12 B.R. 641 | S.D.N.Y. | 1981
OPINION
This is an appeal by Fidelity Mortgage Investors, debtor in possession (“Debtor”), now Lifetime Communities, Inc., from an order of Bankruptcy Judge Roy Babitt which granted an application of Weil, Gotshal & Manges (“Weil Gotshal” or “petitioner”) the Debtor’s attorneys, made after their fees as attorneys for Debtor had been determined, awarding interest thereon from the date when the Debtor had deposited funds pursuant to an approved Plan of Arrangement to the date such compensation was paid to the attorneys — -a period of 11 months.
This Court is of the view that the order directing the payment of such interest is contrary to the terms of the Plan, disregards the fact that any ambiguity in the Plan with respect to who is entitled to interest must be resolved against Weil Gotshal, who drew the plan, and that equitable considerations which militate against the attorneys’ claim require a different result from that reached by the learned Bankruptcy Judge. Accordingly, the order is reversed.
In January 1975, Debtor commenced this voluntary Chapter XI proceeding, and from its inception, Weil Gotshal represented it.
On January 4, 1978, Bankruptcy Judge Lesser, before whom the matter was then pending, confirmed the Plan. The same day the $13,750,000, the condition precedent to the confirmation of the Plan, was deposited. Paragraph 7 of the Order of Confirmation provides, “[u]pon determination that there is on deposit with the Disbursing Agent monies in excess of the amounts required to complete the disbursements pursuant to the Plan, such excess monies shall be paid to [Fidelity Mortgage Investors].”
Also pertinent to the instant matter is Paragraph 5 of the Order which provides “[t]he Disbursing Agent be, and he hereby is, directed to withhold distribution of any monies to the persons whose claims are set forth in the Distribution Schedules as costs and expenses of administration, pending further orders of the court fixing the precise amount payable to each such person.” The Distribution Schedules, in addition to items listed by other administrative claimants, set forth $985,000 as the amount requested by Weil Gotshal for their services to the Debtor.
On February 21, 1978, Weil Gotshal applied to Bankruptcy Judge Lesser for fees and disbursements in the sum of $1,089,-322.82, less $93,746.97 previously paid, which was somewhat higher than the sum set forth in the Distribution Schedules. Upon an explanation by Weil Gotshal that this was due to a purported miscalculation, the Debtor offered no objection to the requested allowances; however, some creditors did oppose, claiming that the fees requested were excessive and also duplicated charges for services rendered by Debtor’s prepetition counsel, Milan & Wilbur, who also had applied for allowances of fees. The objectants were granted an opportunity to examine the time sheets of both attorneys, which were made available for inspection in March and April 1978. The objec-tants thereafter advised the Bankruptcy Judge they were of the view that the time spent by both firms was excessive and du-plicative. Needless to say the applicants challenged this and emphasized that the Debtor did not object to the allowances as requested.
On December 4, 1978, the Weil Gotshal application was granted by Bankruptcy Judge Lesser. An order was then entered awarding counsel fees to them in the aggregate sum of $1,044,247.82 less the sum of $93,746.19 previously paid, or a net sum of $950,501.63. The amount allowed for fees was $45,000 less than requested. Shortly thereafter, about December 18, 1978, payment as directed was made to the attorneys. Within a few days, on December 21, 1978, Weil Gotshal applied for an order directing that they be paid the interest earned on the $950,501.63 from January 14, 1978, the date of Deposit and confirmation of the Plan, to the date of payment of their fees. The Debtor, who previously had no notice that any such application would be made, opposed the payment of interest as did a creditor, Chase Manhattan Bank N.A. (“Chase”), and a majority of the members of the Creditors Committee, who contended that the interest belonged to the Debtor.
The matter was heard by Bankruptcy Judge Lesser on January 31, 1979 following which the parties submitted letters setting forth their opposing contentions. However, he did not decide the matter; he resigned effective September 30, 1979 and the proceeding was delayed because of the lack of immediate designation of his successor and some confusion with respect thereto.
Weil Gotshal’s claim for interest upon the amount of fees allowed to them is based upon a contention that the $985,000 set forth in the Distribution Schedule and included in the Deposit of $13,750,000, as stated by them, was “reserved for [their] benefit” and that the monies “held by the Disbursing Agent represented funds in which [Weil Gotshal] possessed a vested interest subject only to the court fixing the precise amount of the compensation and reimbursement of our-of-pocket [sic] expenses to” them.
If this contention of “vesting” is correct, then every claimant listed on the Distribution Schedules who applied for and was allowed administrative compensation by the Bankruptcy Court likewise was entitled to interest upon such amounts from the date of confirmation to the Plan to the date of payment. I am of the view that the unas-certained amounts did not vest until they were specifically determined in a fixed amount by the Bankruptcy Judge. The administrative claims were expressly deferred under the Plan and no payment was to be made pending the “further orders of the court fixing the precise amount payable to each such person.”
A priority claimant for administrative services, whether legal, accounting or appraisal, estimates the value of those services which is subject to challenge by the Debtor or interested creditors. The ultimate decision is made by the Bankruptcy Judge. Indeed, there are circumstances, not here present, when the Bankruptcy Court would be justified in rejecting a claim in its entirety even though services were in fact rendered.
In effect, however worded, Weil Gotshal is seeking interest upon its award from the date of Deposit to the date of payment. At the outset it is noted that neither the Amended Plan, the Disbursing Order nor any other document drawn by the attorneys with respect to the Plan contains any provision for the payment of interest to administrative claimants. In addition to the absence of any such specific provision, no sin
It must also be emphasized that every document pertinent to the interest claim now advanced by Weil Gotshal was drawn by them in their capacity as attorneys for the Debtor. Thus their demand for payment of interest on allowed compensation places them in conflict with the interests of their client. These experienced attorneys were aware that the listing of their request for an allowance of fees as stated in the Distribution Schedules did not mandate automatic payment thereof. They were aware that they, as well as other administrative fee claimants, were required to apply for the fixation of their fees by the court and that the funds included under the Plan were to be withheld “pending further orders of the court fixing the precise amount payable to each such person.” They also were aware that consideration of fee applications is not pro forma and is subject to court scrutiny, that the Debtor as well as other parties had a right to object thereto, and even in the absence of objections by any party, there is often some delay in passing upon the respective claims for allowances. Those claims could be evaluated only upon affidavits justifying the requested payments. Indeed, the attorneys themselves did not present their application for allowances until forty-seven days after the confirmation of the plan.
Under the circumstances, if Weil Gotshal, knowing of the likelihood of delay in determination of fee applications, had any purpose or intent to seek interest, they were duty bound to advise the client with respect thereto since the client’s interests were adversely affected not only with respect to its attorneys’ claim for interest but also by those that might be asserted by any other administrative claimant. And, of course, if the client had agreed, the Plan could specifically have made provision for the payment of interest. The simple fact is that the provision for payment of administrative and other priority claims is silent and no other provision in any other document implementing or related to the Plan contains any reference authorizing the payment of interest from the date of Deposit to the date of payment. Moreover, other Sections of the Plan involving other classes of creditors require the payment of interest; the record indicates that each provision for interest was intensively negotiated.
While this Court is satisfied that the absence of any specific provision in the administrative expense clause or in any other document for the payment of interest on such claims forecloses such payment, any ambiguity that might exist must be resolved against the draftsmen of the documents, Weil Gotshal. The Amended Plan is a “highly complex and lengthy document . .. which [does not fit] within the present day ideal to eliminate ‘legalese.’ ”
Weil Gotshal urges that equitable considerations justify the payment of interest to it and not to the Debtor, because the proceedings extended over a period of time and it waited eleven months until its fee application was granted and the order entered directing payment. As to delay while the attorneys’ application was sub judice before Bankruptcy Judge Lesser, in no respect can this be attributed to the Debtor. As already noted, Weil Gotshal itself was responsible for a 47-day delay in the presentation of its application. Further delay was due to the creditors’ objections to their application and the time required to examine the time sheets of Weil Gotshal and those of the other law firm representing the Debtor. Finally, time was consumed while the matter was sub judice before Bankruptcy Judge Lesser, who did not render his decision until December 4,1978, slightly over nine months after the application was made. It is not uncommon that fee applications are not acted upon promptly particularly in those instances where objections are filed and discovery and even hearings are required.
It is a known fact that Chapter XI proceedings, depending upon their size, complexity, and the number of claims and creditors, require substantial time before a Plan may receive final acceptance. Similarly, delay in considering petitions by attorneys for fees is not unusual. This delay does not thereby entitle interested persons, particularly administrative claimants such as debt- or’s attorneys who frequently control the
It is significant that when certain claims were expunged or disallowed, the principal amounts covering the claim, plus interest on the entire deposit, was ordered returned to the Debtor.
Weil Gotshal relies on and stresses In re United Merchants & Manufacturers, Inc.; Vertical Industrial Park Associates v. United Merchants & Manufacturers, Inc.,
The order of the Bankruptcy Judge is reversed and Weil Gotshal is directed to return the funds it received from the Disbursing Agent.
So ordered.
. The parties agree that this case is governed by the 1898 Bankruptcy Act, which was repealed effective October 1, 1979 by the Bankruptcy Reform Act, Pub.L.No.95-598, 92 Stat. 2549.
. Weil Gotshal “was under the impression that the case had been referred to Bankruptcy Judge Lifland.” Letter of August 14, 1980.
. Weil Gotshal asserts that the amount of interest, the date of payment and the rate of interest to date of payment was agreed upon at a hearing as a matter of convenience to Debtor, which held the funds in time certificates of deposit.
. Application for Order Directing Payment of Moneys Earned, Dec. 21, 1978, ¶7 (emphasis supplied).
. In re Arlan’s Dep’t Stores, Inc., 615 F.2d 925, 943 (2d Cir. 1979) (court has inherent power to deny fees where serious breaches of fiduciary obligations occur); In re Orbit Liquor Store, 439 F.2d 1351 (5th Cir. 1971) (Wisdom, J.) (not compensable if unauthorized or duplicative); Carey v. Selected Investments Corp., 319 F.2d 578 (10th Cir. 1963) (fees disallowed where attorney had conflict of interest); In re Rothman, 85 F.2d 51 (2d Cir. 1936).
.Pearsall v. Great Northern R. Co., 161 U.S. 646, 673, 16 S.Ct. 705, 713, 40 L.Ed. 838 (1896) (quoting Chancellor Kent).
. Application for Order dated December 28, 1977.
. Application for Fees, at 79.
. Vargas v. Insurance Co. of N. Amer., 651 F.2d 838 at 839-840 (2d Cir. 1981); Filor, Bullard & Smyth v. Insurance Co. of N. Amer., 605 F.2d 598, 602 (2d Cir. 1978), cert. denied, 440 U.S. 962, 99 S.Ct. 1506, 59 L.Ed.2d 776 (1979); Index Fund, Inc. v. Insurance Co. of N. Amer., 580 F.2d 1158, 1162 (2d Cir. 1978), cert. denied, 440 U.S. 912, 99 S.Ct. 1226, 59 L.Ed.2d 461
. Cf. City of Detroit v. Grinnel Corp., 495 F.2d 448, 468 (2d Cir. 1974).
. Petitioner’s application in support of the requested allowance urged that the Bankruptcy Judge “should take into account the fact that the applicant literally has been required to finance the Chapter XI case for a period of over 3 years,” during which it received payments totalling $90,075 and urged this as a “factor which the Court should consider in any award of compensation to be made in this case.” Application for Fees, at 96.
. Cf. Rosewell v. LaSalle National Bank, - U.S. -,---, 101 S.Ct. 1221, 1230-33, 67 L.Ed.2d 464 (1981) (two-year delay without interest).
. Order Disallowing and Expunging Claims, July 25, 1978. The Order provided for the return of “interest on all funds deposited with the Disbursing Agent by [the Debtor].”
. 623 F.2d 804 (2d Cir. 1980).
. Appellee’s Brief at 11.