Downtown Properties, Ltd., In re, 85-7567

Decision Date24 July 1986
Docket NumberNo. 85-7567,85-7567
Citation794 F.2d 647
Parties, Bankr. L. Rep. P 71,264 In re DOWNTOWN PROPERTIES, LTD., an Alabama Limited Partnership, Debtor. AMSOUTH BANK, N.A., Plaintiff-Appellant, v. John L. HARTMAN, Jr., Gary E. Smith, II, Trust; Thomas E. Reynolds, Trustee, Defendants-Appellees.
CourtU.S. Court of Appeals — Eleventh Circuit

W.B. Hairston, Jr., William B. Hairston, III, Birmingham, Ala., for plaintiff-appellant.

Joseph A. Fawal, Fawal & Spina, Birmingham, Ala., for defendants-appellees.

Thomas E. Reynolds, pro se.

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

Before CLARK, Circuit Judge, and TUTTLE and HENDERSON, * Senior Circuit Judges.

HENDERSON, Senior Circuit Judge:

This appeal arises out of an interpretation by the United States Bankruptcy Court for the Northern District of Alabama of a consent decree entered into by the parties in a bankruptcy proceeding. The bankruptcy court altered the terms of the consent decree because of what it perceived to be a mutual mistake and the district court affirmed that decision. After a review of the pleadings and the record, we conclude that the findings of the bankruptcy court are clearly erroneous and reverse the judgment of the district court.

On February 15, 1983, Downtown Properties, Ltd., an Alabama limited partnership, filed a Chapter 11 bankruptcy petition. The bankrupt estate consisted of two office buildings located in downtown Birmingham. The buildings were subject to a tax lien by the State of Alabama and three mortgages. At the time of the appointment of a bankruptcy trustee there were no funds in the estate. The trustee then negotiated a contract on behalf of the estate to sell the buildings for $380,000.00. The bankruptcy court held a hearing on November 4, 1983 to inform all of the creditors of the proposed sale. At this meeting, these creditors, the trustee, and the debtor agreed to a consent order approving the sale of the buildings. This order provided that the proceeds from the sale would be distributed as follows:

1) Payment in full of all taxes due the State of Alabama;

2) Payment in full of the first mortgage in the amount of $189,825.75 plus interest;

3) Payment of $130,000.00 to the second mortgagee in satisfaction of that mortgage;

4) Payment of $10,000.00 to the third mortgagee in satisfaction of that mortgage;

5) Payment to Trustee for Administrative Expenses;

6) Payment of the remaining funds to the unsecured creditors.

Record Excerpts at 10.

The thrust of the consent decree was that the State of Alabama and the first mortgagee would be paid in full; the second and third mortgagees accepted partial payment in full satisfaction of their claims; and the unsecured creditors would receive reimbursement out of the remaining proceeds. The attorney for the second mortgagee stated that he was taking less money than he was entitled to in order to facilitate the sale, "but in the event this contract doesn't close, ... I want my claim approved by the court for the amount that I have submitted." See Tr. of Nov. 4, 1983, Bank.Pro. at 8. Also at the November 4th meeting, the trustee indicated that the estate might be enhanced by as much as $20,000.00 because of a recently filed insurance claim.

On November 21, 1983, the estate received $10,218.00 in insurance proceeds. On December 29, 1983, the sale of the buildings was consummated. Subsequently, the second mortgagee filed an amendment to his claim for the proceeds alleging that he was entitled to the additional insurance money previously paid into court. On August 9, 1984, the bankruptcy court held a hearing to determine the final distribution of the estate. The bulk of this meeting was devoted to a dispute over the fee applications submitted by the debtor's attorney and the trustee. The attorney for the second mortgagee opposed the requested fees as being unreasonably high. Tr. of Aug. 9, 1984 Bank.Pro. at 18. He also stated that if the fees were not allowed in full his client would be entitled to the remaining proceeds in the estate after the unsecured creditors were paid in full. Id.

In October, 1984 the bankruptcy court issued an order awarding compensation to the lawyers and the trustee. Thomas Reynolds, acting as the trustee and trustee's attorney, received the aggregate sum of $5,622.52 and David L. Vann, the debtor's attorney, received $2,082.00. The second mortgagee filed a motion to reconsider that order and a motion to prevent the trustee from disbursing the funds in accordance with the consent decree. These motions were addressed by the bankruptcy court at a hearing held on November 29, 1984. At this hearing, the second mortgagee again contended that the fees awarded the trustee and the debtor's attorney were excessive. He also asserted, for the first time, that his right to receive more than the $130,000.00 allotted to him in the consent decree was superior to the rights of the unsecured creditors. Tr. of Nov. 29, 1984, Bank.Pro. at 4-5. He claimed that his agreement to sign the decree was based on the trustee's promise to accept reasonable compensation for his services and that the trustee failed to live up to that promise. Id. at 6, 23. At the end of the meeting, the trustee stated that he felt that the second mortgagee had taken a "180 degree about face ... [and] that to confirm the assertions made by the [second mortgagee], today would put a blessing of the Court on a breach of contract." Id. at 24. The bankruptcy court continued the hearing to December 14, 1984.

At the next hearing, the second mortgagee represented that, "at the time we were talking about the sale of the building, I specifically reserved any claim that I had ... anticipating that there would be excess funds from the sale of the building. ... Persuant [sic] to that ... I filed an amended claim to the balance of the monies.... If I gave up my position as a secured creditor, the worse [sic] position I should be in is that of an unsecured creditor." Tr. of Dec. 14, 1984, Bank.Pro. at 7, 9-10. The second mortgagee further stated that he was entitled to a pro rata share of the remaining funds in the estate with the other unsecured creditors. This position, however, was contradicted by the attorney for AmSouth Bank (AmSouth), an unsecured creditor and the appellant in this appeal. AmSouth contended that the second mortgagee had agreed to accept monies in excess of $130,000.00 only if there were funds left after the estate's expenses were paid and the unsecured creditors received full payment. Id. at 22. The trustee expressed his agreement with AmSouth that the second mortgagee's claims were limited to funds remaining after the unsecured creditors were paid in full. Id. at 23-24.

At the end of this hearing, the bankruptcy judge stated that he intended to award the trustee the amount of fees indicated in his previous order. Then, for the first time, the second mortgagee urged that he should be relieved of his obligations under the consent decree because of the additional $10,218.00 of insurance money that came into the estate after the agreement was signed but before the close of the sale. He stated that he had no knowledge at the time of the agreement that the additional money would become a part of the estate. Id. at 49-50. Despite AmSouth's strong protests, the bankruptcy judge agreed with the second mortgagee's argument and stated that he would prepare an order to that effect.

On January 8, 1985, the bankruptcy court issued its final order. The court first reaffirmed its previous order awarding fees to the trustee and the debtor's attorney. The court then made the factual findings that the second mortgagee entered into the consent decree without knowing that additional funds were potentially available, and that for that reason, he agreed to expedite the sale. The court concluded that the agreement should be modified and impressed an "equitable lien" on the insurance money in favor of the second mortgagee.

AmSouth appealed the bankruptcy court's order to the United States District Court for the Northern District of Alabama claiming that the consent decree should have been enforced and that the unsecured creditors were entitled to the insurance proceeds. The second mortgagee filed a cross-appeal contending that the fees awarded the trustee were unreasonable. On July 29, 1985 the district court affirmed the bankruptcy court's order awarding the insurance money to the second mortgagee on the basis of mutual mistake but remanded the issue of attorneys' fees to the bankruptcy court for a discussion of the factors enunciated in Johnson v. Georgia Highway Express, 488 F.2d 714 (5th Cir.1974). AmSouth then appealed that order to this court.

Before turning to the merits of this appeal, there is a matter of our jurisdiction for resolution. Although jurisdiction of the appeal was not challenged before oral argument, it was raised by the court at that time and we are obligated to examine it sua sponte. See Martin v. Campbell, 692 F.2d 112, 114 (11th Cir.1982).

If the bankruptcy court had awarded less fees upon remand there may have been enough money remaining in the estate to completely pay off AmSouth's claim and moot this appeal. Therefore, the district court's order was not final for the purposes of 28 U.S.C.A. Sec. 1293(b) which requires that appeals to this court be taken from a final judgment, order or decree. See In Re Regency Woods Apartments, Ltd., 686 F.2d 899, 901 (11th Cir.1982). AmSouth contends, however, that the district court's judgment is appealable under the collateral order doctrine of Cohen v. Beneficial Industrial Loan Corp., 337 U.S. 541, 69 S.Ct. 1221, 93 L.Ed. 1528 (1949). Under Cohen, for a non-final order to be reviewable it must be (1) independent and easily separable from the other claims in the action, (2) present a need to secure prompt review in order to protect the important interests of a party, and (3)...

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