In re Concepts Am., Inc.

• Decision Date: 02 March 2021
• Docket Number: Case No. 14 B 34232
• Citation: 625 B.R. 881
• Parties: IN RE: CONCEPTS AMERICA, INC., Debtor.
• Court: U.S. Bankruptcy Court — Northern District of Illinois

625 B.R. 881

IN RE: CONCEPTS AMERICA, INC., Debtor.

Case No. 14 B 34232

United States Bankruptcy Court, N.D. Illinois, Eastern Division.

Signed March 2, 2021

Richard H. Fimoff, Robbins Salomon & Patt Ltd, Chicago, IL, pro se.

MEMORANDUM OPINION

DAVID D. CLEARY, United States Bankruptcy Judge

This matter comes before the court on the motion of The Galleria Mall Investors LP ("the Galleria") for allowance and payment of administrative expense claim pursuant to 11 U.S.C. §§ 503(b)(3)(A), (b)(3)(D), and (b)(4) (the "Application").¹ Brian Audette, not individually but as the chapter 7 trustee ("Trustee") for the bankruptcy estate ("Estate") of Concepts America, Inc. ("Debtor") objected to the Application. The Galleria filed a reply to the Trustee's objection.

For the reasons stated below, section 503(b)(3)(D) does not support the allowance of an administrative expense priority claim to a creditor who claims it made a substantial contribution in a case under chapter 7. The court will deny the Application to the extent the Galleria requests relief under §§ 503(b)(3)(D) and (b)(4).

JURISDICTION

The court has subject matter jurisdiction under 28 U.S.C. § 1334(b) and the district court's Internal Operating Procedure 15(a). This is a core proceeding under 28 U.S.C. § 157(b)(2)(B). Venue is proper under 28 U.S.C. § 1409(a).

BACKGROUND²

In or around May 2011, the Galleria entered into a lease with one of Debtor's affiliates, a restaurant doing business as Townhouse Kitchen & Bar ("Townhouse"). Debtor guaranteed the lease. Townhouse eventually breached the lease, and a Texas state court entered judgment against Townhouse and the Debtor.

The Galleria pursued collection of its judgment for nearly a year, without much success. It eventually joined two other creditors in filing an involuntary chapter 7 petition against the Debtor on September 19, 2014.

About two months later, the Debtor consented to the entry of an order for relief under Chapter 7 of the Bankruptcy Code. The Trustee was elected at the § 341 meeting of creditors shortly thereafter.

At the beginning of September 2015, the Trustee requested and received authorization to employ Goldstein & McClintock LLLP as special counsel. The purpose of the firm's employment was to investigate and pursue claims relating to the Debtor's pre-bankruptcy conduct, including claims regarding transfers of assets and against related entities and individuals. The Trustee eventually filed a seventeen-count adversary proceeding against more than twenty defendants. That proceeding is pending in this court as 16 A 691.

The Galleria contends that it "did the important work of unearthing the facts and circumstances, established by documents produced and sworn testimony taken, that gave rise to and reason for the Trustee to retain special counsel and pursue the claims against the various insiders for the benefit of the entire estate." (Reply to Application at 7). It seeks compensation for these services on the basis that they provided a "substantial contribution" to the bankruptcy case.

DISCUSSION

The Galleria seeks allowance of an administrative expense claim in the amount of $241,521.76, arguing that its investigative work made a "substantial contribution" to this bankruptcy case. Creditors who make a substantial contribution in a bankruptcy case may request allowance of their actual, necessary expenses and reasonable compensation for professional services rendered by an attorney pursuant to 11 U.S.C. §§ 503(b)(3)(D) and (b)(4) :

(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--

(A) a creditor that files a petition under section 303 of this title;

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

(C) a creditor in connection with the prosecution of a criminal offense relating to the case or to the business or property of 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;

(E) a custodian superseded under section 543 of this title, and compensation for the services of such custodian; or

(F) a member of a committee appointed under section 1102 of this title, if such expenses are incurred in the performance of the duties of such committee; (4) reasonable compensation for professional services rendered by an attorney or an accountant of an entity whose expense is allowable under subparagraph (A), (B), (C), (D), or (E) of 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[.]

A. Canons of Statutory Construction Compel the Result that Substantial Contribution Claims are not Available in Chapter 7

The parties agreed to put aside, for now, the factual question of whether the Galleria provided a substantial contribution in this case. This allows the court to consider first a threshold legal question: Is a creditor's request for an administrative expense claim based on a substantial contribution in a case ever allowable in a Chapter 7? To arrive at an answer, the court will first analyze the issues using several canons of statutory construction described by the Supreme Court and the Seventh Circuit. "The Bankruptcy Code standardizes an expansive (and sometimes unruly) area of law, and it is our obligation to interpret the Code clearly and predictably using well established principles of statutory construction." RadLAX Gateway Hotel, LLC v. Amalgamated Bank , 566 U.S. 639, 649, 132 S.Ct. 2065, 182 L.Ed.2d 967 (2012).

1. Section 503(b)(3)(D) is plain and unambiguous

The Supreme Court tells us that our inquiry must begin with the language of the statute. "[I]n interpreting a statute a court should always turn first to one, cardinal canon before all others. We have stated time and again that courts must presume that a legislature says in a statute what it means and means in a statute what it says there." Conn. Nat'l Bank v. Germain , 503 U.S. 249, 253-54, 112 S.Ct. 1146, 117 L.Ed.2d 391 (1992). Therefore, "[w]hen we find the terms of a statute unambiguous, judicial inquiry is complete, except in rare and exceptional circumstances." Rubin v. United States , 449 U.S. 424, 430, 101 S.Ct. 698, 66 L.Ed.2d 633 (1981) (quotation omitted).

The text of § 503(b)(3)(D) is plain and unambiguous. An administrative expense claim will be allowed to "a creditor ... in making a substantial contribution in a case under chapter 9 or 11 of this title[.]" Congress did not include Chapter 7 in § 503(b)(3)(D). Therefore, the court's inquiry could end here. "The plain meaning of legislation should be conclusive, except in the rare cases in which the literal application of a statute will produce a result demonstrably at odds with the intentions of its drafters." U.S. v. Ron Pair Enterprises, Inc. , 489 U.S. 235, 242, 109 S.Ct. 1026, 103 L.Ed.2d 290 (1989) (quotation omitted). See Lamie v. U.S. Trustee , 540 U.S. 526, 534, 124 S.Ct. 1023, 157 L.Ed.2d 1024 (2004) ("It is well established that when the statute's language is plain, the sole function of the courts – at least where the disposition required by the text is not absurd – is to enforce it according to its terms.") (quotation omitted).

Other courts have concluded that the plain language of § 503(b)(3)(D) prohibits substantial contribution claims in Chapter 7. See In re HealthTrio, Inc. , 599 B.R. 119, 132 (D. Colo. 2019) ("Based on the plain language of the statute and the absence of any ambiguity, this Court agrees with the majority view that it would be unreasonable to apply a section 503(b)(3)(D) analysis to Chapter 7 and create an administrative expense category in Chapter 7 cases based on ‘substantial contribution.’ ") (quotation omitted); In re Dorado Marine, Inc. , 332 B.R. 637, 640 (Bankr. M.D. Fla. 2005) ("The plain language of the statute provides for payment of expenses incurred in contributing to a case ‘under chapter 9 or 11 of this title.’ ").

There is no evidence that limiting substantial contribution claims to Chapters 9 and 11 would be demonstrably at odds with Congressional intent. See In re Peterson , 152 B.R. 612, 614 (D.S.D. 1993) ("Although the parties speculate as to the reasons why Congress did not include the other bankruptcy chapters in § 503(b)(3)(D), the Court is not going to engage in speculation and attempt to divine congressional wisdom. For whatever reason, Congress chose not to include reference to those other chapters in § 503(b)(3)(D).").

Nor is there any reason to conclude that the disposition required by the text of § 503(b)(3)(D) would be absurd. The purpose of allowing an administrative expense claim under this subsection is to recognize that the creditor "substantially contribute[d] to the reorganization efforts during the pendency of a chapter 11 case." Lebron v. Mechem Fin. Inc. , 27 F.3d 937, 944 (3d Cir. 1994). See Matter of Consol. Bancshares, Inc. , 785 F.2d 1249, 1253 (5th Cir. 1986) ("the policy aim of authorizing fee awards to creditors [under § 503(b)(3)(D) ] is to promote meaningful creditor participation in the reorganization process") (quotation omitted). There is no reorganization in a Chapter 7 case, so it is not absurd to read § 503(b)(3)(D) as applying only to Chapters 9 and 11.

Following the plain language analysis also comports with the American Rule that "[e]ach litigant pays his own attorney's fees, win or lose, unless a statute or contract provides...