Mandalay Shores Co-op. Housing Ass'n, Inc., In re

• Decision Date: 23 May 1994
• Docket Number: No. 92-3111,92-3111
• Citation: 21 F.3d 380
• Parties: In re MANDALAY SHORES COOPERATIVE HOUSING ASSOCIATION, INC., Debtor. CHASE MANHATTAN BANK, Plaintiff-Appellant, Ralph Meyer, Creditor, v. MANDALAY SHORES COOPERATIVE HOUSING ASSOCIATION, INC., Langfred W. White, Trustee of Mandalay Shores Cooperative Housing Association, Inc., Defendants-Appellees.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 380

21 F.3d 380

25 Bankr.Ct.Dec. 1094

In re MANDALAY SHORES COOPERATIVE HOUSING ASSOCIATION, INC., Debtor CHASE MANHATTAN BANK, Plaintiff-Appellant Ralph Meyer, Creditor, v. MANDALAY SHORES COOPERATIVE HOUSING ASSOCIATION, INC. Langfred W. White, Trustee of Mandalay Shores Cooperative Housing Association, Inc. Defendants-Appellees.

No. 92-3111.

United States Court of Appeals, Eleventh Circuit.

May 23, 1994.

Gregg H. Metzger, Dennis M. Campbell, Mershon, Sawyer, Johnson, Dunwody & Cole, Miami, FL, for plaintiff-appellant Chase Manhattan Bank.

Robert K. Eddy, Eddy, Gregg & Burden, Tampa, FL, for creditor Ralph Meyer.

Richard A. Zeller, Clearwater, FL, for debtor, defendants-appellees Mandalay et al.

Appeal from the United States District Court for the Middle District of Florida.

Before TJOFLAT, Chief Judge, DUBINA, Circuit Judge, and RONEY, Senior Circuit Judge.

TJOFLAT, Chief Judge:

In this interpleader case arising out of a bankruptcy action, a savings bank seeks attorneys' fees for its role as a putative innocent stakeholder. The bankruptcy court denied the bank's application for fees, finding instead that the bank's involvement in the interpleader action was a noncompensable cost of doing business; the district court affirmed. We vacate the district court's decision and remand the case for further proceedings.

I

Mandalay Shores Cooperative Housing Association, Inc. ("Mandalay") is a non-profit corporation under Fla.Stat. Ch. 617.01 (1991) and a charitable corporation under 26 U.S.C. Sec. 501(c)(3) (1988). The tenants of Mandalay Shores, an apartment complex in Clearwater Beach, Florida, incorporated Mandalay in the late 1970s with an eye toward buying Mandalay Shores from its then-owner, the Department of Housing and Urban Development ("HUD"), thereby ensuring themselves access to low-cost housing. Each tenant deposited approximately $3,200 with Mandalay, and the corporation in turn deposited in excess of $1 million with appellant Chase Manhattan Bank, N.A. ("Chase").

The plan to purchase Mandalay Shores quickly deteriorated, however, and the tenants divided into two opposing camps as to what to do with the corporation's accumulated assets. One group of tenants sought the dissolution of the corporation and the return of their deposits. Their requests largely were rebuffed by Mandalay's management, inextricably linked to the rival second group, which sought an alternative investment. Eventually, the second camp conducted a corporation meeting (from which it excluded the members of the first faction) and amended the corporation's bylaws to allow the purchase of a different apartment complex. Inevitably, much litigation ensued in both state and federal courts.

Among Mandalay's forays into the courts were three successive voluntary bankruptcy petitions filed under Chapter 11 of the Bankruptcy Code. Mandalay filed the last of these petitions--the only one relevant to this appeal--on March 31, 1986, in the United States Bankruptcy Court for the Middle District of Florida. As its primary asset, Mandalay listed the funds, now in excess of $1.5 million, deposited with Chase. On May 26, 1989, the bankruptcy judge appointed Langfred W. White as Chapter 11 Trustee for Mandalay. White subsequently ordered Chase to turn the Mandalay funds over to him. Chase initially complied by changing the name of the Mandalay account to White as Trustee for Mandalay; circumstances intervened, however, and Chase never released any moneys to him.

While the main bankruptcy case was pending under White's trusteeship, various parties initiated two related suits in federal courts. The first, Meyer v. Chase Manhattan Bank, N.A., No. 89-1734 (D.D.C.), was filed on June 16, 1989, in the United States District Court for the District of Columbia. In Meyer, Ralph Meyer and Elizabeth M. Cannon, two former tenants, individually and as class representatives for a purported charitable trust, sought a declaratory judgment that the Chase-held funds were not the property of the bankruptcy estate, but rather were held in charitable trust for the tenants. Trustee White intervened in the action, but it was Chase, on a motion to dismiss the complaint for lack of subject matter jurisdiction, that successfully petitioned the district court to dismiss the action without prejudice on December 12, 1989.

Meanwhile, Trustee White initiated the second related case, White v. Chase Manhattan Bank, N.A., Adv. 89-291 (Bankr.M.D.Fla.), an adversary proceeding filed against Chase in the main bankruptcy case. Chase answered and counterclaimed against White; it also pursued third-party claims against Meyer and Cannon in interpleader.

Immediately after the D.C. district court dismissed Meyer, Meyer and Cannon moved to dismiss the main bankruptcy action in Florida. The bankruptcy court granted their motion on March 2, 1990, dismissing the case with prejudice. 112 B.R. 440. The adversary proceeding filed by White (which included Chase's third-party claims) thus became the only active litigation concerning the Mandalay funds deposited with Chase. ¹

In its March 2 order dismissing the main bankruptcy action, the bankruptcy court directed all professionals, including counsel for Chase, to file fee applications within thirty days. Chase complied with the court's order and filed an application (which it later supplemented) for fees incurred not only in the main bankruptcy case, but also in the Washington, D.C., action and in the adversary proceeding filed by White. White filed an objection, and, on July 23, 1990, the bankruptcy court, in a terse forty-six line order, denied Chase's Application and Supplemental Application for Compensation and Reimbursement of Expenses. The heart of the order stated as follows:

This Court is satisfied that a bank's involvement in an interpleader action is a noncompensable cost of doing business, In re Jones, 61 B.R. 48 (Bankr.N.D.Tex.1986), and, therefore, the Applications should be denied. Further, this court is satisfied that no basis exists for awarding Chase reimbursement for fees and costs incurred in the [Washington, D.C.,] declaratory judgment action.

The court likewise denied Chase's motion for rehearing.

Chase appealed to the United States District Court for the Middle District of Florida under 28 U.S.C. Sec. 158(a) (1988), but that appeal proved fruitless: on October 8, 1992, the district court, in an even shorter order, denied Chase's appeal. The district court adopted the bankruptcy court's conclusion that Chase's interpleader action "should be considered a noncompensable cost of doing business;" it similarly parroted the bankruptcy court regarding the denial of fees incurred in the declaratory judgment action. The district court thus denied Chase's appeal.

It is from the district court's decision affirming the bankruptcy court that Chase now appeals. Our jurisdiction rests on 28 U.S.C. Sec. 158(d) (1988).

II

It is axiomatic that an award of attorneys' fees and costs in an interpleader action in bankruptcy is an equitable matter that lies within the sound discretion of the bankruptcy court. Prudential Ins. Co. v. Boyd, 781 F.2d 1494, 1497 (11th Cir.1986). As such, we will reverse the bankruptcy court's decision only if the court abused its discretion. In re Red Carpet Corp., 902 F.2d 883, 890 (11th Cir.1990). A court abuses its discretion either by applying an improper legal standard or by basing an award on factual findings that are...