On Appeal from the United States District Court for the District of New Jersey (D.C. Civil Action No. 94-cv-00754) (D.C. No. 94-cv-00754) (D.C. No. 94-cv-04638) Argued June 4, 1996
Before: SCIRICA and ROTH, Circuit Judges and O'Neill *fn1, District Judge
Opinion Filed March 21, 1997
Jerome J. LaPenna asks us to review a decision of the district court, reducing substantial fee awards granted him by the bankruptcy court in a protracted Chapter 11 proceeding. LaPenna was the beneficiary of more than $600,000 in fees, awarded for his services in the three capacities in which he acted during the Chapter 11 reorganization of Sound Radio, Inc. The district court found that the total amount of the fees was unreasonable. In this appeal, we have had to determine, first of all, whether there was any timely appeal of the bankruptcy court's fee awards. We concluded that one of the appellees did file a timely appeal. This conclusion then permitted us to inquire whether the bankruptcy court should have considered as a whole the fees awarded to one person, acting in three capacities, rather than considering each award separately, and also to inquire whether the district court properly reduced LaPenna's fees without remanding the case to the bankruptcy court for that court to perform such a review. Because of the unusual nature of the role played by LaPenna, in his performance of three different functions in the reorganization, we conclude that his fees should be viewed as a whole with a comprehensive evaluation of the extent and nature of the various tasks he undertook in his three capacities. We will remand this case to the district court with instructions to remand it to the bankruptcy court to make an overall determination of the reasonableness of the fees.
On November 30, 1984, Sound Radio, Inc., an AM radio station broadcasting under the call letters WNJR, filed its Chapter 11 bankruptcy petition. Twelve years later, the bankruptcy court closed the case. In re Sound Radio, Inc., No. 84-6261 (Bankr. D.N.J. Apr. 29, 1996). The proceedings have already produced four published opinions and countless unpublished rulings. See In re Sound Radio, 103 B.R. 521 (D.N.J. 1989) (affirming plan confirmation); In re Sound Radio, 145 B.R. 193 (Bankr. D.N.J. 1992) (considering applications for fees and expenses by parties other than LaPenna); In re Sound Radio, 93 B.R. 849 (Bankr. D.N.J. 1988) (confirming plan of reorganization); In re Sound Radio, 59 B.R. 87 (Bankr. D.N.J. 1986) (refusing to lift stay). Mindful of this extensive record, we will limit our discussion to events linked directly to the LaPenna fee dispute.
The Sound Radio bankruptcy was filed in 1984. After bitter infighting among the shareholders, the reorganization plan was confirmed on January 5, 1989. During the same period, the shareholder disputes were the subject of litigation in the New Jersey courts. The shareholders continued to cause difficulties in the operation of Sound Radio after the plan confirmation. As a consequence, the Official Unsecured Creditors Committee moved for the appointment of a trustee. In October 1989, the bankruptcy court agreed to name a trustee to manage the day-to-day operations of Sound Radio. Sound Radio appealed this decision to the district court, which modified the bankruptcy court's order and provided for the appointment of a "Managing Agent in lieu of a Trustee." In re Sound Radio, Inc., No. 84-6261 (D.N.J. Dec. 22, 1989). The position of Managing Agent was created to avoid the impact of 11 U.S.C. Section(s) 1104(a), which arguably prevents the bankruptcy court from appointing an operating trustee after a plan of reorganization has been confirmed. *fn2
On February 5, 1990, the bankruptcy court appointed LaPenna as Managing Agent for Sound Radio. The appointment was made pursuant to 11 U.S.C. Section(s) 327, which provides for the employment of professional persons to represent or assist the trustee in carrying out the trustee's duties. Two days later, the court approved LaPenna's decision to act as his own counsel, naming him Attorney for the Managing Agent. On September 19, 1990, the bankruptcy court clarified the powers and authority of the Managing Agent, stating that the Managing Agent "has, and since his appointment has had, all of the powers and authority of a Trustee under Chapter 11 of the Bankruptcy Code." On October 2, 1992, the court presented LaPenna with a third hat, making him Sound Radio's Disbursing Agent.
The record is clear that the bankruptcy court was of the opinion that LaPenna performed all of his duties with considerable ability. However, LaPenna also sought substantial compensation for his services.
During his tenure, LaPenna filed eleven fee applications with the bankruptcy court. Four sought interim fees as Attorney for the Managing Agent. Three sought supplemental fees and one sought final fees in the same capacity. LaPenna also filed for interim fees and final fees as Managing Agent, as well as for final fees as Disbursing Agent.
The dates, substance, and dispositions of the eleven fee petitions create a baffling trail of documents and docket entries. LaPenna's first series of applications for fees were filed in his capacity as Attorney for the Managing Agent. An application, requesting $17,050.00 in interim fees, was docketed on July 13, 1990. It was awarded in full on September 27, 1990. The next application, requesting $23,537.50 in fees and $72.25 in expenses, was docketed on December 6, 1990. It was granted in full on March 21, 1991. A third application, requesting $27,937.50 in interim fees and $329.08 in expenses, was docketed on August 7, 1991. It was granted in full on October 17, 1991.
LaPenna next submitted a series of fee applications as both Managing Agent and Attorney for the Managing Agent. On November 20, 1991, LaPenna filed an application for interim compensation as Managing Agent, seeking $65,000.00 in fees. The court granted that application in full on December 16, 1991. On January 24, 1992, LaPenna's filed his fourth application for interim compensation as Attorney for the Managing Agent, seeking $32,242.50 in fees and $845.02 in expenses. That request was granted on March 31, 1992. On May 28, 1992, LaPenna applied for final compensation in his capacity as Managing Agent, and on June 1, 1992, he applied for final compensation as Attorney for the Managing Agent. The May 28 application sought $205,000.00 in compensation in addition to the amounts already granted. The June 1 application sought $75,357.50 in fees and $894.53 in expenses, again in addition to what he had already received.
Certain of the Sound Radio shareholders objected to the May 28 application as "premature." On July 1, the bankruptcy court granted the May 28 application but held back $30,000 of the allowed compensation until the Managing Agent filed his final report. *fn3 On July 29, 1992, the court granted the June 1 application in full. Both orders were entitled "Order For Final Compensation To Managing Agent." No mention was made in either order of final compensation to LaPenna in his capacity as Attorney for the Managing Agent.
This omission was prescient. Over the next two years, LaPenna filed three additional applications for fees as Attorney for the Managing Agent. On December 11, 1992, LaPenna sought $92,535.00 in "supplemental fees" and $2,481.55 in expenses. After shareholder objection, this application was granted in the reduced sum of $82,500 on March 31, 1993. On April 14, 1993, LaPenna sought $55,830.00 in supplemental fees and $1,510.40 in expenses. It was granted on June 9, 1993. On October 19, 1993, in a "third interim supplemental" application, LaPenna sought $18,250.00 in fees and $1,264.88 in expenses. On December 6, 1993, before the bankruptcy court ruled on the previous fee application, LaPenna filed an application for final fees as Disbursing Agent, seeking $10,485.12 and $32.80 in expenses. On December 14, 1993, the bankruptcy court granted the October 19 request. The December 14 order bears the word "final," written in what appears to be the bankruptcy judge's handwriting, above the title, "Order Granting Allowances." *fn4 On January 19, 1994, the bankruptcy court granted the December 6 request for the final fees as Disbursing Agent.
Prior to the current appeal, Sound Radio's shareholders had made only two challenges to the applications for fees. The first, by a group of shareholders "Shareholders") represented by Harry Heher, Jr., Esq., was to the application of May 28, 1992, as being premature. The second, by Sheridan Broadcasting Corporation ("Sheridan"), was based on LaPenna's failure to have lesser paid associates undertake some of his duties as attorney for the Managing Agent. This challenge resulted in the March 31, 1993, reduction of the allowance of fees from $92,535 to $82,500.
The appellees are these two groups of Sound Radio's shareholders, Sheridan and Shareholders. Although the district court consolidated their challenges in a single appeal, Sheridan and ...