Unpublished Dispositionin Re a & a Energy Properties, Ltd., a Michigan Corporation, Debtor,a & a Energy Properties, Ltd., Appellant, v. Shapack, Mccullough & Frank, P.c., Appellee, 865 F.2d 256 (6th Cir. 1988)

Appellant, A & A Energy Properties, Ltd. ("A & A") appeals from the district court's order which affirmed two orders issued by a bankruptcy court. For the reasons that follow, we affirm the judgment of the district court.

In the 1970's, the appellant, A & A through its predecessor, A & A Producers and Operators Partnership, acquired an interest in oil and gas wells in Texas and West Virginia. Those interests were later syndicated to investors. A & A filed a Chapter 11 reorganization proceeding in the United States District Court for the Eastern District of Michigan, Judge Bernstein presiding, on March 23, 1981. The Chapter 11 filing resulted from the acts of fraud and embezzlement allegedly committed by A & A's then-chief executive officer, David Andreae. This alleged fraud consisted of marketing certain oil and gas interests in new drilling programs, even though the interests were actually interests in existing wells. This distinction was crucial for the investors because they could only gain beneficial tax consequences resulting from new drilling programs. When this scheme was discovered, the investors brought proof of claims against the bankruptcy estate in the excess of two and a half million dollars. The bankruptcy court entered an order on May 31, 1983, appointing a creditors' committee ("Committee") which was comprised of seven individuals who held claims against the estate arising from the investment fraud.

A & A sought declaratory relief on June 14, 1984. A & A requested the bankruptcy court to determine whether the 82 individual investor-defendants had claims or interests arising out of their investments with A & A in drilling programs in West Virginia. The claims of the Texas investors were not disputed by A & A. On July 3, 1984, the Committee filed a motion to intervene in the adversary proceeding. The bankruptcy court granted the Committee's motion to intervene. The bankruptcy court, however, stated that the Committee could not conduct the actual defense of the 82 individual defendants because the proceeding was not brought as a class action. Thus, because the action consisted of a multiple joinder of defendants, the bankruptcy court required each defendant to provide for their own defense. The Committee was permitted to represent a universal interest in protecting the estate for the benefit of all holders of claims. A & A consented to intervention by the Committee as a party-defendant in the adversary proceeding. On July 5, 1983, the bankruptcy court authorized the Committee to retain Butzel, Long, Gust, Klein and Van Zile as counsel to the Committee. In April of 1985, Jerome D. Frank of Shapack, McCullough & Frank ("SM & F") was substituted as counsel to the Committee in the adversary proceeding.

On October 3, 1986, the bankruptcy court awarded interim fees to SM & F. On March 6, 1987, the bankruptcy court awarded final fees. A & A's principal argument on appeal is that the bankruptcy court should not have awarded fees to SM & F based on any services rendered in connection with the adversary proceeding commenced by the debtor against the 82 individual investors. SM & F argues that the Committee represented all the creditors in the adversary proceeding and that the bankruptcy judge fully enforced the restriction against the Committee providing individual representation for the individual defendants. Furthermore, SM & F contends that all services performed were authorized by the bankruptcy court and were reasonable and necessary as counsel to the intervening Committee. Finally, SM & F notes that the bankruptcy court found their work was of substantial benefit to the debtor estate.

Section 330 of the Bankruptcy Code, 11 U.S.C. 330 permits payment of professional fees out of the assets of the bankruptcy estate to professionals retained by a creditors' committee under 11 U.S.C. § 1103(a) (1982). Section 330(a) of the Bankruptcy Reform Act of 1978 provides in pertinent part:

(a) After notice and a hearing, and subject to Sections 326, 328, and 329 of this title, the court may award to a trustee, to an examiner, to a professional person employed under Section 327 or 1103 of this title, or to the debtor's attorney--

(1) reasonable compensation for actual, necessary services rendered by such trustee, examiner, professional person, or attorney, as the case may be, and by any paraprofessional person, or attorney, as the case may be, based on the nature, the extent, and the value of such services, the time spent on such services and the cost of comparable services other than in a case under this title; and (2) reimbursement for actual, necessary expenses.

11 U.S.C. §§ 330(a) (1) (2) (1978). Section 1103(a) provides that a creditors' committee, with the approval of a majority of its members and the court, may retain attorneys, accountants or other agents. 11 U.S.C. § 1103 (1982).

Section 330(a) gives the "bankruptcy judge broad discretion in determining fee awards." In re AOV Industries, Inc., 43 B.R. 468, 471 (D.C.1984) (Richey, J.) (citing In re Casco Bay Lines, Inc., 25 B.R. 747, 753 (Bankr. 1st Cir. 1982)). Indeed, such a fee will not be disturbed unless a bankruptcy judge abused his discretion and "such an abuse can only occur when the bankruptcy judge fails to apply the proper procedures in making the determination, or bases an award upon findings of fact that are clearly erroneous." Matter of U.S. Golf Corp., 639 F.2d 1197, 1201 (5th Cir. 1981) (citing In re First Colonial Corp. of America, 544 F.2d 1291 (5th Cir.), cert. denied, 431 U.S. 904, (1977)).

Section 330 requires that where professionals are applying for fees they must "demonstrate in writing that their services were (1) actual (2) necessary; and (3) reasonable." In re Pettibone Corp., 74 B.R. 293, 301 (Bankr.N.D. Ill. 1987) (emphasis in original). In conjunction with Section 330, Bankruptcy Rule 2016 requires that

An entity seeking interim or trial compensation for services, or reimbursement of necessary expenses, from an estate should file with the court an application setting forth a detailed statement of (1) the services rendered, time expended, and expenses incurred; and (2) the amounts requested.

Bankr.Rule 2016(a). In the instant action, SM & F made two separate applications to the bankruptcy court which reflect the nature of work performed, the cost, and reasons for its performance. J.App. at 53-67, 87-97. SM & F argues that their services were actual, necessary and reasonable because they were performed in the interests of the Committee and therefore satisfied the requirements of 11 U.S.C. § 330.

A & A only challenges SM & F's services which related to the adversary proceeding. A & A asserts that the Committee exceeded its statutory authority pursuant to Section 1103(c) when it employed legal counsel to conduct discovery, defend motions and in effect, defend individual creditors in the adversary proceeding. Because there is evidence that the Committee represented all creditors at the same time and there is no evidence showing that the Committee acted for any one creditor in conflict with other creditors or the body of the debtor's estate, we reject this argument.

The bankruptcy court correctly concluded that "section 330, which sets forth the standard for compensation, contains no such limitation" on the Committee's employment of counsel with defense in the adversary proceeding. J.App. at 83. The bankruptcy court correctly noted that the relevant issue is whether the actual services performed by SM & F were necessary. In ruling that whether SM & F's services were necessary, the bankruptcy court recognized that:

11 U.S.C. 1103(c) (5) provides, "A committee appointed under Section 1102 of this title may perform such other services as are in the interest of those represented." There can be no doubt in this case but that in employing counsel to be heard in connection with this adversary proceeding, the committee was performing services "in the interest of those represented."

J.App. at 83 (emphasis supplied). We note that the express language of section 1103(c) (5) permits a committee to participate freely in most aspects of a reorganization. See In re Johns-Manville Corp., 52 B.R. 879, 883-84 (S.D.N.Y. 1985), aff'd, 60 B.R. 892, rev'd on other grounds, 801 F.2d 60, on remand, 66 B.R. 517 ("Section 1103(c) of the Code lists a committee's powers in a Chapter 11 case as ranging from consulting with debtor on the administration of the case, to investigating the acts, conduct, liabilities and financial condition of the debtor to participation in the formulation of the plan. Section 1103(c) (5) also allows a committee to 'perform such other services as are in the interest of those represented.' ... While Sec. 1103 contemplates a committee taking an active role in the reorganization proceedings, it does not grant a committee blanket authority to represent its consititutency in matters outside and independent of the bankruptcy case."). See also Blaine and Erne, Creditors' Committees Under Chapter 11 of the United States Bankruptcy Code: Creation, Composition, Powers, and Duties 67 Marq.L.Rev. 491, 505-10, n. 96 (1984).

When the Committee became a party to the adversary proceeding in July of 1984, the services of counsel to the Committee became necessary to represent the interests of all creditors at the same time. Thus, the bankruptcy court properly determined that SM & F's services were performed "in the interest of those represented," and were appropriate and necessary pursuant to the Committee's role as a party in the proceeding. We hold that the bankruptcy court was not clearly erroneous in finding that the services performed by SM & F were reasonable and necessary and thus compensable by the debtor's estate.

Accordingly, for the reasons stated, the judgment of the district court is AFFIRMED.