In re HSD Venture
| Decision Date | 22 February 1995 |
| Docket Number | Bankruptcy No. 93-00273-B11. |
| Citation | 178 BR 831 |
| Parties | In re HSD VENTURE, formerly known as Harbor Drive Venture, a California general partnership, Debtor. |
| Court | U.S. Bankruptcy Court — Southern District of California |
John J. Dawson, Ronald E. Reinsel, Streich Lang, Phoenix, AZ, Dennis J. Wickham, Seltzer Caplan Wilkins & McMahon, San Diego, CA, for debtor.
Michael A. Morris, Stutman, Treister & Glatt, Los Angeles, CA, for movant.
Martin Bienenstock, Weil, Gotchal & Manges, New York City, for respondent.
John W. Cutchin, Duckor & Spradling, San Diego, CA, for Official Unsecured Creditors Committee.
Christopher L. Blank, Graham & James, Newport Beach, CA, for Resolution Trust Corp.
Tiffany L. Carroll, Office of the U.S. Trustee, San Diego, CA, for the U.S. Trustee.
Debtor has brought a motion to authorize payment to certain real estate brokers of commissions for sales of condominium units negotiated pre-petition, but which closed escrow post-petition. The Official Committee of Unsecured Creditors has opposed the motion, arguing that the realtors' claims are pre-petition general unsecured claims, not post-petition administrative claims. Debtor has replied that the claims should nonetheless be allowed as post-petition administrative claims pursuant to 11 U.S.C. § 503(b)(3)(D) because of the substantial contribution made to the estate by the post-petition efforts of the realtors which resulted in the closing of escrow of certain sales. Certain of the brokers for whom commissions are sought are affiliates of debtor's principals, and are thus insiders under 11 U.S.C. § 101(31).
This Court has subject matter jurisdiction pursuant to 28 U.S.C. § 1334 and General Order No. 312-D of the United States District Court for the Southern District of California. This is a core proceeding under 28 U.S.C. § 157(b)(2)(B).
Debtor constructed a twin tower complex totalling 202 condominium units, plus additional commercial space. Prior to filing bankruptcy, debtor entered into a number of sales agreements with prospective purchasers on contracts negotiated by realtors. Escrows were opened on those contracts, but were unable to close because the lenders required simultaneous closing of at least 50 units before any could close. Debtor was unable to meet that requirement.
Thereafter, debtor filed its petition in Chapter 11, and sought court relief from the 50 unit simultaneous closing requirement, as well as authority to sell units in the complex. After several days of testimony and argument this Court authorized the sale of units subject to certain conditions. One condition was that prior court approval was required before commissions to realtors could be paid.
Debtor now seeks court authorization to pay commissions on sales originally negotiated pre-petition. In support of the application, debtor has submitted uncontroverted declarations from realtors and buyers reflecting the efforts of the realtors post-petition to preserve the sales, whether on their pre-petition terms or as modified post-petition. Those sales have since closed and the debtor has set aside the unpaid commissions. None of the realtors for whom compensation has been sought have been employed by the estate pursuant to 11 U.S.C. § 327.
In support of its argument that the realtors' commissions are not payable as post-petition administrative expenses when the sales agreements were made and escrows were opened pre-petition, the Official Committee of Unsecured Creditors has cited to In re Munple, Ltd., 868 F.2d 1129 (9th Cir. 1989). In that case, the debtor had entered into a commission agreement with a real estate brokerage firm pre-petition to find a purchaser for the debtor's land. The broker found a purchaser and a sales agreement was executed by all parties, which included a modification of the commission agreement. Problems arose between the debtor and the buyer before escrow closed. Debtor then filed a petition in bankruptcy under Chapter 11.
After filing bankruptcy, debtor moved to assume the land sales agreement as an executory contract. The court granted that motion. Upon learning of that action, the broker submitted a demand for payment of its commission on close of escrow. The debtor countered by moving to sell free and clear of the broker's claim. The bankruptcy court denied the debtor's motion and ordered payment of the commission on close of escrow. On appeal, the district court affirmed. On further appeal, however, the Court of Appeals for the Ninth Circuit reversed.
Upon review, the Ninth Circuit concluded that the commission agreement between the debtor and the broker was not executory at the time of filing of the bankruptcy. The court wrote:
In Munple, the broker advanced the same argument asserted here—that it rendered substantial services post-petition to bring the sale to closing. The Ninth Circuit responded:
Even if true, these facts do not render the commission agreement executory on M & M\'s part after it produced the buyer. While M & M may have had both the authority and the incentive to render further services after the purchase agreement was signed, the critical question is whether M & M was required to perform such services in order to earn its commission.
868 F.2d at 1131. Accord, Indian River Homes, Inc. v. Sussex Trust Co., 108 B.R. 46, 49-50 (D.Del.1989); In re Precision Carwash Corp., 90 B.R. 34, 38 (Bankr.E.D.N.Y.1988); In re Moskovic, 77 B.R. 421, 423 (Bankr. S.D.N.Y.1987); In re Murtishi, 55 B.R. 564, 569 (Bankr.N.D.Ill.1985); In re Charter Co., 52 B.R. 267, 270 (Bankr.M.D.Fla.1985); In re Gardinier, Inc., 50 B.R. 491, 494 (Bankr. M.D.Fla.1985), aff'd 831 F.2d 974 (11th Cir. 1987).
The debtor acknowledges and accepts the holding of Munple, as it must. The debtor further recognizes that the result of applying Munple to the facts establishes that the realtors are pre-petition general unsecured creditors of the debtor as of the date of filing of the bankruptcy petition. Indian River Homes, Inc. v. Sussex Trust Co., 108 B.R. 46, 50 at n. 11 (D.Del.1989); In re Jones, 98 B.R. 399, 401 (Bankr.C.D.Ill.1988); In re Moskovic, 77 B.R. 421, 423 (Bankr.S.D.N.Y.1987); In re Charter Co., 52 B.R. 267, 271 (Bankr. M.D.Fla.1985); In re Gardinier, Inc., 831 F.2d 974, 978 (11th Cir.1987); In re Gardinier, Inc., 50 B.R. 491, 494 (Bankr.M.D.Fla. 1985); In re Precision Carwash Corp., 90 B.R. 34, 38 (Bankr.E.D.N.Y.1988); In re J.M. Fields, Inc., 22 B.R. 861 (Bankr. S.D.N.Y.1982).
Notwithstanding the foregoing the debtor asserts that the realtors' commissions should be allowed as a post-petition administrative expense because of the substantial services performed post-petition, and the substantial contribution made to the estate by the closing of the subject escrows. The court in In re Munple, Ltd., 868 F.2d 1129 (9th Cir.1989) left a variation of this issue open. In its only footnote, the court wrote:
M & M also argues that even if the commission agreement was not an executory contract under section 365 of the Bankruptcy Code, M & M\'s claim for payment should be given "administrative expense" priority under 11 U.S.C. § 503(b)(1)(A). This issue is not properly before us on appeal.
868 F.2d at 1131, n. 1. As noted, the declarations of realtors and buyers submitted by debtor are uncontroverted and establish that substantial post-petition efforts were made by the realtors which directly contributed to the sales closing.
In support of its position, debtor invokes 11 U.S.C. § 503(b)(3)(D). Section 503(a) authorizes the filing of a request for payment of an administrative expense. Subsection (b) sets out what may constitute an administrative expense. Subpart (3)(D) establishes that "administrative expense" may include:
The issue posed by the debtor's argument can be phrased several ways. One way is to ask whether a pre-petition unsecured creditor may render post-petition services to a bankruptcy estate without prior court authorization of employment and thereby elevate a pre-petition general unsecured claim to administrative expense priority. Another way would ask if the same creditor, by rendering post-petition services, may properly present a claim for the reasonable value of those post-petition services which, in this case, equals the amount of the pre-petition general unsecured claim. Regardless of how the issue is posed in this case, where the pre-petition creditor is a real estate agent or broker who has not been employed by the estate post-petition and cannot be so employed under 11 U.S.C. § 327 because not "disinterested...
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