In re Rheam of Indiana, Inc.
| Decision Date | 11 October 1991 |
| Docket Number | 90-2264,Bankruptcy No. 87-06459S.,Civ. A. No. 90-2263 |
| Court | U.S. District Court — Eastern District of Pennsylvania |
| Parties | In re RHEAM OF INDIANA, INC., Debtor. |
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Edward J. DiDonato, Ciardi, Fishbone & DiDonato; Jonathan H. Ganz, Astor, Weiss & Newman, Philadelphia, Pa.; Robert A. Kargen and Benjamin Reich, Blue Bell, Pa., for debtor.
On February 26, 1990, the United States Bankruptcy Court for the Eastern District of Pennsylvania entered a Final Judgment and Order in the matter of Rheam of Indiana, Bankruptcy No. 87-06459S. That order awarded the law firm of Ciardi, Fishbone & DiDonato, ("CF & D"), and the auctioneer, William F. Comly & Son, Inc., ("Comly"), reimbursement for services provided to the estate, but in amounts substantially less than those requested. CF & D and Comly have filed separate appeals. For the reasons that follow, I shall affirm the bankruptcy court's judgment with respect to CF & D and vacate and remand the judgment with respect to Comly.
The final judgment and order from which appellants take this appeal is reported at In re Rheam of Indiana, Inc., 111 B.R. 87 (Bankr.E.D.Pa.1990). The following is an overview of facts relevant to that judgment and order.
This case was filed under Chapter 7 on December 29, 1987. The bankruptcy court appointed Anthony Barone trustee. On February 5, 1988, CF & D filed a pro forma application on behalf of Mr. Barone, asking the bankruptcy court to be appointed counsel for the Trustee. On February 10, 1988, the bankruptcy court denied the application, "pending a showing that the Debtor's assets are sufficient to justify appointment." Relevant schedules listed the Debtor's liabilities as $139,750.00 and assets as only $51,750.00. Further, the bankruptcy court learned from Debtor's counsel that the Debtor's inventory, valued "at cost" at $50,000, was probably worth no more than twenty percent of this figure. On March 10, 1988,1 CF & D filed an appeal, which was assigned to my docket, contending that the bankruptcy court's denial of its application for appointment was error.
On March 4, 1988, before filing the appeal, CF & D filed a second application for appointment with the bankruptcy court. The second application noted specific circumstances of the case and reasons why appointment of counsel would be beneficial to the estate. The bankruptcy court then instructed CF & D to notify all interested parties of its application. CF & D gave such notice, and on April 4, 1988, filed a certificate stating that none of the parties had objected to its appointment. On the same day, the bankruptcy court entered an order appointing CF & D as counsel, subject to two conditions: (1) that CF & D establish, on any application for reimbursement, that its services were "necessary", and (2) that CF & D's compensation would be limited to $125 per hour.
After the bankruptcy court granted CF & D's second application, CF & D did not withdraw its appeal of the court's denial of its first application. Rather, CF & D filed a second appeal, arguing that the bankruptcy court's limitation of fees to $125.00 an hour was error. The second appeal was assigned to the Honorable Herbert J. Hutton of this district.
On April 3, 1989, Judge Hutton vacated the order limiting attorneys fees to $125.00 an hour, finding that the predetermination of a reasonable hourly rate was inconsistent with the statutory provision authorizing compensation of professionals, 11 U.S.C. § 330, and with general Third Circuit precedent on the fixing of attorneys fees. See In re Rheam of Indiana, Inc. (Rheam I), 98 B.R. 193 (E.D.Pa.1989). Judge Hutton then remanded the fee issue to the bankruptcy court for determination in a manner not inconsistent with the district court's ruling. Id.
I then dismissed CF & D's first appeal, finding it moot in light of the bankruptcy court's appointment of CF & D as counsel. See In re Rheam of Indiana, Inc. (Rheam II), C.A. No. 88-2901, Slip Op. .
On November 21, 1989, upon completion of his statutory duties, the Trustee filed a final report, accounting, and application for fees. CF & D filed its own application for fees on the same day, requesting a total of $12,692.50. CF & D brought its application before the bankruptcy court on January 11, 1990, at the Final Audit Hearing in the case. The bankruptcy court reserved decision on the application at that time. By order dated January 17, 1990, the court gave CF & D and "any interested parties" the opportunity to file briefs addressing (1) CF & D's request for compensation at a rate in excess of $125 per hour, and (2) CF & D's request for compensation for work done on the two appeals related to its appointment as counsel. Only CF & D availed itself of the opportunity. Nevertheless, in its final order, the Bankruptcy Court denied both requests, limiting CF & D's compensation to $6,488.00. In reaching this figure, the court used a maximum hourly rate of $125 and excluded time spent by CF & D prosecuting its appeals.
On March 24, 1988, Plant Realty Co., ("Plant"), the owner of the premises at 19th Street and Indiana Avenue, where the debtor, Rheam of Indiana, conducted its business, filed a motion with the bankruptcy court to compel the Debtor to remove its remaining inventory from the premises. On April 28, 1988, the bankruptcy court denied the motion, but granted Plant leave to file a motion for relief from the bankruptcy court's automatic stay. See 11 U.S.C. § 362. On April 29, 1988, Plant did file for such relief. Yet before a hearing could be held on the motion, Plant and the Trustee reached an agreement under which Plant agreed to waive all pre-petition and administrative claims against the estate, in exchange for the Trustee's agreement to "retain the services of Comly Auction Company to remove all of Debtor's property from the present location." This agreement was made by stipulation, approved by the bankruptcy court on May 13, 1988, and entered of record on May 17, 1988.
Earlier, on April 20, 1988, the Trustee had filed an application seeking the appointment of Comly as auctioneer for the estate. Comly began work removing Debtor's inventory from the premises at 19th and Indiana on May 4, 1988. See Supplement to Auctioneer's Application for Compensation, ¶ 4 (Document No. 23 of Appellate Record, C.A. No. 90-2264). Comly hired fourteen laborers and two supervisors, who worked until May 24 on the task. Id., ¶¶ 3-4. Comly then conducted auctions on May 24, May 31 and June 14, 1988, grossing $68,484.18 from the sales. On July 14, 1988, the Trustee, through CF & D, filed a Certificate of No Objection to the application of the Trustee to employee Comly. On July 19, 1988, the bankruptcy court approved the application, which stated that Comly would receive a commission2 "plus expenses". Comly filed an application for compensation in the following amounts: $4,924.21 for commission, $4,924.21 for advertising costs, and $23,692.82 for labor costs. The labor costs included, inter alia, costs of removing the Debtor's inventory from 19th and Indiana, cleaning the premises there, trucking the inventory to Comly's warehouse, and unloading the inventory at the warehouse.
The bankruptcy court awarded Comly a full commission of $4,924.21, but limited compensation for expenses to $10,000. The court stated that it had the authority to deny compensation for expenses completely, (1) because Comly was not appointed until after the expenses were incurred, (2) because the "expenses" authorized in the court's order were not intended to include moving and warehousing the Debtor's inventory, and (3) because the advertising expenses were not documented by receipts. The bankruptcy court nevertheless granted $10,000 compensation, because Comly's services benefited the estate, and because the court was reluctant to "penalize Comly too severely" for the delay in its appointment, which the court attributed to the "shortcomings" of Trustee's counsel, CF & D. See Rheam, 111 B.R. at 95.
This court has jurisdiction over CF & D's appeal, under 28 U.S.C. § 158(a). In exercising appellate review, this court must accept the factual findings of the bankruptcy court unless those findings are clearly erroneous. In re Jersey City Medical Center, 817 F.2d 1055, 1059 (3rd Cir.1987). Review of legal conclusions is plenary. Id.
CF & D argues that the bankruptcy court erred as a matter of law by sua sponte reducing its claim for compensation. CF & D relies on Cunningham v. City of McKeesport, 753 F.2d 262, 267 (3rd Cir. 1985) (Cunningham I), Bell v. United Princeton Properties, Inc., 884 F.2d 713, 719 (3rd Cir.1989), and a recent decision in this district, In re Jensen's Interiors, Inc., 132 B.R. 105 (E.D.Pa.1991) (per Newcomer, J.). In Cunningham I, the Third Circuit ruled that in "statutory fee cases", the trial court could not reduce the number of hours, nor the billing rate, in an attorney's fee petition, when "an opposing party has been afforded the opportunity" to challenge the attorney's affidavit, and has failed to raise an issue of material fact as to hours spent or the necessity for their expenditure. See Cunningham I, 753 F.2d at 267-268. In Bell, the Third Circuit reaffirmed this principle, nothing (1) that sua sponte reductions of requested fees deprive applicants the opportunity to offer evidence in support of their requests, and (2) that, because fee litigation is "adversarial litigation," independent review of fee applications by the court is not necessary. See Bell, 884 F.2d at 719. In Jensen's Interiors Judge Newcomer, applying Cunningham and Bell to the bankruptcy context and following two earlier district court decisions, ruled that absent the Trustee's objection, the court could not sua sponte reduce requested...
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