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In re Sweports, Ltd.

United States Court of Appeals, Seventh Circuit

January 9, 2015

IN RE: SWEPORTS, LTD., Debtor-Appellee. APPEAL OF: MUCH SHELIST, P.C., et al., Creditors-Appellants

Argued December 12, 2014

Appeal from the United States Bankruptcy Court for the Northern District of Illinois, Eastern Division. No. 12-14254 -- A. Benjamin Goldgar, Bankruptcy Judge.

For In the Matter of: SWEPORTS, LTD., Debtor - Appellee: Anthony S. DiVincenzo, Attorney, DIVINCENZO SCHOENFIELD SWARTZMAN, Chicago, IL.

For MUCH SHELIST, P.C., NEAL WOLF & ASSOCIATES, LLC, NEAL L. WOLF, PIERRE BENOIT & ASSOCIATES, INC., Appellants: Dean C. Gramlich, Attorney, Jacob R. Lenzke, Attorney, Neal L. Wolf, Attorney, MUCH SHELIST, P.C., Chicago, IL.

For MICHAEL JOHN O'ROURKE, JOHN A. DORE, MICHAEL C. MOODY, Petitioners: Michael C. Moody, Attorney, O'ROURKE & MOODY, Chicago, IL.

Before POSNER, WILLIAMS, and TINDER, Circuit Judges.

OPINION

Page 365

Posner, Circuit Judge

Before us is a direct appeal from the bankruptcy court for the Northern District of Illinois pursuant to 28 U.S.C. § 158(d)(2). The question it presents is the authority of a bankruptcy judge to make an award of fees after dismissal of the bankruptcy proceeding and the consequent revesting of the assets of the debtor's estate in the debtor. 11 U.S.C. § 349(b)(3). The fees in question are sought by the counsel (Neal L. Wolf) for, and a financial advisor (Pierre Benoit, whom Wolf also represents) to, an Official Committee of Unsecured Creditors that the U.S. Trustee had appointed during the bankruptcy proceeding. 11 U.S.C. § 1102(a)(1). Wolf's law firms (he has been a member of two law firms during this litigation) and Benoit's financial advisory firm (Pierre Benoit & Associates, Inc.) are also parties to the appeal, but seek no additional relief and can therefore be ignored. To simplify the opinion further we'll pretend that Wolf is the only appellant.

The bankruptcy judge denied the awards on the ground that, the bankruptcy having been dismissed, he had no jurisdiction to make such awards. He reasoned that the awards could be paid only out of the assets of the debtor's estate, and there were no such assets now that the bankruptcy had been dismissed and consequently all the assets of the debtor's estate had been returned to the debtor. There is, however, as we'll see, a critical difference, missed by the bankruptcy judge, between determining an entitlement to fees and ordering payment of fees.

Sweports, Ltd., owns patents and a subsidiary called UMF Corporation that manufactures antimicrobial cleaning products; UMF apparently is Sweports' principal asset. In April 2012 several judgment creditors of Sweports, represented by attorney Wolf, petitioned the bankruptcy court in Chicago to place Sweports in Chapter 11 bankruptcy (reorganization). Sweports consented, and became the debtor in possession, with its assets therefore constituting a debtor's estate in bankruptcy. Sweports objected to Wolf's retention as counsel to the Official Committee of Unsecured Creditors, on the ground that he had a conflict of interest because he was continuing to represent several of Sweports' judgment creditors. But the bankruptcy judge ruled that there was no conflict. Judgment creditors are unsecured; Wolf did not represent any judgment creditors whose claims were adverse to those of the unsecured creditors represented by the Official Committee--indeed it's unclear whether Wolf was still representing any judgment creditors

Page 366

or other creditors when he agreed to represent the Official Committee.

Both Sweports and the Official Committee filed plans of reorganization. The bankruptcy judge rejected the plans. The U.S. Trustee then moved that Sweports' bankruptcy either be converted from Chapter 11 to Chapter 7 (liquidation) or dismissed. Neither Sweports nor the creditors ...


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