REVISED MEMORANDUM OPINION
CASE SUMMARY
This matter comes before the Court on the trustee’s motion for reconsideration and clarification of its ruling of March 26, 1985, wherein the Court allowed certain administrative expenses and authorized payment of one-half of such expenses. The Court is called upon to decide (1) whether interim professional fees should be awarded from property of the estate subject to Crocker National Bank’s security interests and Section 364(c)(1) superpriority; and (2) whether Crocker National Bank has the prerogative, pursuant to post-petition financing arrangements approved by the Court, to selectively determine which administrative claimants may be paid, and in what amount. For the reasons hereinafter set forth the Court shall authorize the trustee to pay all fees incurred by his attorneys and accountants as previously allowed, and to distribute the sum of $15,000 pro rata to the attorney for the creditors’ committee and the accountant for the creditors’ committee, respectively, based on their fees and costs previously allowed.
FACTUAL AND PROCEDURAL BACKGROUND
American Resources Management Corporation, the debtor, is in the business of develоpment and production of oil and gas. Its principal assets consist of interests in developed and undeveloped oil and gas properties in Colorado. On March 1, 1984, Crocker National Bank (“Crocker”) filed a complaint in state court in Colorado to foreclose its interests in the debtor’s property and for a money judgment in the amount of $35,329,203.24, plus interest. The debtor confessed judgment in that proceeding. On June 27, 1984, an involuntary petition under Chapter 11 was filed against the debtor by Land & Marine Rental Company, Wayne A. Siggard, Dowell Division of Dow Chemical U.S.A., and Western Air Drilling Service Cоmpany. An order for relief was entered on July 20, 1984. Anthony C. Pimm was appointed trustee by order of the Court dated July 30, 1984. 1
All revenue from post-petition production has been turned over to Crocker since entry of the order for relief. In order to obtain funds to preserve and maintаin the assets of the estate and continue operation of its wells during the pendency of the Chapter 11 case, the trustee entered into two stipulations with Crocker National Bank to provide post-petition financing. 2 The first stipulation, approved by the Court on September 28, 1984, after a hearing on limited notice, 3 provided that the bank would make available to the trustee up to $27,000 per month for actual operating expenses. The stipulation and the order approving it provided that any advances made by Crocker under the agreement were entitled to a “priority over all unsecured claims and administrative expenses of a kind specified in 11 U.S.C. §§ 503(b) and 507(b).” The first stipulation expired by its terms on November 28, two months later.
The first stipulation was superseded by a second stipulation, dated March 19, 1985, and approved by the Court after notice and a hearing on April 7, 1985. It provided that the bank would make available to the trustee up to $29,000 per month for operating expenses. It further provided that all administrative expenses would first be paid out of assets not subject to Crocker’s security interests and liens, including assets recovered by the trustеe in the exercise of his avoiding powers. 4 The stipulation anticipated that the unencumbered assets might be insufficient to satisfy all administrative claims and provided a formula under which Crocker agreed to permit a limited amount of its cash collateral to be used, up to $30,000 for the trustee’s attorneys’ fees and up to $15,000 for attorneys and accountants employed by the creditors’ committee. 5
The trustee has now come before the Court asking for clarification and reconsideration of its prior fee ruling. Specifically, the trustee wants to know whether the professional fees are to be paid from production revenues, which are being remitted to Crocker, or from the funds recovered in the preference action. The trustee also requests a determination as to whether the ruling on the allowance and payment of professional fees was intended to overrule either of the orders approving the post-petition financing stipulations with Crocker. 7 Finally, the trustee asks the Court to reconsider its ruling that only one-half of the fees and costs previously allowed be paid. The trustee contends that the $50,000 recovered in the preferencе action is sufficient to pay all fees incurred by the trustee, his accountant and attorney, together with $15,000 to be allocated pro rata between the accountant and attorney for the creditors’ committee. In response, the creditors’ committee urged the Court to authorize payment of all fees and costs allowed to its accountant and attorneys, without regard to the $15,000 ceiling imposed by Crocker. 8 This matter was heard by the Court on April 11, 1985, and taken under advisement. 9 The Court has considered the helpful memoranda of the parties, the statements and arguments of counsel, and upon its review of the applicable legal authorities, renders its decision as follows.
The Section 364(c)(1) Superpriority Versus Interim Professional Compensation: Who Gets What, When, and How?
Counsel for the creditors’ committee argues that, notwithstanding Crocker’s su-perpriority under Section 364(c)(1)
10
and
In Callister, supra, a superpriority claim arose under Section 507(b) when the adequate protection provided to Ingersoll-Rand Financial Corporation proved inadequate. The Court held that notwithstanding the existence of the superpriority, the bankruptcy court had the discretion to authorize payment of interim attorneys’ fees under Section 331. 14
Crocker argues that the creditors’ committee has no right to seek payment of accountant’s and attorneys’ fees from collateral subject to its liens and superpriority claims, except as consented to by Crocker, and, to the extent
Callister
holds otherwise, it should be rejected.
15
In support of its position, Crocker relies primarily on
In re Flagstaff Foodservice Corp.,
In this Court’s view, Callister and Flagstaff Foodservice are not inconsistent. As between interim fee awards, other administrative expenses, and superpriority claims, the order of payment is not fixed by the Bankruptcy Code or the Bankruptcy Rules. The superiority in rank and position of Section 364(c)(1) claims does not require that all such claims be paid in full before any part of a Section 503(b) claim may be paid. Cf. In re IML Freight, Inc., — B.R. —, No. 83001950 (Bkrtcy.D.Utah June 25, 1985). Callister states that some administrative expenses may be paid during the course of the сase and that generally interim professional fees should be paid. Callister does not mandate that interim fees be paid ahead of superpriority claims, but creates a rebuttable presumption in favor of payment, “notwithstanding the existence of a superpriority.” Id. at 535. The Court’s decision to allow payment in that case was explicitly predicated on the particular facts and circumstances found to be present.
Payment of professional fees in Chapter 11 cases is a favored object of the Bankruptcy Code, but it is no more favored than prоtecting the rights of creditors with secured claims. As a general rule, expenses of administration must be satisfied from assets of the estate not subject to liens.
See In re New England Carpet Co.,
The time of payment of administrative expenses is within the discretion of the bankruptcy court.
Matter of Isis Foods, Inc.,
Section 36Jt Financing and Selective Payment of Administrative Expenses: A Policy Problem?
There are presently insufficient unencumbered assets available to the trustee to pay the expenses of administеring the debt- or’s estate in full. This Chapter 11 case has been sustained largely at the expense of Crocker. Any payment authorized by the Court at this time must come from assets secured by valid liens or superpriority claims of Crocker or go unpaid. Crocker has consented to payment of certain administrative expenses, but has limited the amount of its collateral which may be paid to the accountants and attorneys employed by the creditors’ committee to an aggregate sum of $15,000. The creditors’ committee suggests that this arrangement is inequitable and contrary to the requirement that there are insufficient assets in the estate to pay all administrative expenses in full, claimants must share pro-rata from the available funds.
The central question here is one of policy. Should a secured creditor holding a senior lien on all assets of the debtor’s estate and a superpriority claim for all post-petition advances be able to selectively waive its claims so as to permit the trustee and professional persons employed by him to receive full payment of their fees, but restrict payment of allowed fees to the professionals employed by the creditors’ committee? In answering this question the Court must weigh the policy of the Code that there should be equality of treatment among administrative claimants against the necessity of permitting trustees to incur debt in order to continue to operate the debtor’s business.
The Court is satisfied, based on the statements of the parties and the record in this proceeding, that in the absence of financing from Crocker the trustee could not have continued to operate the debtor’s business or to preserve and maintain the assets of the estаte. The creditors’ committee received notice and was given a fair opportunity to be heard. It did not oppose either stipulation, and has not shown that there was coercion, undue influence or overreaching by Crocker in connection with the financing arrangements.
Cf. In re Texlon Corp.,
As a general rule, when the debt- or’s estate lacks sufficient funds to pay all administrative expenses in full, administrative claimants must share pro-rata in the available funds. In re IML Freight, Inc., supra; NORTON BANKRUPTCY LAW AND PRACTICE, supra at § 12.03, pt. 12 — p. 5. Administrative claimants may run the risk of nonpayment or partial payment whenever there is an adequate protection shortfall under Section 507(b), su-perpriority borrowing under Section 364, or conversion of the case and subordination of Chapter 11 administrative expenses under Section 726(b). These risks are well known to experienced bankruptcy practitioners, such as the attorney for the creditors’ committee in this case. “[I]n every case there is the uncertаinty that the estate will have sufficient property to pay administrative expenses in full.” 124 Cong.Rec. H 11,092 (daily ed. Sept. 28,1978) (remarks of Representative Edwards), 1978 U.S.Code Cong. & Admin.News, pp. 6512-13.
Congress has encouraged professionals to participate in Chapter 11 eases by abandoning the principle that their services should command a lesser rate than in non-bankruptcy cases,
see In re Jensen-Farley Pictures,
Where there are insufficient unencumbered funds with which to pay administrative expenses, professional persons employed by creditors’ committees may not ordinarily look to secured creditors for payment. “A secured creditor’s consent to the payment of designated expenses limited in amount will not be read as a blanket consent to being charged with additional administrative expenses not included in the consent agreement.”
In re Flagstaff Foodservice Corp.,
Flexibility, not rigidity, is required in dealing with post-petition financing matters. The creditors’ committee was given ample opportunity to object to the granting of a superpriority to Crocker and to its limited waiver, but did not oppose them until these fee applications were presented. The creditors’ committee has been treated fairly under the financing orders and should not be heard to complain that Crock-er has not agreed to underwrite all of its expenses.
Finally, there is an overriding interest in maintaining the integrity of the judicial process. The Court’s orders approving the post-petition financing stipulations conferred a priority to Crocker ahead of all administrative claims. The bank advanced funds to the trustee in reliance upon those orders. The Chapter 11 process would be undermined if this Court were to, in effect, undo those orders by placing the administrative claims of the creditors’ committee ahead of the superpriority which Crocker bargained for.
In this Court’s view, permitting Crocker to selectively waive its liens and superpriority claims in order to allow payment of certain administrative expenses will not subvert the Bankruрtcy Code’s statutory scheme of priorities nor defeat its twin policies of debtor rehabilitation and fairness to creditors.
CONCLUSION
A great deal of time and effort were expended by the attorney and accountant for the creditors’ committee, and their services were of undoubted value. However, the Bankruptcy Court’s power to allow payment of professional fees and other administrative claims ahead of valid liens and superpriority claims, which was recognized in Callister, does not mandate its exercise in every case. The Court’s discretion to permit pаyment is restricted by the existence — present or prospective — of unencumbered assets which exceed any superpriority claim. A secured creditor may, without doing violence to the letter or spirit of the Bankruptcy Code, selectively waive its liens and superpriority claims to permit payment of certain administrative expenses but not others.
Accordingly, the Court shall authorize the trustee to pay the allowed fees and costs of the trustee, his attorneys and accountants, in accordance with the consent and stipulations previously presented, and. to pay the accountant and attorney for the creditors’ committee their allowed fees and costs pro rata from the $15,000 provided .for such expenses. The claim of Land & Marine Rental Company shall be allowed as prayed but may not be paid without further order of the Court. The claim of Tidewater Compression Service, Inc. will be considered when an appropriate request for allowance is made.
Notes
. On August 3, 1984, the Court approved a stipulation between the trustee, Crocker and the petitioning creditors to allow the trustee to borrow $2,500 frоm Crocker in order to pay his bond premium. Crocker was accorded a superpriori
. The stipulations are in the nature of motions for authority to obtain credit or incur debt pursuant to Section 364(c)(1).
. Counsel for the creditors’ committee was present at the hearing and did not object to the stipulation.
. The trustee has recovered approximately $50,-000 in a preference action, which is subject to no encumbrance other than the superpriority claim of Crocker National Bank arising under its рost-petition financing agreements with the debtor.
. The stipulation provided in pertinent part as follows:
17. The parties have agreed that all administrative costs shall first be paid out of assets of the estate which are not subject to Crock-er’s security interests and liens including, but not limited to: (a) assets and properties of the estate which are not to be transferred to the Bank under the plan of reorganization dated January 4, 1985 or any amendment thereof; and (b) any recoveries by the exercise of the Trustee’s avoidance powers under sections 544 et seq. of the Bankruptcy Code. If such sums are not sufficient to pay such administrative expenses, Crocker agrees that a portion of the proceeds of the Production Contracts may be used to pay certain administrative costs only as follows:
(a) The reasonable, necessary fees and expenses of the Trustee and his counsel; provided, however, that the Trustee’s fee will be limited to $150 per hour, the fees of the Trustee’s counsel shall not exceed $30,000. These fees shall not include any amounts to investigate or prosecute claims involving Crocker.
(b) The reasonable and necessary costs of legal and accounting fees of the creditors’ committee, and the expenses of such committee, limited to an aggregate for all such fees and expenses of $15,000, provided, however, that this amount shall not cover any costs,fees, and expenses to investigate or prosecute claims involving Crocker.
.The requests may be summarized as follows:
Applicant Fees Costs
(1) Roe, Fowler & Moxley $21,232.00 $ 943.34
(2) Anthony Pimm 6,000.00 —
(3) Nielsen & Senior 21,621.50 2,095.10
(4) KMG/Main Hurdman 5,953.25 133.38
(5) Robinson, Hill & Company 13,367.60 304.50
(6) Land & Marine Rental Co. 6,851.75 766.79
. This Court possesses inherent equitable power to set aside its orders approving the stipulations if the orders contravene the Bankruptcy Code and if the parties can be restored to the positions they occupied before they entered the stipulation.
See A & A Sign Company v. Maughan,
. The Court also heard the request for allowance of an administrative expense filed by Land & Marine Rental Company under Section 503(b)(3)(A). Crocker withdrew its objection to the allowance of this claim, but opposed its payment from funds subject to Crocker’s security interests and superpriority claims. Tidewater Compression Service, Inc. opposed payment of any administrative claims until the amount of its administrative claim was determined. Crocker acknowledged that this claim would bе proper under Section 506(c) and would be paid by Crocker upon allowance by the Court.
. Due to the exigent nature of this matter, the Court initially issued a memorandum opinion deciding these issues on April 23, 1985. This revised memorandum opinion is intended to correct a number of minor errors in, elaborate upon, and supersede the prior decision.
. Section 364(c)(1) provides:
(c) If the trustee is unable to obtain unsecured credit allowable under section 503(b)(1) of this title as an administrative expense, the court, after notice and a hearing, may authorize the obtaining of credit or the incurring of debt—
(1) with priority ovеr any or all administrative expenses of the kind specified in section 503(b) or 507(b) of this title;
. It was suggested at the hearing that Crocker improved its position by virtue of the two financing agreements since, had it foreclosed its security interests, it would have been necessary to employ Mr. Pimm, or someone with similar qualifications, to operate the wells, and it would have been necessary to advance operating funds in order to do so. Thus, the argument goes, Crocker has created a situation in which its necessary expenses become a superpriority claim. This, however, in no way improves Crocker's non-bankruptcy position because without the intervention of bankruptcy Crock-er's interest in the debtor's assets would likewise be superior to all others.
. Memorandum of Creditors’ Committee in Support of Payment of Interim Allowance, at 8 (April 11, 1985).
. At the hearing on this matter, counsel for Crocker questioned the precedential value of unpublished opinions of the Tenth Circuit. Rule 17(c) of the Rules of Court of the United States Court of Appeals for the Tenth Circuit provides that "[u]npublished opinions, although unreported, can nevertheless be cited, if relevant, in proсeedings before this or any other court.” Furthermore, since the hearing the decision has been published at
. It should be noted that in
Callister
the Court found that the debtor had $323,122 in unencumbered assets.
Id.
at 523, n. 7. The
Callister
decision is further explained by this Court in
In re IML Freight, Inc.,
.Crocker suggests that Callister may be distinguished from the present case because Callister involved a Section 507(b) superpriority, and the financing orders herein provided for a Section 364(c)(1) superpriority. For the purpose of its decision today, the Court finds it unnecessary to draw a distinction between the superpriority which arises under Section 507(b) when there is an adequate protection shortfall and the consensual superpriority approved by the Court for post-petition borrowing under Section 364(c)(1). The Court notes that under the Bankruptcy Code there are at least three superpriorities. The Section 507(b) superpriority is given when adequate protection provided under Section 361 proves to have been inadequate. A superpriority under Section 364(c)(1) may be given to a post-petition lender when the debtor is unable to obtain unsecured credit. Debt incurred under that subsection may be given priority over all administrative expenses and Section 507(b) superpriority expenses. Finally, if a Chapter 11 case is converted to Chapter 7, Section 726(b) provides that the Chapter 7 administrative expenses are entitled to a superpriority over the administrative expenses of the Chapter 11.