574 B.R. 895
Bankr. S.D. Florida2017Background
- Debtors filed Chapter 11; court appointed an Examiner during Chapter 11 who employed Stutman Treister and GrayRobinson as Examiner’s counsel. Examiner and those firms were paid for Chapter 11 work and filed final fee applications preconversion.
- Court converted the cases to Chapter 7; the Examiner and his professionals were not reappointed or re-employed postconversion and the Chapter 7 trustee was appointed.
- District Court on appeal remanded and directed disgorgement of fees pending lien-priority determination; multiple parties (including Examiner and his counsel) pursued appeals to the Eleventh Circuit; appeals were ultimately resolved by a Comprehensive Settlement Agreement (CSA) approved by the bankruptcy court.
- Examiner’s counsel sought supplemental fee applications long after conversion (Stutman Treister and GrayRobinson sought postconversion fees and expenses for appellate work). Trustee, U.S. Trustee, and others objected, arguing no statutory basis for postconversion compensation and no benefit to the estate.
- Bankruptcy court held a hearing and concluded (1) § 330 does not permit fees because the Examiner’s professionals were not employed postconversion and services were not primarily for the estate’s benefit, (2) § 503 administrative-expense relief is unavailable because the services did not create, enhance, or preserve estate assets (and §503(b)(4) is inapplicable in Chapter 7), and (3) the supplemental requests were untimely.
Issues
| Issue | Examiner’s Argument | Trustee/U.S. Trustee Argument | Held |
|---|---|---|---|
| Whether postconversion appellate fees are allowable as professional compensation under §§ 328/330 | Fees are reasonable and necessary for services rendered on appeal protecting fees and enabling settlement | § 348 terminated Examiner’s service; professionals were not employed postconversion so § 330 does not authorize payment | Denied — no § 330 compensation because professionals were not employed after conversion and services were not primarily for estate benefit |
| Whether fees qualify as administrative expenses under § 503(b) (including § 503(b)(4) substantial contribution) | Alternative claim that appellate work facilitated settlement and prevented disgorgement, thus preserved estate value | § 503(b)(4) does not apply in Chapter 7; services primarily protected the professionals’ pecuniary interests and did not preserve or create estate value | Denied — no § 503(b) allowance; services did not sufficiently benefit or preserve the estate |
| Whether the § 503(b)(1) catch-all covers these postconversion fees | Fees are actual, necessary costs of preserving the estate | Benefit was incidental to claimant’s own interests; precedent disfavors broad reading of § 503(b)(1) in Chapter 7 | Denied — incidental benefit to claimant insufficient for administrative priority |
| Timeliness of supplemental fee applications | Late-filed supplements can be considered if cause shown; these filings were presented as supplements to final applications | Supplemental requests filed years after final allowance and payment are untimely and inequitable | Denied — untimely; equitable doctrines (equity aids the diligent) weigh against allowance |
Key Cases Cited
- Lamie v. United States Trustee, 540 U.S. 526 (bankruptcy compensation for professionals in converted case requires trustee employment)
- In re Connolly N. Am., LLC, 802 F.3d 810 (6th Cir. 2015) (minority view allowing substantial-contribution claims in Chapter 7 in limited circumstances)
- In re Colortex Indus., 19 F.3d 1371 (11th Cir. 1994) (limits on administrative-expense priority; § 503 should be narrowly construed)
- In re Concrete Prods., Inc., 208 B.R. 1000 (Bankr. S.D. Ga. 1997) (claim of administrative priority must derive strictly from § 503)