Weinstein, Eisen & Weiss v. Gill (In Re Cooper Commons LLC)

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT

In re: COOPER COMMONS LLC, 
WEINSTEIN, EISEN & WEISS; DAVID No. 06-55624
R. WEINSTEIN; SHARON Z. WEISS,
Appellants,  D.C. No.
CV-05-05215-JVS
v. OPINION
DAVID A. GILL, Chapter 7 Trustee,
Appellee.

Appeal from the United States District Court
for the Central District of California
James V. Selna, District Judge, Presiding

Argued and Submitted
December 3, 2007—Pasadena, California

Filed January 3, 2008

Before: Harry Pregerson, John T. Noonan, and
Stephen S. Trott, Circuit Judges.

Opinion by Judge Noonan

105
 IN RE: COOPER COMMONS LLC 107

COUNSEL

David R. Weinstein, Jacquelyn H. Choi, Los Angeles, Cali-
fornia, for the appellants.

John J. Bingham, Jr., John N. Tedford, IV, Los Angeles, Cali-
fornia, for the appellee.

OPINION

NOONAN, Circuit Judge:

Bankruptcy is an intensely practical affair. Bankruptcy
seeks fair treatment for everyone. These two principles ani-
mate and guide the law within the statutory framework set by
the Bankruptcy Code. In this case they appear to clash. On
closer examination of the facts, the clash is chimerical.

Weinstein, Eisen and Weiss (the Firm) appeals the judg-
ment of the district court affirming the order of the bank-
ruptcy judge in favor of David A. Gill, Chapter 11 Trustee
(the Trustee). In this case of first impression in the Ninth Cir-
cuit, we affirm the judgment of the district court.
108 IN RE: COOPER COMMONS LLC
FACTS AND PROCEEDINGS

On February 22, 2002, Cooper Commons, LLC (the
Debtor) filed a petition for relief under Chapter 11 of Title 11
of the Bankruptcy Code. The Debtor as debtor-in-possession
continued to operate the enterprise (the construction of hous-
ing). Prior to the bankruptcy filing, the Comerica Bank (the
Lender) had lent over $16 million to the Debtor. To save the
project, the Debtor entered into three agreements with the
Lender providing an additional $7 million. These agreements
were each approved by the bankruptcy court. Counsel for the
Debtor was the Firm. The Firm represented it in negotiating
the agreements. No provision was made in the agreements for
payment to the Firm from the Lender’s collateral. Each agree-
ment waived any right of the Debtor to surcharge the funds
provided by the Lender.

On November 20, 2002, the Trustee was appointed. The
Trustee negotiated over $7 million in new financing from the
Lender. The agreement with the Lender provided:

[t]he amounts to be funded to the Trustee pursuant
to this subparagraph shall include an amount of
$888,469, which sum shall be placed by the Trustee
in a separate account for the benefit of the Trustee
and his professionals, and which shall be used only
to pay the actual and necessary fees and costs of the
Trustee and his professionals (“Trustee’s Adminis-
trative Fund”). The professionals who may look to
this fund are the Trustee, all attorneys and accoun-
tants that may be employed by the Trustee at the
expense of the estate, as well as the fees and costs of
the Trustee’s field representative, Kenneth B.
Roelke, Inc. The Trustee’s Administrative Fund shall
be available for payment of such fees and costs
approved by an order of the Court after notice and an
opportunity for hearing. . . .
 IN RE: COOPER COMMONS LLC 109
This agreement was approved by the bankruptcy court.

On February 15, 2005, the Trustee moved to augment the
Trustee’s Administrative Fund by $250,000. These funds
would be subtracted from accumulated funds held as collat-
eral for the Lender’s loans. No objection was made by the
Lender. The Firm did object: While the Trustee and his coun-
sel were being taken care of, nothing was set aside to pay the
Firm for services rendered by it to the Debtor-in-possession.

The Bankruptcy Court granted the Trustee’s motion to aug-
ment his administrative fund and pay the specified expenses.
The Firm appealed to the district court. The district court
affirmed the order of the bankruptcy court.

The Firm appeals to us.

ANALYSIS

The Firm has attempted to persuade us that the future of
bankruptcy law is at stake in this case — that if we do not
reverse the district court we will have opened the door to side
deals with secured creditors by trustees that will permit the
trustee to rearrange the payment priorities set by statute and
to do so to the profit of the trustee.

The actual case is less momentous. The Debtor as debtor-
in-possession negotiated three times with the Lender for
financing. In each negotiation the Debtor was represented by
the Firm. The agreements governing the financing stated:
“Neither the Bank [i.e. the Lender] nor any of the Collateral
shall at any time be subject to surcharge or assessment,
whether pursuant to Bankruptcy Code § 506(c) or otherwise.”

This waiver of surcharge or assessment against the collat-
eral is comprehensive. It applies “at any time.” It waives
§ 506(c) claims in particular and other surcharge claims in
general. The waiver was “approved as to form and content”
110 IN RE: COOPER COMMONS LLC
by the Firm. It was executed by the Debtor. The bankruptcy
court entered its approval.

Financing for the Debtor-in-possession was a practical
necessity if it was going to run the enterprise. The Debtor-in-
possession bargained with the Lender to set the terms of this
financing. Part of the bargain was that neither the loan funds
nor the collateral for the loan should be subject to charge. In
marked contrast with the agreement later made by the Trustee
with the Lender, these earlier agreements carried no carve-out
from the collateral for administrative expenses. As it was
obvious, particularly to the Firm, that there would be adminis-
trative expenses, it was not through ignorance or inadvertence
that no provision was made to pay them.

[1] The waiver effectively bars the claims of the Firm now
made. No wool was pulled over the Firm’s eyes — explicitly,
the Firm approved the agreement. Consequently, no claim of
the Firm against the collateral exists. Whatever claim the Firm
has is solely against funds unencumbered by the Lender’s
lien. The later agreement with the Lender by the Trustee did
not retroactively revive or prioritize the Firm’s claims.

[2] The firm is incorrect that the establishment of the Trust-
ee’s Administrative Fund required the application of § 506(c).
In light of the Lender’s consent, there was no need for
§ 506(c) as a statutory hook. The Trustee breached no duty in
limiting the allowed claimants under the fund. Claims were
limited to the services necessary for the ongoing management
by the Trustee of the estate.

The result we reach rests on the conclusion that the Firm
has no direct, pecuniary interest in the encumbered assets of
the estate. It might be argued, therefore, that the Firm lacks
standing to maintain this appeal. Nonetheless, we believe that
the Firm made a sufficient showing of potential injury to its
interest for us, in this unusual case, not to apply the strict
 IN RE: COOPER COMMONS LLC 111
criteria for standing and to accept the appeal and adjudicate
it.

The issue raised by the Firm as to the Trustee’s payment to
his field agent is not properly before the court.

For the reasons stated, judgment of the district court is
AFFIRMED.