In re WAPI, Inc.
| Decision Date | 19 April 1994 |
| Docket Number | Bankruptcy No. 92-09350-TOM. |
| Citation | 171 BR 130 |
| Parties | In re WAPI, INC., Debtor. |
| Court | U.S. Bankruptcy Court — Northern District of Alabama |
J. Patrick Darby, Birmingham, AL, for WAPI, Inc.
Richard P. Carmody, Birmingham, AL, for Star Media Group, Inc.
Eric W. Anderson, Atlanta, GA, for MLQ Investors, L.P.
This proceeding is before the Court on Star Media Group, Inc's Application for Employment Nunc Pro Tunc and Award of Compensation, and the objections thereto filed by the Debtor, WAPI, Inc., and MLQ Investors, L.P. Appearing at the March 30-31, 1994, hearing of this proceeding were J. Patrick Darby, attorney for WAPI, Eric Anderson, attorney for MLQ, and Richard P. Carmody, attorney for Star Media. This Court has jurisdiction. 28 U.S.C. § 1334. This is a core proceeding. 28 U.S.C. § 157(b)(2)(A). The Court has considered the testimonial and documentary evidence, and concludes that the objections to Star Media's application are due to be sustained, and that the application is due to be denied.1
WAPI operates FM and AM radio stations in Birmingham, Alabama, and filed for Chapter 11 protection in December of 1992. Prior to and following the Chapter 11 filing, WAPI owner Bernard Dittman was attempting to market the station. On March 27, 1990, Dittman granted Americom Media Brokers, Inc., the sole and exclusive right to locate and procure a purchaser for WAPI. Under the terms of the contract with Americom, Americom had 90 days within which to market the station, and the agreement could be cancelled at any time after the 90 days upon 10 days written notice. Applicant's Ex. 3. Also pursuant to the agreement, Americom was to register as protected buyers no more than five potential purchasers it had contacted during the 90-day period, if that period expired without a contract for sale having been executed. Applicant's Ex. 3, ¶ 3. By a letter dated October 17, 1990, Dittman advised Americom's Paul Leonard that the 90-day agreement had expired and requesting the registration of five potential purchasers. Applicant's Ex. 4. Leonard responded, by a letter dated October 23, 1990, giving Dittman a list of five potential purchasers, none of which is the buyer that entered into the purchase agreement with WAPI. Applicant's Ex. 5. Leonard closed the October 23 letter with the following paragraph:
After the expiration of the original agreement, Leonard left Americom and started Star Media, which he testified is now one of the nation's largest media brokers.
In August of 1991, Dittman and Leonard, on behalf of Star Media, met in Dallas and discussed several topics. A letter from Leonard to Dittman dated August 22, 1991, makes a passing reference to Dick Broadcasting Company (DBC). Applicant's Ex. 6. However, DBC was characterized in Leonard's letter as a somewhat minor player in any potential sale of WAPI. Also in the letter, Leonard requested the opportunity to work with Dittman on an exclusive basis in marketing WAPI. However, Dittman did not thereafter treat Leonard as his exclusive broker, as shown by Applicant's Exhibits 7 and 8, which indicate that Dittman was also in contact with Blackburn & Company, an Atlanta media broker.
By a letter dated May 26, 1992, however, Dittman granted Leonard and Star Media an exclusive agreement as to three potential purchasers, including DBC.2 Applicant's Ex. 9. Although the letter was issued from Dittman to Leonard, the testimony established that Leonard actually drafted the terms of the agreement. According to the agreement, if either of the three named buyers signed a purchase agreement for WAPI within six months or purchased WAPI within 12 months, Leonard would receive a commission. Leonard was also to encourage any purchaser to pay all or part of the commission. Applicant's Ex. 9. None of the three entities named in this agreement signed a sales contract within six months or purchased WAPI within 12 months of the date of the agreement.
Following the expiration of the aforementioned letter agreement, it is undisputed that Leonard and Dittman continued to communicate with each other regarding the sale of WAPI. These communications included telephone conversations, and facsimile transmissions of financial and other information concerning WAPI. Leonard contends that these communications establish that the agency relationship between Star Media and WAPI was extended beyond the natural termination of the original agreement. The Court does not agree, and finds that any agency relationship created by the May 26, 1992, agreement expired on May 26, 1993, when neither DBC nor the other two entities named in the May 26 agreement had purchased WAPI.
On November 10, 1993, DBC and WAPI entered into an asset purchase agreement. Leonard claims that, because he brought DBC to the bargaining table originally, he has earned a commission. For the reasons set forth below, the Court does not agree.
Bankruptcy Code Section 327 requires that a trustee serving in a case under Title 11 receive the court's approval for the employment of professional persons to "represent or assist the trustee in carrying out the trustee's duties" under Title 11. 11 U.S.C. § 327(a).3 The necessity of complying with Section 327 also applies to debtors in possession. 11 U.S.C. § 1107. The plain language of the Code does not give the professional sought to be employed the power to apply to the court for approval; only the trustee or debtor in possession may make that application. "Nowhere do the Code or the Federal Rules of Bankruptcy Procedure authorize professionals to seek court approval — nunc pro tunc or otherwise — for their own employment." In re Office Products of America, Inc., 136 B.R. 675 (Bankr. W.D.Tex.1992). Federal Rule of Bankruptcy Procedure 2014 clearly states that an order approving the employment of professionals "shall be made only on application of the trustee or committee." Fed.R.Bankr.P. 2014. In argument via its brief in this proceeding, Star Media asserts that it may make this application because WAPI and Dittman have no incentive to request Star Media's employment. This argument, however, misses the point. It is not relevant to this Court whether WAPI or Dittman have incentive to seek Star Media's employment. They have not done so, and because the Code and Rules require that only they may do so, this Court has no authority whatsoever to approve Star Media's employment by its own application.
Star Media, however, requests that this Court exercise its equitable power to approve its application for employment. Although the Court may, under Bankruptcy Code Section 105(a), "issue any order, process, or judgment that is necessary or appropriate to carry out the provisions" of the Bankruptcy Code, 11 U.S.C. § 105(a), the bankruptcy courts must practice these equitable powers within the confines of the Bankruptcy Code. Norwest Bank Worthington v. Ahlers, 485 U.S. 197, 108 S.Ct. 963, 99 L.Ed.2d 169 (1988); Johnson v. First National Bank of Montevideo, Minn., 719 F.2d 270 (8th Cir.1983) cert. denied, 465 U.S. 1012, 104 S.Ct. 1015, 79 L.Ed.2d 245 (1984); In re Texas Consumer Finance Corp., 480 F.2d 1261 (5th Cir.1973). The bankruptcy courts may not use their equitable powers if to do so would strip another Code provision of its meaning, In re Plaza de Diego Shopping Center, Inc., 911 F.2d 820 (1st Cir.1990); In re Minor, 115 B.R. 690 (D.Colo.1990); Lerch v. Federal Land Bank, 94 B.R. 998 (N.D.Ill. 1989), or as one court has more eloquently said, Section 105(a) does not necessarily "constitute a roving commission to do equity." United States v. Sutton, 786 F.2d 1305, 1308 (5th Cir.1986). In this case, granting the relief Star Media requests would eviscerate Section 327 and its mandate that the trustee (or debtor in possession) or committee seek the approval of the professional sought to be employed.
Even if the Court were inclined to ignore the law and allow Star Media to make its own application, the application could not be approved. In Office Products, supra, the bankruptcy court thoroughly analyzed the law concerning nunc pro tunc approval of professionals. 136 B.R. at 683-684. Star Media fails to meet the test set out in Office Products.4 The burden for meeting the Office Products test is strict; the applicant must show, by clear and convincing evidence, that all of the nine factors are met. The Court will discuss each factor, making additional findings of fact as necessary.
The debtor, trustee, or committee expressly contracted with the professional to perform the services which were thereafter rendered
Star Media does not dispute that no express contract existed after the expiration of the May 26 agreement one year after its execution. In its brief, Star Media encourages this Court to find an implied contract, based on the course of dealing between Star Media and WAPI. This Court is not inclined to find such a contract. Even if the Court did find an implied contract, it would not help Star Media, because the first factor of the Office Products test requires an express contract.
The Court believes that the purpose in requiring an express contract is to prevent the situation that has occurred in this case. The orderly and efficient administration of the bankruptcy estate is interrupted by entities coming forward with their hands out looking for payment to which they claim they are entitled. Leonard, who claims and appears to be a sophisticated and experienced business person, should readily grasp the importance of an express contract. It was his responsibility to have made sure that he had one. He undertook that responsibility earlier when he initiated, drafted, and obtained the letter agreement of May 26, 1992, which expired by its own terms one year later.
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