Matter of Ross

• Decision Date: 17 November 1988
• Docket Number: Civ. A. No. 88-82-VAL (WDO).
• Parties: In the Matter of W.E. ROSS, a/k/a Walter E. Ross, a/k/a Eugene Ross and Elizabeth W. Ross, Individually and Jointly and d/b/a W.E. Ross Farms & Ranch, Debtors.
• Court: U.S. District Court — Middle District of Georgia

94 B.R. 210 (1988)

In the Matter of W.E. ROSS, a/k/a Walter E. Ross, a/k/a Eugene Ross and Elizabeth W. Ross, Individually and Jointly and d/b/a W.E. Ross Farms & Ranch, Debtors.

Civ. A. No. 88-82-VAL (WDO).

United States District Court, M.D. Georgia, Valdosta Division.

November 17, 1988.

Jerome K. Kaplan, Wesley J. Boyer, Macon, Ga., for appellants.

Terrance J. Paulk, Fitzgerald, Ga., for debtor.

OWENS, Chief Judge:

This matter is before the court on appeal from the United States Bankruptcy Court for the Middle District of Georgia, Valdosta Division. In a memorandum opinion and order filed on July 12, 1988, the Honorable Robert F. Hershner, Jr., United States Bankruptcy Judge, reduced from $77,452.52 to $38,726.26 the attorney's fees to which Mr. John T. Croley, Jr., attorney for the trustee, was entitled to receive for the efforts he expended in the Chapter 7 case involving debtors Mr. W.E. Ross and Mrs. Elizabeth Ross. 88 B.R. 471. The original amount was disbursed on December 30, 1983, by the trustee, Mr. C. George Newbern.¹ Appellants include not only Mr. Croley but also the law firm of Jay, Garden, Sherrell, Smith & Croley.

Facts²

Debtors W.E. and Elizabeth Ross owned a twenty-five percent (25%) interest in a closely-held corporation, W.E. Ross and Sons, Inc. When debtors' financial condition deteriorated, they sought and received advice from a relative, Mr. Terence Paulk, who subsequently contacted appellant Croley. After some discussion, Mr. Croley suggested that debtors file a bankruptcy petition in an effort to force the dissolution of the corporation. Appellant Croley, when asked to represent the debtors, conditioned his representation upon two conditions: first, debtors' filing in bankruptcy; and (2) the trustee's willingness to retain Mr. Croley on a contingency fee basis. On March 16, 1983, debtors filed a joint petition in bankruptcy, and on April 7, 1983, Mr. Newbern entered into an agreement with Mr. Croley, employing him as the trustee's attorney and setting appellant Croley's compensation at one-third of the net recovery to the bankruptcy estate. The April 7th fee agreement executed by trustee Newbern and appellant Croley contained the following provision:

WHEREAS, the recovery and liquidation of said assets may well require substantial litigation and discovery and there is a risk of no recovery of any of said assets unless the claims of the trustee herein in and to the same are pursued vigorously, and

WHEREAS, it further appears that there is substantial risk that the recovery thereof may be limited and that the only feasible method of employing legal counsel to pursue said claims is on a contingency basis and that to so employ counsel is in the best interests of the debtors, the creditors, the trustee, and the estate of the debtors;

NOW, THEREFORE, the aforesaid C. GEORGE NEWBERN, as trustee, hereby employs the firm of JAY, GARDEN, SHERRELL, SMITH & CROLEY, with JOHN T. CROLEY, JR., of said firm as main counsel, for the purpose of collection, recovery, and liquidation of all assets of the aforesaid debtors, not otherwise exempt, for the benefit of the estate of said debtors. Said attorneys shall be compensated on a contingent fee basis of 1/3 of the net recovery to the estate with regard to said assets. . . .

The Petition to Allow Employment of Counsel was inexplicably delayed and finally filed in the bankruptcy court on August 4, 1983, and that petition incorporated the April 7th fee agreement executed by appellant Croley and Trustee Newbern. Judge Moseley signed an order appointing Mr. Croley as counsel on the same day, August 4, 1983. However, prior both to the filing of the petition to employ Mr. Croley and to Judge Moseley's order approving same, a sales agreement was executed between the trustee, Mr. Newbern, and the debtors' sons in which the debtors' sons agreed to purchase from Mr. Ross his share of the closely-held corporation for the purchase price of $500,000.00. The notice of sale of debtors' interest in the corporation, though dated September 16, 1983, was filed by the trustee on September 1, 1983. The sale occurred on October 18, 1983; a report of sale was filed on November 28, 1983.

Mr. Newbern filed a notice of proposed disbursements on December 6, 1983. This notice provided for the payment to unsecured creditors on the basis of sixty cents ($.60) per dollar and for the payment to Mr. Croley of attorney's fees and expenses in the amounts of $77,452.52 and $1,024.42 respectively. The attorney's fees represented twenty per cent (20%) of the net recovery to the bankruptcy estate, a voluntary reduction suggested by Mr. Croley from the thirty-three per cent (33%) originally agreed upon in the April 7th fee agreement.

Also on December 6, 1983, Mr. Newbern submitted to Judge Moseley a proposed order authorizing the award to appellant Croley of attorney's fees in the amount of $77,452.52. That proposed order is marked through, and an attached handwritten note reads as follows: "Unless there is some objection filed to this then there is no need of my signing the order. In any event it is not necessary until 20 days after December 6, 1983." The note is initialed by Judge Moseley. See Record on Appeal, Docket No. 13.

Objections were in fact filed during the twenty-day period. Three unsecured creditors objected to the proposed attorney's fees. One creditor objected to the allowance of claims submitted by two unsecured creditors. In response to the objections, appellant Croley filed an objection to the proposed disbursements and filed an amendment to the petition for attorney's fees in which appellant Croley applied for the amount originally memorialized in the fee agreement. Appellant Croley also advised all creditors by letter that, in light of the objections filed, he felt compelled to raise his fee request, and he informed the creditors that the filed objections would delay any recovery from the bankruptcy estate. Within a matter of days following appellant Croley's amendment to the fee petition and the letters to the creditors, all objections were withdrawn. Trustee Newbern disbursed the funds on that date, December 30, 1983. No judicial order authorized such disbursement.

Due to its concern regarding the propriety of the disbursement, both procedurally and otherwise, the bankruptcy court held a status conference on August 17, 1987, and a hearing on January 4, 1988.³ The bankruptcy court issued its order on July 12, 1988.

The bankruptcy court concluded that an award of attorney's fees to appellant Croley absent an order from Judge Moseley was improper. The court refused to acknowledge Judge Moseley's handwritten comments on the proposed order submitted by Trustee Newbern as an "order." Further, the court found that the bankruptcy court has an affirmative obligation to evaluate the reasonableness of compensation paid to attorneys independent of any objection by a party in interest, and, it determined that no such evaluation had occurred. Despite the passage of time, the bankruptcy court determined that such an evaluation was required. After some discussion, the bankruptcy court concluded as follows:

Trustee, with court approval, employed Mr. Croley and agreed to compensate him on a one-third contingency basis because all parties were anticipating that complex litigation would be necessary to liquidate Debtors\' stock in the closely held corporation. In reality, the matter was settled in a quick and efficient manner without resorting to litigation. In light of the fact that Mr. Croley\'s skills as a litigator were not needed and a satisfactory settlement was quickly achieved, the Court finds that the original terms and conditions of Mr. Croley\'s employment were improvident. The Court therefore concludes that it must allow compensation different from the compensation to which the parties originally agreed. The Court has this power under section 328(a).

Bankruptcy Order at 11. The bankruptcy court awarded appellant Croley attorney's fees in the amount of $38,726.26, and the court ruled that Mr. Croley should be reimbursed for expenses in the amount of $324.42.⁴

Discussion

Appellants raise several grounds in their appeal. In light of this court's disposition of the case, some of those grounds will not be addressed.

As a preliminary matter, appellants in their reply brief contend that the successor trustee, Walter W. Kelley, is judicially estopped from taking any position contrary to that taken by the predecessor trustee, Mr. Newbern. Judicial estoppel looks to the connection between a litigant and the judicial system and applies to preclude that litigant from assuming a position in a legal proceeding inconsistent with a position previously asserted. See Oneida Motor Freight, Inc. v. United Jersey Bank, 848 F.2d 414, 419 (3rd Cir.1988). Relying upon Mosser, Successor Trustee, et al. v. Darrow, Former Trustee, 341 U.S. 267, 271, 71 S.Ct. 680, 682, 95 L.Ed. 927 (1951), appellants contend that "successor trustees, unlike successors of public office, are regarded as transferees or assignees of all the interests of their predecessor. . . ." See Appellants' Reply Brief, p. 1. Appellants contend, therefore, that Mr. Kelley as successor trustee is estopped from arguing a position contrary to that taken by Trustee Newbern below. Appellants fail to include the remainder of the quote; the Supreme Court concluded by stating that, therefore, "removal of a trustee does not cause abatement. citations omitted. We hold, in accord with Bowden v. Johnson (Adams v. Johnson), 107 U.S. 251, 264, 27 L.Ed. 386, 390, 2 S.Ct. 246, that substitution is fully authorized and proper in these circumstances and accordingly turn to the merits." Mosser, 341 U.S. at 271, 71 S.Ct. at 682. Clearly, the Supreme Court was addressing a jurisdictional question, and this court will not twist the language to mean that a substituted trustee is in all situations judicially estopped from representing to a...