Matter of Stable Mews Associates

• Citation: 49 BR 395
• Decision Date: 07 March 1985
• Docket Number: Bankruptcy No. 82 B 12454 (HCB).
• Parties: In the Matter of STABLE MEWS ASSOCIATES, Debtor.
• Court: United States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — Southern District of New York

49 B.R. 395 (1985)

In the Matter of STABLE MEWS ASSOCIATES, Debtor.

Bankruptcy No. 82 B 12454 (HCB).

United States Bankruptcy Court, S.D. New York.

March 7, 1985.

COPYRIGHT MATERIAL OMITTED

Albert Togut, New York City, for Trustee.

Luigi P. DeMaio, New York City, for debtor.

Harold Jones, New York City, Asst. U.S. Trustee.

Charles Weintraub, White Plains, N.Y., for R. Fiske Whitney.

Joseph Dornbush, Dornbush, Mensch & Mandelstam, New York City, Defendant in Adversary Proceeding.

HOWARD C. BUSCHMAN, III, Bankruptcy Judge.

This is a case where an attorney, Albert Togut, acting in the dual capacity of Chapter 11 Trustee and counsel to the trustee has turned a pig's ear into a silk purse and now applies to be paid for the service. He seeks $23,959.96 in trustee's commissions, $142,981.00 in attorneys' time charges, $1,354.80 for reimbursement of out-of-pocket disbursements, and a 15% bonus of $21,447.15. To this the debtor, through its said attorneys DeMaio and Meglio, and the holders of a second mortgage on the debtor's principal asset have objected. The United States Trustee for this district, upon review of the services performed and fee sought, supports the fee application in full and asserts that the debtor lacks standing to object.

I.

We turn first to the standing issue. The virtually sole asset of this estate consists of the $2,200,000 in proceeds realized upon the sale of a building located at 412-414 East 75th Street, New York City. At the closing, the Trustee satisfied the first mortgage in the sum of $1,724,916.70 and paid certain capital gains and transfer taxes leaving a balance of $267,862.76. Against this balance, a second mortgage is asserted in the amount of $150,000 plus interest. The debtor disputes this mortgage and the Trustee has commenced an adversary proceeding seeking to have it set aside on the grounds that it was taken in fraud of the debtor's limited partnership. There remains, nevertheless, a priority tax claim asserted by the United States in the sum of $410,000 to which no objection has been filed.

Thus, regardless of the validity of the mortgage, it appears that the debtor is truly disinterested in the amount awarded to Togut as Trustee and/or counsel in this case since the debtor's assets have been liquidated and there is no remaining business with which to fund a possible six year stretch out of tax obligations were that course taken pursuant to § 1129(a)(9)(C) of the Bankruptcy Code. Accordingly, the debtor lacks standing. In re George, 23 B.R. 686, 687; 9 B.C.D. 915; 7 C.B.C.2d 846, 847 (Bkrtcy, S.D.Fla.1982). Even had its attorneys been retained by an order of this Court and their objections deemed properly filed, the objection can only be advisory.

II.

So too must the objection of the second mortgagees be dismissed to the extent it is based on the contention that the fees should be set in such an amount reflecting only the benefit to them. In asserting that Togut's recovery should be so measured, their complaint is not so much with Togut, whom they assert did a "magnificent job" but with the operation of §§ 506(b) and (c) of the Code and their status as second mortgagees. As the second mortgagees seemingly concede, to the extent that a trustee's "reasonable, necessary costs and expenses of preserving, or disposing of" collateral may be charged to the holder of a secured claim pursuant to § 506(c), "any recovery against the holder of such costs and expenses under Section 506(c) should properly be allowed to the holder, as part of its secured claim under section 506(b) as if the holder had enforced its lien, to the extent of the proceeds available." 3 Collier on Bankruptcy ¶ 506.6 at p. 504-47 (15th ed. 1984). Thus, costs assessable under § 506 are tacked onto a first mortgagee's claim and paid to the detriment of second mortgagees. It would thus be an error to measure the award of fees solely by the benefit perceived by a second mortgagee.

III.

None of this is to say that this Court is thereby relieved from its independent duty of determining whether the fees sought by a trustee and his counsel were reasonable and necessary to preserve and dispose of the property for the benefit of the mortgagees even if the second mortgagee's objection can be read to matter in issue. As to the reasonableness of the fees, that term must be read in the same light as the equivalent term is employed in §§ 326 and 330(a)(1) of the Code, thereby calling for application of the twelve factors set forth in Matter of First Colonial Corp. of America, 544 F.2d 1291, 1298-99, (5th Cir.1977), cert. denied, 431 U.S. 904, 97 S.Ct. 1696, 52 L.Ed.2d 388 (1977). Those factors are:

(1) The time and labor required; (2) The novelty and difficulty of the questions; (3) The skill requisite to perform the legal service properly; (4) The preclusion of other employment by the attorney due to acceptance of the case; (5) The customary fee; (6) Whether the fee is fixed or contingent; (7) Time limitations imposed by the client or other circumstances; (8) The amount involved and the results obtained; (9) The experience, reputation, and ability of the attorneys; (10) The `undesirability\' of the case; (11) The nature and length of the professional relationship with the client; (12) Awards in similar cases.

Upon application of certain of these factors, including time and normal charges, a lodestar sum may be fixed. The lodestar amount is meant to be the product of hours compensable under Code § 330 multiplied by the customary hourly wage. Factors regarding the difficulty, complexity and contingent nature of the case may thereafter be employed to arrive at a just and reasonable compensation in excess of the lodestar. Yermakov v. Fitzsimmons, 718 F.2d 1465 (9th Cir.1983); In re Minton Group, Inc., 33 B.R. 38 (Bankr.S.D.N.Y. 1983); In re Chriss, 38 B.R. 655 (Bank.S.D. N.Y.1984); In re Watson Seafood & Poultry Co., 40 B.R. 436 (Bankr.E.D.N.C.1984); In re Global Int'l Airways, Corp., 38 B.R. 440 (Bankr.W.D.Mo.1984); In re Penn Dixie Industries, Inc., 18 B.R. 834 (Bankr.S.D. N.Y.1982); In re Aminex Corp., 15 B.R. 356 (Bankr.S.D.N.Y.1981).

To the factors itemized above is to be added the notion that attorneys' fees may not reflect time performing a trustee's duties. In re Codesco, Inc., 18 B.R. 225 (Bankr.S.D.N.Y., 1982); In re Minton Group, Inc., 33 B.R. 38 (Bankr.S.D.N.Y. 1983); In re Mabson Lumber Co., Inc., 394 F.2d 23 (2d Cir.1968); § 328(b); § 329(b). Similarly, the employment of an attorney as trustee does not require him to contribute his legal skill and services to the estate. In re York International Bldg., Inc., 527 F.2d 1061, 1072 (9th Cir.1975); 2 Collier on Bankruptcy ¶ 330.04, 330-10, 11 (15th ed.) 1984.

As to necessity and benefits, the concepts expressed in In re Flagstaff, 739 F.2d 73 (2d Cir.1984) and In the Matter of Trim-X, 695 F.2d 296, 7 C.B.C.2d 955 (7th Cir. 1982) apply. In Flagstaff, the debtor owed a secured creditor approximatley $22 million which was oversecured by accounts receivable valued at approximately $42 million. In advancing the debtor an additional $9 million pursuant to a financing order, the creditor obtained a super-priority in all present and future property interests. Upon liquidation of the collateral it was found insufficient. In these circumstances, the services of counsel for the debtor and for the creditors' committee were held not to have benefitted the secured creditor. Although continuation of the proceeding may have facilitated liquidation of the collateral, the court ruled that "such benefits as might be said to have accrued to GECC from the attempt to reorganize were incidental to the reorganization efforts . . ." Given the shortfall, the court stated that it would require "rather strained logic to conclude that GECC actually benefitted from appellees' service." 739 F.2d at 76.

In Trim-X, the debtor owned certain assets in which a creditor had perfected a security interest. Those assets were appraised at less than that of the security interest. Along with requesting permission to dispose of the assets under § 554, the trustee sought recovery of expenses incurred theretofore in preserving those assets pursuant to § 506(c). The court held that in order to be paid expenses for preserving assets under § 506(c), reasonability, necessity and benefit is to be examined and ruled that all expenses accrued post-petition in the course of abandonment, including appraisal costs and the employment of a security company to protect the assets, as chargeable to the secured creditor. Expenses accrued after the secured creditor received notice of the abandonment, however, would not be charged to him.

IV.

In the application of those factors, the overall nature of this case is to be examined. Here, when an order directing the appointment of a trustee was entered on June 2, 1983, this case had come to a screeching halt. In the six months since filing its petition, the debtor had neither made progress toward a plan of arrangement nor towards the disposal of the building which was its sole asset. It had not even proceeded to the point of obtaining authorization under § 327(a) of the Code to engage the attorneys who regularly appeared on its behalf. Indeed, the debtor was not even in possession of the building. In connection with a pre-petition foreclosure action brought by the First Mortgagee, a receiver had been appointed by the Supreme Court for the State of New York, County of New York and the debtor had made no demand for turnover of the property pursuant to § 542(b) of the Code.

All the Debtor had done was to respond to the First Mortgagee's motion that he be permitted to proceed with a judgment of foreclosure on his mortgage and sale or that the case be dismissed with a motion seeking permission to enter into an agreement selling the property to Highland Associates, Inc. for $1,750,000, subject to the condition that the property be vacated by its eight tenants. Upon...