Matter of Davison, Bankruptcy No. 83-00699-SW-3.

• Decision Date: 30 August 1988
• Docket Number: Bankruptcy No. 83-00699-SW-3.
• Parties: In the Matter of Marvin W. DAVISON and Betty Suzanne Davison, Debtors.
• Court: United States Bankruptcy Courts. Eighth Circuit. U.S. Bankruptcy Court — Western District of Missouri

95 B.R. 665 (1988)

In the Matter of Marvin W. DAVISON and Betty Suzanne Davison, Debtors.

Bankruptcy No. 83-00699-SW-3.

United States Bankruptcy Court, W.D. Missouri, Southwestern Division.

August 5, 1988.

Motion to Reconsider August 30, 1988.

Richard Knight, Olathe, Kan., for debtors.

Elizabeth Sauer, Campbell, Morgan & Gibson, P.C., Kansas City, Mo., for movants.

ORDER OF DISTRIBUTION OF FUNDS OF ESTATE

DENNIS J. STEWART, Chief Judge.

Formerly, on June 28, 1988, this court issued its order directing the creditors, or any of them, to show cause in writing within 25 days why distribution of the within estate should not take place in accordance with the calculations contained therein and according to the legal principles there contained. In response to that order, two objections to the proposed distribution have been filed. They are considered in the paragraphs which follow.

The objection of Campbell, Morgan & Gibson, P.C.

It was the proposal in the show cause order of June 28, 1988, that all of the attorney's fees of Campbell, Morgan & Gibson, P.C., which were claimed by them at that time should be paid from the estate, but according to a priority which would relegate most of their fees to a second priority partial distribution. To this, objection has been made to the effect that such relegation is not appropriate. But "Code section 726(b) expressly limits the super-priority status to those administrative expenses incurred solely under the Chapter 7 case after its conversion. Hence, the applicants (for attorneys' fees) are compelled to look beyond this estate for the source of any compensation with respect to their legal services performed during the Chapter 11 period." In re Codesco, Inc., 18 B.R. 225, 228 (Bkrtcy.S.D.N.Y.1982). "(S)uperceding chapter 7 expenses are entitled to be paid in full before priorities of the next rank — administrative expenses incurred in the superceded chapter 11 case — are paid in full or in part." In re Energy Co-op, Inc., 55 B.R. 957, 968 (Bkrtcy.E.D. Ill.1985).

It is next suggested that it is inappropriate to subtract the amount of the retainer from the total fees which may otherwise be payable from the estate. It is well established, however, that the court has a duty to refund to an estate or a debtor any excess of a retainer which is not justified by the value of services rendered in the course of the bankruptcy proceedings. See Rule 2017 of the Rules of Bankruptcy Procedure; In re Porter, 253 F. 552, 553 (7th Cir.1918) (A retainer is paid "by the bankrupt out of his estate in contemplation of bankruptcy, and (is) for services rendered or to be rendered such bankrupt in the matter of his bankruptcy proceedings.") This contention must therefore be rejected.

It is finally asserted that, if the law firm were granted all its fees which it applied for, not only those which would be granted under the prior orders of the court, the total sum due would be $31,702.00 as a second priority expense of administration. See page 2 of "response to order to show cause entered June 27, 1988 and request for stay order pending appeal." According to the above authorities, if this contention is granted, the $15,000 retainer, which does not have a significance independent of legal services rendered in the estate, must be set off against the amount awarded. So, the correct second priority amount is $16,702.00, if the contentions of the objecting law firm are correct. This amount proposes to be granted because of the minimal impact on the estate.

The objecting law firm further objects that this court cannot distribute the funds of the estate unless and until an appeal from this court's prior orders denying some of their attorney's fees is determined. But the effect of the within order of distribution is to grant all the contentions of the applicant law firm. If the applicant firm wishes the court to withhold some part of the sum due them, the court will do so on application made by them. But, in order to promote early distribution of the estate, and because of the minimal impact which the attorney's fees have on the estate, the court proposes to grant the above contentions of the law firm as respects the amount due them as a second priority expense. Thus, the prior awards remain unaffected and the court is well within its power in making distribution according to the priorities of the estate. See, e.g., In re India Wharf Brewery, 96 F.2d 710, 712 (2d Cir.1938), to the following effect:

"Relying upon the principle that one judge may not overrule the decision of another judge of co-ordinate jurisdiction made in the same case, the appellant argues that Judge Abruzzo had no power to reduce the receiver\'s commissions as fixed by the order of Judge Campbell. This principle has no application to the facts at bar for two reasons. The first is that Judge Abruzzo did not re-examine the amount of the receiver\'s commissions as previously determined; his order accepted this amount but directed payment of a pro rata dividend thereon, as upon other expenses of administration, because the estate was insufficient to pay all in full. A second, and more fundamental, reason is that an allowance of compensation is merely an administrative order and as such is always open to reexamination by the bankruptcy court until the estate is closed."

Therefore, the court will direct that the law firm of Campbell, Morgan and Gibson receive $16,702.00 as a second priority expense of administration.

The objection of Heuer-Williams, Inc.

The objection of Heuer-Williams, Inc., is to the effect that the postconfirmation debts incurred without specific authorization of court should not be paid at all in consonance with the reasoning of Matter of Alafia Land Development Corp., 40 B.R. 1 (Bkrtcy.M.D.Fla.1984) ("(O)ne who lends money to a debtor in possession without prior approval of the Court is not even entitled to the status of a general unsecured claim.") As this court has made clear in its prior orders, however, including that of June 28, 1988, the postconfirmation indebtedness was authorized by reason of the order of confirmation expressly providing that an estate remained in existence, thus granting the authority to the debtor to incur indebtedness in the name of the estate. As this court stated in its prior order of June 28, 1988,

"in this case, as previously pointed out, the order of confirmation purports to keep an estate in existence. And, otherwise, as is pointed out in In re Tri-L Corporation, 15 C.B.C.2d 1029, 1033 65 B.R. 774 (Bkrtcy.D.Utah 1986), section 348(d) of the Bankruptcy Code, which otherwise relegates postconfirmation claims to prepetition status, expressly excepts administrative expense claims."

The court therefore rejects the objection of Heuer-Williams, Inc.

Order of Distribution

Therefore, in accordance with the foregoing principles, and those contained in the court's other prior relevant orders, it is hereby

ORDERED that within 25 days of the date of filing of this order or within such additional time as the court may grant for good cause shown in writing within the same 25 days the trustee make distribution of the following amounts to the following recipients:

                Internal Revenue Service .................... $156,330.43
                State tax claims ............................   13,282.47
                trustee's attorney's fees
                  (reserved for later justification) ........   40,000.00
                wage claims .................................   29,174.48
                salary claims of principals .................   55,129.25
                Miscellaneous postconversion
                  supplies ..................................   32,823.53
                court costs for copying
                  and mailing of order of
                  March 18, 1988 ............................   15,065.00
                Judgment to be paid to the
                  Farmers and Merchants
                  Bank pursuant to show
                  cause order which was
                  not objected to ...........................    6,000.00
                postconversion fees of
                  Campbell, Morgan and
                  Gibson, P.C. ..............................    6,335.50
                second priority fees of
                  Campbell, Morgan and
                  Gibson, P.C. ..............................   16,702.00
                other second priority expense
                  of administration
                  creditors according to
                  the attached schedule .....................   59,991.95
                

ORDER SETTING HEARING ON "MOTION (OF CAMPBELL, MORGAN AND GIBSON, P.C.) TO RECONSIDER ORDER OF DISTRIBUTION OF FUNDS OF ESTATE ENTERED AUGUST 5, 1988"

This court formerly entered its "order of distribution" of the within chapter 7 estate on August 5, 1988. The law firm of Campbell, Morgan & Gibson, P.C., has filed a motion for reconsideration of that order, in which the following points are raised.

Taxes

Movants contend that the superpriority classification accorded to federal and state taxes incurred during the chapter 11 reorganization proceedings is erroneous; that the taxes thus incurred should be entitled only to "first priority" status; and that case authority "fails to disclose any court's willingness to grant post/petition/preconversion tax liability the super-priority status granted in the present case." The action which was proposed by this court in its prior orders, however, was based...