Yermakov, In re

• Decision Date: 25 October 1983
• Docket Number: No. 82-5376,82-5376
• Parties: 9 Collier Bankr.Cas.2d 699, Bankr. L. Rep. P 69,435 In re Alexis M. YERMAKOV, dba, Westerly Stud Farms, Debtor. Alexis M. YERMAKOV, dba, Westerly Stud Farms, Appellant, v. Edward R. FITZSIMMONS and Richard P. Weldon, Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1465

718 F.2d 1465

9 Collier Bankr.Cas.2d 699, Bankr. L. Rep. P 69,435

In re Alexis M. YERMAKOV, dba, Westerly Stud Farms, Debtor Alexis M. YERMAKOV, dba, Westerly Stud Farms, Appellant, v. Edward R. FITZSIMMONS and Richard P. Weldon, Appellees.

No. 82-5376.

United States Court of Appeals Ninth Circuit.

Argued and Submitted Nov. 2, 1982.

Withdrawn from Submission

June 21, 1983.

Resubmitted Oct. 25, 1983.

Decided Oct. 25, 1983.

Rauer L. Meyer, Bushkin, Kopelson, Gaims & Gaines, Los Angeles, Cal., for appellant.

Merle C. Meyers, San Francisco, Cal., C. Douglas Wikle, Los Angeles, Cal., for appellees.

Appeal from the United States Bankruptcy Appellate Panel of the Ninth Circuit.

Before FLETCHER, NELSON and REINHARDT, Circuit Judges.

FLETCHER, Circuit Judge:

This is an appeal from a decision of the Bankruptcy Appellate Panel that reversed the bankruptcy court's interpretation of the proper basis for computing the compensation to be awarded under 11 U.S.C. Sec. 330 to a debtor's attorney. The Panel ruled that Fitzsimmons, formerly attorney for the Yermakovs, who are debtors in a bankruptcy proceeding, could recover under section 330 the fee provided in a contingency fee contract entered with the Yermakovs three years prior to commencement of the bankruptcy proceeding. We withdrew the case from submission to allow additional briefing concerning the question whether we might lack jurisdiction over the appeal because the bankruptcy court's order was interlocutory.

The case is hereby resubmitted. We conclude that we have jurisdiction over the appeal and that the bankruptcy court, not the Panel, correctly interpreted section 330. Accordingly, we reverse.

I BACKGROUND

Alexis and Katherine Yermakov in 1974 purchased the Westerly Stud Farms, consisting of 3,700 acres of grassland in the Santa Ynez Valley near Solvang, California. $3,000,000 of the purchase price of $5,760,000 was paid by a promissory note secured by a deed of trust. The Yermakovs subsequently purchased several hundred thoroughbred race horses, also acquired by promissory notes secured by a second deed of trust on the Westerly real estate. ¹

The Yermakovs were unable to meet the payment schedule on the promissory notes given in the horse purchases, and they received a notice of default in November, 1977. Later they also defaulted on the promissory note given to purchase the real estate. The holder of the second deed of trust elected to foreclose, and the property was sold, subject to the first deed of trust, for $4,500,000. The purchasers agreed to allow the Yermakovs to remain in possession only through November 4, 1978. The Yermakovs found themselves in an unhappy situation, because they still owned about 150 horses that were stabled on the Westerly farm.

In September of 1978, the Yermakovs on advice of their attorney contacted the attorneys who are appellees in this case, Edward R. Fitzsimmons and Richard Weldon. By a letter dated September 26, 1978, the Yermakovs entered a contingency fee agreement with Fitzsimmons and Weldon. This agreement, after describing in detail the "extreme difficulty" of the Yermakovs' position, stated that "we [Fitzsimmons and Weldon] shall have, and are hereby granted, a thirty-five percent (35%) contingent fee of any enhancement in your present position, whether due from trial, settlement or sale." Fitzsimmons then commenced suit in California state court to set aside the foreclosure sale, alleging defects consisting of the failure to describe the entire parcel in the original trust deed and fraud by the mortgagee and the purchasers in the conduct of the sale. This court action effectively prevented the purchasers from ejecting the Yermakovs from Westerly Farms.

In September, 1979, while discovery was proceeding in the state court action, the purchasers bought the first deed of trust, which was also in default. This gave them power to foreclose and take possession of Westerly even though the state suit prevented them from taking possession based on the foreclosure of the second deed of trust. After the state court dissolved a temporary restraining order preventing foreclosure, Alexis Yermakov on February 4, 1980, filed a Chapter 11 petition in federal bankruptcy court.

Although neither the parties nor the court below stated the point explicitly, from the context of the record it appears that the value of both Westerly Stud Farms and the horses belonging to the Yermakovs appreciated substantially between 1975 and 1980. In the schedule of assets filed in the bankruptcy proceeding, Westerly was valued at $25,000,000 and the debtor's personal property, including the horses, was listed at $10,742,000. Thus, while the Yermakovs lacked sufficient cash to pay the indebtedness on their promissory notes, the total assets of the estate far exceeded total liabilities. The state action contesting foreclosure on the second deed of trust was removed to the bankruptcy court, where it was eventually settled prior to judgment. Under the settlement, a third party agreed to extinguish the Yermakovs' $11,500,000 outstanding indebtedness in exchange for an assignment of the right to redeem Westerly Stud Farms from the trust-deed purchasers. The Yermakovs also received free and clear title to the 210 acre parcel on which their residence and much of the farm improvements were located, an option to participate in a limited partnership that would own the entire Westerly Stud Farms, a dismissal of state counterclaims that had the effect of giving the Yermakovs 23 months of rent-free tenure on Westerly Stud Farms, ² and $1,773,242 in cash left over from the foreclosure sale. Following the settlement, Yermakov moved to dismiss the bankruptcy proceeding.

After the Yermakovs and their creditors reached the settlement, Fitzsimmons on behalf of himself and his partner Weldon applied to the bankruptcy court for compensation pursuant to 11 U.S.C. Sec. 330(a)(1). Fitzsimmons contended that he and his partner are entitled to receive 35% of the "enhancement" in the Yermakovs' financial position over their position on September 26, 1978. The position presently adopted by Fitzsimmons is that he is entitled to receive, at a minimum, record title to 35% of the 210 acre parcel and $647,600 in cash. ³ The bankruptcy court, however, ruled that Fitzsimmons and Weldon may not enforce the contingency fee agreement in an application for a fee under section 330(a)(1), which authorizes only "reasonable compensation for actual, necessary services rendered" by a debtor's attorney. The court further found as a fact that the successful settlement primarily resulted from the efforts of the trustee in Yermakov's bankruptcy, as well as the trustee's attorney, and not from those of Fitzsimmons. The court stated that of the 1,877 hours of time billed by Fitzsimmons and Weldon, some were excessive and not required. Without stating any basis for computing an appropriate fee based on a reasonable hourly rate, the court awarded Fitzsimmons and Weldon total compensation, in addition to reimbursement for expenses, of $110,000. ⁴ The bankruptcy court did not and has not entered a final order terminating the bankruptcy proceeding. Instead, the case has been held in abeyance, apparently awaiting the disposition of the present appeal.

Fitzsimmons and Weldon appealed the bankruptcy court's fee award to a Bankruptcy Appellate Panel of the Ninth Circuit, which reversed. That court held that because the Yermakov bankruptcy will pay all creditors and return a surplus to the debtor, there is no need to apply any policy that would limit the debtor's attorney fee in order to conserve the estate for creditors. The Bankruptcy Panel further ruled that when judged by "the situation as it was when the agreement was entered into," the agreement is reasonable and can therefore be enforced upon a section 330 fee application.

II JURISDICTION

We must determine at the outset whether we have jurisdiction to entertain the appeal from the Bankruptcy Appellate Panel's decision. In re Rubin, 693 F.2d 73, 76 (9th Cir.1982), held that while an interlocutory order of a bankruptcy court may, by leave of the panel, be appealed to the Bankruptcy Appellate Panel, the BAP decision remains interlocutory and cannot be the subject of a direct appeal to this court. In re Rubin does not question that a "final" order of the bankruptcy court may be appealed to the Bankruptcy Appellate Panel, and then to this court pursuant to 28 U.S.C. Sec. 1293(b). Id. at 75. Our jurisdiction in this case thus depends on whether the bankruptcy court order appealed is final or interlocutory.

The Tenth Circuit has ruled that an interim allowance of attorneys fees awarded pursuant to 11 U.S.C. Sec. 331 is interlocutory in nature and cannot be appealed directly to the circuit court. In re Callister, 673 F.2d 305, 307 (10th Cir.1982). We are inclined to agree with the reasoning of that decision. All parties to this case have argued, however, that the order awarding compensation to appellees was not an interim allowance, but rather a final determination of the payment to be distributed to them from the estate. The parties take the position that the bankruptcy court order is therefore final as to Fitzsimmons and Weldon, and may be appealed to this court.

Portions of the bankruptcy court's comments upon entering the order suggested that the award given might be supplemented by subsequent orders. The court stated that "[t]he allowances made now include work performed and time spent up to the time of the hearing on the applications. Any time spent and work performed after that will be the subject of separate applications." If the bankruptcy court meant that Fitzsimmons could apply for more compensation at a later time, the fee award could only be viewed as an interim order entered pursuant to section 331, and would not be appealable to this court. The parties, however, assure us that Fitzsimmons and Weldon were discharged...