to further these interests.
The debtor instituted two lawsuits against Mercantile Bank which questioned the stock transfer. Debtor commenced an adversary proceeding for damages from Mercantile exceeding $56,000,000 under a fraudulent conveyance theory. Ina separate adversary proceeding, the debtor successfully sought to enjoin Mercantile from foreclosing under certain stock pledges.
Sometime during the summer of 1984, the debtor, banks, and Committee began negotiations which culminated in the filing of a proposed plan of reorganization. The plan called for a global settlement of the three lawsuits pending among the debtor, the Bank and the Grubbs group. It provided that all creditor claims would be satisfied in full and that the shareholders would receive benefits from a settlement fund which initially totalled $5.4 million. Additionally, all three lawsuits would be dismissed with prejudice.
The Grubbs group objected to confirmation of the plan by attacking the bankruptcy court's power to settle the derivative lawsuit over their opposition. The court overruled this objection at the close of the confirmation hearing, confirmed the plan, and the three lawsuits were dismissed shortly thereafter. The order of confirmation has not been appealed.
This court reviews the bankruptcy court's findings of fact under the clearly erroneous standard, see Bankr.R.P. 8013; Richmond leasing Co. v. Capital Bank, N.A., 762 F.2d 1303, 1308 (5th Cir.1985), but the bankruptcy court's conclusions of law are subject to de novo review. Richmond Leasing Co., 762 F.2d at 1307. This court is mindful of the fact that, absent such errors, "district courts and the bankruptcy judges have broad discretion in determining the amount of attorneys' fees to award as compensation for services performed in connection with bankruptcy proceedings, and their exercise of that discretion will not be disturbed by an appellate court absent a showing that it was abused." In re First Colonial Corp. of America, 544 F.2d 1291, 1298 (5th Cir.), cert. denied, 431 U.S. 904, 97 S.Ct. 1696, 52 L.Ed.2d 388 (1977).
Grubb's attorneys filed fee applications seeking from this bankruptcy estate an allowance of $231,947.50 for their services. The Committee, the debtor and the United States Trustee for the Northern District of Texas unanimously contested the applications. After a hearing, the bankruptcy court refused to award fees because it could not "find that [the Grubbs group attorneys'] actions made a 'substantial contribution' to the proceeding." The court based this finding on several factors. First, an equity security holders' Committee, appointed by the bankruptcy court, officially represented all shareholders of the estate. Therefore, any work performed by the attorneys for the Grubbs shareholder group after the formation of the committee had resulted in a needless duplication of time and effort. Second, the bankruptcy court found that the shareholder suit was not handled in the most expeditious and efficient manner and was motivated by Grubb's personal interest in ANB and not for the benefit of the Chapter 11 estate. Third, the bankruptcy court found that the derivative action was meritless because the pending state lawsuit became property of the estate once the bankruptcy petition was filed. As such, the lawsuit could have been dismissed for lack of a proper party plaintiff, i.e., the debtor, and therefore had little value to the bankruptcy estate.
The Grubbs group attorneys contend that the bankruptcy court erred for three reasons. First, they believe their derivative action was the real motivating factor behind the filing and confirmation of a successful plan, hence its pursuit made a substantial contribution to the estate. Second, the bankruptcy court erred legally because its opinion assumed a duplication of services without comparing the Grubbs attorneys' activities with those of the court-appointed Committee. Finally, the Grubbs group argues that the bankruptcy court erred as a matter of law becuase it did not "[opine] as to the value of the derivative action."
The applicable sections of the Bankruptcy Code provide that the court may award the actual, necessary expenses incurred by a creditor, including his attorneys' fees, if he has made "a substantial contribution in a case under chapter 9 or 11 of this title." 11 U.S.C. Secs. 503(b)(3)(D), 503(b)(4) (1984). The legislative history is not fully instructive for the present case. 2
However, the policy aim of authorizing fee awards to creditors is to "promote meaningful creditor participation in the reorganization process." In re General Oil Distributors, 51 B.R. 794, 805 (Bankr.E.D.N.Y.1985); In re Calumet Realty Co., 34 B.R. 922, 926 (Bankr.E.D.Pa.1983). Further, "services which substantially contribute to a case are those which foster and enhance, rather than retard or interrupt the progress or reorganization." In re White Motor Credit Corp., 15 B.R. 854, 885, 892 (Bankr.N.D.Ohio 1985) (quoting In re Richton Intern'l Corp., 15 B.R. 854, 856 (Bankr.S.D.N.Y.1981)). Compensation has been denied where the services rendered by the creditor or shareholder were only "remotely related to the reorganization," In re General Oil Distributors, 51 B.R. at 806, on the theory that "a creditor's attorney must ordinarily look to its own client for payment, unless the creditor's attorney rendered services on behalf of the reorganization, not merely on behalf of his client's interest, and conferred a significant and demonstrable benefit to the debtor's estate and the creditors." Id. (emphasis added). The inquiry regarding a substantial contribution is one of fact.
Appellants anomalously contend that their derivative lawsuit was the real motivation behind the successful plan which was confirmed. If that is true, the success of the Grubbs group fee application will place them in a "Heads I win, tails you lose" position. they objected to the "successful plan" and prolonged the confirmation hearing by claiming that the plan could not involuntarily compromise their derivative action. Having lost that fight, they claim victory for the entire estate attributable to their efforts to "further" the plan. Their position is clearly distinguishable from that of the creditor in In re W.G.S.C. Enterprises, 47 B.R. 53 (Bankr.N.D.Ga.1985), whose objection to confirmation resulted in...
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