Lazar, In re
| Citation | 83 F.3d 306 |
| Decision Date | 07 May 1996 |
| Docket Number | 94-55910 and 94-55912,Nos. 94-55804,s. 94-55804 |
| Parties | , 35 Collier Bankr.Cas.2d 1259, Bankr. L. Rep. P 76,967, 96 Cal. Daily Op. Serv. 3198, 96 Daily Journal D.A.R. 5277 In re Gary LAZAR; Divine Grace Lazar, Debtors, James J. FEDER, Examiner; Coopers & Lybrand, Plaintiffs-Appellees, v. Gary LAZAR, Defendant, and Snipper, Wainer & Markoff, Appellant. In re Gary LAZAR; Divine Grace Lazar, Debtors, James J. FEDER, Examiner, Plaintiff, and Coopers & Lybrand, Appellee-Cross-Appellant, v. Gary LAZAR, Defendant, and Snipper, Wainer & Markoff, Appellant-Cross-Appellee. In re Gary LAZAR; Divine Grace Lazar, Debtors, James J. FEDER, Examiner, Appellee-Cross-Appellant, and Coopers & Lybrand, Appellee-Cross-Appellant, v. Gary LAZAR, and Snipper, Wainer & Markoff, Appellant-Cross-Appellee. |
| Court | United States Courts of Appeals. United States Court of Appeals (9th Circuit) |
James J. Feder, Feder & Mills, Los Angeles, California, for cross-appellant.
Lauren Diehl, Adams, Duque & Hazeltine, Los Angeles, California, for cross-appellant.
Stephen J. Snipper, Snipper, Wainer & Markoff, Los Angeles, California, for appellant-cross-appellee.
On Appeal from the United States District Court for the Central District of California, Tevrizian, District Judge, Presiding.
Before: BRIGHT, * SKOPIL and WIGGINS, Circuit Judges.
James J. Feder, Examiner, and his accountants, Coopers & Lybrand (Coopers) filed an application for the payment of compensation and the reimbursement of expenses in connection with the Lazar bankruptcy. The bankruptcy court 1 awarded the Examiner only 22% of his requested fees and expenses and awarded Coopers less than 60% of its request. On appeal, the district court 2 increased the Examiner's award to approximately 60% of his request, maintained the accountants' award, and subordinated any payments to the debtors' professionals to those awards. The Law Offices of Snipper, Wainer & Markoff (Snipper), debtors' bankruptcy counsel, appeal the subordination and the Examiner's and Coopers' cross-appeal requesting 100% payment. We affirm the fee award and reverse on the issue of subordination.
On December 10, 1992, the bankruptcy court ordered the appointment of an examiner over the Chapter 11 estates of Gary and Divine Grace Lazar and their related corporate entities (hereafter the "debtors"). The debtors owned, operated and leased numerous self-service gas stations. On December 11th, the United States Trustee appointed James J. Feder as examiner. The Examiner later employed Coopers & Lybrand as his financial and environmental advisors.
Throughout the investigation, the Examiner complained that the debtors and their agents were obstructing the examination. On April 21, the Examiner presented his preliminary statement to the bankruptcy court and an oral overview of his findings.
On May 26, 1993, the bankruptcy court terminated the examination and ordered the Examiner and Coopers to file final fee applications to be heard on July 15, 1993. In their written fee applications, the Examiner sought $401,650.00 in fees and $60,789.86 in expenses, and Coopers requested $824,578.50 in fees and $18,005.71 in expenses. 3 The hearing was eventually taken off the court's calendar. Coopers and the Examiner filed a motion to withdraw their fee applications from the consideration of the bankruptcy court, apparently due to a preference for a decision by the district court. Nonetheless, on November 15, 1993, the bankruptcy court entered a fee order. 4
The fee order stated that the fees requested were "unconscionable" in light of the size of the estate, and limited the total award to $650,000. The order granted Coopers $500,000, about 60% of the amount Coopers requested. 5 The order granted the Examiner $150,000--about 22% of his requested fees plus expenses. 6 In justifying the Examiner's award, the bankruptcy court cited three considerations: (1) the Examiner did not complete his examination; (2) the Examiner engaged in "highly improper and illegal procedures" in having the district attorney obtain evidence for him by executing a search warrant; and (3) the Examiner engaged in "unproductive activities."
On appeal, the district court entered an order modifying the fee order. The district court found that the evidence in the record did not support the three considerations the bankruptcy court cited in justifying its award to the Examiner. The district court then increased the compensation to be provided to the Examiner from 22% to approximately 60% of that requested. This gave the Examiner an equal percentage of his request to the percentage granted to Coopers. The district court stated that both Coopers and the Examiner should be paid prior to any payment to the debtors' professionals.
Snipper, as debtors' bankruptcy counsel, appeals, claiming that the district court erred in subordinating the fees of debtors' counsel to the claims of the Examiner and Coopers. The Examiner and Coopers filed a cross-appeal claiming that the bankruptcy court abused its discretion in not granting their request for payment in its entirety.
This court reviews the district court's decision on an appeal from a bankruptcy court de novo. In re Daily, 47 F.3d 365, 367 (9th Cir.1995) (per curiam); In re Siragusa, 27 F.3d 406, 407 (9th Cir.1994). We apply the same standard of review to the bankruptcy court findings as does the district court: findings of fact are reviewed under the clearly erroneous standard, and conclusions of law, de novo. In re Tucson Estates, Inc., 912 F.2d 1162, 1166 (9th Cir.1990). A bankruptcy court's award of attorney's fees should not be reversed absent an abuse of discretion or an erroneous application of the law. In re Occidental Financial Group, Inc., 40 F.3d 1059, 1062 (9th Cir.1994); In re Vasseli, 5 F.3d 351, 352 (9th Cir.1993).
On appeal, Snipper asserts that the district court erred by ordering fees to the Examiner and Coopers to be paid "prior to any compensation of the Debtors professionals." 7 (ER at 132). Under the Bankruptcy Code, administrative expense creditors must be treated equally and the court should not set up its own order of priorities. See In re Cochise College Park, Inc., 703 F.2d 1339, 1356 n. 22 (9th Cir.1983); In re Barron, 73 B.R. 812, 813-14 (Bankr.S.D.Cal.1987); In re Nana Daly's Pub., Ltd., 67 B.R. 782, 787 (Bankr.E.D.N.Y.1986); see also 3 Collier on Bankruptcy p 507.02, at 507-12 (15th ed. 1992). Although a bankruptcy court has the authority to subordinate a claim on equitable grounds, see, Pepper v. Litton, 308 U.S. 295, 304-05, 60 S.Ct. 238, 244-45, 84 L.Ed. 281 (1939); Matter of Fabricators, Inc., 926 F.2d 1458, 1464 (5th Cir.1991); In re Westgate-California Corp., 642 F.2d 1174, 1177 (9th Cir.1981), equitable subordination is an unusual remedy which should be applied only in limited circumstances. Matter of Fabricators, 926 F.2d at 1464; In re Octagon Roofing, 157 B.R. 852, 857 (N.D.Ill.1993).
Three findings are generally required before equitable subordination will be granted: (1) that the claimant engaged in some type of inequitable conduct, (2) that the misconduct injured creditors or conferred unfair advantage on the claimant, and (3) that subordination would not be inconsistent with the Bankruptcy Code. In re Dominelli, 820 F.2d 313, 318-19 (9th Cir.1987) (citing Matter of Mobile Steel Co., 563 F.2d 692, 699-700 (5th Cir.1977)); In re Wilnor Drilling, Inc., 29 B.R. 727, 730 (S.D.Ill.1982). In order to justify equitable subordination, the court is required to make specific findings and conclusions with respect to each of the requirements. Matter of Fabricators, 926 F.2d at 1465; Wegner v. Grunewaldt, 821 F.2d 1317, 1323 (8th Cir.1987). 8
The district court's opinion contains no rationale for the decision and makes no findings of fact in support of the subordination. The Examiner and Coopers argue that debtors' counsel delayed and obstructed the examination and the efficient administration of the estate. Although Coopers and the Examiner assert that the record is replete with facts supporting the subordination, neither the district court nor the bankruptcy court made any specific findings on the issue. Accordingly, we conclude that the district court abused its discretion in granting an exceptional remedy like equitable subordination under these circumstances.
The district court determined that the evidence in the record did not support the three considerations the bankruptcy court cited in limiting its award to the Examiner. The first consideration of the bankruptcy court was the Examiner's failure to complete the examination, submitting only a preliminary report. The district court noted that the bankruptcy court had itself suspended the examination and discharged the Examiner. The district court determined that it was not reasonable for the bankruptcy court to terminate the examination and then cite the failure to complete it as a basis for limiting compensation.
The second consideration of the bankruptcy court was its determination that the Examiner "engaged in highly improper and illegal procedures in having the district attorney obtain evidence for him by executing a search warrant, ..." (ER at 3). The district court found no evidence in the record indicating that the Examiner asked the district attorney for help in securing documents or otherwise discussed any aspect of the examination with the district attorney.
Finally, while the bankruptcy court concluded that the Examiner engaged in "unproductive activities," the district court determined that such an assessment was not established by the record. First, the district court ruled that the Examiner's activities fell within the areas of investigation outlined in the Examiner Order and within the Bankruptcy Code. 9 Second, the district court noted that the...
To continue reading
Request your trial
-
Redeye II, LLC v. MorrisAnderson & Assocs. Ltd. (In re Swift Air, L.L.C.), No: CV-20-00855-PHX-JAT
...Court reviews a bankruptcy court's findings of fact under the clearly erroneous standard, and conclusions of law de novo. In re Lazar , 83 F.3d 306, 308 (9th Cir. 1996) ; Granite State Ins. Co. v. Smart Modular Techs. , 76 F.3d 1023, 1028 (9th Cir. 1996). Regarding proposed findings of fact......
-
In re Vale, Bankruptcy No. 90-60798.
...allowed by the Court, such as trustee's commissions and attorney fees for the trustee's attorney. As stated by the Court in In re Lazar, 83 F.3d 306 (9th Cir.1996): Under the Bankruptcy Code, administrative expense creditors must be treated equally and the court should not set up its own or......
-
Niles, In re
...under 28 U.S.C. §§ 158(d) and 1291. We review issues of law de novo and findings of fact for clear error. Feder v. Lazar (In re Lazar), 83 F.3d 306, 308 (9th Cir.1996). II. DISCHARGEABILITY OF CLAIMS RELATING TO THE PROPERTY MANAGEMENT A debt is nondischargeable under 11 U.S.C. § 523(a)(4) ......
-
In re First Alliance Mortg. Co., 04-55396.
...unfair advantage on the claimant, and (3) that subordination would not be inconsistent with the Bankruptcy Code." Feder v. Lazar (In re Lazar), 83 F.3d 306, 309 (9th Cir.1996) (citing Benjamin v. Diamond (In re Mobile Steel Co.), 563 F.2d 692, 699-700 (5th Cir.1977)). Where non-insider, non......