IN RE LEFKAS GENERAL PARTNERS NO. 1017, No. 92 C 6503.
| Citation | 153 BR 804 |
| Decision Date | 15 April 1993 |
| Docket Number | No. 92 C 6503. |
| Parties | In re LEFKAS GENERAL PARTNERS No. 1017, Lefkas General Partners No. 1018, Lefkas General Partners No. 1020, Debtors. Douglas GOWAN, Appellant, v. LEFKAS GENERAL PARTNERS No. 1017, Lefkas General Partners No. 1018, Lefkas General Partners No. 1020, Glenn R. Heyman, Examiner with Expanded Powers; The Sakura Bank, Limited, Appellees. |
| Court | U.S. District Court — Northern District of Illinois |
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Douglas Gowan, Milwaukee, WI.
Norman B. Newman, Much, Shelist, Freed, Denenberg, Ament & Eiger, P.C., John Collen, Sonnenschein, Nath & Rosenthal, Chicago, IL.
This matter is before the Court, pursuant to 28 U.S.C. § 158(a), on appeal from a final order of the United States Bankruptcy Court denying appellant Gowan's application for fees or compensation for services rendered in the consolidated Chapter 11 cases of three Illinois limited partnerships known as Lefkas General Partners Nos. 1017, 1018, and 1020 ("Debtors"). A bankruptcy court's ruling regarding fees will not be disturbed on appeal absent an abuse of discretion. In re Land, 943 F.2d 1265, 1266 (10th Cir.1991) (). This Court also must accept the bankruptcy court's factual findings unless clearly erroneous, but review de novo any legal determinations. Id.; First Wis. Nat'l Bank v. Federal Land Bank, 849 F.2d 284, 287 (7th Cir. 1988); Fed.R.Bankr. 8013. For the reasons stated below, this Court finds that Judge Ginsberg did not abuse his discretion in denying Gowan's fee application. This Court, therefore, affirms the bankruptcy court's decision.
The Debtors' general partners are members of the Demetrios Dellaportas family. The Debtors' principal asset is their beneficial interests in land trusts, which hold title to the Rivercrest Shopping Center. On October 4, 1991, the Debtors filed Chapter 11 petitions for reorganization. About a month later, Sakura Bank, Ltd. (f/k/a The Mitsui Taiyo Kobe Bank, Ltd.) filed a motion to appoint a trustee to administer the Debtors' estates. The Sakura Bank is the Debtors' major creditor (over 90% of the estates' debt) and holds the first mortgage on the Rivercrest Shopping Center. According to the Sakura Bank, a trustee was necessary because the Debtors incompetently and fraudulently diverted funds from Rivercrest, preventing them from duly investigating these fraudulent transactions and properly administering the estates.
After the Sakura Bank filed its motion, the Debtors filed an application for authority to employ the Capital Group, Inc. as a financial consultant and to pay the company a $15,000 retainer. Appellant Gowan is the President of the Capital Group. On January 21, 1992, Judge Ginsberg continued this application until resolution of the Sakura Bank's motion for appointment of a trustee, stating that appointment of new management for the Debtors was premature in light of the Sakura Bank's pending motion.
Hearings on the motion for appointment of a trustee began on that same day, January 21, 1992, after a preliminary investigation by an examiner verified the Sakura Bank's allegations of fraud. Twenty-five days of hearings followed. Finally, on April 30, 1992, the Sakura Bank and the Debtors agreed to the appointment of Glenn R. Heyman, as a special Examiner with Expanded Powers.1 Since now the special examiner was entitled to select the financial advisors, the bankruptcy court denied as moot the Debtors' application for employment of the Capital Group without prejudicing any rights Gowan "may have for compensation."
On July 31, 1992, Gowan filed an application for $111,997.51 in fees. The fee application revealed that Gowan had received $85,000 from the Debtors' individual partners (the Dellaportas family), of which $50,000 was attributed to services rendered on the Rivercrest Chapter 11 cases. The balance due was $51,997.51. On August 17, 1992, Judge Ginsberg denied Gowan's fee application with the parties present in court. Relying on a page of definitions submitted by Gowan to the court, Judge Ginsberg determined that Gowan could not collect from the Debtors' estates because the definitions constituted a judicial admission that Gowan's clients were members of the Dellaportas family, not the Debtors. Gowan defined his clients as the "Dellaportas family partners and guarantors in Lefkas 1017, 1018, and 1020 and general partner originally Demetrios Dellaportas, then Maria Dellaportas." Gowan's loyalties while participating in the bankruptcy proceedings were with his clients. These clients were not the Debtors — the Debtors were the limited partnerships of Lefkas General Partners Nos. 1017, 1018, and 1020.
The issue before this Court is whether Judge Ginsberg erred in denying Gowan's fee application based on the page of definitions submitted to the court for clarification of the parties involved and their status with respect to the bankruptcy proceedings. Gowan essentially contends that the definitions submitted in response to the judge's request for clarification are not part of the fee application and cannot constitute judicial admissions. Judicial admissions, however, are not limited to statements made in the particular motion or application pending. Any "deliberate, clear and unequivocal" statement, either written or oral, made in the course of judicial proceedings qualifies as a judicial admission. Ensign v. Pennsylvania, 227 U.S. 592, 33 S.Ct. 321, 57 L.Ed. 658 (1913); In re Corland Corp., 967 F.2d 1069, 1074 (5th Cir. 1992) (); Wheeler v. John Deere Co., 935 F.2d 1090, 1097-99 (10th Cir.1991) (); United States v. Cravero, 530 F.2d 666 (5th Cir. 1976) ().
Gowan deliberately prepared and submitted his written statement during the pendency of the bankruptcy proceedings specifically to clarify any confusion as to the parties for whom Gowan performed services. Gowan knew that Judge Ginsberg would consider this statement in determining his right to compensation from the Debtors' estate. The statement unequivocally defined his clients as the Dellaportas family and partners of the limited partnerships; it did not name the Debtors as individual clients. Under these circumstances, this Court finds that Judge Ginsberg did not err in holding that the written definitions were sufficiently "deliberate, clear and unequivocal" to constitute a judicial admission that the Debtors were not Gowan's clients.
Even absent the admission, this Court finds that Judge Ginsberg did not abuse his discretion in denying Gowan's application for compensation and fees under the facts presented in the record. In order to recover fees from a debtor's estate as an administrative cost, a professional such as Gowan must obtain the bankruptcy court's approval of his employment. 11 U.S.C. § 327 (1991). Although the Debtors applied for approval for employment of the Capital Group, final approval never manifested and Judge Ginsberg eventually denied the application as moot. Absent court approval, Gowan is not entitled to compensation from the Debtors' estates. In re Banhalmi, 84 B.R. 123 (Bankr.N.D.Ill. 1988) ().
Unfortunately for Gowan, Judge Ginsberg did not rule on the application for employment until after Gowan, on behalf of the Capital Group, had already rendered substantial financial services in the Rivercrest Chapter 11 cases. Gowan now contends that equity mandates recovery of compensation for those services rendered on behalf of the Debtor with Judge Ginsberg's knowledge. Some courts adhere to a liberal interpretation of the requirements in § 327 and will enter retroactive approval of employment and compensation where the professional failed to obtain approval due to inadvertence or neglect. Id. at 126, 127. The Seventh Circuit is one of those courts which has held that under proper circumstances, the "equitable aspects of bankruptcy proceedings permit the court to retroactively approve the employment" of...
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