Oxford Management, Inc., Matter of

• Decision Date: 27 October 1993
• Docket Number: No. 93-3013,93-3013
• Citation: 4 F.3d 1329
• Parties: , Bankr. L. Rep. P 75,518 In the Matter of OXFORD MANAGEMENT, INC., Debtor. Michael CHIASSON, Trustee of Chapter 7 Bankruptcy Estate of Oxford Management, Inc., Appellants, v. J. LOUIS MATHERNE AND ASSOCIATES, Appellees. In the Matter of OXFORD MANAGEMENT INC., Debtor. Michael CHIASSON, Trustee of Chapter 7 Bankruptcy Estate of Oxford Management, Inc., Appellant, v. Katherine A. BINGLER, Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 1329

4 F.3d 1329

62 USLW 2338, Bankr. L. Rep. P 75,518

In the Matter of OXFORD MANAGEMENT, INC., Debtor.

Michael CHIASSON, Trustee of Chapter 7 Bankruptcy Estate of Oxford Management, Inc., Appellants, v. J. LOUIS MATHERNE AND ASSOCIATES, Appellees.

In the Matter of OXFORD MANAGEMENT INC., Debtor.

Michael CHIASSON, Trustee of Chapter 7 Bankruptcy Estate of Oxford Management, Inc., Appellant, v. Katherine A. BINGLER, Appellee.

No. 93-3013.

United States Court of Appeals, Fifth Circuit.

Oct. 27, 1993.

David J. Messina, Paul J. Ory, Taylor, Porter, Brooks & Phillips, New Orleans, LA.

Cary DesRoches, Robert M. Steeg, Steeg & O'Connor, New Orleans, LA, for Matherne & Assoc.

Robyn J. Spalter, Edward M. Heller, Bronfin, Heller, New Orleans, LA, for Bingler.

Appeal from the United States District Court for the Eastern District of Louisiana.

Before WIENER and EMILIO M. GARZA, Circuit Judges and LITTLE ^*, District Judge.

LITTLE, District Judge:

The petitioner, Oxford Management, Inc. ("Oxford"), filed for bankruptcy under Chapter 11 of the Bankruptcy Code. Thereafter, the appellees, Katherine A. Bingler ("Bingler") and J. Louis Matherne & Associates ("Matherne"), each brought suit against Oxford to collect monies owed from the lease of commercial office space. The bankruptcy court found that each appellee was entitled to its fee and ordered the funds harbored in an escrow account. The order was affirmed on appeal by the United States District Court following consolidation of the two separate proceedings. The petitioner now appeals the district court's ruling, asserting that the order was erroneous as a matter of law because the fees or commissions are the property of the bankruptcy estate and may only be disbursed in accordance with the provisions of the Bankruptcy Code. Because we find that the bankruptcy court abused its discretion under 11 U.S.C. Sec. 105(a) when it required the appellant to pay the appellees their claims, we reverse.

I.

Oxford Management, Inc. ¹ is a broker which provides commercial leasing services. In February 1983, Oxford and appellee Bingler entered into a contract whereby Bingler agreed to act as an independent contractor and bring to Oxford commercial leases. On December 6, 1984, Oxford entered into a rental agreement with Fidinam U.S.A., Inc. ("Fidinam") in which Oxford agreed to furnish commercial leasing services to Fidinam relative to the Place St. Charles office project in New Orleans, which Fidinam owned. Bingler and Oxford agreed that Bingler would be the leasing specialist to the project.

In return for her services, Bingler received a commission equal to 4% of the monthly rent owed to Fidinam under leases generated by Bingler. In accordance with the agreement between Oxford and Fidinam, Fidinam would pay 6% of the rental value to Oxford, who placed the money in its general operating account. Oxford would then retain 2% of the commission and forward the remaining 4% to Bingler. The funds received from Fidinam were not segregated in any respect from Oxford's other funds.

Soon after the execution of the rental agreement between Oxford and Fidinam, the law firm of Plauche & Maselli became interested in leasing space in the Place St. Charles. Plauche & Maselli enlisted the brokerage services of appellee Matherne, which negotiated the terms of a lease. ² Oxford and Matherne agreed that Matherne's commission would be governed by the Oxford/Fidinam rental agreement and would equal 4% of the total net rent of the Plauche & Maselli lease. As with Bingler, Oxford was to pay Matherne its commission upon receipt of the money from Fidinam. ³

This method of payment was in operation until July 1990, at which time Oxford discontinued payments to the appellees despite the fact that Fidinam continued to send the entire 6% commission to Oxford. On November 2, 1990, Oxford filed for bankruptcy under Chapter 11 of the Bankruptcy Code. The appellees then filed separate complaints for injunctive relief, declaratory relief and turnover of funds, and motions for temporary restraining orders and injunctive relief.

The bankruptcy court reviewed the contracts between Oxford and Fidinam, Oxford and Bingler, and Oxford and Matherne and denied the appellees' motions on the grounds that the appellees had a debtor-creditor relationship with the appellant and, as such, ruled that the commissions belonged to Oxford. Nonetheless, the court employed its equitable powers under 11 U.S.C. Sec. 105(a) to order the appellant to comply with the appellees' demands for payment. ⁴

Oxford appealed the decision to the district court. The district court affirmed the bankruptcy court's order compelling Oxford to pay the appellees the commissions and agreed with the bankruptcy court's use of its equity powers under 11 U.S.C. Sec. 105(a) to implement the order.

Oxford then filed this appeal, challenging whether the bankruptcy court erred in ordering Oxford to pay to appellees post-petition funds in satisfaction of obligations that arose by pre-petition agreement, and whether the bankruptcy court abused its equity powers under 11 U.S.C. Sec. 105(a) in ordering the payments.

II.

A bankruptcy court's findings of fact are subject to the clearly erroneous standard of review. In re Young, 995 F.2d 547, 548 (5th Cir.1993). This court will strictly apply this standard when the district court has affirmed the bankruptcy court's findings and will reverse only when this court is left with "the definite and firm conviction that a mistake has been made." Id. Conclusions of law are reviewed de novo. Id.; see also In re Allison, 960 F.2d 481, 483 (5th Cir.1992).

A.

The appellant objects to the bankruptcy court's determination that post-petition funds be used to satisfy the appellees claims. The appellant argues that the court, having determined that Oxford and the appellees have a debtor-creditor relationship, erroneously used its equitable powers under 11 U.S.C. Sec. 105(a) to compel payment. We agree with the appellant and hold that the bankruptcy court abused its discretion in the application of this statute.

Section 105(a) authorizes a bankruptcy court to fashion such orders as are necessary to further the substantive provisions of the Bankruptcy Code. ⁵ For instance, the section permits bankruptcy courts to issue injunctions. But, the powers granted by that statute must be exercised in a manner that is consistent with the Bankruptcy Code. See United States v. Sutton, 786 F.2d 1305, 1308 (5th Cir.1986); In re Texas Consumer Finance Corp., 480 F.2d 1261, 1265 (5th Cir.1973). The "statute does not authorize the bankruptcy courts to create substantive rights that are otherwise unavailable under applicable law, or constitute a roving commission to do equity." United States v. Sutton, 786 F.2d at 1308.

The bankruptcy court concluded that the commissions are part of the bankruptcy estate and that the appellees have the status of general unsecured creditors. At the same time, the court decided that Oxford "owed" the appellees their commissions and that equity necessitated payment. We observe, however, that the Bankruptcy Act did not give bankruptcy courts the authority to grant compensation of post-petition funds except as provided by the Bankruptcy Code. Matter of Hammers, 988 F.2d 32, 34 n. 1 (5th Cir.1993). Neither the appellees nor the bankruptcy court cited a specific provision of the Code that would allow the payment of post-petition funds to satisfy pre-petition claims. By commanding payment, the bankruptcy court elevated the status of the appellees above that of the other general unsecured creditors and deviated from the pro rata scheme of distribution envisioned by the Code. See 11 U.S.C. Sec. 726(b) (Law.Co-op.1987). This order effectuated an impermissible substantive alteration of the Code's provisions. For this reason, we find that the bankruptcy court was in error when it used its equity powers to command the payment of the appellees' commissions.

B.

Having concluded that the bankruptcy court acted beyond the equitable powers granted by section 105(a), we now turn to whether the bankruptcy court was correct in concluding that the commissions were part of the bankruptcy estate. Oxford renews its assertion that the bankruptcy court properly found that the funds are part of the debtor's estate. Bingler and Matherne, on the other hand, advance numerous arguments in support of the position that the pre-petition agreements rendered the appellees the equitable owners of the funds. In other words, the bankruptcy court's conclusion was correct, but for the wrong reasons.

11 U.S.C. Sec. 541(d) is the general provision addressing property of the bankruptcy estate. It provides that the estate is comprised of "all legal or equitable interests of the debtor in property as of the commencement of the case." 11 U.S.C. Sec. 541(d) (Law.Co-op.1986). The section does not, however, create or define property interests. Therefore, in the absence of controlling federal bankruptcy law, the substantive nature of property rights is defined by reference to state law. Butner v. United States, 440 U.S. 48, 55-56, 99 S.Ct. 914, 918, 59 L.Ed.2d 136 (1979). ⁶ The bankruptcy court properly looked to Louisiana law to determine whether Oxford's estate owned the commissions under the terms of the contracts between the parties. An interpretation of an unambiguous contract is a question of law and will be reviewed de novo. Calpetco 1981 v. Marshall Exploration, Inc., 989 F.2d 1408, 1413 (5th Cir.1993).

The appellant argues that the terms of the contracts between the parties explicitly created a debtor-creditor relationship. The contract between Oxford and Fidinam provides that the whole 6% commission is to be paid directly to Oxford, with Oxford then obligated to pay the appellees their shares. Since Bingler and Matherne were not parties to the contract between Oxford and Fidinam, they could not directly receive their payments from Fidinam but...