In re Mehdipour

• Decision Date: 16 October 1996
• Docket Number: Bankruptcy No. LA-95-15005-ES.,BAP No. CC-95-2279-JHA1
• Parties: In re Farideh MEHDIPOUR, Debtor. Farideh MEHDIPOUR, Appellant, v. MARCUS & MILLICHAP, and U.S. Trustee, Appellees.
• Court: U.S. Bankruptcy Appellate Panel, Ninth Circuit

202 B.R. 474 (1996)

In re Farideh MEHDIPOUR, Debtor.

Farideh MEHDIPOUR, Appellant, v. MARCUS & MILLICHAP, and U.S. Trustee, Appellees.

BAP No. CC-95-2279-JHA1, Bankruptcy No. LA-95-15005-ES.

United States Bankruptcy Appellate Panel of the Ninth Circuit.

Argued and Submitted July 24, 1996.

Decided October 16, 1996.

COPYRIGHT MATERIAL OMITTED

Paul M. Brent, Santa Monica, CA, for Farideh Mehdipour.

James B. Yobski, Los Angeles, CA, for Marcus & Millichap, Inc.

Before: JONES, HAGAN, and ALLEY¹, Bankruptcy Judges.

OPINION

JONES, Bankruptcy Judge:

I. FACTS

The debtor Farideh Mehdipour ("Debtor") filed for chapter 11 bankruptcy relief on February 27, 1995.² The debtor employed Marcus & Millichap ("M & M") as a real estate broker to locate a buyer for the estate's largest asset, an apartment building located in Santa Monica, California (the "Property"). Tony Azzi ("Azzi"), the real estate agent for M & M, presented a buyer, Dr. Rothman ("Rothman"). On March 20, 1995, the debtor signed an agreement to sell the property to Rothman and to pay M & M a commission. Before the sale was consummated, Rothman requested that Azzi, who was also Rothman's broker, find partners for Rothman as the buyer of the property. Azzi approached Claudia Schumacher ("Schumacher"), who was Azzi's partner in an unrelated real estate transaction, and informed her of Rothman's interest in finding a partner. Schumacher requested time to make a decision as to whether to become partners with Rothman. In the interim, Azzi loaned Rothman $40,000 for the escrow deposit in exchange for a promissory note. On April 18, 1995, Schumacher formed a partnership with Rothman to purchase the property and repay Azzi with a note for $40,000.

On May 5, 1995, the debtor filed a motion for an order authorizing the sale of the property. On May 9, 1995, the debtor filed an application for employment of Azzi and M & M as the real estate broker in connection with the sale. Debtor's counsel states that he subsequently became informed that Azzi had a proprietary interest in the property and requested that the bankruptcy court not sign the order employing Azzi or M & M. The debtor then withdrew the application to employ M & M. On June 20, 1995, Azzi loaned an additional $70,000 to Schumacher which was deposited in escrow in exchange for a promissory note. The property was sold pursuant to an order of the court and the sale closed on June 23, 1995.

On August 15, 1995, M & M filed its motion to employ itself as the real estate broker for the debtor pursuant to § 327 and requested payment of the commission. The United States Trustee filed a response to M & M's motion stating that the Trustee had no objection to M & M's employment because M & M's efforts substantially benefitted the estate. On September 5, 1995, the court held that M & M did not have standing to bring its motion. The bankruptcy court informed M & M that it should file a request for payment of the commission as an administrative expense pursuant to § 503(b). On September 15, 1995, M & M filed a § 503(b) motion which was heard on October 10, 1995. The bankruptcy court found that the efforts of M & M had benefitted the estate because the sale netted the estate $300,000 exclusive of commission fees, and that the property sold for fair market value. Further, the sale of the property enabled the debtor to pay off all secured creditors as well as all or substantially all unsecured creditors and administrative expenses. The court stated that it was not clear that M & M had any participatory interest as a purchaser and that the loans actually facilitated the sale. The court found that M & M did not fully disclose all of the facts surrounding the sale and the loan and sanctioned M & M 10% of its commission. The bankruptcy court awarded M & M $60,750, which was 90% of its commission. This award is the subject of the current appeal. At the hearing, the debtor orally requested a stay pending appeal which was denied.

On February 7, 1996, the debtor filed a motion to dismiss the chapter 11 case which was granted. The order of dismissal required the debtor to pay all creditors within ten days of the entry of the order. The debtor appealed the order of dismissal in another appeal. The debtor did not obtain a stay of the order of dismissal. In the order of dismissal, the bankruptcy court stated that it did not retain jurisdiction over the appeal of the award to M & M, except to the extent that this panel orders the bankruptcy court to make further findings.

II. ISSUE

Did the bankruptcy court err in awarding real estate brokerage fees to M & M as an administrative expense when the court had not previously authorized the employment of M & M?

III. STANDARD OF REVIEW

We review a bankruptcy court's award of fees to professionals for abuse of discretion. In re Park-Helena Corp., 63 F.3d 877, 880 (9th Cir.1995), cert. denied, ___ U.S. ___, 116 S.Ct. 712, 133 L.Ed.2d 667 (1996); In re Film Ventures Int'l., Inc., 75 B.R. 250, 253 (9th Cir. BAP 1987). We review the bankruptcy court's findings of fact for clear error and the court's conclusions of law de novo. Park-Helena, 63 F.3d at 880 (citing In re United States Trustee, 32 F.3d 1370, 1372 (9th Cir.1994)).

IV. DISCUSSION

A. Mootness

We first note that M & M argues that this appeal is moot because the debtor failed to obtain a stay of the order dismissing the bankruptcy case, and the order of dismissal provided that all creditors had to be paid within a ten day period. Mootness is a judicial doctrine which developed from "the general rule that the occurrence of events which prevent an appellate court from granting effective relief renders an appeal moot, and the particular need for finality in orders regarding stays in bankruptcy." Algeran, Inc. v. Advance Ross Corp., 759 F.2d 1421, 1424 (9th Cir.1985). Thus, an appeal must be dismissed as moot if the appellate court cannot grant effective relief. However, the debtor's failure to obtain a stay of the order of dismissal does not preclude this panel from granting effective relief in this appeal. The order of dismissal merely outlined a time period for payment of creditors. Our decision determines whether or not the debtor must pay M & M's commission as ordered by the bankruptcy court. This is effective relief. The timing of any payment to M & M does not prevent this panel from granting effective relief. M & M does not argue that distributions have been made to third parties over whom this court lacks jurisdiction. Any relief that this panel grants will only concern the parties to this appeal. We see no reason why we cannot grant effective relief. This appeal is not moot.

B. Payment of Commission As An Administrative Expense

Section 327(a) prohibits the employment of professionals who hold or represent an interest adverse to the estate and who are not disinterested. The bankruptcy court does not have authority to allow the employment of a professional in violation of § 327, and the employment is void ab initio. In re EWC, Inc., 138 B.R. 276, 281 (Bankr. W.D.Okla.1992). The ultimate decision as to whether there is a disqualifying conflict or adverse interest lies within the discretion of the court. In re B.E.S. Concrete Prods., Inc., 93 B.R. 228, 236 (Bankr.E.D.Cal.1988). Any professional who the court determines to hold or represent an interest adverse to the estate or who is not disinterested is not an officer of the estate during the time of conflict and must be denied compensation for services performed during the conflict pursuant to § 330. EWC, 138 B.R. at 281. However, the bankruptcy court has discretion to award or deny compensation for services performed outside of a conflict. Id. at 282. The trial court is in the best position to resolve disputes over professional fees. In re Film Ventures Intern., Inc., 75 B.R. 250, 253 (9th Cir. BAP 1987). The court is not required to deny fees for work actually performed. Id.

Courts may allow compensation for professional services under § 503(b)(1)(A) as administrative expenses if the services provided by a disinterested professional were necessary to preserve the estate. EWC, 138 B.R. at 283. Section 503(b)(1)(A) provides:

(b) After notice and a hearing, there shall be allowed administrative expenses, other than claims allowed under section 502(f) of this title, including — (1)(A) the actual, necessary costs and expenses of preserving the estate, including wages, salaries, or commissions for services rendered after the commencement of the case.

11 U.S.C. § 503(b)(1)(A) (1994). Compensation under § 503 does not allow the professional to side step the requirements of § 327 and § 330 — the professional must still be disinterested and not hold any adverse interests. EWC, 138 B.R. at 283. Further, in order for the court to grant compensation under § 503, the services "must benefit all the creditors, be necessary for a successful reorganization, and generally arise from operating the estate in the overall interests of the creditors." Id.

Usually compensation or administrative expenses cannot be granted for professional services unless the court has authorized the employment prior to the performance of the services. In re Shirley, 134 B.R. 940, 943-44 (9th Cir. BAP 1992). Indeed, we held in In re Weibel, Inc., 176 B.R. 209, 213 (9th Cir. BAP 1994), that § 503 could not serve as a basis for professional fees where the professional did not first obtain court approval of employment. However, the panel in Weibel also stated that a professional may receive court approval of employment "nunc pro tunc" where the professional did not receive prior approval, as long as such after-the-fact court approval is limited to exceptional circumstances. Id. at 213 (citing In re THC Financial Corp., 837 F.2d 389, 392 (9th Cir.1988)). Applying for nunc pro tunc approval does not alleviate the professional from meeting the requirements of § 327; the professional still must show that it was...