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In re Townhouses

decided: July 26, 1988.


Appeal from the United States District Court for the Northern District of Indiana. No. F 86-87 -- William C. Lee, Judge.

Walter J. Cummings, Harlington Wood, Jr., Circuit Judges, Hubert L. Will, Senior District Judge.*fn*

Author: Will

WILL, Senior District Judge.

This is an appeal from the district court's order affirming the bankruptcy court's decision to award administrative expenses to the appellee for his maintenance and improvement of property owned by the debtor-appellant. The appellee took possession of the property and performed services pursuant to an agreement under which he would eventually purchase the property. This agreement was not completed because the debtor later sold the property to a third party and that sale was approved by the bankruptcy court. For the reasons stated below, the district court's order is affirmed.


In March 1983, Park Terrace Townhouses ("PTT"), an Indiana apartment complex, debtor-appellant, filed a voluntary petition for relief under Chapter 11. On October 19, 1983, the bankruptcy court authorized the sale of PTT's property (the townhouses) for cash or on terms agreeable to its three mortgagees.

On December 13, 1983, Bruce W. Wilds, appellee, and John K. Meiners, representing PTT, executed a written purchase agreement for the sale of PTT's property. Under the contract, Wilds agreed to pay the debtor-in-possession $50,000, assume the balance of the first mortgage (held by First Federal Savings and Loan of New Castle), pay the balance of the second mortgage (held by Indiana Bank and Trust Company of Fort Wayne) and pay $75,000 for a full and complete release of the third mortgage (held by Pacific Service Company).

The contract also included the following provisions:

2(d)(ii). In the event the above conditions cannot be met by March 1, 1984, then the Seller shall file in the Bankruptcy Court such applications, complaints, or other proceedings that may be required to effect a sale to Purchaser upon terms herein set forth. If Seller is unable to effect such sale through the Bankruptcy Court by September 1, 1984, then this agreement shall be null and void and of no further force and effect.

8. Seller shall deliver to purchaser full and complete possession and management of Park Terrace following the execution of this agreement. Purchaser shall assume the role of property manager as the same is being conducted by the present manager thereof. Purchaser shall receive no salary for the performance of said managerial responsibilities. Seller agrees to use its best efforts to effect a closing date at the earliest possible time for the purpose of relieving [sic] purchaser of this responsibility pursuant to the terms of this purchase contract.

On appeal from the bankruptcy court's orders, the district court made the following undisputed findings of fact:

Wilds took possession of the townhouses on December 13, 1983, and personally assumed the roles of property manager and maintenance supervisor. During Wilds' management, he instituted a marketing program which increased occupancy from 58% to 73% and monthly income from approximately $24,500 to $32,700. Wilds removed the debtor's resident manager and took over the functions of that position by hiring, training, and supervising a staff to perform all required leasing, bookkeeping, maintenance, and related activities. In addition to the maintenance necessary to prevent damage from the severe winter weather, Wilds upgraded and remodeled the rental units.

On January 31, 1984, the debtor entered into another purchase agreement with James H. Calkins. Wilds did not learn of this agreement until February 24, 1984. On February 27, 1984, and March 9, 1984, Calkins and Wilds, respectively, filed applications for approval of sale of Park Terrace Townhouses. The debtor-in-possession filed an application for instructions regarding the two purchase agreements on March 19, 1984. The court heard evidence on the pending applications on March 27, 1984. Following this hearing, [on March 29, 1984] the Bankruptcy Court approved the sale of Park Terrace Townhouses to Calkins. Calkins immediately assumed possession of the complex.

District Court Order, July 29, 1987, at 3-4.

On April 5, 1984, pursuant to 11 U.S.C. ยง 503(b)(1)(A),*fn1 Wilds filed an application for administrative expenses regarding his services rendered as property manager and maintenance supervisor from December 13, 1983 to March 29, 1984. The Bankruptcy Court awarded Wilds $21,750 for 870 hours at the rate of $25 per hour.*fn2

The district court originally referred appeal of the bankruptcy court's orders to a magistrate. We held that the district court did not have authority to refer the appeal to a magistrate and we vacated the magistrate's order and remanded the appeal to the district court. In The Matter Of Park Terrace Townhouses, No. 87-1245 (April 10, 1987). See In the Matter of Elcona Homes Corp., 810 F.2d 136, 138-40 (7th Cir. 1987). The district ...

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