USCA1 Opinion
UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
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No. 93-1307
IN RE:
DN ASSOCIATES, D/B/A ATLANTIC MOTOR INN
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CASCO NORTHERN BANK, N.A.,
Appellant,
v.
DN ASSOCIATES, D/B/A ATLANTIC MOTOR INN, ET AL.,
Appellees.
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APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MAINE
[Hon. Morton A. Brody, U.S. District Judge]
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Before
Selya and Stahl, Circuit Judges,
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and Fuste,* District Judge.
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Robert J. Keach with whom Foley, Hoag & Eliot, Roger A. Clement,
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Jr., and Verrill & Dana were on brief for appellant.
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Peter J. DeTroy with whom James D. Poliquin and Norman, Hanson &
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DeTroy were on brief for appellee DN Associates.
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Stephen G. Morrell and Eaton, Peabody, Bradford & Veague, P.A. on
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brief for appellees The Pilot Group and Joseph V. O'Donnell.
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September 1, 1993
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*Of the District of Puerto Rico, sitting by designation.
FUSTE, District Judge. Casco Northern Bank ("Casco" or
FUSTE, District Judge.
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"creditor") appeals an order by the United States District Court
for the District of Maine affirming the bankruptcy court's award
of attorney's fees and expenses to counsel and other
professionals of debtor DN Associates ("DN Associates" or
"debtor"). After thoroughly reviewing the record on appeal, we
affirm the district court's order allowing the fees and expenses.
affirm
I.
I.
Background
Background
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We briefly outline the dispositive facts. DN
Associates, a limited partnership organized in Maine, purchased
the Atlantic Motor Inn immediately before the severe real-estate-
value plunge in New England, and ended up filing a Chapter 11
bankruptcy petition on April 19, 1991. DN Associates' attempt at
Chapter 11 reorganization came on the heels of Casco's
commencement of an action in state court to foreclose on its
mortgage of the Atlantic Motor Inn property. DN Associates
wanted to reorganize itself and avoid losing the investment of
its limited partners by turning its investment into a profitable
venture under the protection of the bankruptcy laws. Throughout
the ensuing bankruptcy proceedings, DN Associates was represented
by James D. Poliquin, of the law firm of Norman, Hanson & DeTroy
("debtor's counsel" or "DN's counsel").
On August 19, 1991, DN Associates, as debtor in
possession, filed its first proposed reorganization plan; Casco,
a secured creditor and lender of last resort, objected and moved
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for an appointment of a trustee or, in the alternative, to end
debtor's period of exclusivity for proposing a resolution. Casco
indicated it would present a plan that provided for 100% payment
to unsecured creditors. On September 13, 1991, the bankruptcy
court terminated DN Associates' exclusivity under the rationale
that the plans offered by DN Associates and by Casco would be
best considered simultaneously. DN Associates filed its first
amended plan on October 5, 1991, and Casco filed its proposed
financial plan on November 25, 1991. Both plans provided 100%
payment to unsecured creditors, but DN Associates' proposal would
have retained the interests of the limited partners through a
recapitalization proposal. Casco's plan differed in that it did
not retain the interests of the limited partners and did not
attempt to salvage DN Associates' business operation. Following
Casco's filing, DN Associates proceeded to offer three different
amended plans as alternatives to Casco's proposed financial plan.
On April 17, 1992, the bankruptcy court confirmed an
amended version of the plan proposed by Casco, thereby rejecting
DN Associates' various reorganization alternatives. Soon
thereafter, DN's counsel filed an additional fee application
seeking approval of $62,898.65 in fees of attorneys and other
professionals incurred between September 3, 1991 and April 17,
1992.1 In the bankruptcy court, Casco objected to both the fee
award and the subsequent application and sought not only a
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1Debtor's counsel had already been compensated for $35,000
in fees and expenses incurred before September 3, 1991.
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disallowance of the final fee award, but also a return of fees
previously awarded. The rationale behind Casco's opposition was
its understanding that the debtor's continued opposition to
Casco's perfectly-reasonable plan and the repeated proposing of
alternative plans by debtor's counsel to save the interest of the
limited partners was adverse to the estate. On the other hand,
debtor's counsel insisted that his efforts were beneficial to the
estate and expected to be compensated for his efforts by the
bankruptcy court. The record indicates that at least one
partially-secured creditor, GIAC, represented by Attorney Fred W.
Bopp, agreed in the bankruptcy proceedings that the persistence
of DN's counsel in offering alternatives to Casco's plan
positively affected the final resolution of the dispute.
On August 20, 1992, the bankruptcy court overruled
Casco's objections and awarded the requested amount of fees and
expenses to DN's counsel and to the other professionals. Five
days later, Casco appealed the bankruptcy court's decision to the
district court, arguing that DN's counsel represented interests
adverse to the estate, and that such rendered services were not
necessary and did not benefit the estate as required by statute.
On March 10, 1993, the district court affirmed the bankruptcy
court, finding that the bankruptcy judge had not abused his
discretion or erred in applying the law.
Casco now appeals the district court's order on the
following four issues: First, whether as a matter of law the
district court erred in its choice of the relevant standard of
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review; second, whether as a matter of law the lower courts
applied the wrong standard in ascertaining whether DN's counsel
and other professionals performed "actual, necessary services"
resulting in benefit to the bankruptcy estate under 11 U.S.C.
330(a); third, whether as a matter of law the lower courts erred
by applying the incorrect standard for determining if DN's
counsel represented an interest adverse to the estate with regard
to the prohibitions detailed at 11 U.S.C. 328(c); and fourth,
in the alternative, whether the district court abused its
discretion in determining that DN's counsel and other
professionals performed "actual, necessary services" resulting in
benefit to the estate as required by 11 U.S.C. 330(a).
II.
II.
Relevant Bankruptcy Code Provisions
Relevant Bankruptcy Code Provisions
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Section 323 (a) of the Bankruptcy Code states that a
trustee is the fiduciary of a bankrupt estate, 11 U.S.C.
323(a), and 11 U.S.C. 1107(a) provides that a debtor in
possession has similar rights and powers as a trustee.
Bankruptcy courts are given the discretionary authority to
compensate professionals employed under 11 U.S.C. 327 by an
estate trustee or debtor in possession for "actual, necessary
services" from estate assets and to similarly reimburse
professionals for "actual, necessary expenses." 11 U.S.C.
330(a)(1) - (2); see also 11 U.S.C. 331 (interim compensation
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by application of professional). By the same token, bankruptcy
courts must limit or deny such remuneration if the professionals
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at issue are found not to be "disinterested" persons2 or if
their work does not "benefit" the estate or creditors. 11 U.S.C.
328(c). However, courts may grant attorney's fees even if a
conflict of interest is demonstrated, as long as such an award is
sensible in light of the circumstances. See In re Kendavis
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Industries Int'l, Inc., 91 B.R. 742, 761 (Bankr.N.D.Tex. 1988).
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III.
III.
Standard of Review
Standard of Review
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In appeals of bankruptcy court holdings, "we review
legal determinations de novo and factual findings on a clearly
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erroneous standard." In re Gonic Realty Trust, 909 F.2d 624, 626
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(1st Cir. 1990); see also In re G.S.F. Corp., 938 F.2d 1467, 1474
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(1st Cir. 1991) ("the court of appeals independently reviews the
bankruptcy court's decision, applying the clearly erroneous
standard to findings of fact and de novo review to conclusions of
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law . . . . "); In re Spillane, 884 F.2d 642, 646 (1st Cir.
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1989); Boston and Maine Corp. v. Moore, 776 F.2d 2, 6 (1st Cir.
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1985).
When we scrutinize factual determinations and
discretionary judgments made by a bankruptcy judge, such as may
be involved in calculating and fashioning appropriate fee awards,
we give considerable deference to the bankruptcy court:
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2This category of professionals encompasses both
"disinterested" persons as well as persons lacking an "adverse
interest." See In re Hub Business Forms, Inc., 146 B.R. 315, 318
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(Bankr.D.Mass. 1992) (quoting In re Martin, 817 F.2d 175, 180
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(1st Cir. 1987)).
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Historically, bankruptcy courts have been
accorded wide discretion in connection with
fact-intensive matters, and in regard to the
terms and conditions of the engagement of
professionals . . . . The bankruptcy judge
is on the front line, in the best position to
gauge the ongoing interplay of factors and to
make the delicate judgment calls which such a
decision entails.
In re Martin, 817 F.2d 175, 182 (1st Cir. 1987); see also Boston
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and Maine Corp. v. Moore, 776 F.2d 2, 6 (1st Cir. 1985). This
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observation is a reiteration of what Judge Brody noted in his
affirmance of the instant bankruptcy court decision that "[such]
courts are traditionally granted broad discretion in determining
reasonable fee awards." Casco Northern Bank, N.A. v. DN
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Associates, No. 92-0219-B, slip op. at 3 (D.Me. Mar. 10, 1993)
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(citing In re Casco Bay Lines, Inc., 25 B.R. 747, 753 (Bankr.1st
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Cir. 1982)). Keeping the relevant standards in mind, we now move
on to a review of the issues raised in the instant appeal.
IV.
IV.
Discussion
Discussion
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We summarize and dispose of appellant's substantive
arguments. We do not reach the question of Casco's appellate
standing raised sua sponte by this court. After all, it is
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settled that an appellate court, confronted by a difficult
jurisdictional or quasi-jurisdictional question, may forgo its
resolution if the merits of the appeal are, as here,
straightforward and easily resolved in favor of the party or
parties to whose benefit the objection to jurisdiction would
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redound. See Norton v. Mathews, 427 U.S. 524, 532 (1976);
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Secretary of the Navy v. Avrech, 418 U.S. 676, 677-78 (1974).
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A. General Standard of Review
A. General Standard of Review
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At the outset, appellant contends as a general matter
that the district court applied incorrect standards of review in
analyzing the instant bankruptcy court decision. We find this
argument to be without merit. A district court reviews a
bankruptcy court's judgment in the same manner in which we review
lower court proceedings. "Findings of fact . . . shall not be
set aside unless clearly erroneous . . . . " Fed. R. Bankr.
8013; see North Atl. Fishing, Inc. v. Geremia, 153 B.R. 607, ___,
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1993 U.S. Dist. LEXIS 5984, *7 (D.R.I. May 4, 1993).
Applications of law are reviewed de novo and are set aside only
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when they are made in error or constitute an "abuse of
discretion." In re Gonic Realty Trust, 909 F.2d 624, 626-27 (1st
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Cir. 1990); In re Carter, 100 B.R. 123, 125 (D.Me. 1989). These
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standards were correctly applied by the district court.
B. Legal Standard Applied to the Award of Fees
B. Legal Standard Applied to the Award of Fees
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Appellant-creditor Casco also objects to the legal
standard employed by the district court in reviewing the
bankruptcy court's determination that debtor's counsel and other
professionals were disinterested persons under 11 U.S.C. 328(c)
and performed "actual, necessary services" resulting in a benefit
to the estate pursuant to 11 U.S.C. 330(a). Casco also argues
that the bankruptcy court erred in its finding that debtor's
counsel's work actually benefitted the estate.
The thrust of Casco's argument is that the perseverance
of DN's counsel in submitting revised reorganization plans,
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following the proposal of Casco's plan, created no benefit to
creditors and demonstrated that DN's counsel was not
disinterested, since it sought to preserve investors' interests
at the expense of the estate. The district court held that the
bankruptcy court's August 20, 1992 decision adequately explained
the reasoning for full payment of fees to DN's counsel and other
professionals. We agree with both the bankruptcy and the
district court's assessment on this issue. DN's counsel's plans
provided 100% payment to unsecured creditors just like Casco's
proposal; thus, the fact that DN's counsel's proposals attempted
to maintain the viability of investments made by DN Associates'
limited partners and also the integrity of the overall business
operation does not signify that DN's counsel failed to remain
disinterested or held an adverse interest to the estate. The
bankruptcy court concluded in its factual findings that "DN's
course was consistent with its fiduciary duties to all of the
estate's constituencies." In re DN Associates, No. 91-20417,
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slip op. at 10 (Bankr.D.Me. Aug. 20, 1992). We agree with the
bankruptcy court that
[i]t would be unfortunate if courts, looking
only at plan provisions removed from context,
concluded as a matter of law that a conflict
of interest existed whenever a debtor and its
counsel, in the face of creditor opposition,
pursued a reorganization strategy that, while
providing for creditors in a fashion
consistent with Chapter 11 priorities, sought
to adjust the rights and relations of
parties-in-interest so that the interests of
equity interest holders could be preserved.
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Id. at 12-13 (cited in Casco Northern Bank, N.A. v. DN
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Associates, No. 92-0219-B, slip op. at 6 (D.Me. Mar. 10, 1993)).
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In addition, regarding determinations of a "materially adverse
interest" pursuant to 11 U.S.C. 327(a), we have rejected an
"inflexible", "per se" standard. See In re Martin, 817 F.2d 175,
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183 (1st Cir. 1987). The bankruptcy court was in the best
position to observe and analyze DN's counsel's actions and
proposals, and that court found that "DN's plan sought to achieve
none of [its] results by denying creditors their due. DN
proposed that unsecured creditors be paid in full shortly after
confirmation; that Casco retain its collateral and be paid its
secured claim; and that administrative claims be fully paid." In
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re DN Associates, No. 91-20417, slip op. at 10 (Bankr.D.Me. Aug.
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20, 1992). We find nothing in the record that would lead us to
conclude that the bankruptcy court erred or abused its discretion
in arriving at its legal determination that DN's counsel was not
acting adversely to the estate. As a matter of law, therefore,
we affirm what both the bankruptcy court and the district court
decided, that DN's counsel was a disinterested person and held no
adverse interest to the estate.
Both before the district court and the court of
appeals, Casco has argued that the bankruptcy court erred in
finding that DN's counsel's actions, following Casco's submission
of a viable plan, constituted a benefit to the estate. We, like
the district court, have interpreted the bankruptcy court's
lengthy discussion of interest and disinterest to address --
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implicitly if not explicitly -- the benefit issue. The
bankruptcy court enumerated several arguably intangible, but
nevertheless real, benefits to the estate from DN's counsel's
proposals: The plans attempted to protect all interested
parties, including creditors and debtor's investors, see In re DN
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Associates, No. 91-20417, slip op. at 10-13 (Bankr.D.Me. Aug. 20,
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1992); DN's counsel's "persistent" actions "spurred" Casco to
develop its own plan -- the reorganization eventually approved by
the bankruptcy court, see id. at 20; and the resulting zealous,
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but reasonable, competition between plans and their drafters was
constructive. See id. Moreover, as already advanced, counsel
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for one of the partially-secured creditors, GIAC, testified that
the efforts of DN's counsel prompted a benefit in that the
pressure of DN Associates' proposals created an atmosphere of
constructive competition up until the "eleventh hour" that
improved Casco's final amended plan. The bankruptcy court's
determinations regarding benefit were highly fact-intensive, and
there is no evidence in the record that such findings of fact
were clearly erroneous. We cannot disturb both the bankruptcy
and district courts' decisions finding as a matter of fact and
law that the work performed by DN's counsel between September 3,
1991 and April 17, 1992 provided a benefit to the estate.
V.
V.
Conclusion
Conclusion
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The relevant findings of fact with respect to both the
issue of adverse interest and benefit to the estate are not
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clearly erroneous. The application of law to the facts is well
within the range of discretion that we afford bankruptcy courts.
We, therefore, affirm the decision of the court below.
affirm
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