In re Tri-L Corp.

• Decision Date: 21 August 1986
• Docket Number: Bankruptcy No. 81C-02084.
• Citation: 65 BR 774
• Parties: In re TRI-L CORPORATION, dba Best Western Inn of Richfield, Debtor.
• Court: U.S. Bankruptcy Court — District of Utah

65 B.R. 774 (1986)

In re TRI-L CORPORATION, dba Best Western Inn of Richfield, Debtor.

Bankruptcy No. 81C-02084.

United States Bankruptcy Court, D. Utah.

August 21, 1986.

David E. Leta, Blake D. Miller, Hansen, Jones, Maycock & Leta, Salt Lake City, Utah, for itself as applicant.

Vernon L. Hopkinson, Watkiss & Campbell, Salt Lake City, Utah, for Robison.

K.L. McIff, Jackson, McIff & Mower, Richfield, Utah, for Valley Builders.

Scott W. King, Salt Lake City, Utah, for Lundgren-Prestwich Outdoor Advertising.

MEMORANDUM OPINION

GLEN E. CLARK, Bankruptcy Judge.

CASE SUMMARY

This matter came before the Court on November 21, 1985 on the trustee's objection to the administrative expense claim of the law firm of Hansen, Jones, Maycock & Leta, attorney for the debtor. The Court is called upon to decide whether legal services performed postconfirmation for a reorganized Chapter 11 debtor are entitled to an administrative expense status under Sections 503(b)(2) and 507(a)(1) when the plan aborts and the case is converted to Chapter 7. This Court concludes that under the facts of this case such fees are entitled to a Chapter 11 administrative expense priority.

FACTS AND PROCEDURAL BACKGROUND

There is no dispute between the parties concerning the relevant facts. On June 11, 1981, Tri-L Corporation filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code. On June 12, 1982, the Court entered an order approving the employment of Roe & Fowler as counsel for debtor. David E. Leta, then a partner of Roe & Fowler, was principally responsible for the representation of debtor in this case. On June 25, 1982, the Court entered an order confirming the debtor's amended plan of reorganization. The effective date of the plan was August 1, 1982. Article IX of the plan provided:

Retention of Jurisdiction

The court shall retain jurisdiction of this Chapter 11 case pursuant to and for the purposes set forth in § 1127(b) of the Code and to:

1. Determine the allowance or disallowance of claims and interests;

2. Fix allowances of compensation and other administrative expenses; and

3. Adjudicate such other matters as may be set forth in the Order of Confirmation.

By order dated August 9, 1982, the debtor's counsel was awarded interim compensation and reimbursement for fees and costs, as an administrative expense, in the net amount of $18,522.43 for the period between May 27, 1981 and June 4, 1982. Of the $18,522.43 administrative expense awarded debtor's counsel, only $13,451.80 was paid. Pursuant to Section 1129(a)(9) the debtor agreed to pay, and counsel agreed to accept, the balance of $5,070.63 at a later date with interest payable at the rate of 10 percent per annum.¹

On November 22, 1982, David E. Leta withdrew from the firm of Roe & Fowler and joined the firm of Hansen, Jones, Maycock & Leta. On July 11, 1983, this Court entered an order approving the substitution of David E. Leta and the firm of Hansen, Jones, Maycock & Leta as counsel for the debtor.

Subsequent to the effective date of the plan, the debtor operated its business pursuant to the terms and conditions of the plan and the applicable provisions of the Bankruptcy Code. The debtor continued to file monthly financial reports with the Court and on one occasion filed a status report respecting its efforts to consummate the plan. After confirmation of the debtor's plan its counsel continued to represent the debtor and continued to provide legal services related to consummation of the plan.

On March 12, 1985, upon motions filed by two secured creditors, this Court entered an order converting the case to a case under Chapter 7. W. LaMonte Robison was appointed trustee by order dated March 13, 1985.

On September 10, 1985, Hansen, Jones, Maycock & Leta filed an application for interim compensation. The trustee objected to the application on the ground that postconfirmation fees are not entitled to a Chapter 11 administrative expense status. At the hearing on the application on September 30, 1985, this Court approved and allowed the applicant's fees and costs in the sum of $12,760.69, less payments already received of $2,665.36, for the period June 25, 1982 to March 11, 1985. At that time the Court instructed the trustee to notify all creditors that Hansen, Jones, Maycock & Leta asserted a Chapter 11 administrative expense status for its fees incurred after the effective date of the plan and prior to conversion to Chapter 7. Notice was duly given by the trustee and memoranda of law were filed by the trustee and one creditor, Valley Builders, Inc., opposing the application.

The Court heard oral argument from the parties on November 21, 1985 and the matter was taken under advisement. The Court now renders its decision as follows.

DISCUSSION

Conceptually, an administrative expense claim is a kind of priority granted "to those who either help preserve and administer the estate or who assist with the rehabilitation of the debtor so that all creditors will benefit." In re Coal-X Ltd. "76", 60 B.R. 907, 912 (Bkrtcy.D.Utah 1986), quoting In re Armorflite Precision, Inc., 43 B.R. 14, 16, Bankr.L.Rep. (CCH) ¶ 70,041 (Bkrtcy.D.Me.1984), aff'd 48 B.R. 994 (D.Me.1985). Section 503(b) is silent as to the point in time at which the expenses of a debtor in a reorganization case cease to be accorded first priority administrative expense status. In re Frank Meador Buick, Inc., 59 B.R. 787, 791, 14 B.C.D. 451, Bankr.L.Rep. (CCH) ¶ 71,122 (Bkrtcy. W.D.Va.1986). The language of Section 503(b)(1)(A) and (B) refers instead to "actual, necessary costs and expenses of preserving the estate," and "any tax incurred by the estate."

Several courts have denied postconfirmation expenses an administrative expense priority under Section 503(b) on the ground that the "estate" exists only until confirmation of a plan under Section 1129, at which time all of the property of the estate vests in the debtor and the estate itself ceases to exist. See e.g., United States v. Redmond, 36 B.R. 932, 934, Bankr.L.Rep. (CCH) ¶ 69,832, 10 C.B.C.2d 1428 (D.Kan.1984) (since the bankruptcy estate is no longer being administered after confirmation, taxes which accrue postconfirmation are not incurred as actual, necessary costs and expenses of preserving the estate pursuant to § 503(b)(1)(B)); In re Frank Meador Buick, Inc., 59 B.R. at 791 (§ 503(b) did not afford administrative expense status to claim for postconfirmation rent); In re Barker Medical Co., Inc., 55 B.R. 435, 436 (Bkrtcy.M.D.Ala.1985) (postconfirmation judgment against debtor not a cost of administration because administration of the estate ended with confirmation of plan); In re Westhold Manufacturing, Inc., 20 B.R. 368, 371-72, 9 B.C.D. 181, 6 C.B.C.2d 1068 (Bkrtcy.D.Kan.1982) (taxes incurred by the debtor postconfirmation are not taxes "incurred by the estate" under § 503). Under those decisions, the various creditors' postconfirmation claims were treated the same as prepetition claims when the cases were converted to Chapter 7 pursuant to Section 348(d), which states:

A claim against the estate or the debtor that arises after the order for relief but before conversion in a case that is converted under section 1112 or 1307 of this title, other than a claim specified in section 503(b) of this title, shall be treated for all purposes as if such claim had arisen immediately before the date of the filing of the petition. (Emphasis added.)

As the emphasized portion of the statute indicates, administrative expenses are expressly excepted from the operation of Section 348(d). See generally 2 COLLIER ON BANKRUPTCY ¶ 348.05, at 348-6 (15th ed. 1986).

Postconfirmation attorneys' fees are not governed by Section 503(b)(1)(A) and (B), which the courts applied in the foregoing cases, but by Section 503(b)(2),² which makes no reference to the "estate," but instead provides an administrative expense priority for "compensation and reimbursement awarded under section 330(a)."³ Thus the cases cited above, which include those relied upon by the trustee, are inapposite.

When the plan of reorganization was confirmed and property of the estate vested in the reorganized debtor, the reorganized debtor was free to employ attorneys and other professional persons without obtaining authority from the bankruptcy court to do so. See 11 U.S.C. §§ 327(a), 1107(a) (only the Chapter 11 debtor in possession and trustee require court approval to employ professional persons). Cf. In re Auto West, Inc., 43 B.R. 761 (D.Utah 1984) (reorganized debtor sought and obtained court approval for special counsel's employment). It follows that unless the bankruptcy court could and did retain jurisdiction to determine allowances of professional fees, such fees would not be "awarded under Section 330(a)" and would not constitute an administrative expense excepted from Section 348(d).

The confirmation of a Chapter 11 plan does not automatically terminate the jurisdiction of the bankruptcy court. See In re A.J. Mackay Co., 50 B.R. 756, 13 B.C.D. 557, 13 C.B.C.2d 95 (D.Utah 1985). The Code clearly contemplates retention of jurisdiction by the bankruptcy court after confirmation. Matter of Tilco, Inc., 558 F.2d 1369, 1372, 2 B.C.D. 293, 7 C.B.C. 243 (10th Cir.1977) (Act case). See 11 U.S.C. § 350(a); Bankruptcy Rule 3022 (the court always retains the power to render a final decree closing the case). Moreover, the court may expressly retain jurisdiction over the plan, during its consummation, under a provision of the plan itself or the order of confirmation. See 5 COLLIER ON BANKRUPTCY ¶ 1142.011, at 1142-4 to 1142-5 (15th ed. 1986); 11 REMINGTON ON BANKRUPTCY § 4648, at 467-68 (K. Hayes rev. ed. 1961). In the present case, the plan contained a reservation of jurisdiction to "fix allowances of compensation and other administrative expenses." The Court must consider the appropriateness of that reservation in light of the priority sought in this application.

A reservation of...