F/S AIRLEASE II, INC. v. Simon

• Citation: 84 BR 389
• Decision Date: 21 October 1986
• Docket Number: Civ. A. No. 86-1047,86-1048 and 86-1050.,Bankruptcy No. 84-1628
• Parties: In re F/S AIRLEASE II, INC. v. Lewis SIMON and S-J Financial Corporation. F/S AIRLEASE II, INC. v. GREYCAS, INC. F/S AIRLEASE II, INC. v. SWIG INVESTMENT COMPANY.
• Court: U.S. District Court — Eastern District of Pennsylvania

84 B.R. 389 (1986)

In re F/S AIRLEASE II, INC. v. Lewis SIMON and S-J Financial Corporation.

F/S AIRLEASE II, INC. v. GREYCAS, INC.

F/S AIRLEASE II, INC. v. SWIG INVESTMENT COMPANY.

Bankruptcy No. 84-1628, Civ. A. Nos. 86-1047, 86-1048 and 86-1050.

United States District Court, W.D. Pennsylvania.

October 21, 1986.

Thomas S. Galey (argued), Pamela J. Giarla, Pittsburgh, Pa., for F/S AirLease II, Inc.

Jack Weinberg (argued), Graubard Moskovitz Dannett Horowitz & Mollen, New York City, Kirkpatrick & Lockhart, Pittsburgh, Pa., for the Swig Investment Company Aircraft Trust No. 1, George M. Cheever, Stoddard D. Platt, Robert K. Gross, of counsel.

Alan M. Epstein (argued), Kelley Drye & Warren, New York City, Reed, Smith, Shaw & McClay, Pittsburgh, Pa., for Greycas, Inc.

Philip J. Nathanson (argued), Kasdin & Nathanson, Chicago, Ill., Dickie, McCamey

& Chilcote, Pittsburgh, Pa., for Lewis Simon and S-J Financial Corporation.

MEMORANDUM OPINION

ZIEGLER, District Judge.

Debtor and two creditors appeal the bankruptcy court's approval and award of $450,000.00 to Lewis Simon and S-J Financial Corporation, appellees, for professional services rendered in obtaining a lease for debtor's Boeing 737-222 aircraft. Appellants argue that the bankruptcy court's nunc pro tunc approval is contrary to applicable law in this jurisdiction and that the court's award is unreasonable and not supported by evidence of record. We hold that appellees are entitled to nunc pro tunc approval, but we shall remand the case for a documented determination of appellees' claims.

I. History of Case

Appellees do not dispute the bankruptcy court's findings of fact. Our independent review of the record indicates that the findings are not clearly erroneous and are substantially supported by the weight of credible evidence. For the purposes of this appeal, we adopt the following findings of the bankruptcy court, as reported in Matter of F/S Airlease II, Inc., 59 B.R. 769, 771-72 (Bankr.W.D.Pa.1986):

"The Debtor is a single-asset corporation, which has the sole purpose of leasing and remarketing a certain Boeing 737-222 aircraft. This aircraft was purchased by the Debtor in July of 1980, and financing for the purchase was obtained from Greycas, Inc. (debtor's largest single creditor). The aircraft was subsequently sold and repurchased several times, the final purchaser being the Swig Investment Company Aircraft Trust No. 1 ("Swig"). Swig subsequently leased the aircraft to the Debtor for an 18-year term. At all times, Greycas continued to hold a security interest and was to be repaid from the rental proceeds received as a result of the Debtor's releasing of the aircraft.

"In February of 1980, the Debtor entered into an initial agreement with S-J, hiring it as a leasing agent to find leases for various aircrafts. In July of 1980, S-J successfully arranged for the lease of the Boeing 737-222 aircraft to Air Florida. Soon thereafter, a disagreement arose between the Debtor and S-J as to the appropriate compensation due S-J for its services. Litigation was instituted in the United States District Court for the Northern District of Illinois, which ultimately was resolved by a Settlement Agreement dated May 27, 1983. This Agreement directed that S-J would be entitled to compensation in the amount of one-half of one month's rent for each year of releasing, and would give S-J the remarketing rights to this and other aircraft, subject to the rights of the various owners and secured lenders. Additionally, the Settlement Agreement stated that S-J had a right to payment only when the Debtor received payment.

"On July 3, 1984, Air Florida, the lessee of this aircraft, filed a Chapter 11 bankruptcy, which effectively terminated the aircraft lease, leaving the aircraft available for release or sale. The Debtor immediately contacted S-J, urging it to assist in the search for a new lessee. On July 20, 1984, S-J sent a letter to the Debtor proposing to remarket the aircraft for a flat fee of $100,000.00 plus expenses, irrespective of the new lease terms. On July 30, 1984, S-J forwarded a second letter to the Debtor, again offering to act as the leasing representative for the $100,000.00 flat fee, plus expenses. S-J specified that it needed a response by August 3, 1984. On August 21, 1984, almost three (3) weeks after the expiration date, the Debtor wrote to S-J, accepting the proposed arrangement. This acceptance was conditioned upon the approval of Swig. Swig, for unspecified reasons, categorically refused to approve any flat fee arrangement, and accordingly that offer was terminated. Only now, after S-J has procured a 10-year lease and requested $450,000.00, has Swig inferred that the Court should imposed the $100,000.00 fee upon S-J.

"On July 25, 1984, S-J and representatives for the Debtor traveled to Phoenix, Arizona, Greycas' headquarters, to discuss possible leasing of this aircraft to America West Airlines ("America West"). This joint trip was the result of several meetings among the Debtor, S-J, and Greycas, during which time the possibilities of various leases and lessees were discussed. Greycas' proposal to lease the aircraft to America West was contingent upon Greycas obtaining possession of the aircraft, which possession it did not have, and could not have, pursuant to final court order.

"With a general understanding as to professional fees but no finalized written agreement between them, the Debtor requested that S-J proceed with attempts to remarket the aircraft. At that time the aircraft was not airworthy, in that one of its engines had been removed and was placed, disassembled, in a box. Since the aircraft was not airworthy, it was providing no revenue to any of the parties. In September of 1984, Greycas made a proposal to America West which called for a 6-month lease with a 10-year option. The monthly rental fee proposed was $85,000.00. Additionally, since the aircraft was missing an engine, Greycas proposed to have America West lease an engine and subtract the cost of the leased engine from the monthly rental payments. Again, this proposal was contingent upon Greycas' receipt of the aircraft which it did not and could not obtain.

"By October 25, 1984, S-J had procured a Letter of Agreement with Aloha Airlines ("Aloha"). The Agreement called for a 10-year lease at a monthly rental of $90,000.00. Further, Aloha, a more solvent and stable airline, agreed to supply the necessary second engine, without receiving a rent rebate thereon, and also agreed to return the aircraft at the conclusion of the 10-year lease with two operational engines instead of one.

"On November 29, 1984, the Debtor and Aloha prepared a lease based on the agreement procured by S-J. The following day, an Order was entered in bankruptcy Court approving this lease, finding it to be in the best interests of the estate. At that hearing the parties made the Court aware that the Debtor had requested S-J to procure a lease, that S-J had procured same, and that Greycas, while nominally objecting to S-J's involvement, wanted the lease, secured by S-J, to be approved."

The bankruptcy court cited the general rule that court authorization before services are rendered is a condition precedent to any fee application, citing Bankruptcy Rule 2014(a) and In re Hydrocarbon Chemicals, Inc., 411 F.2d 203 (3d Cir.1969). However, the court noted, a bankruptcy court exercises powers of a court in equity and equitable principles favor nunc pro tunc approval of fee applications in certain extraordinary cases. In a well-crafted opinion, Judge Markovitz found that S-J qualified as a professional person under 11 U.S.C. § 327, that S-J exercised a high degree of skill and expertise in arranging the lease with Aloha, that failure to apply for court approval before S-J rendered its services to debtor was not the fault of S-J, and that S-J had no interest adverse to debtor to bar equitable nunc pro tunc approval. The court then considered the commercial reasonableness of the requested $450,000.00 fee based upon expert testimony of the value of the Aloha lease to debtor and standard fees in the aircraft leasing industry. The court awarded the requested compensation of $450,000.00.

II. Discussion

Two basic issues have been presented on appeal. First, appellants argue, S-J and Lewis Simon are not entitled to nunc pro tunc approval because they cannot satisfy the statutory requirements of 11 U.S.C. § 327(a) and have not presented the required extraordinary circumstances to justify such approval. The second issue is whether the award to appellees was documented sufficiently and was reasonable.

A. Nunc Pro Tunc Approval

The Court of Appeals recently held that bankruptcy courts have the power to authorize retroactive employment of counsel and other professionals under their broad equity power. In the Matter of: Arkansas Company, Inc., 798 F.2d 645, 648 (3d Cir. 1986). As the court stated, at 648: "Where equitable concerns weigh in favor of granting retroactive approval to enable deserving professionals to recover compensation for work actually done, we see nothing in the statute that denies the bankruptcy court the power to grant such retroactive approval."

However, the court limited retroactive approval to certain extraordinary cases because "a lenient retroactive approval rule would subvert Congress' purposes in imposing a prior approval requirement." Id. at 648. The term, "extraordinary circumstances," was defined as "cases where prior approval would have been appropriate and the delay in seeking approval was due to hardship beyond the professional's control." Id. at 650.

The court then summarized the test to be applied in determining whether nunc pro tunc approval is warranted. The bankruptcy court first must determine whether the applicant qualifies as a professional person under the statutory provisions of 11 U.S.C. §§ 327(a) and 1103(a). Such a determination, to be made after a hearing,...