In re Peterson
| Decision Date | 02 October 1992 |
| Docket Number | Bankruptcy No. 87-40192-PKE. |
| Citation | 145 BR 631 |
| Parties | In re Wademan PETERSON and Janice Kay Peterson, Debtors. |
| Court | U.S. Bankruptcy Court — District of South Dakota |
David L. Nadolski, Quaintance, Johnson, Nadolski & Starnes, Sioux Falls, S.D., for Farm Credit Bank of Omaha.
Charles L. Nail, Jr., Asst. U.S. Trustee, Sioux Falls, S.D.
Bruce J. Gering, Sioux Falls, S.D., for U.S. Trustee.
CASE SUMMARY
The matter before the Court is an Application for Compensation and Reimbursement by Farm Credit Bank of Omaha hereinafter FCBO filed by Sioux Falls Attorney David L. Nadolski. FCBO, a secured and undersecured creditor in this Chapter 12 proceeding, made application for reimbursement of fees and expenses out of $19,000 paid to the Chapter 12 Trustee pursuant to a Compromise and Settlement Agreement involving Debtors' net disposable income entered into between Debtors, FCBO, and the Chapter 12 Trustee.
FCBO believes its post-confirmation activities were instrumental in recovering additional net disposable income which justifies this fee application as an allowed administrative claim under Section 503 of the Bankruptcy Code.
The United States Trustee, through Sioux Falls Attorney Bruce J. Gering, filed an objection to the application for compensation and reimbursement and the motion for its approval. The objection states that Section 503 of the Bankruptcy Code does not permit this fee application to be approved for two reasons. First, the Court did not approve FCBO's activities as required by 11 U.S.C. § 503(b)(3)(B), and, second, the express language of 11 U.S.C. § 503(b)(3)(D) only provides for fee approval of substantial creditor contributions made in Chapter 9 or 11 cases. The fee application in this case involves a Chapter 12 case.
The issue is whether FCBO's motion for approval of its application for compensation and reimbursement should be granted when FCBO spearheaded the discovery and settlement process leading to the recovery of net disposable income for the benefit of all creditors with unsecured claims but when the subsections of 11 U.S.C. § 503(b) do not expressly include applications for substantial creditor contributions in Chapter 12 bankruptcy proceedings.
The Court concludes that FCBO is entitled to be awarded compensation for the reasonable value of the legal services rendered in this case pursuant to Section 503(b). In doing so, the Court finds that the subsections of Section 503(b) are examples of the kinds of claims that may be deemed administrative expenses, but they do not provide an all-inclusive, exhaustive list of such expenses.
MEMORANDUM DECISIONThe matter before the Court is an Application for Compensation and Reimbursement by Farm Credit Bank of Omaha hereinafter FCBO filed by Sioux Falls Attorney David L. Nadolski. FCBO, a secured and undersecured creditor in this Chapter 12 proceeding, made application for reimbursement of fees and expenses out of $19,000 paid to the Chapter 12 Trustee pursuant to a Compromise and Settlement Agreement involving Debtors' net disposable income entered into between Debtors, FCBO, and the Chapter 12 Trustee.
FCBO believes its post-confirmation activities were instrumental in recovering additional net disposable income which justifies this fee application as an allowed administrative claim under Section 503 of the Bankruptcy Code. In addition, the Compromise and Settlement Agreement entered into by Debtors, FCBO, and the Chapter 12 Trustee was drafted to allow FCBO to make application without objection from and, in fact, with support of the Chapter 12 Trustee. Without its efforts, FCBO believes Debtors would have resisted any payment to the Chapter 12 Trustee. A memorandum in support of the fee application was filed on behalf of FCBO.
An evidentiary hearing was held, and FCBO presented testimony in support of the motion and provided exhibits summarizing the fee application. The Court took the following issue under advisement: Whether a court may approve a creditor's application for compensation of fees and reimbursement of expenses related to the pursuit of a Chapter 12 debtor's net disposable income on behalf of all unsecured creditors when the plain, express language of 11 U.S.C. § 503(b)(3)(B) requires prior court approval of such creditor activity and when the plain, express language of 11 U.S.C. § 503(b)(3)(D) only authorizes fees for substantial creditor contribution in cases under Chapter 9 or 11.
Debtors filed a joint Chapter 12 petition for relief on March 30, 1987. Debtors' Chapter 12 plan was confirmed by order entered June 7, 1988,1 and in June, 1992, a final accounting and exit report were filed. Only FCBO and the Chapter 12 Trustee filed objections to discharge, and in preparing for the hearing on objections to discharge, FCBO served Debtors with a Subpoena Duces Tecum2 for production of balance sheets and financial statements, farm production records, bank records, and records relative to post-bankruptcy family loan obligations. The hearing on objections to discharge was continued by the Court so that the parties could conduct appropriate discovery, in particular, a Bankruptcy Rule 2004 examination of Debtors. The only parties appearing at the subsequent Bankruptcy Rule 2004 examination were FCBO, Debtors, and the Chapter 12 Trustee.
In a proactive attempt to calculate what it believed was the correct amount of net disposable income, FCBO obtained and reviewed Debtors' relevant financial data. As a result, supplemental objections to discharge were filed, and, eventually, Debtors filed and served an Amended Final Exit Report. Thereafter, negotiations were held between FCBO, Debtors, and the Chapter 12 Trustee, which culminated with a court-approved Compromise and Settlement Agreement whereby Debtors agreed to pay the Chapter 12 Trustee $19,000 to be disbursed to administrative claimants and creditors with unsecured claims.
FCBO has filed this fee application as an administrative claim pursuant to 11 U.S.C. § 503, seeking $13,166.35, or approximately 70% of the amount of net disposable income agreed to by the settling parties.
The United States Trustee, through Sioux Falls Attorney Bruce J. Gering, filed an objection to the application for compensation and reimbursement and the motion for its approval. The objection states that Section 503 of the Bankruptcy Code does not permit this fee application to be approved for two reasons. First, the Court did not approve FCBO's activities as required by 11 U.S.C. § 503(b)(3)(B), and, second, the express language of 11 U.S.C. § 503(b)(3)(D) only provides for fee approval of substantial creditor contributions made in Chapter 9 or 11 cases. The fee application in this case involves a Chapter 12 case.
The Farmers Home Administration filed a response through United States Attorney Kevin V. Schieffer and Assistant United States Attorney Craig Peyton Gaumer, stating that, while it was unable to clearly state a specific objection to the application, it would hold FCBO to its "burden of proving that payment of attorneys fees for such services are supported by applicable bankruptcy or other federal law and well-grounded in fact."
The issue is whether FCBO's motion for approval of its application for compensation and reimbursement should be granted when FCBO spearheaded the discovery and settlement process leading to the recovery of net disposable income for the benefit of all creditors with unsecured claims but when the subsections of 11 U.S.C. § 503(b) do not expressly include applications for substantial creditor contributions in Chapter 12 bankruptcy proceedings.
The United States Trustee argues that the Bankruptcy Code provisions offered by FCBO in support of the fee application are inappropriate. The first section offered in support of fee approval is Section 503(b)(3)(B). Section 503(b)(3)(B) states that actual, necessary expenses other than compensation and expenses specified in paragraph (4) will be allowed as an administrative expense if incurred by a "creditor that recovers, after the court's approval, for the benefit of the estate any property transferred or concealed by the debtor." The United States Trustee asserts that FCBO's application fails under this section since there was no court approval of FCBO's pursuit of Debtors' assets.
The second section offered by FCBO in support of its fee application is Section 503(b)(3)(D), which states that actual, necessary expenses other than compensation and expenses specified in paragraph (4) will be allowed as an administrative expense if "a creditor, an indenture trustee, an equity security holder, or a committee representing creditors or equity security holders other than a committee appointed under section 1102 of this title, . . . makes a substantial contribution in a case under chapter 9 or 11 of this title." The United States Trustee points to the limiting language of this section in objection to FCBO's application and states that no courts have "been so bold" as to rule that this section applies to Chapter 12 cases since, on its face, the provision only includes two bankruptcy chapters, and, in fact, both FCBO and the United States Trustee agree there are no cases indicating that Section 503(b)(3)(D) applies to Chapter 12 cases.
The United States Trustee also objects to using the equitable powers of Section 105(a) to approve FCBO's fee application, since the United States Supreme Court, in Northwest Bank Worthington v. Ahlers, 485 U.S. 197, 108 S.Ct. 963, 99 L.Ed.2d 169 (1988), stated that whatever equitable powers a bankruptcy court has must only be exercised within the confines of the Bankruptcy Code. The United States Trustee asserts that since Congress has entitled certain administrative expenses under Section 503 of the Bankruptcy Code but has limited the entitlement of Section 503(b)(3)(D) to only Chapter 9...
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