In re Paolino
| Decision Date | 19 March 1987 |
| Docket Number | Bankruptcy No. 84-00759G. |
| Citation | 71 BR 576 |
| Parties | In re Richard G. PAOLINO and Elaine M. Paolino, Debtors. |
| Court | U.S. Bankruptcy Court — Eastern District of Pennsylvania |
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Kenneth F. Carobus, Morris & Adelman, P.C., Philadelphia, Pa., for petitioning creditors.
Myron Bloom, Adelman Lavine Krasny Gold & Levin, Philadelphia, Pa., for Union Nat. Bank and Trust Co. and Univest Mortg. Co.
Andrew N. Schwartz, Pincus, Verlin, Hahn & Reich, P.C., Philadelphia, Pa., for Richard G. Paolino.
Jeffrey Meyers, Charleston & Fenerty, Philadelphia, Pa., for Elaine M. Paolino.
Michael H. Reed, Pepper, Hamilton & Scheetz, Philadelphia, Pa., for Herbert Brener, Trustee.
Presently pending before me is the application of Morris & Adelman, P.C. (applicant) for allowance of fees and reimbursement of costs.1 The applicant is counsel for certain petitioning creditors in this involuntary chapter 11 bankruptcy case. A hearing on the application was held on November 5, 1986. Objections have been interposed by Union National Bank and Trust Co., Univest Mortgage Co., the trustee and Dr. Richard G. Paolino (one of the debtors).
The applicant seeks compensation for work done in securing the involuntary order for relief. See 11 U.S.C. § 503(b)(3)(A). The order for relief was entered on May 24, 1985. In re Paolino, 49 B.R. 834 (Bankr.E. D.Pa.1985). The applicant also seeks compensation for activities after the entry of the order for relief on the grounds that: (1) its participation in the litigation which resulted in the appointment of a trustee "preserved the estate,"2 see 11 U.S.C. § 503(a)(1)(A); and (2) it otherwise made a "substantial contribution" in this case, see 11 U.S.C. § 503(b)(3)(D). The objectors do not oppose reasonable compensation of the applicant for work performed in connection with the entry of the involuntary order for relief. They do object to all other compensation sought.
For the reasons set forth below, I will (1) allow reasonable compensation for work performed in connection with the entry of the involuntary order for relief; (2) allow compensation for a portion of the work performed in connection with the appointment of the trustee; and (3) deny the balance of the request.3
I turn first to the request for compensation for services performed other than those in connection with either the appointment of a trustee or the entry of the involuntary order for relief. The applicant seeks compensation for its work in connection with: (1) certain motions for relief from stay that were filed against the debtor in 1985; (2) a motion which sought turnover to the debtor of certain funds in the hands of the receiver appointed under state law prior to the filing of this bankruptcy case; and (3) "miscellaneous matters."
With respect to these requests, the applicant can prevail only if it has established that the work made a "substantial contribution" in this case. The leading definition of that term is as follows:
Services which substantially contribute a case are those which foster and enhance, rather than retard or interrupt the progress of reorganization. . . . Those services which are provided solely for the client-as-creditor, such as those services rendered in prosecuting a creditor\'s claim, are not compensable. Compensable services are those which facilitated the progress of these cases. . . .
In re Richton International Corp., 15 B.R. 854, 857 (Bankr.S.D.N.Y.1981) (citations omitted); accord, In re Calumet Realty Co., 34 B.R. 922 (Bankr.E.D.Pa.1983). See also 3 Collier on Bankruptcy ¶ 503.04 (15th ed. 1986). Put another way, services must provide a "demonstrable benefit to the debtor's estate, the creditors, and, to the extent relevant, the stockholders," in order to be compensable. In re Jensen-Farley Pictures, Inc., 47 B.R. 557, 569 (Bankr.D.Utah 1985).
The main thrust of the objectors' argument is that the applicant's participation in the various post-order for relief contested matters duplicated the efforts of other parties in interest and therefore, did not contribute substantially, or otherwise, to the outcome of this litigation. I agree.
With respect to the relief from stay motions, the debtors opposed the motion for relief vigorously and were represented by counsel in doing so. Similarly, when debtors and trustee sought turnover, they, too, were represented by competent counsel. In short, the applicant has not articulated or demonstrated how its particular efforts facilitated the progress of the case in the distinct manner contemplated by Congress before compensation may be awarded under 11 U.S.C. § 503(b)(3)(D). See generally In re J.E. Jennings, Inc., 67 B.R. 106, 110 (Bankr.E.D.Pa.1986), appeal docketed (E.D.Pa.) (general policy of the Code is to deny compensation unless expressly provided). Moreover, irrespective of the applicant's duplication of the efforts of other parties, I am unable to conclude, at this stage of the case, that the opposition to the relief from stay motions advanced the progress of this case; at a minimum, the application is premature. See In re Seatrain Lines, Inc., 21 B.R. 194, 196 (Bankr. S.D.N.Y.1982).
The applicant next argues that its services in connection with the appointment of a trustee in this chapter 11 case were necessary to preserve the estate and therefore, constitute a per se basis for the award of compensation under 11 U.S.C. § 503(b)(1)(A). While I find it unnecessary to reach the broad issue posed by the applicant, I do find that, in this case, the appointment of a trustee made a substantial contribution to this bankruptcy case under section 503(b)(3)(D).
Section 503(b)(3)(D) is derived from sections 242 and 243 of the prior Act, 11 U.S.C. §§ 642, 643 (repealed 1978) and therefore, decisions under the prior Act are relevant in construing this section of the Code. My research reveals at least two Act cases in which courts have approved the compensation of a creditor's attorney for services rendered in procuring the appointment of a receiver. See Morse & Tyson v. Irving-Pitt Manufacturing Co., 18 F.2d 692 (8th Cir.1927); Lincoln Printing Co. v. Middle West Utilities Co., 17 F.Supp. 799 (N.D.Ill.1936). The concerns which would lead a court to appoint a receiver under the Act resemble the reasons a court may appoint a trustee under the Code. Compare 1 Remington on Bankruptcy §§ 317, 324 () with In re Humphreys Pest Control Franchises, Inc., 40 B.R. 174 (Bankr.E.D.Pa.1984) ().
In this case, the court appointed a trustee due to (1) the debtors' failure to file adequate financial reports to the prepetition receiver and with the court after the entry of the order for relief and (2) the debtors' prepetition fraudulent conduct manifested in a "check kiting" scheme. In re Paolino, 53 B.R. at 401-02. While the ultimate outcome of this bankruptcy may still be in doubt, I am satisfied that the appointment of a trustee was a significant event which has contributed to the progress of this case.
It does not automatically follow, however, that the applicant is entitled to be fully compensated for all of the hours it expended in connection with the appointment of the trustee litigation. It appears that the court's decision to appoint a trustee was based on the evidence and argument made by Union National Bank and was not based on the applicant's efforts.4 The court did not reach the issues raised by the applicant.
In these circumstances, I conclude it would be inequitable to either grant or deny the application in full. While the applicant's motion and proof was distinct from that of Union National Bank, its legal theory was at least partially related to that of the prevailing motion and the movants were fully successful in the litigation. See generally Hensley v. Eckerhardt, 461 U.S. 424, 103 S.Ct. 1933, 76 L.Ed.2d 40 (1983). As a result, in the exercise of my discretion, I deem it appropriate to compensate the applicant for 25% of the hours it expended in connection with the appointment of a trustee litigation. Upon review of the application, I find that the applicant reasonably expended 22 hours which will be reduced to 5.5 hours. The objectors have not disputed the applicant's requested hourly rate of $150.00 and I agree that the rate is reasonable in this case. Therefore, I will award the applicant a reasonable attorney's fee of $825.00 for services performed in connection with the appointment of a trustee.
From January 11, 1985 through May 20, 1985, the applicant claims it expended 52.8 hours of work on the following tasks in connection with the petitioning creditors' efforts to secure an involuntary order for relief: drafting pleadings, conducting discovery, preparing for trial, conducting the trial and preparing post-trial submissions.
The objectors do not challenge the applicant's entitlement to reasonable compensation for this work. However, they assert that the applicant has not adequately documented its application as required by In re Meade Land and Development Co., 527 F.2d 280 (3d Cir.1975). Specifically, they complain that the applicant has improperly "lumped" various services under one unit of time expenditure thereby making it impossible to accurately determine whether the time expended on the particular services was reasonable. In re Bible Deliverance Evangelistic Church, 39 B.R. 768 (Bankr.E.D.Pa.1984); In re Horn & Hardart Baking Co., 30 B.R. 938 (Bankr.E.D. Pa.1983); In re Nation/Ruskin, 22 B.R. 207 (Bankr.E.D.Pa.1982); accord, In re WHET, Inc., 58 B.R. 278 (Bankr.D.Mass. 1986).
The objectors are correct in asserting that the applicant must comply with the requirements of Meade Land and that the applicant is guilty of improper...
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