In re Calumet Realty Co., Bankruptcy No. 80-02476K.

• Decision Date: 18 November 1983
• Docket Number: Bankruptcy No. 80-02476K.
• Citation: 34 BR 922
• Parties: In re CALUMET REALTY COMPANY and Magoune Holding Corporation, as Co-Partners trading as "North Towne Investors" and "North Towne Apartments" (a partnership), Debtors.
• Court: U.S. Bankruptcy Court — Eastern District of Pennsylvania

34 B.R. 922 (1983)

In re CALUMET REALTY COMPANY and Magoune Holding Corporation, as Co-Partners trading as "North Towne Investors" and "North Towne Apartments" (a partnership), Debtors.

Bankruptcy No. 80-02476K.

United States Bankruptcy Court, E.D. Pennsylvania.

November 18, 1983.

Andrew M. DiPietro, Jr., New Haven, Conn., Lawrence J. Tabas, Barbara Hadley Katz, New Haven, Conn., Richard M. Tiger and David M. Still, Philadelphia, Pa., for debtors.

Scott E. Denman, Philadelphia, Pa., for PGW.

OPINION

WILLIAM A. KING, Jr., Bankruptcy Judge.

The issue before the Court is whether to allow a creditor of this estate, Philadelphia Gas Works ("PGW"), payment of administrative expenses under section 503(b)(3)(B) or (D) of the Bankruptcy Code.

PGW claims that its efforts during prosecution of an adversary proceeding against four (4) defendants¹ benefited the estate; therefore, PGW argues, it is entitled to be reimbursed by the estate for expenses and counsel fees.

We disagree. We have examined the applicable Code provisions and PGW's efforts throughout the time period in question and find that these efforts do not fall within the meaning of either section 503(b)(3)(B) or (D). Therefore, we must deny PGW's request for administrative expenses.

The relevant facts are as follows:²

The debtor filed an adversary complaint to compel turnover on January 31, 1983. The complaint named Provident National Bank, Transatlantic Capital Corporation, All American Investment News Inc. and Shawn Lewis Construction Co., Inc. as defendants. The summons and notice of trial set March 3, 1983 as the answer date and scheduled a trial on the merits for March 16, 1983.

The complaint was filed pursuant to a stipulation between PGW and the debtor.³ Some background information on the stipulation is relevant here. As of January, 1983, PGW was dissatisfied with the debtor's reorganization efforts and concerned about growing post-petition debts owed to PGW for continuing gas service. PGW filed a complaint for injunctive relief against the debtor and a motion for appointment of a trustee in early January alleging mismanagement by the debtor and failure to propose an effective plan of reorganization. At the January 21, 1983 hearing on PGW's motion to appoint a trustee, the debtor and PGW entered into an agreement whereby PGW would forebear from prosecuting its motion and complaint if the debtor would institute an adversary proceeding to compel turnover of $13,483.00, which was being held in an escrow account at Provident National Bank.

Provident National Bank (Provident) filed a timely answer to the complaint and a counterclaim and crossclaim in the form of a motion for interpleader.

Counsel for the three (3) defendants other than Provident failed to file a timely answer but did file a motion for extension of time on March 8, 1983. At the March 16, 1983 hearing, counsel for these three (3) defendants made an application to the Court to continue the trial. However, in view of the fact that the defendants' motion for an extension was filed five (5) days late, this application was denied.

Counsel for PGW appeared at the hearing on March 16, 1983, but did not participate in the discussion before the Court. PGW's motion to intervene as a plaintiff was still pending at this time.

Several Orders were entered by this Court as a result of the March 16th hearing. The first Order was entered on March 18th, approving a stipulation agreement between all parties resolving the matter with respect to Provident.⁴ Provident was thereby discharged from all liability to the debtor-partnership and other defendants, and was ordered to turn over the funds in Account No. 4707541 to the Clerk of the United States Bankruptcy Court. Second, the plaintiff-debtor applied for a default judgment which was entered on March 24, 1983 against all named defendants except Provident.

The defendants filed a notice of appeal to the United States District Court and a motion for a stay of judgment pending appeal on March 31, 1983. A hearing on the motion for a stay was scheduled for May 25, 1983. Before the hearing on the motion for a stay, however, an Order was entered⁵ allowing PGW to intervene as a plaintiff in the adversary proceeding.

Both counsel for PGW and counsel for the debtor argued against a stay at the May 25th hearing. Much of the discussion at this point turned on the fact that counsel for the defendants had failed to designate contents for the record or file a statement of the issues⁶ which were required to perfect the appeal. The Court ordered all counsel to submit briefs on the issue of a stay by June 6, 1983. PGW's memorandum of law opposing a stay was filed by June 6, 1983, in accordance with the Court's instructions. Counsel for the defendants never filed a memorandum of law.

The Honorable Joseph McGlynn, Jr., United States District Court Judge, dismissed the appeal on August 8, 1983, due to the defendants' failure to perfect the appeal. On August 25, 1983, we entered an Order denying the defendants' motion for a stay as moot after it was brought to our attention by counsel for PGW that this motion was still outstanding. The funds were then released by the Bankruptcy Court Clerk to PGW as partial payment of the post-petition debt owed to PGW by the estate.

PGW filed a proof of claim for administrative expenses under section 503(b)(3)(B) and (D) of the Code on July 22, 1983, seeking $3,583.200 for attorney's fees and $266.22 for expenses incurred over the time period from February through May of 1983. The total amount requested is $3,808.22. PGW has never filed a supplemental request for payment of those legal services rendered after May, 1983, although PGW asserts in a memorandum of law⁷ subsequently filed that its efforts continued until the matter was resolved in August.

A summary of the basis for PGW's claim was provided in the proof of claim:

"PGW believes that the services rendered by its counsel . . . were instrumental in ensuring the success of the Debtor\'s efforts to compel the turnover of funds, which efforts of PGW thus augmented and preserved the property of the estate. PGW\'s efforts were also significant in effectuating the Plan of Reorganization of Debtor which relied upon the use of the funds subject to the Action to Compel Turnover."⁸

Schedule II, attached to the proof of claim, is the fee application of Obermayer, Rebmann, Maxwell & Hippel, counsel to PGW, during the time period in question. Schedule III shows the disbursements made by counsel on a month-to-month basis from February to May, 1983.

Counsel for the debtor filed an objection to PGW's request for administrative expenses on August 9, 1983, but withdrew the objection on September 21, 1983, during a hearing on PGW's claim. We reserved decision pending our review of the memorandum of law filed by PGW to support its claim and the fee application of counsel for PGW contained in the proof of claim.

Although there are five (5) subsections of § 503(b)(3), only two (2), subsections (B) and (D), are relevant here. The relevant portions of section 503 provide:

(b) After notice and a hearing, there shall be allowed, administrative expenses, other than claims allowed under section 502(f) of this title, including—

(3) the actual, necessary expenses, other than compensation and reimbursement specified in paragraph (4) of this subsection incurred by—

(B) a creditor that recovers, after the court\'s approval, for the benefit of the estate any property transferred or concealed by the debtor;

(D) a creditor, an indenture trustee, an equity security holder, or a committee representing creditors or equity security holders other than a committee appointed under section 1102 of this title, in making a substantial contribution in a case under chapter 9 or 11 of this title; or

(4) reasonable compensation for professional services rendered by an attorney or an accountant of an entity whose expense is allowable under paragraph (3) of this subsection, based on the time, the nature, the extent, and the value of such services, and the cost of comparable services other than in a case under this title, and reimbursement for actual, necessary expenses incurred by such attorney or accountant;

11 U.S.C. § 503(b)(3)(B), (D), (b)(4)

Section 503(b)(3)(B) is derived from sections 64a(1) and (3) of the Bankruptcy Act.⁹ Section 64(a) of the Act allowed payment of the costs and expenses of a creditor who, without prior Court authorization, recovered property of the bankrupt for the benefit of the estate. In the Matter of Casale, 27 B.R. 69, 70 (Bkrtcy.E.D.N.Y.1983). When this section was recodified within the provisions of § 503(b)(3)(B) of the Code, Congress specifically limited such an allowance to those situations where the creditor sought and obtained prior Court approval to recover the debtor's property on behalf of the estate. Id.

Nunc pro tunc authorization was not permitted in Casale. There, the Court denied the creditor's request for administrative expenses because prior approval was neither sought nor granted, although the Court commended the creditor's attorney for the exemplary quality of his efforts.

We need not reach the issue of prior Court approval here because we find section 503(b)(3)(B) applicable only to legal proceedings where a creditor's efforts alone resulted in recovery for the estate. We do not believe this section contemplates joint debtor-creditor participation in legal proceedings on behalf of the estate. To do so would encourage unnecessary expenditures for the estate. Therefore, we find section 503(b)(3)(B) inapplicable to the instant situation.

Section 503(b)(3)(D) allows "the actual, necessary expenses . . . incurred by a creditor in making a substantial contribution in a case under Chapter 9 or 11 of this title." This section is derived from sections 242¹⁰ and 243¹¹ of the Bankruptcy Act, relevant to Chapter X cases. See In re Interstate Stores, Inc., 1 B.R. 755 (Bkrtcy...