Benchnotes Mar 2001

Benchnotes Mar 2001

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Attorney Fees, Expenses "Substantial Contribution"

In In re Celotex Corp., 227 F.3d 1336 (11th Cir. 2000), in a case of first impression, the Eleventh Circuit considered whether a creditor's attorney may recover fees and expenses for a "substantial contribution" pursuant to §503(b)(3)(D) where the creditor client has an adverse interest in the debtor. The Eleventh Circuit adopted the Fifth Circuit's holding in In re DP Partners Ltd., 106 F.3d 667 (5th Cir. 1997), that "...a creditor's motive in taking actions that benefit the estate has little relevance in the determination whether the creditor[de] a substantial contribution to a case." The plain language of the statute does not require a "self-deprecating, altruistic intent as a prerequisite to recovery..." The Eleventh Circuit ruled that the creditor's attorney was entitled to fees and expenses for a substantial contribution and remanded the case for a determination of the appropriate hourly rate. The dissent would remand the case to the bankruptcy court " determine whether the services for which [the attorneys] seek to be compensated constitute a substantial contribution under 11 U.S.C. §503(b)(3) and (4), under the correct legal standards. Assuming that the court correctly holds that the bankruptcy court applied the wrong legal principle in examining the facts, that court should make the final factual determination without that legal error, not this court."

Appeal Procedural Requirements Still Mandatory

The courts continue to remind us that procedural requirements for appeal are mandatory, and the failure to remember this can have serious adverse consequences. In In re Starcher, 255 B.R. 292 (S.D. W.Va.), the court held that the 10-day time limit for filing a notice of appeal from an order of the bankruptcy court is jurisdictional and must be strictly construed. The Tenth Circuit held in In re Key Energy Resources Inc., 230 F.3d 1197 (10th Cir. 2000), that a party waives appellate review by failing to file timely objections to a magistrate judge's report and recommendation. It also noted that the only way around such a waiver is to satisfy application of the "interest of justice exception" to the waiver rule.

Doctrine of Issue Preclusion

In Adair v. Sherman, 230 F.3d 890 (7th Cir. 2000), confirmation of a chapter 13 bankruptcy plan operated under the doctrine of issue preclusion to bar the debtor from bringing a subsequent suit under the Fair Debt Collection Practices Act, alleging that the claim had been overvalued. There was no objection to the valuation of the claim prior to the confirmation of the chapter 13 plan, and the claim was allowed as fully secured by the terms of the plan itself. Thus, the claim was definitively determined as to both status and amount. As such, imposition of the doctrine of issue preclusion was appropriate.

Substantive Consolidation Order Is Final and Appealable

In In re Bonham, 229 F.3d 750 (9th Cir. 2000), the Ninth Circuit made a number of first-impression rulings in reference to issues involving substantive consolidation of cases. The chapter 7 trustee moved to substantively consolidate a debtor's estate with the non-debtor estates of her two closely held corporations. The Ninth Circuit held that the bankruptcy court's order substantively consolidating the entities is a final and appealable order. The district court had dismissed the appeal for lack of finality, having held (erroneously, as it turns out) that the bankruptcy court's order lacked finality. With reference to the substantive nature of the appeal, the Ninth Circuit held that bankruptcy courts have the power to substantively consolidate entities (not just different debtor estates) pursuant to their general equity powers and that, in this case, the bankruptcy court had not erred in ordering substantive consolidation of the debtor's estate and those of her two closely held corporations. The Ninth Circuit also held that the bankruptcy court did not err in ordering the substantive consolidation nunc pro tunc as of the date of filing of the initial involuntary chapter 7 petition. The facts showed that the debtor operated a Ponzi investment scheme and had used the corporations to further the scheme. The Ninth Circuit also concluded that the bankruptcy court did not err in its ruling, which preserved the trustee's avoidance powers.


Journal Date: 
Thursday, March 1, 2001