- Eleventh Circuit Court of Appeals Case number 12-10601 [not to be published]
- The Circuit Court of Appeals affirmed two post-confirmation orders that were entered by the United States Bankruptcy Court for the Southern District of Florida. The orders arose from an unsecured creditor's motion, filed two years after confirmation of a Chapter 11 plan, to require a real estate broker and his company to disgorge $490,000.00 in commissions that they received from the brokerage of the Chapter 11 Debtor's marina property. The first order granted an unsecured creditor's motion for summary judgment on the issue of disgorgement. In that order, the Bankruptcy Judge concluded that the individual broker held an interest adverse to the estate, and failed to disclose it both prior and subsequent to the entry of an order approving the brokers' application for employment and proposed commission. In its ruling, the Circuit Court of Appeals rejected the brokers' argument that the unsecured creditor lacked standing to request a disgorgement of fees because it had no authority to recover property of the bankruptcy estate. The Court held that a bankruptcy court may, on its own motion or on a motion from "any party in interest," reduce a fee award. The Court found that the Bankruptcy Code provides that a creditor is a party in interest. The Court also rejected the argument that the Bankruptcy Court erred in ordering disgorgement because the confirmed Chapter 11 plan released all claims against professionals arising from the bankruptcy case. As stated by the Court of Appeals, a bankruptcy court retains jurisdiction over an award of fees even after the conclusion of the bankruptcy case. Thus, the release did not affect the Bankruptcy Court's authority over the fees paid to professionals. In addtion, the Circuit Court held that there did not have to be a finding that the estate suffered any actual financial loss because of the individual broker's relationship with the buyers. The Court stated that the issue is not whether the broker caused any actual harm, but whether he could have unbiasedly make decisions in the best interest of the estate. The Court found that the individual broker's pre-closing discussions regarding his post-closing involvement with the management and partial ownership interest in the marina rendered him unable to make impartial decisions on behalf of the estate. In addition, the brokers knowingly received more than they were entitled to as a commission from the sale. The second order that was appealed from required the sequestration of commissions that the brokers received from an unrelated real estate transaction because they failed to reimburse the estate for the excess commission they received. The brokers were ordered to repay the estate for the excess commissions in installments, but failed to do so. The Circuit Court of Appeals ruled that the Bankruptcy Court had authority to issue any order, process or issue that is necessary or appropriate to carry out the provisions of the Bankruptcy Code. The Circuit Court of Appeals also held that the Bankruptcy Judge did not commit error by denying the individual broker's claim of an exemption of the sequestered funds. The Court found that the sequestered funds, when seized, belonged to the corporate broker. Therefore, the individual broker did not have a right to an exemption.
- Procedural context:
- The appeal was from the two Bankruptcy Court orders which required disgorgement of the broker fees. The orders were affirmed by the United States District Court, and were then appealed to the Circuit Court of Appeals.
- Prior to the entry of an order approving the retention of the Brokers and the proposed fee, the individual broker submitted an unsworn declaration in which he attested that neither he nor the corporate broker held or represented an interest adverse to the estate and that both were disinterested persons within the meaning of 11 U.S.C. section 101(14). Following the entry of the order approving the retention of the brokers, the individual broker contacted an investor with whom he had a prior business relationship, and suggested that he submit a stalking horse bid on the property for an amount far less than the value of the marina. There were no other bids on the marina, and the buyer acquired the property. Prior to the sale, the individual broker was offered the opportunity to manage and acquire an ownership interest in the marina. Two or three months after the sale, the broker formalized an agreement to manage the marina and bought an ownership interest in it. In addition, the individual broker performed numerous tasks on the buyer's behalf before the closing, such as preparing capital expenditure schedules, obtaining insurance on the marina and meeting with prospective contractors and tenants. Moreover, the brokers knowingly received a commission that was $45,000.00 in excess of that approved by the Bankruptcy Judge. Furthermore, the brokers paid $37,500.00 from their commission to cover half a finder's fee owed by the buyers to a third party. The broker admitted that he paid this money to keep the buyers from walking away from the sale.
- Circuit Court Judges Hull and Black, and District Court Judge Whittemore, sitting by designation.
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