In Re Keren Ltd. Partnership
MEMORANDUM DECISION AND ORDER
By order dated May 6, 1998, Bankruptcy Judge Adlai S. Hardin, Jr. denied Cushman & Wakefield, Inc. and Cushman & Wakefield of Connecticut, Inc.’s (collectively “C & W”) motion (1) to be retained nunc pro tunc and, (2) to have its claim for real estate brokerage fees treated as a post-petition administrative expense pursuant to § 503(b) of the Bankruptcy Code. C & W appeals Judge Hardin’s Order. For the reаsons that follow, the Order is affirmed.
BACKGROUND
C & W, a real estate brokerage firm, and the Debtor, Keren Limited Partnership, the owner of a commercial real estate complex in Tarrytown, New York known as the Landmark, entered into a Commission Agreement (the “Agreement”) dated September 6, 1996. The Agreement entitled C & W to a commission in the event that Keren and Witco Corporation, a prospective tenant, executed a lease for office space at the Landmark before December 31, 1997. The Agreеment stated, in part:
in the event of the consummation ... of the above Lease, [Debtor] shall pay to TC & W], in consideration for its brokerage services rendered, Ninety Percent (90%) of a commission computed and payable in accordance with the annexed Schedule.
[i]f the lease is not consummated on or before December 31, 1997, this Agreement shall terminate unless extended in writing by the parties. Nothing in the foregoing shall impair C & Ws entitlement to a commission in the event C & W is the procuring cause of a lease after the expiration of this Agreement.
On April 9, 1997, Keren filed a petition under Chapter 11 of the Bankruptcy Code and since the filing has been operating as a debtor-in-possession. On June 5, 1997, C & W moved under 11 U.S.C. § 365(d)(2) to fix a date for Keren to assume or reject its execu-tory contract (i.e. the Agreement) with C & W. C & W vоluntarily withdrew the Motion to Assume on September 2, 1997, and on December 15,1997, Keren and Witco executed the lease.
C & W moved in January 1998 to be retained as Keren’s real estate brokers and to recover as an administrative expense under § 503(b) $1,221,589.77, its brokerage commissions for the Landmark transaction. C & W also requested that the court approve its employment nunc pro tunc to April 9, 1997, and in the alternative, payment of its commission as an administrative expense. Both the Debtor and Swiss Bank, a secured creditor, opposed the motion, and Swiss Bank cross-moved to dismiss for failure to state a claim. 1 On May 6, 1998, the Bankruptcy Court issued an order “dismissing and denying” C & W’s motion. C & W challenges that determination on this appeal.
Under 28 U.S.C. § 158(a) and (c), the district court is authorized to exercise appellate jurisdiction over final orders of the bankruptcy court.
See
Bank.Rule 7052 (incorporating Fed.R.Civ.P. 52). This Court reviews the bankruptcy court’s findings of faсt under a clearly erroneous standard, and any conclusions of law
de novo. In re Momentum Mfg. Corp.,
1. Post-Petition Administrative Claim pursuant to § 503(b) and Nunc Pro Tunc Retention Motion
C & W contends that the Bankruptcy Court erred in denying its motion for nunc pro tunc appоintment and in refusing to treat its claim for commissions as a § 503(b) claim for administrative expenses. Section 503(b)(1)(A) of the Bankruptcy Code provides:
(b) After notice and a hearing, there shall be allowed, administrative expenses... of this title, including-(l)(A) the actual, necessаry costs and expenses of preserving the estate, including wages, salaries, or commissions for services rendered after the commencement of the case.
11 U.S.C. § 503(b)(1)(A).
C & W contends that its commission was incurred in the ordinary course of the Debt- or’s commerсial real estate business. The Bankruptcy Code however, clearly requires court approval of professionals seeking to render service to a bankruptcy estate. Section 327(a) states:
the trustee, with the court’s approval, may emрloy one or more attorneys, accountants, appraisers, auctioneers, or other professional persons, that do not hold or represent an interest adverse to the estate, and that are disinterested persons, to represеnt or assist the trustee in carrying out the trustee’s duties under this title.
11 U.S.C. § 327(a).
This provision anticipates that professionals who contemplate rendering service to estates first demonstrate relevant qualifications including competence, disinterest, efficiency, and document the need for the service. These measures afford interested parties such as creditors, the debtor or the U.S. Trustee an opportunity to comment on the propriety of retention. Since courts routinely impose this requirement on brokers seeking commissions,
see, e.g. In re Haley,
Because C & W’s retention was not аpproved prior to its performance of post-petition services for Keren, C
&
W sought from ’the Bankruptcy Court
nunc pro tunc
retention. A number of courts have found that a bankruptcy court may grant
post facto
approval of an application for the retention of a professional whеre: 1) the employment satisfies the statutory requirements, and 2) the delay in seeking court approval resulted from extraordinary circumstances.
In re Jarvis,
In exercising its discretion regarding the existence оf “extraordinary circumstances”, a bankruptcy court considers factors such as:
whether the applicant or some other person bore responsibility for applying forapproval; whether the applicant was under time pressure to bеgin service without approval; the amount of delay after the applicant learned that initial approval had not been granted; the extent to which compensation to the applicant will prejudice innocent third parties; and other relevant factors.
In re F/S Airlease, 844
F.2d at 105-06 (citing
In re Arkansas,
C & W bases its claims of the existence of extraordinary circumstances largely on the ground that the Debtor repeatedly encouraged C & W to assist in the resolution of a number of material issues concerning the lеase and continually assured C & W that it would be paid. Assuming this to be true, C & W nonetheless was a sophisticated party who was aware of bankruptcy payment priorities and procedures despite any assurances from the Debtor. C & W’s knowledge and sophistication is illustrated by its June 5, 1997 Motion to Assume. Notably, paragraph 6 of the Motion states:
Uncertainty regarding assumption of the Commission Agreement is prejudicial to [C & W]. If the Lease is consummated, [C & W] will have an administrative claim against the estate for its commission. Assumption of the Commission Agreement will make clear the amount and tеrms of payment of that claim. If the Commission Agreement is not assumed, however, [C & W] must act expeditiously to protect its rights by filing and litigating a motion to fix and compel payment of its administrative claim.
Judge Hardin was correct in his conclusion, “[t]here is no excuse in this cаse for [C & W] not to have been alert to the necessity to be retained as a professional in this bankruptcy case. That fact is crystal clear by its June 5, 1997 motion.” C & W did not file a motion to protect its rights until January 1998. These actions by C & W are not congruent with the existence of extraordinary circumstances. C & W undoubtedly was aware of the importance in having its retention approved by the court, yet choose to perform post-petition services in the absence of that approval.
In sum, C & W filed a Motion to Assume about two months after the Debtor filed its petition, voluntarily withdrew this motion, and then did not file its motion for retention until January 1998 while continuing to perform post-petition services for the Debtor presumedly until December 15, 1997 (the date the lease was signed). In view of C & W’s dеlay from June 1997 to January 1998, this Court finds that C & W has not established extraordinary circumstances, and that the Bankruptcy Court did not abuse its discretion by denying nunc pro tunc retention. 2
2. Post-Petition Administrative Expense Motion Pursuant to the Agreement
In order to be entitled to a priority as an administrative expеnse for a claim based on a pre-petition contract, that contract must be executory.
See In re J.M. Fields, Inc.,
C & W claims it performed services under an executory contract that was never rejected and the Debtor enjoyed the benefits of those services. Specifically, C & W contends that because the Agreement states that it is to be governed by the laws of New York, whether the contract is executory should be construed in light of New York law, which requires the broker to be the procuring cause of a meeting of the minds between the parties in order to earn a commission.
ERA Joseph Green Real Estate, Inc. v. Daubert,
New York law, however, permits the parties to contract around this requirement.
See Rennert Diana & Co., Inc. v. Ziskind, et al.,
The court below correctly concluded that, “[t]here can be no doubt that .parties are at liberty to make a contrаct providing for a brokerage commission for services by the broker entitled to the commission that fall far short of meeting the common law requirement for a brokerage commission procuring a meeting of the minds.” This is the case with the Agreement. Becausе C & W had no affirmative duties under the contract, it was not executory and thus cannot qualify as an administrative claim.
Notwithstanding the fact that the commission was payable post-petition, it was fixed pre-petition as of the date of the Agreement.
See In re J.M. Fields,
In support for its claim that it supplied a benefit to the estate, C & W also points to its post-petition work that resolved the numerous material issues between the Debtor and Witeo and resulted in a lease for almost three times the amount of space Wit-co was originally seeking. A creditor who fully performs under a contract prior to the filing of the petition, however, is not entitled to an administrative expense even though post-petition services may have resulted in a direct benefit to the estate, In re The Charter Co., 52 B.R. 267, 270 (Bankr.M.D.Fla.1985), particularly where, as here, thе creditor elected not to obtain court approval prior to rendering those services. Accordingly, the Bankruptcy Court could properly have declined C & W’s claim as an administrative expense.
CONCLUSION
For the foregoing reasons the Bankruptcy Court’s order is affirmed.
SO ORDERED.
Notes
. Judge Hardin considered Swiss Bank’s Cross-Motion to Dismiss as an alternative basis for denying C & W's motion.
. Because we find that C & W does not pass the extraordinary circumstances standard, we do not address C & W’s contention that Judge Hardin erred in stating that professionals may not seek approval for their own employment from the court. C & W points to no precedent from this Circuit and we have found none inconsistent with Judge Hardin's conclusion.