Matter of GAC Corp.
| Decision Date | 26 August 1986 |
| Docket Number | No. 85-2684 Civ.,85-2684 Civ. |
| Citation | 64 BR 345 |
| Parties | In the Matter of GAC CORPORATION, et el., Debtors. |
| Court | U.S. District Court — Southern District of Florida |
Richard Garrett, Miami, Fla., for appellants.
William Courshon, Darrey Davis, Steel Hector & Davis, Miami, Fla., for respondents.
Appellants, Theodore Bollt and Richard H. Millen, are trustees to a thirty-seven million dollar liquidating trust.1 They are two of three trustees who were appointed pursuant to the Bankruptcy Court's order for the liquidation of various properties of the debtor — GAC Corporation.
The liquidating trust was organized under the laws of Florida and confirmed by the Bankruptcy Court on September 12, 1980. The trust assets consist primarily of unimproved real property, notes and mortgages. The real property is located in several jurisdictions.
The gravamen of the appeal concerns Appellants' hiring of themselves to perform professional services for the trust above and beyond their duties as trustees. Judge Britton determined that the compensation which they received exceeded that specifically provided for in the trust instrument. Judge Britton then concluded that Appellants' acts were in contravention of the trust instrument and, thus, constituted a conflict of interest. Judge Britton, however, based his conclusion not upon a finding of bad faith on the part of Bollt and Millen, but rather on the prohibitive language of the trust instrument as well as on Florida law which prevented Appellants from hiring themselves to perform professional services for additional compensation.
Appellants have raised several issues on appeal: (1) whether the Bankruptcy Court had jurisdiction to enter a show cause order to Appellants regarding their extra compensation; (2) whether the trust instrument (and Florida law) prohibit(s) Appellants from hiring themselves for non-trustee services; (3) whether the Bankruptcy Court deprived Appellants of due process when it determined that expert testimony regarding the necessity of extra work and the reasonableness of the compensation which Appellants were paid was unnecessary; and (4) whether the Bankruptcy Court erred when it removed Appellants from the trust and imposed a surcharge without holding an evidentiary hearing regarding the necessity of the services and the reasonableness of the compensation?
The logical starting point is the trust instrument itself. The portions of the instrument relevant to this appeal include:
Section 5.2 of the Declaration of Trust limits the duration as follows:
Duration. Unless sooner terminated as hereinafter provided, this Trust shall continue until September 30, 1987, seven (7) years from the date hereof, but may be extended by the Trustees upon the approval of the majority of the Units outstanding, for two (2) additional three (3) year periods if required to fulfill the purpose of the Trust. (the liquidation of all Designated Assets)
Section 11.1 of the Declaration provides for the full compensation to the Trustees as follows:
Compensation for Services as Trustee. In lieu of commissions fixed by law for trustees, the Trustees shall each receive the sum of Twenty-Four Thousand and No/100 Dollars ($24,000.00) per annum as full compensation for their services. The compensation of the Trustees may be increased from time to time in the Trustees discretion, but such increases are not to be greater than 7.5 percent annum on a cumulative basis. In the event of any substitution of or change in the Trustees, each Trustee shall receive compensation based only upon such period of time as said Trustee as in office.
Section 7.2(8) details the trustees' powers as follows:
Section 9.5 of the Declaration provides:
Employment Manager. The Trustee shall engage the services of a professional manager for the Trust who shall be called the Manager and who may be replaced by the Trustees with or without cause. . . .
The Bankruptcy Court based its finding that it had jurisdiction on two grounds: (1) the Final Decree had expressly reserved it; and (2) the Trustees themselves had invoked the Court's retained jurisdiction on three separate occasions to construe and enforce the Plan.2 In the Bankruptcy Court's opinion, it was exercising its retained jurisdiction "to construe, interpret and enforce the Order Confirming the Trustees' Plan and the rights of these trustees under that Order." Order at 3. As authority for the Court's conclusion, Judge Britton relied upon Commerce Trust Co. v. Aylward, 145 F.2d 113 (8th Cir. 1944). The Eighth Circuit, in Commerce Trust, supra held that the Bankruptcy Court had jurisdiction to fix the amount of an indenture trustee's compensation as well as the fees of the attorneys. The appellate court reached this conclusion because of the terms of the agreement which the indenture trustee and the bankruptcy trustee had entered. This conclusion, therefore, dictates that this Court examine the precise terms of the Plan to see if the retained jurisdiction was exercised in a manner contemplated by the agreement.
Bollt and Millen argue that the Bankruptcy Court lacked jurisdiction because it was not enforcing, construing or interpreting the Plan nor was it addressing the rights of creditors, the structure or substance of the Plan. Additionally, Appellants argue that the Bankruptcy Court acted in contravention of case law which precludes such an exercise of jurisdiction. That authority holds essentially that a bankruptcy court cannot exercise jurisdiction over the day-to-day affairs of a post-reorganization entity even if the Final Decree purports to retain jurisdiction.3
Appellee, GAC Liquidating Trust, counters that the Bankruptcy Court did have the power to reopen the case because (1) of the express reservation of jurisdiction in the Final Decree and (2) under the former Bankruptcy Act, the controlling provisions in this matter, § 2a(8) permits the court to reopen bankruptcy estates for "good cause shown". Appellee relies on In Re Int'l Match Corp., 190 F.2d 458 (2d Cir.), cert, denied, 342 U.S. 870, 72 S.Ct. 113, 96 L.Ed. 655 (1951) to support its proposition. In In Re Int'l Match Corp, supra the Second Circuit affirmed an order reopening a closed estate where there had been repeated violations and fraudulent concealment of excess commissions by the bankruptcy referee. Placing considerable emphasis on the fact that the bankruptcy referee was a court appointed officer, the court stated:
any person, whether creditor of the estate involved or not, had the right, if not the duty, to call to the court\'s attention the facts and the court thereafter proceeded to summarily and sua sponte to investigate and decide the matter and order the recovery of the sums involved.
While the Trustees' acts of hiring legal counsel and other professional services are admittedly "day-to-day" affairs in the operation of the trust itself, this Court rejects Appellants' assertion that issues concerning their fiduciary obligations as trustees (and, thus, any potential conflict of interest) can be characterized as arising in the ordinary course of business. To the contrary, an inquiry into a fiduciary's potential conflict of interest is an extraordinary occurrence, not a routine one. Thus, the facts sub judice differ from those articulated in the cases upon which Appellants rely. The Bankruptcy Court, therefore, was not precluded from reopening the case.5
Equally as important, this Court concludes that the dispute over the amount of compensation that the Trustees could receive, especially for non-trust services, is precisely the type of controversy that the reservation of jurisdiction clause was intended to address. Judge Britton was, indeed, performing the very task he was obligated to do — construe and interpret the Plan. This Court comes to the firm conclusion that the Bankruptcy Court's inquiry was well within its powers of retained jurisdiction. The Bankruptcy Judge was in no way attempting to alter or amend the Plan in effect; rather he was attempting to enforce and protect the very Plan which the Court has approved four years prior. In Re Atlas Sewing, 384 F.2d 66 (5th Cir. 1967). As the Fifth Circuit stated:
This is in no sense an amendment of the Plan. The Court has been called upon to act because the Plan, confirmed and approved and adopted by all, has simply not been satisfied and at the present time there is every indication that it cannot be...
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