In re Cellular 101, Inc.

• Decision Date: 28 July 2004
• Docket Number: No. 02-56772.,02-56772.
• Citation: 377 F.3d 1092
• Parties: In re CELLULAR 101, INC., Debtor, Cellular 101, Inc., Appellant, v. Channel Communications, Inc.; John Price, Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

377 F.3d 1092

In re CELLULAR 101, INC., Debtor Cellular 101, Inc., Appellant, v. Channel Communications, Inc.; John Price, Appellees.

No. 02-56772.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted February 13, 2004.

Filed July 28, 2004.

COPYRIGHT MATERIAL OMITTED

Timothy J. Trager, Santa Barbara, CA, for the appellant.

Victoria S. Kaufman, Los Angeles, CA, for the appellees.

Appeal from the United States District Court for the Central District of California; Alicemarie H. Stotler, District Judge, Presiding. D.C. No. CV-01-00715-AHS.

Before: B. FLETCHER, PREGERSON, and BRUNETTI, Circuit Judges.

BRUNETTI, Circuit Judge:

Appellant, Cellular 101, Inc. ("Cellular"), appeals from an order of the district court affirming the bankruptcy court's grant of Channel Communications, Inc. ("Channel") and John Price's ("Price") administrative expense claim filed pursuant to 11 U.S.C. § 503(b). On appeal Cellular asserts that Channel and Price did not satisfy the basic requirements of § 503(b) and that, in the alternative, their claim must fail because they acted in their own interest. We have jurisdiction pursuant to 28 U.S.C. § 158(d), and we affirm.

FACTS AND PROCEEDINGS BELOW

A. Background

AT & T Wireless of Santa Barbara ("AT & T") is a provider of wireless services throughout Santa Barbara County. Channel was an authorized dealer of AT & T services in the area and was completely owned by Price and his wife. Cellular was operating as an agent of Channel in the capacity of an AT & T subdealer.

Over the past few years these parties have not had the most cordial of dealings. On numerous occasions AT & T complained that Channel and Cellular engaged in business practices of which AT & T disapproved. Because of these practices, AT & T threatened to terminate the contract it had with Channel. To sever this contentious relationship, Channel, or more accurately, Price, was willing to sell the business to AT & T.

One obstacle stood in the way of Channel's sale arrangement with AT & T. Cellular had an agency agreement with Channel and Price that afforded it the right of first refusal if Price sold his stock or substantially all of Channel's assets. The terms of Price and Channel's proposed sale of stock to AT & T, however, did not provide for Cellular's exercise of its right of first refusal. In addition to filing suit to preserve that right of first refusal, Cellular, through its principal, Patrick Lowery, also filed suit against AT & T in California state court alleging interference with his business. Ultimately, in order to prevent the transaction from closing without its consent, Cellular filed a Chapter 11 petition.

B. The Bankruptcy Proceedings

During the bankruptcy proceedings Cellular did not make an effort to reorganize. Channel, Price, and AT & T filed a joint plan of reorganization after the expiration of the statutory period of plan exclusivity. The proposed plan included (1) the sale of 80% of Channel stock to AT & T, (2) Cellular's ability to continue its lawsuit against AT & T, (3) Channel's and Price's waiver of their prepetition claims against Cellular, and (4) the payment to Cellular of $1,992,959 by Price from the sale proceeds. The $1,992,959 figure was purported to be equal to the amount Cellular would have been entitled to under its contract with Channel. This amount was also purported to be adequate to pay all the claims against the estate with some residue remaining for Lowery.

Cellular objected to Channel, Price, and AT & T's reorganization plan. Cellular argued it would lose millions of dollars if the court approved the plan. The bankruptcy court, however, concluded that this was a "compromise of controversies" and was a good plan for all parties involved. In fact, the court stated that "it became increasingly clear to me as the hearing progressed that Cellular was going to receive under the plan as much or almost as much as it could reasonably expect if all issues were litigated to completion before a jury, and without the substantial risk of total failure." The bankruptcy court approved the plan.

C. The Appellees' Motion for an Administrative Priority Claim

In March 2001, Channel and Price filed the underlying administrative claim pursuant to 11 U.S.C. § 503(b). They requested $495,252.83 for attorneys' fees and costs. The bankruptcy court reduced the amount to $206,317.60 ($175,000 in attorneys' fees and $31,317.60 in expenses) because of duplicative travel, lodging, secretarial overtime, and word processing expenses as well as because of Price's deceptive behavior in his dealings with subdealers. The district court affirmed the bankruptcy court's order and Cellular filed this timely appeal.

STANDARD OF REVIEW

The role of the district court and this court is essentially the same in the bankruptcy appellate process; accordingly, we review the bankruptcy court's decision directly. Christian Life Ctr. Litig. Def. Comm. v. Silva (In re Christian Life Ctr.), 821 F.2d 1370, 1373 (9th Cir.1987). We review a bankruptcy court's findings of fact under a "clearly erroneous" standard, Kupetz v. Elaine Monroe Assocs., Inc. (In re Wolf & Vine), 825 F.2d 197, 199 (9th Cir.1987), and a bankruptcy court's interpretation of 11 U.S.C. § 503(b) de novo. In re Christian Life Ctr., 821 F.2d at 1373.

ANALYSIS

A. 11 U.S.C. § 503(b)'s Requirements

Central to this appeal is whether the bankruptcy court erred by granting Channel and Price's administrative claim filed pursuant to 11 U.S.C. § 503(b). Section 503(b) provides in pertinent part:

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 —

(D) a creditor ... in making a substantial contribution in a case under Chapter 9 or 11 of this title;

...

(4) reasonable compensation for professional services rendered by an attorney ... of an entity whose expense is allowed 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....

11 U.S.C. § 503(b) (2003).

Cellular rightly asserts that two things are required to recover on a § 503(b) administrative claim. First, the claimant must be a creditor of the estate. Second, the creditor must have made a "substantial contribution" to the bankruptcy plan. Cellular argues that the bankruptcy court erred in granting Channel and Price's claim because neither Price nor Channel met both of these requirements. Cellular asserts that Price was not a creditor of the estate and that Channel did not substantially contribute to the reorganization plan. These arguments fail on review of the record.

The Bankruptcy Code defines a "creditor" as an "entity that has a claim against the debtor." 11 U.S.C. §101(10) (2003). The Code defines a "claim" as a "right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured." 11 U.S.C. § 101(5) (2003) (emphasis added). Accordingly, a "creditor" can include an entity that has a "disputed" right to payment from the debtor. Price fits within the Bankruptcy Code's definition of creditor because he filed a Joint Proof of Claim with Channel against Cellular based on a contract that he signed with Cellular. Because Price signed the agreement in his individual capacity, he has, at a minimum, a "disputed" right to payment. The Joint Proof of Claim provides in part:

Channel Communications, Inc. ("Channel"), and/or John Price ("Price") (collectively "Claimants") ... creditors of Cellular 101 Corporation ("Debtor"), by and through their attorneys of record in this Chapter 11 case, hereby make this Proof of Claim ...

Channel and/or Price have a presently unliquidated claim against the Debtor for damages arising from the Debtor's breach of the Contract, including such damages arising from Debtor's conduct which impairs Channel's rights, benefits and interests under the Agency Agreement between Channel and Santa Barbara Cellular Services, Ltd. ("SBCS").

Because both Channel and Price had a disputed right to payment against Cellular based on the agency agreement entered into with Cellular, they are both considered "creditors" under the Bankruptcy Code. Moreover, Cellular filed no objection to Price's being a creditor. While it is true that Cellular stated it disputed the Joint Proof of Claim, Cellular never formally objected to Price being a creditor and the claim was never disallowed.

Cellular's assertion that the bankruptcy court's grant of the administrative claim was in error because Channel did not make a "substantial contribution" to the reorganization is similarly unpersuasive. This court has stated that the principal test of substantial contribution is "the extent of benefit to the estate." In re Christian Life Ctr., 821 F.2d at 1373; see also Pierson & Gaylen v. Creel & Atwood (In re Consol. Bancshares, Inc.), 785 F.2d 1249, 1253 (5th Cir.1986) (reaffirming that "services which substantially contribute to a case are those which foster and enhance, rather than retard or interrupt the progress o[f] reorganization").

The facts presented demonstrate that both Channel and Price substantially contributed to the reorganization. Channel and Price formulated and presented the only reorganization plan that was put forth to the bankruptcy court. This plan resulted in the payment to creditors of 100% of the creditors' allowed claims with funds remaining for the equity security holders. Channel and Price also agreed to waive their prepetition claims against Cellular. While it is true that Channel did not...