Memorandum of Decision Re: Fees of Attorney for Debtor

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Decisions
IN THE UNITED STATES BANKRUPTCY COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA
In re NORTH BAY CENTER,                                                                           No. 95-10666        Debtor. ___________________________/
Memorandum of Decision
I. Introduction      This Chapter 11 case involves an office building in Marin County, California. The debtor sought confirmation of a plan over the objection of its principal creditor, WHBA Real Estate Limited Partnership. The court denied confirmation, and the debtor unsuccessfully appealed. WHBA then proposed its own plan, which the court confirmed. The debtor unsuccessfully appealed this ruling as well.      The final application of debtor's court-approved counsel is now before the court. The law firm of Campeau & Thomas seeks a total in fees and costs of $199,674.00, which includes fees for all services up until WHBA's plan was implemented. WHBA, which must pay the fees, has objected on the grounds that all fees incurred after it filed its plan were not incurred for benefit of the estate.      This dispute raises very serious and fundamental issues regarding the role of counsel for a debtor in possession in a Chapter 11 case. It appears clear that somewhere along the line Campeau & Thomas stopped representing "the estate" and became counsel only for the debtor's equity interests. This does not seem to be the result of any sort of ethical lapse, but rather the shifting dynamics of the case. The court must determine if it is appropriate to limit the amount of their fees which WHBA must bear.      WHBA argues that the cutoff date should be the date it proposed its plan of reorganization. While a substantial portion of WHBA's claim was unsecured, the other unsecured claims were relatively nominal. Since WHBA proposed to pay these claims in full, it argues that all subsequent services were only for the benefit of the debtor's equity holders and not the estate.      While WHBA makes a good argument for the date it filed its plan as the cutoff date, other possible dates include the date the court denied confirmation of the debtor's plan, the date that ruling was upheld on appeal, the date confirmation of WHBA's plan was affirmed on appeal, the effective date of WHBA's plan, and the day the last of the debtor's property was turned over to WHBA. Campeau & Thomas not surprisingly urge this last date. II. Applicable Law      Section 330(a)(1) of the Bankruptcy Code allows the court to award reasonable compensation for actual, necessary services rendered by counsel for a debtor in possession. Section 330(a)(3)(C) requires the court to consider, when determining the reasonable value of the services, whether the services were necessary to the administration of, or were beneficial when rendered. Section 330(a)(4)(A) forbids allowance of compensation for services not reasonably likely to benefit the debtor's estate or necessary to the administration of the case. When counsel takes an action only likely to delay or produce some procedural advantage to the debtor, he or she is not working for the benefit of the estate. In re Perez, 30 F.3d 1209, 1219 (9th Cir.1994).      Fees awarded under section 330(a) are administrative expenses pursuant to section 503(b)(2). They are entitled to first priority pursuant to section 507(a)(1). Section 1129(a)(9)(A) requires that any plan of reorganization must provide for their full payment. Thus, WHBA is required to pay the allowed compensation of Campeau & Thomas. III. Analysis      The difficulty analyzing this case is that there is no clear definition of what constitutes benefit to the estate. If the debtor is an individual who is resisting liquidation of his estate even though liquidation would pay all creditors in full, it is arguable that none of his counsel's fees are for the benefit of the estate. However, if the debtor is a large, publicly-held corporation with tens of thousands of shareholders, then acts which benefit the shareholders may well be considered acts which benefit the estate.      Ultimately, the determination of benefit to the estate must be made on an individual basis, taking into account the number of equity holders, the level of their active participation in the events which led to the debtor's bankruptcy, and the degree to which the general public has an interest in the case. In the example given above of the individual debtor resisting liquidation, all of his counsel's fees might well be for the benefit of the estate if the debtor manufactures a vital defense item, or is an important employer.     There is no general public interest at stake in this case, nor are the investors numerous; there are about 27 limited partners. While the level of day-to-day involvement of these partners was by definition limited, they nonetheless bear a high degree of personal responsibility for their situation. The court accordingly determines that acts taken solely for their benefit were not acts taken for the benefit of the estate. IV. Identification of Acts Which Benefitted the Estate      Even after articulating a standard, its application to the facts is not easy. While all of counsel's acts in this case were for the benefit of the equity holders, it is difficult to identify those acts which were solely for their benefit. Certainly the proposal of the debtor's plan, and even its appeal, were not for the benefit of the equity holders alone; foreclosure by WHBA might well have wiped out the unsecured creditors, since WHBA claimed a security interest in all of the debtor's assets.      The court has some difficulty in using the date WHBA filed its plan as the absolute cutoff date. There is no guarantee that WHBA would have followed through with its plan if the debtor had decided to throw in the towel at that point. WHBA might have decided to forego its plan and seek relief from the automatic stay instead.      On the other hand, the court sees no benefit to anyone other than the equity holders in most of the efforts of Campeau & Thomas after WHBA's plan was filed. The only persons harmed by that plan were the equity holders.      The court determines that Campeau & Thomas benefitted the estate with their services up until May 24, 1996, when WHBA filed its plan. Their allowable fees at this time were approximately $101,000.00 and their allowable expenses were $5,500.00. Thereafter they rendered services having a value of $25,000.00, as best the court can determine them, related to seeking proper modifications of that plan, insuring that WHBA did not abandon its plan, assisting in the administration of the estate, and preparing their fee application. These fees and costs are allowable under section 330(a). The balance will be disallowed pursuant to section 330(a)(4)(A)(ii) as neither benefitting the estate nor necessary to the administration of the case. V. Conclusion      Campeau & Thomas filed an original application seeking about $147,000.00 in fees and expenses, and a supplemental application seeking an additional $25,000.00. It indicated at the final hearing on these applications that the amount it claimed had grown to $199,674.00. Except as stated below, all amounts are disallowed.      Campeau & Thomas are allowed fees of $126,000.00 and expenses of $5,500.00. Since they received a retainer of $100,000.00, WHBA shall pay the balance of $31,500.00 to Campeau & Thomas forthwith. Counsel for WHBA shall submit an appropriate form of order.
Dated: June 14, 1997                                                                          _______________________                                                                                                            Alan Jaroslovsky                                                                                                            U.S. Bankruptcy