Opinion
Civil Action No: 03-3330, Section: "J" (2).
August 6, 2004
ORDER AND REASONS
Before the Court is an appeal from the decision of the United States Bankruptcy Court for the Eastern District of Louisiana granting attorneys' fees to attorneys Michael Fenasci ("Fenasci") and Perrin Butler ("Butler"). I.G. Petroleum, L.L.C. ("I.G.") appeals to this Court arguing that: (1) the bankruptcy court erred in granting attorneys fees to Fenasci and Butler without a motion to enlarge the time to file; (2) the deadline for filing a request for attorneys fees cannot be extended because the attorneys' neglect is inexcusable; and (3) attorneys fees should be denied because a conflict of interest existed that was not disclosed by the attorneys. After considering the briefs, the record, and the applicable law, the Court concludes that the bankruptcy court's decision should be affirmed.
BACKGROUND
Because the procedural history of this case has been thoroughly discussed in prior opinions of this Court, only the information relevant to the pending appeal will be repeated. The debtor, West Delta Oil Company ("West delta"), filed a petition for relief under Chapter 11 of the Bankruptcy Code on January 26, 1999. Although West Delta employed Ronald J. Hof ("Hof") as bankruptcy counsel, it was necessary to hire other counsel to represent shareholder James R. Ingersoll, Jr. ("Ingersoll"), who had moved to dismiss the Chapter 11 filing. Therefore, on April 6, 1999, the bankruptcy court authorized West Delta to retain Fenasci and Butler as special counsel under 11 U.S.C. § 327 (e).
In January of 2000, West Delta filed a plan that would have liquidated all assets to Crescent Oil Company ("Crescent"). At some unknown time, Fenasci and Butler were discussing participating in Burrwood Oil ("Burrwood"), an investor group. In the event that the bankruptcy court confirmed West Delta's plan, Burwood would have posted collateral to enable Crescent Oil to obtain a line of credit of $960,000 to fund West Delta's plan of reorganization. Fenasci and Butler did not disclose their association with Burwood to the bankruptcy court. On February 14, 2000, IG filed a plan to purchase West Delta in which IG agreed to pay all the debtor's administrative claims, including attorneys' fees. On February 29, 2000, the bankruptcy court later expanded the scope of Fenasci's and Butler's representation of West Delta in connection with all matters pertaining to IG. On July 24, 2000, IG filed the plan that was confirmed by the bankruptcy court, which paid all creditors in full and paid equity of $510,000 in exchange for all of the debtor's assets. West Delta withdrew its plan.
Originally, I.G.'s plan provided for $400,000 in equity. However, before the Bankruptcy Court confirmed the plan, I.G. increased the amount of equity to $510,000.
On February 17, 2000, the bankruptcy court ordered that all administrative claims be filed no later than March 30, 2000. Sometime after the deadline, Hof filed a third application for compensation, and Butler and Fenasci applied for attorneys' fees. On March 7, 2001, the bankruptcy court granted the applications filed by Hof, Fenasci, and Butler and ordered that the attorneys be paid for services rendered before March 30, 2000. Fees claimed by Fenasci and Butler for services after March 30, 2000, were denied.
I.G. appealed to this Court, and on November 14, 2001, this Court dismissed I.G.'s appeal as premature. On February 13, 2002, this Court granted I.G.'s Motion for Reconsideration, and on March 28, 2002, this Court reversed in part and remanded the case to the bankruptcy court. West Delta Oil Co. v. Hof, No.CIV. 01-1163, 2002 WL 506814, at *1 (E.D. La. Mar. 28, 2002). This Court found that (1) the bankruptcy court failed to apply the proper legal standard in granting the attorneys' fees applications; and (2) the bankruptcy court failed to make the proper legal inquiry regarding Fenasci's and Butler's roles as investors in Burrwood and whether their roles created an adverse interest to the debtor. Id. at *13-*14. On October 7, 2003, the bankruptcy court granted the fee applications of Fenasci and Butler. On November 26, 2003, I.G. filed this appeal.
Standard of Review
This Court reviews the bankruptcy court's findings of fact under the clearly erroneous standard. In Re: Consolidated Bancshares, Inc., 785 F.2d 1249, 1252 (5th Cir. 1986). The bankruptcy court's conclusions of law, however, are reviewed de novo. Id. Further, a bankruptcy judge has wide discretion in determining attorney's fees in proceedings before them, and such awards should not be reversed unless the bankruptcy judge abuses his discretion. Matter of U.S. Gulf. Corp., 639 F.2d 1197, 1201 (5th Cir. 1981). A bankruptcy court abuses its discretion if it fails to apply the proper legal standard or bases an award on findings of fact that are clearly erroneous. Id.
Discussion
A) Whether a Written Motion to Enlarge the Time Was RequiredBecause the attorneys' claims for attorneys' fees were filed after the bar date of March 30, 2000, the only question is whether the bankruptcy court had "cause" to extend this deadline under the excusable neglect standard as identified in Bankruptcy Rule 9006(b) (1).
[W]hen an act is required or allowed to be done at or within a specified period by these rules or by a notice given thereunder or by order of court, the court for cause shown may at any time in its discretion (1) with or without motion or notice order the period enlarged if the request therefor is made before the expiration of the period originally prescribed or as extended by a previous order or (2) on motion made after the expiration of the specified period permit the act to be done where the failure to act was the result of excusable neglect.
Fed.R.Bankr.Proc. 9006(b)(1); 11 U.S.C.A.
The bankruptcy court acknowledged that Butler and Fenasci did not fulfill the motion requirements of Rule 9006(b)(1), but treated the attorneys' fee applications as an informal motion for enlargement of time under Rule 9006 (b)(1). To support the finding that a motion to enlarge the time did not have to be in writing, the bankruptcy court noted that when the concerns regarding notice and opportunity to respond are satisfied, courts liberally construe the motion requirement. Specifically, the bankruptcy court cited In re Gottschalk, 78 F.3d 593 (Table), No. 95-55059, 1996 WL 83877 (9th Cir. 1996) (unpublished opinion), which stated that "although [the attorneys] did not file a formal motion to enlarge the time required for filing their fee application, the late filed application itself should have been treated as a motion for extension of time under Rule 9006." Id. at *2 (citing Williamette Timber Systems, 54 B.R. 485, 487 (Bankr. D. Ore 1985)).
In deciding whether a fee application needs to be in writing, Appellant, I.G., submits that this Court should follow Hanson v. First Bank of South Dakota, 828 F.2d 1310, 1314 (8th Cir. 1987), in which the bankruptcy court refused to allow the late ballot of creditor accepting debtors' plan because a motion was not filed as required by Rule 9006(b)(1). However, the rationale used by the Hanson court for requiring a written motion was that the motion served to place the court and opposing counsel on notice. Id. In this case, Appellant, I.G., was well aware that Fenasci and Butler desired to extend the administrative deadline for filing fees, even if the attorneys never formally made such a motion. As a result, the bankruptcy court liberally construed the motion requirement because Appellant had notice and an opportunity to respond. Under these circumstances, this Court agrees with the finding of the bankruptcy court.
2) Whether the Attorneys' Mistake of Law Constituted Excusable Neglect
Next, Appellant argues that the bankruptcy court actually stated that the neglect was inexcusable; therefore, the attorneys' actions cannot constitute excusable neglect. However, according to Pioneer Investment Services Company v. Brunswick Associates Limited Partnership Et Al, 507 U.S. 380, 113 S. Ct. 1489 (1992), the court must consider several factors when making a determination of excusable neglect. "These include . . . the danger of prejudice to the debtor, the length of the delay and its potential impact on judicial proceedings, the reason for the delay, including whether it was within the reasonable control of the movant, and whether the movant acted in good faith."Pioneer, 507 U.S. at 395, 113 S. Ct. at 1498. Although the bankruptcy court stated that the reason for the delay was inexcusable, the bankruptcy court properly analyzed all of thePioneer factors and determined that the reason for delay was but one factor to consider. After considering all of thePioneer factors, the bankruptcy court explained that what type of neglect is excusable "is at bottom an equitable one, taking account of all relevant circumstances surrounding the party's omission." Pioneer, 507 U.S. at 395, 113 S. Ct. at 1498.
Danger of Prejudice to the Opposing Party
The bankruptcy court correctly noted that according toPioneer, the central inquiry is whether any prejudice will occur by allowing the late-filed claim. Pioneer, 507 U.S. at 398, 113 S. Ct. at 1499. Further, the bankruptcy court stated that whether late-filed claims were anticipated by the affected party is an important factor in examining prejudice. In Re Eagle Bus. Mfg., Inc., 62 F.3d 730, 737 (5th Cir. 1995). Appellant asserts that it had no reason to anticipate the late-filed claims; thus, the revision in attorneys' fees came as a great surprise. However, the bankruptcy court thoroughly examined this argument and held that "[O]n April 28, more than three months before confirmation, IG became aware that $90,000 more in outstanding professional fees existed than the debtor's original estimate." The bankruptcy court noted that Appellant's own plan accounted for administrative costs, which included compensation of special counsel. Further, three months provided Appellant ample time to rework its plan, and there was nothing unusual about the amount of professional fees.
Appellant argues that the bankruptcy court failed to recognize that on April 20, 2000, Appellant's disclosure statement was approved by the court and that any change after such approval would have required a new disclosure statement and plan and a re-solicitation of creditors' votes, all resulting in prejudice to appellants and delayed confirmation. On the contrary, the bankruptcy court both recognized and considered this argument and found that the court's approval of I.G.'s disclosure statement had no effect on its right to further amend the disclosure statement or the plan. This is evidenced by the fact that I.G. amended both its plan and its disclosure statement shortly before confirmation. The bankruptcy court concluded that "this was not a situation where the debtor's plan was formulated, negotiated, and confirmed before notice was given of a substantial late claim." In re Drexel Burnham Lambert Group, Inc., 148 B.R. 1002, 1009 (S.D.N.Y. 1993). Because this Court agrees that I.G. had ample notice of the late-filed claims and had an opportunity to amend its disclosure statement and plan, this Court agrees that Appellant was not prejudiced by the late-filed claims.
Delay in Filing
The bankruptcy court held that the five-month delay between the bar date and the date Fenasci and Butler filed their claims was not excessive. The bankruptcy court supported its finding that the five-month delay was not excessive by citing cases where a delay of eight months was allowed (In re Eagle Bus. Mfg., 62 F.3d 730, 739 (5th Cir. 1995)), and where a delay of two years was allowed (In re Dix, 95 B.R. 134, 138-39 (9th Cir. 1988) As in the present case, the delays were permitted in the aforementioned cases because the late filings had no adverse impact on the estate administration.
Appellant, I.G., contends that it has been more than three years since the March 30, 2000 bar date, and a motion to allow the late-filed claims has not been filed. However, this Court has noted that courts liberally construe the motion requirement, and in this case, a motion was not necessary. Appellant also contends that courts have found that an eight-month delay in filing a claim was lengthy and not excusable (Brannon's v. Harrah's Jazz Company, 1998 U.S. Dist. LEXIS 9735 (E.D. La. 1998), and a six-month delay was not excusable (In re Enron Corp., 298 B.R. 513 (S.D.N.Y. 2003). However, as both of the cases cited by Appellant contain longer delays then in the present case, this Court does not find those holdings persuasive. The bankruptcy court considered the relevant facts concerning the length of delay and concluded that "as I.G. had agreed to be responsible for all administrative claims under its plan, any specific claims would necessarily have to be resolved after confirmation." Furthermore, the bankruptcy court correctly notes that no bright-line rule has been established in deciding when the delay is so long that it is inexcusable. Matter of Papp, Int'l., 189 B.R. 939, 945-46 (Bank. D. Neb. 1995). Again, despite arguments to the contrary, the bankruptcy court had wide discretion to make such a decision, and this Court agrees that the five-month delay was not excessive.
Reason for delay
It is undisputed that the bankruptcy court found that the reason for delay was inexcusable. In Pioneer, the delay was caused by an untimely claim delayed by an attorney's negligence because it had fulfilled all the other factors, and the notice of the bar date contained a "dramatic ambiguity" which could have confused "even persons experienced in bankruptcy." Pioneer, 507 U.S. at 386-87. In this case, the bankruptcy court found no ambiguity regarding the filing of the administrative claims, and it further found that the court's order of the bar date was within normal procedure. The bankruptcy court noted that Butler and Fenasci had a duty to prepare themselves to be informed and competent representatives. Therefore, it is undisputed that the bankruptcy court found that this factor weighed against a finding of excusable neglect, and instead, the court found that the reason for the delay was inexcusable.
Good Faith
The bankruptcy court found "[n]othing on the record shows any evidence suggesting the parties acted with anything other than good faith." The Appellant disputes this finding and argues that the attorneys' roles as potential investors and their large undisclosed pre-petition claims indicate bad faith. However, mistakes of counsel do not necessarily indicate bad faith, and "when there are two permissible views of the evidence, the fact finder's choice between them cannot be clearly erroneous." In re Burgess, 955 F.2d 134, 138 (1st Cir. 1992) (citing Anderson v. City of Bessemer City, 470 U.S. 564, 573-75, 105 S. Ct. 1504, 1511 (1985)). Moreover, the bankruptcy court found that there was nothing unusual about the size of the pre-petition claims. Accordingly, the finding of the bankruptcy court regarding good faith was not clearly erroneous.
After weighing the Pioneer factors and after considering the arguments of counsel, this Court concludes that the bankruptcy court did not abuse its discretion by finding that the attorneys' neglect was excusable.
B) Conflict of Interest
The bankruptcy court concluded that Fenasci's and Butler's failure to disclose their involvement with Burrwood to the court violated Bankruptcy Rule 2014(a), which requires a verified statement of the attorney disclosing his connections with the debtor, creditors, and any other party in interest. However, the court also noted that although the court could deny fees based on the violation of Rule 2014 (a), nothing mandated the court to do so. The bankruptcy court relied on 11 U.S.C. § 327(e) to explain that "[c]ongress intended, and the courts have allowed, considerable latitude, in assessing conflict of interest classifications." In re Henlar, Ltd., CIV.A. No. 94-11305, 96-23741997, WL 4567 at *3 (E.D. La. 1997) (citing In Re Newman, 138 B.R. 683, 686 (S.D.N.Y. 1992)). The court only considers whether an applicant's interest is adverse with respect to the matter on which the attorney is to be employed. 11 U.S.C. § 327(e). The bankruptcy court concluded that Fenasci's and Butler's interests were merely preliminary and the scope of their representation was sufficiently narrow. Appellant, I.G., disputes this assessment and argues that several factors suggest that the Burrwood negotiations were more than preliminary and that Fenasci was involved in nearly every aspect of the case.
Even accepting Appellant's arguments as true, the Fifth Circuit has stated that while a court is empowered to deny attorneys' fees in situations where a conflict of interest exists, it is not compelled to do so under the pertinent bankruptcy statutes. In re Hudson Shipbuilders, Inc., 794 F.2d 1051, 1059 (5th Cir. 1986). Therefore, although Appellant argues that the negotiations were more than preliminary and that the attorneys were involved in much of the case, it was within the bankruptcy court's discretion to award the attorneys' fees. Even if the bankruptcy court had found that an actual conflict existed, such a finding would not have compelled the court to deny the fees. Accordingly, the bankruptcy court's decision to allow the fees was not an abuse of discretion.
After considering all of the arguments by Appellant, this Court finds that the bankruptcy judge was within the exercise of his discretion to award such fees, and he adequately considered the equities of the case. Accordingly;
IT IS ORDERED that the decision of the bankruptcy court is AFFIRMED.