In re Barron
| Citation | 73 BR 812 |
| Decision Date | 15 May 1987 |
| Docket Number | Bankruptcy No. 85-01530-LM11,85-01531-LM11. |
| Parties | In re Alex BARRON, Debtor. In re CAPITAL FUNDING MORTGAGE COMPANY, INC., Debtor. |
| Court | United States Bankruptcy Courts. Ninth Circuit. U.S. Bankruptcy Court — Southern District of California |
Micheal H. Dodge, John C. Colwell, Law Offices of Micheal H. Dodge, San Diego, Cal., for debtor.
Martin Goldberg, San Diego, Cal., for Examiner: Estes & Hoyt.
At issue is whether 11 U.S.C. § 331 entitles an examiner and his attorney to a priority for distribution of interim compensation over other 11 U.S.C. § 503(b) administrative claimants when there is a possibility that insufficient funds to pay all administrative claimants in full will exist at the conclusion of the case, thereby necessitating proration.
This court concludes that the broad discretion given to the bankruptcy courts in determining the payment of interim compensation among administrative claimants of the same class is not narrowed by § 331, which does not establish any priorities as to distribution.
On February 24, 1987, the court heard the following interim fee applications:
Claimant Amount Sought
Martin Goldberg $15,594.60
Examiner
Estes & Hoyt $10,807.88
Attorneys for Examiner
Mulvaney & Kahan $45,157.37
Attorneys for Creditor Deanna M. Peterson
Sullivan, Delafield, McDonald & Middendorf $19,589.81
Attorneys for Creditor Naimco-Clairemont, Inc
The total sums sought from the four applications heard on February 27, 1987, amounted to $91,167.66.1 Excluding Mulvaney & Kahan's first fee application, the balance of unpaid fees from prior applications amounted to $27,145.85. An additional $21,000.00 fee application from the debtor's attorney was also anticipated at the time of the hearing, bringing the total of unpaid administrative expenses to approximately $140,000.00.
Through prior applications for interim compensation the law firm of Estes & Hoyt has been paid $17,064.74 towards fees and costs while the firm of Mulvaney & Kahan has received a sum of $18,003.66. Micheal H. Dodge, attorney for both debtor and Capital Funding Mortgage Company, was previously paid $21,734.44 in interim compensation. The examiner, Martin Goldberg, and the law firm of Sullivan, Delafield, McDonald & Middendorf, were the only administrative claimants before the court who had not yet been awarded any interim compensation.
The examiner held approximately $53,800.00 in unrestricted funds from which to satisfy these unpaid administrative expenses. The court awarded the examiner payment in the sum of $10,944.60, leaving approximately $42,800.00 in unencumbered funds.2 Estes & Hoyt was awarded $7,622.78, but payment was deferred pending further order of the court. The fee applications of both creditors who made a substantial contribution to this case per 11 U.S.C. § 503(b)(3)(D) and (b)(4) were taken under submission, with the court requesting supplemental briefing by the parties concerning the priority of payment of administrative expenses.
The Bankruptcy Code does not establish rigid and inexorable rules relating to the payment of administrative expenses which prevent the interest of justice and equity from being served. In re Wilnor Drilling, Inc., 29 B.R. 727, 729 (Bankr.S.D. Ill.1982); In re Jewish Memorial Hospital, 13 B.R. 417, 420 (Bankr.S.D.N.Y.1981); See, Home Indemnity Co. v. F.H. Donovan Painting Co., 325 F.2d 870, 876 (8th Cir.1963). The rule that all administrative claimants be treated alike on a pro rata basis in the event there are insufficient assets to pay each claimant in full, does not necessarily require the time and amount of distributions to be similar. In re IML Freight, Inc., 52 B.R. 124 (Bankr.D.Utah 1985). However, it is clearly the law, and undisputed by the parties before the court, that all administrative expenses incurred under 11 U.S.C. § 503(b) are entitled to equal treatment upon the conclusion of a Chapter 11 proceeding.
The genesis of interim compensation is rooted in the equity powers of the bankruptcy court. 2 Collier on Bankruptcy, para. 331.01 at 331-3 (15th ed.). In the Ninth Circuit it is well established that the bankruptcy court has wide discretion in allowing the payment of administrative expenses, such as attorney fees, on an interim basis. Lutheran Hospitals and Homes Society of America v. Duecy, 422 F.2d 200, 205 (9th Cir.1970); In re Verco Industries, 20 B.R. 664, 665 (BAP 9th Cir.1982); In re Standard Furniture Co., 3 B.R. 527, 532 (Bankr.S.D.Cal.1980). Placing the time of payment within the parameters of the court's sound discretion establishes a flexible system which allows consideration of such factors as the particular needs of each administrative claimant, the length and expense of the case's administration, and the amount of available assets, in determining fair and equitable interim distributions pending final resolution of the case. Matter of Isis Foods, Inc., 27 B.R. 156, 158 (Bankr.W.D.Mo.1982); 2 Collier on Bankruptcy, para. 331.04 at 331-4 (15th ed.).
Estes & Hoyt asserts that the specific authorization in 11 U.S.C. § 331 of interim compensation to an examiner and his attorney, combined with the absence of any code provision expressly allowing an interim payment of creditors who benefit the estate per 11 U.S.C. § 503(b)(3)(D) and (b)(4), entitles their application to be honored before the creditors' applications. However, Estes & Hoyt cites no authority to support this contention. To the contrary, most courts take the stance that whether interim allowances are awarded, and in what amounts, were questions left by Congress to the sound discretion of the bankruptcy court. In re Callister, 673 F.2d 305, 306 (10th Cir.1982); In re Energy Co-Op, 55 B.R. 957 (Bankr.N.D.Ill.1985).
The legislative history to § 331 unequivocally states:
The only effect of this section is to remove any doubt that officers of the estate may apply for, and the court may approve, compensation and reimbursement during the case, instead of being required to wait until the end of the case, which in some instances may be years. The practice of interim compensation is followed in some courts today, but has been subject to some question. This section explicitly authorizes it. H.R. No. 595, 95th Cong., 1st Sess. 330 (1977); S.Rep. No. 989, 95th Cong., 2d Sess. 42 (1978), U.S.Code Cong. & Admin.News 1978, pp. 5828, 6286. (Emphasis added).
Interpreting § 331 to declare that Estes & Hoyt must be awarded distribution of interim compensation over the two creditors would be inconsistent with both the applicable case law, which gives broad discretion to the court, and the congressional intent behind § 331, which was only to give officers of the estate an opportunity to apply for reimbursement. Consequently, this court concludes that 11 U.S.C. § 331 does not entitle officers of the estate to any priority concerning interim compensation over other administrative claimants of the same class.
The final point to consider is whether any restrictions are imposed upon the broad discretion accorded the court concerning interim compensation, where there exists a substantial possibility that all administrative claimants will not be paid in full. Many courts take the position that interim allowances should not be authorized for any administrative claims which exceed the anticipated pro rata pay out to be received during the entire administration of the estate. In re IML Freight, Inc., supra at 139; In re Coconut Grove Bayshore, Inc., 33 B.R. 194, 195 (Bankr.S.D. Fla.1983); In re Standard Furniture Co., 3 B.R. 527, 532 (Bankr.S.D.Cal.1980). However, due to the broad discretion available in awarding interim compensation, other courts have reached divergent results. See, In re Energy Co-op, Inc., supra at 957, (no interim payments until pro rata share effectively determined); In re Western Farmers Association, 13 B.R. 132 (Bankr.W.D.Wash.1981), (improper to pay one administrative expense during progress of case and defer payment of another); In re Chips N' Twigs, Inc., 58...
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