In re Grabill Corp.

• Citation: 110 BR 356
• Decision Date: 31 January 1990
• Docket Number: Bankruptcy No. 89 B 01639-89 B 01643.
• Parties: In re The GRABILL CORP., an Illinois corporation, F.E.I.N. XX-XXXXXXX, Windsor-Hamilton, Ltd., an Illinois corporation, F.E.I.N. XX-XXXXXXX, Foxxford Group, Ltd., an Illinois corporation, F.E.I.N. XX-XXXXXXX, Camdon Companies, Inc., an Illinois corporation, F.E.I.N. XX-XXXXXXX, The Techna Group, Ltd., an Illinois corporation, F.E.I.N. XX-XXXXXXX, Debtors (Jointly Administered Cases).
• Court: United States Bankruptcy Courts. Seventh Circuit. U.S. Bankruptcy Court — Northern District of Illinois

110 B.R. 356 (1990)

In re The GRABILL CORP., an Illinois corporation, F.E.I.N. XX-XXXXXXX, Windsor-Hamilton, Ltd., an Illinois corporation, F.E.I.N. XX-XXXXXXX, Foxxford Group, Ltd., an Illinois corporation, F.E.I.N. XX-XXXXXXX, Camdon Companies, Inc., an Illinois corporation, F.E.I.N. XX-XXXXXXX, The Techna Group, Ltd., an Illinois corporation, F.E.I.N. XX-XXXXXXX, Debtors (Jointly Administered Cases).

Bankruptcy Nos. 89 B 01639-89 B 01643.

United States Bankruptcy Court, N.D. Illinois, E.D.

January 31, 1990.

Jay Steinberg, Hopkins & Sutter, Chicago, Ill., Trustee for The Grabill Corp., et al.

Matthew J. Botica, Michael Solow, Hopkins & Sutter, Chicago, Ill., for Jay Steinberg, Trustee.

Larry Fisher, D'Ancona & Pflaum, Chicago, Ill., for D'Ancona & Pflaum.

MEMORANDUM OPINION

JOHN H. SQUIRES, Bankruptcy Judge.

This matter comes to be heard on the first and final fee application of D'Ancona & Pflaum ("D'Ancona") pursuant to 11 U.S.C. §§ 330 and 331 and Federal Rule of Bankruptcy Procedure 2016 for an allowance of $36,702.00 in compensation and reimbursement of expenses in the amount of $2,218.50 for the period February 10, 1989 through March 8, 1989. Proper notice was given to all creditors and parties in interest pursuant to Federal Rule of Bankruptcy Procedure 2002. A joint objection was filed by the Connecticut Bank and Trust Company, N.A., Bank of New England Corporation, National Bank of Detroit, Indiana National Bank, Exchange National Bank and Manufacturers National Bank of Detroit (the "Banks").

I. JURISDICTION AND PROCEDURE

The Court has jurisdiction to entertain this fee application pursuant to 28 U.S.C. § 1334 and General Rule 2.33(a) of the United States District Court for the Northern District of Illinois. This matter constitutes a core proceeding under 28 U.S.C. § 157(b)(2)(A), and (O).

II. FACTS AND BACKGROUND

On January 31, 1989, involuntary Chapter 7 petitions were filed against the five related corporate Debtors which consist of one parent and four subsidiary holding companies. The Court, upon motion, and after notice and hearing, without objection, ordered the appointment of an interim trustee with limited powers. A trustee was appointed in lieu of an examiner because of the undisputed declining financial conditions of the Debtors. On February 2, 1989, Jay Steinberg (the "Trustee") was appointed interim trustee with limited powers. Original counsel for the Debtors moved without objection to convert the cases to Chapter 11 proceedings. Thereafter, on February 3, 1989, consensual orders for relief were entered. At that time, the cases were ordered to be jointly administered.

The parties who moved for appointment of a trustee continued in their efforts to press for the expansion of the Trustee's authority to full powers available under the Bankruptcy Code. In spite of the appointment of the Trustee, the Debtors' financial conditions further deteriorated. Subsequently, in an effort to preserve the estate, and upon the consent of William J. Stoecker ("Stoecker"), the sole equity shareholder, made through representations of his then counsel of record, the powers of the Trustee were expanded to include all the powers of a trustee pursuant to section 1104. A hearing was set to afford any interested party an opportunity to challenge the expansion of the Trustee's powers. As a result, the scheduled hearing was mooted.

D'Ancona was retained on February 10, 1989, after the Debtors' original counsel was found not disinterested pursuant to section 327. D'Ancona served as counsel to the Debtors until March 8, 1989. On that date, it withdrew from representation pursuant to Court authorization after its services were terminated on March 2, 1989 by Sidney Kulek. Kulek was appointed prepetition by Stoecker and served as chief operating officer of the Debtors.

III. DISCUSSION

A. Applicable Standards

The burden of proof to show entitlement to the fees requested is on the applicant. In re Pettibone Corp., 74 B.R. 293, 299 (Bankr.N.D.Ill.1987); In re Lindberg Products, Inc., 50 B.R. 220, 221 (Bankr.N.D.Ill.1985). Pursuant to section 330, professionals applying for fees must demonstrate that their services were actual, necessary and reasonable. Bankruptcy Rule 2016, in turn, requires that "an entity seeking interim or final compensation for services, or reimbursement of necessary expenses, from the estate shall file with the court an application setting forth a detailed statement of (1) the services rendered, time expended and expenses incurred, and (2) the amounts requested." Fed.R.Bankr.P. 2016(a). Fee applications must stand or fall on their own merits. See In re Wildman, 72 B.R. 700 (Bankr.N. D.Ill.1987). Even if no objections are raised to a fee application, the Court is not bound to award the fees sought, and in fact has a duty to independently examine the reasonableness of the fees. In re Wyslak, 94 B.R. 540, 541 (Bankr.N.D.Ill.1988); In re Chicago Lutheran Hospital Association, 89 B.R. 719, 734-735 (Bankr.N.D.Ill. 1988); Pettibone, 74 B.R. at 299-300; In re NRG Resources, Inc., 64 B.R. 643, 650 (W.D.La.1986).

Taken literally, section 330 could be construed to support the argument that Debtors' counsel may be entitled to reasonable fees if the services were actual and necessary. However, courts do not read this section literally. Judge Grady in In re Ryan, 82 B.R. 929 (N.D.Ill.1987) stated:

So far as we are aware, no court has chosen to read 11 U.S.C. § 330 literally since its enactment in the 1978 Bankruptcy Reform Act ("Bankruptcy Code"). Instead, all the decisions interpreting § 330 of the Bankruptcy Code carry over the near-unanimous view of prior Bankruptcy Act cases that, as a matter of law, attorneys may recover fees from the estate only if their labors actually benefited the estate.

Id. at 931 (citations omitted).

Many courts have held that attorney's fees incurred while expending time that did not benefit the estate are not payable from the estate. See, e.g., In re Reed, 890 F.2d 104 (8th Cir.1989) (to the extent the services rendered were for the benefit of the debtor and not the estate, fees were denied); In re Walter, 83 B.R. 14 (9th Cir. BAP 1988) (the bankruptcy court has authority to preclude use of estate property for payment of fees when the services benefit only the debtor, and not the estate); In re Holden, 101 B.R. 573 (Bankr.N.D.Iowa 1989) (attorney not entitled to compensation for fees incurred representing the debtor in Rule 2004 examination, resisting objections to exemptions and resisting proceeding to deny discharge, as these services did not benefit the estate); Stewart v. Law Offices of Dennis Olson, 93 B.R. 91 (N.D.Tex.1988) (appeal of state court judgment and dischargeability litigation benefited debtors personally and not the estates); In re Crisp, 92 B.R. 885 (Bankr.W.D.Mo.1988) (debtor's attorney not compensated from the estate for services that did not benefit the estate); In re Liberty Trust Co., 92 B.R. 706 (Bankr.W. D.Tex.1988) (same); In re De La Rosa, 91 B.R. 920 (Bankr.S.D.Cal.1988) (same); In re Kendavis Industries International, Inc., 91 B.R. 742 (Bankr.N.D.Tex.1988) (law firm's unsuccessful efforts on behalf of the equity interest holders warranted a reduction of the fees on the ground that the services did not benefit the estate); In re Leff, 88 B.R. 105 (Bankr.N.D.Tex.1988) (attorney for Chapter 7 debtors awarded compensation from estate only for services that benefited the estate); In re McLean Industries, Inc., 88 B.R. 36 (Bankr.S.D.N.Y.1988) (compensation for services performed limited to services that benefit the estate); In re Jessee, 77 B.R. 59 (Bankr.W.D.Va.1987) (the major criteria for compensation is value of services to the estate); In re Prime Foods of St. Croix, Inc., 80 B.R. 758 (D.V.I.1987) (the labors of the attorney for the debtor must be useful to the estate in order for fees to be awarded); In re Spencer, 48 B.R. 168 (Bankr.E.D.N.C.1985) (compensation from the estate for debtor's counsel is allowed for services related to the debtor's basic administrative duties in the case, inter alia, filing the petition and schedules and appearing at the meeting of creditors, and not for services which benefit only the debtor).

Clearly, the majority view is that attorneys are not entitled to compensation from the funds of the bankruptcy estate unless those services benefit the estate. This Court will follow Ryan and the majority view which requires that services performed by attorneys representing debtors must produce a benefit to the estate in order to be fully compensable from the estate.

Moreover, section 328(a) further provides the Court with authority to allow compensation different from the original terms and conditions of the professional's employment after the conclusion of the work if the original terms and conditions prove to have been improvident in light of developments not originally capable of being anticipated.

B. The Fee Application

D'Ancona's fee application covers a period of less than one calendar month, except for work performed after its withdrawal in connection with the preparation and filing of the instant fee application. In conformity with the guidelines and requirements of In re Continental Illinois Securities Litigation, 572 F.Supp. 931 (N.D.Ill.1983), the fee application contains the following categories of activities by the number of lawyers, the related time expended and fees requested:

                                                       NUMBER OF
                                                       ATTYS. AND       TIME            FEES
                NO.    CATEGORY OF ACTIVITY            PARALEGALS      EXPENDED       REQUESTED
                1.     Resisting expansion of
                         Trustee's powers                  9             112.9       $21,186.50
                2.     Retention and withdrawal
                         of D'Ancona                       7              23.2         4,123.50
                3.     Preparation of creditors'
                         lists and work relating to
                         schedules and

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