In Re: Wind and Wave North Sports v. Knupfer , 509 F.3d 938 ( 2007 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
In re: WIND N’ WAVE, 
Debtor,
NORTH SPORTS, INC.; SALOMON No. 05-56254
NORTH AMERICA; NITRO; LAW BAP No.
OFFICES OF DAVID B. BLOOM, APC,  CC-04-01462-
Appellants, BKMa
v. OPINION
NANCY KNUPFER, Chapter 7
Trustee,
Appellee.

Appeal from the Ninth Circuit
Bankruptcy Appellate Panel
Marlar, Klein, and Brandt, Bankruptcy Judges, Presiding
Argued and Submitted
June 6, 2007—Pasadena, California
Filed November 1, 2007
Before: Cynthia Holcomb Hall and Consuelo M. Callahan,
Circuit Judges, and Lyle E. Strom,* Senior District Judge.
Opinion by Judge Hall
*The Honorable Lyle E. Strom, United States District Judge for the Dis-
trict of Nebraska, sitting by designation.
14437
IN RE WIND N’ WAVE 14439
COUNSEL
James E. Adler, Law Offices of David B. Bloom, Los Ange-
les, California, for the appellants.
Eric P. Israel and Frank X. Ruggier, Danning, Gill, Diamond
& Kollitz, Los Angeles, California, for the appellee.
14440 IN RE WIND N’ WAVE
OPINION
HALL, Circuit Judge:
Pursuant to Bankruptcy Code Section 503(b)(4),1 Appellant
creditors petitioned the bankruptcy court to recover legal fees
incurred in connection with filing an involuntary Chapter 7
petition against the debtor. The bankruptcy court denied the
fees, but the Bankruptcy Appellate Panel of the Ninth Circuit
(“BAP”) reversed. It granted the creditors’ attorneys compen-
sation for their services in connection with the involuntary
petition, though it denied them compensation for their work
in appealing the bankruptcy court’s denial of a fee award. The
creditors have appealed, arguing that Section 503(b)(4) enti-
tles them to attorney fees for the successful appeal of the
lower court’s decision. We agree.
28 U.S.C. § 158(d) grants us jurisdiction to hear this
appeal. We REVERSE the BAP’s denial of the fee award and
REMAND to the BAP to award reasonable compensation in
accordance with the statute.
FACTUAL BACKGROUND AND PROCEDURAL
HISTORY2
In December 1999, Salomon North America, Inc., North
Sports, Inc., and NITRO (collectively the “Petitioning Credi-
tors”) filed an involuntary Chapter 7 petition against the
debtor, Wind N’ Wave. An Order for Relief was entered by
the Bankruptcy Court in March of the next year, and a Trustee
was appointed. In April 2000, the attorneys for the Petitioning
Creditors, the Law Offices of David Bloom, filed an applica-
1
Unless otherwise noted, all chapter and section references are to the
Bankruptcy Code, 11 U.S.C. §§ 101-1330.
2
For a more in-depth discussion of the facts of this litigation, see the
BAP’s decision, In Re: Wind N’ Wave, 328 B.R. 176, 177-79 (9th Cir.
BAP 2005).
IN RE WIND N’ WAVE 14441
tion for payment of their fees under Section 503(b)(4) of the
Bankruptcy Code. The bankruptcy court denied the request. It
declined to follow the Ninth Circuit BAP’s opinion in In re
Sedona Institute, 220 B.R. 74 (9th Cir. BAP 1998) and held
that a creditor was not entitled to attorney’s fees under Sec-
tion 503(b)(4) when it has not incurred an allowable expense
under Section 503(b)(3).
The Petitioning Creditors appealed to the Ninth Circuit
BAP. The BAP, reversing the Bankruptcy Court’s decision,
held that Sedona was controlling and that “an independent
allowable expense claim under [§ 503](b)(3) is not a prerequi-
site to an award of reasonable fees under § 503(b)(4).” In re
Wind N’ Wave, 328 B.R. at 183 (quoting Sedona, 220 B.R. at
81). The BAP remanded to the lower court to determine
appropriate fees, id. at 180-83, but denied without discussion
the creditors’ request for fees incurred in bringing the BAP
appeal. The creditors now seek the attorney’s fees incurred in
appealing the fee award to the BAP, as well as their fees and
costs incurred in bringing the instant appeal.
DISCUSSION
Though this court generally reviews BAP decisions de
novo, In re Am. Wagering, Inc., 465 F.3d 1048, 1050-51 (9th
Cir. 2006), a BAP’s award of attorney’s fees is reviewed for
an abuse of discretion, In re Del Mission, 98 F.3d 1147, 1152
(9th Cir. 1996). An erroneous interpretation of a statute is an
abuse of discretion, see id., Koon v. United States, 518 U.S
81, 100 (1996), and we review de novo questions of law pre-
sented by a BAP’s statutory construction. See In re Nucorp
Energy, 764 F.2d 655, 657 (9th Cir. 1985); In re Sedona, 220
B.R. at 77.
I. Section 503(b)(4)
[1] This appeal presents an issue of first impression and
turns on the interpretation of Bankruptcy Code Section
14442 IN RE WIND N’ WAVE
503(b)(4), which governs compensation for creditors’ attor-
neys in bankruptcy cases. Section 503 is entitled “Allowance
of administrative expenses” and subsection (b) provides for
certain priority expenses to be paid out of the debtor’s estate.
Section 503(b)(3)(A), in combination with 503(b)(4), grants
creditors costs incurred in connection with filing an involun-
tary bankruptcy petition. See 11 U.S.C. §§ 503(b)(3)(A);
503(b)(4). Subsection (b)(4) specifically allows compensation
for services rendered by a creditor’s attorney, and sets forth
compensation standards that mirror those governing fee
awards for debtors’ attorneys under Section 330(a) of the
Bankruptcy Code.
The statute is silent regarding expenses incurred by a credi-
tor in appealing or defending a lower court’s award or denial
of fees.3 However, we do not find, as respondents urge us to,
that statutory silence forecloses a fee award here. Along with
other circuits, we have granted compensation for litigation
over a fee award under fee shifting statutes even when those
statutes did not expressly allow for it. See, e.g., Southeast
Legal Defense Group v. Adams, 657 F.2d 1118, 1126 (9th Cir.
1981) (holding that “42 U.S.C. § 1988 authorizes the grant of
attorneys fees for services on appeal” though statute does not
specifically so provide) (relying on Hutto v. Finney, 437 U.S.
678, 693, 700 (1978)); Manhart v. Los Angeles Dep’t of
3
Section 503(b)(4) reads in relevant part:
(b) After notice and a hearing, there shall be allowed administra-
tive expenses, . . . including
...
(4) reasonable compensation for professional services rendered
by an attorney or an accountant of an entity whose expense is
allowable under [503(b)(3)], based on the time, the nature, the
extent, and the value of such services, and the cost of comparable
services other than in a case under this title, and reimbursement
for actual, necessary expenses incurred by such attorney or
accountant.
11 U.S.C. 503(b)(4).
IN RE WIND N’ WAVE 14443
Water & Power, 652 F.2d 904, 909 (9th Cir. 1981) (holding
that plaintiffs are entitled to attorney’s fees for time spent liti-
gating the fees issue on appeal under Title VII’s attorney’s fee
provision) (citing Williams v. Alioto, 625 F.2d 845, 849-50
(9th Cir. 1980)); Hairston v. R & R Apartments, 510 F.2d
1090, 1093 (7th Cir. 1975) (remanding for fees for services
performed on appeal under the attorney’s fees provision of the
Fair Housing Act (42 U.S.C. § 3612(c)), which only allows
for “reasonable attorney fees in the case of a prevailing plain-
tiff”); Prandini v. National Tea Co., 585 F.2d 47, 52-53 (3d
Cir. 1978) (“[A]ttorneys are entitled to be compensated for
time spent successfully appealing the first fee award” under
Title VII).
We have applied the logic from these cases in the bank-
ruptcy context and held that, in certain situations, debtors’
attorneys are entitled to compensation from the bankruptcy
estate for fee award preparation and litigation, notwithstand-
ing statutory silence on the subject. See In re Smith, 317 F.3d
918, 928 (9th Cir. 2002), abrogated on other grounds by
Lamie v. United States Tr., 540 U.S. 526, 531-39 (2004);
Nucorp, 764 F.2d 655, 660-63. The same rationale applies in
the instant case, and leads us to conclude that the BAP erred
in declining to award attorney’s fees for the successful appeal
of the lower court’s denial of a fee award.
II. Nucorp and Smith
[2] In In re Nucorp Energy, we held that the bankruptcy
court erred in concluding that services related to the prepara-
tion and presentation of attorney fee applications were not
compensable under Section 330(a). The bankruptcy court had
awarded debtor’s counsel compensation and reimbursements
in the full amounts requested, with the exception of fees
incurred in preparing the fee applications. The court reasoned
that “time devoted to fee application preparation should not
be compensable because such efforts benefit only the law firm
and not the estate.” Nucorp, 764 F.2d at 657.
14444 IN RE WIND N’ WAVE
[3] We disagreed, and reversed, holding that a fee award
was necessary to adequately compensate bankruptcy counsel.
Focusing on the language of the statute, which provides that
counsel be compensated “based on the time, the nature, the
extent, and the value of the services and the cost of compara-
ble services [in non-bankruptcy cases],” id. at 657, and citing
legislative history, we explained that the purpose of Section
330(a) was “to ensure adequate compensation for bankruptcy
attorneys so that highly qualified specialists would not be
forced to abandon the practice of bankruptcy law in favor of
more remunerative kinds of legal work.” Id. at 658. Accord-
ingly, we found that it was both inconsistent with the policy
of the Bankruptcy Reform Act and “fundamentally inequita-
ble” to demand that counsel prepare and present extensive fee
applications and yet simultaneously “deny[ ] compensation
for the efforts necessary to comply with those requirements.”
Id. at 659. Moreover, in dicta, we stressed that litigation over
a fee award should also be compensable, otherwise fee awards
would be diluted: “If an attorney is required to expend time
litigating his fee claim, yet may not be compensated for that
time, the attorney’s effective rate for all the hours expended
on the case will be correspondingly decreased.” Id. at 660
(quoting Prandini, 585 F.2d at 52-53). Dilution is “precisely
the result that statutory fee award provisions are designed to
prevent.” Id. at 661.
In In re Smith, 317 F.3d 918 (9th Cir. 2002), we again
endorsed the anti-dilution rationale and applied it in a case
involving litigation over a fee award. In Smith, the debtor
challenged fees awarded to attorneys for services arising out
of the successful defense of the initial fee award. Id. at 927.
Relying on Nucorp, we affirmed the award. Id. at 928-29.
While recognizing that Section 330(a) was silent as to the
issue of compensation for litigation of fee applications, we
noted that Nucorp’s dicta regarding dilution suggested that
compensation for time and expenses spent litigating a fee
application may be appropriate. Id. (citing Nucorp, 764 F.2d
at 660-61).
IN RE WIND N’ WAVE 14445
[4] We also acknowledged, though, that we had previously
reached a contrary result in In re Riverside-Linden, 945 F.2d
320 (9th Cir. 1991). In that case, we declined to overturn the
BAP’s denial of attorney’s fees for unsuccessful litigation
over a fee award. We expressed concern that compensating
unsuccessful litigation over fee applications might lead to
frivolous fee requests, and accordingly refused to adopt a per
se rule that all litigation over fee awards should be compen-
sated. However, Riverside-Linden left open the question of
whether such litigation “under some other set of circum-
stances may be found necessary within the meaning Section
330(a).” Id. at 323. We addressed this inquiry a decade later
in Smith, and held that recovery of legal fees for litigation
over a fee application was appropriate if two factors were
present: 1) the services for which compensation is sought sat-
isfy the requirements of 330(a), and 2) the case “exemplifies
a ‘set of circumstances’ where the time and expense incurred
by the litigation is ‘necessary.’ ” 317 F.3d at 928. We held
that the Smith attorneys met this standard and affirmed the
district court’s award of fees in that case.
[5] We read these three cases together to stand for the prop-
osition that, where a creditor receives attorney’s fees under
Section 503(b)(4), the time and expenses devoted to securing
the attorney’s fee award are also compensable if the Smith test
is met. We believe that this holding is necessary because of
the risk of dilution expressed in Nucorp, and is consistent
with our holdings in Smith and Riverside-Linden.
We recognize that Nucorp, Smith, and Riverside-Linden
dealt with Section 330(a) of the Bankruptcy Code—which
addresses compensation for debtor’s attorneys—while the
instant case falls under Section 503(b)(4), which governs
compensation for creditors’ attorneys. We do not find that this
distinction affects our holding. Section 503(b)(4) states that
the court shall allow “reasonable compensation” for services
rendered by a creditor’s attorney “based on the time, the
nature, the extent, and the value of such services, and the cost
14446 IN RE WIND N’ WAVE
of comparable services other than in a case under this title.”
11 U.S.C. § 503(b)(4). This language was adopted as part of
the Bankruptcy Reform Act of 1978, and is nearly identical
to the language used in that Act to compensate officers under
Section 330(a).4 See Pub. L. 95-598 (allowing under Section
330(a)(1) an award of reasonable compensation for debtor’s
attorneys “based on the time, the nature, the extent, and the
value of the services, and the cost of comparable services
other than in a case under this title”).
It is a “ ‘normal rule of statutory construction’ that ‘identi-
cal words used in different parts of the same act are intended
to have the same meaning.’ ” Dep’t of Revenue of Ore. v.
ACF Indus., Inc., 510 U.S. 332, 342 (1994) (quoting Sorenson
v. Sec’y of Treasury, 475 U.S. 851, 860 (1986)), and we see
no reason to depart from that maxim in this case. Indeed,
Congress took pains to ensure that the standards for compen-
sation embedded in 330(a) and 503(b)(4) were indistinguish-
able; in enacting 503(b)(4), the Senate specifically deleted
language that would have provided different criteria for com-
pensating debtors and creditors. See S. Rep. No. 95-989
(1978) (“Section 503(b)(4) of the House amendment con-
forms to the provision contained in H.R. 8200 as passed by
the House and deletes language contained in the Senate
amendment providing a different standard of compensation
under section 330 of that amendment.”).
Respondents attempt to distinguish between Sections
330(a) and 503(b)(4) by noting that Section 330(a) explicitly
provides for compensation for fee application preparation, see
11 U.S.C. § 330(a)(6), and disallows compensation for ser-
vices not reasonably likely to benefit the debtor’s estate or
necessary for the administration of the case, see 11 U.S.C.
4
With the very minor exception that Section 330(a) referred to the
“value of the services” when it was enacted whereas Section 503(b)(4)
refers to the “value of such services.” See Pub. L. 95-598; 11 U.S.C.
§ 503(b)(4).
IN RE WIND N’ WAVE 14447
330(a)(4), whereas Section 503(b)(4) has no such provisions.
We acknowledge that the statutes differ slightly (with Section
330(a) imposing more requirements on debtors than 503(b)(4)
places on creditors) but maintain that the relevant provisions
—those governing calculation of the attorney’s fees—were
identical when the Bankruptcy Reform Act of 1978 was
enacted,5 and that Congress intended both creditors’ and debt-
ors’ attorneys to be compensated in a manner similar to attor-
neys working in other fields.
In Nucorp, we read the language in Section 330(a) (as
enacted) as indicating Congress’s intent to avoid dilution of
the effective rate for bankruptcy counsel that would result if
fees incurred in successfully obtaining or defending an award
were not compensated, at least where such expenses are typi-
cally awarded in the non-bankruptcy context. Nucorp, 764
F.2d at 659-61. In reaching that interpretation, we focused
specifically on the following phrase from Section 330(a) as it
read at the time: “[Debtor’s attorneys should be compensated]
based on the time, the nature, the extent, and the value of the
services and the cost of comparable services other than in a
case under this title.” Because this language is effectively the
same as the current language in Section 503(b)(4), we find it
reasonable to apply the same rationale to cases involving the
latter statute.
We are not alone in finding that the anti-dilution principle
applies with equal force to creditors and debtors. In In re Hers
Cosmetics Corp., 114 B.R. 240 (C.D. Cal. Bankr. 1990), the
creditors’ attorneys sought reimbursement under Section
503(b)(4) for expenses incurred during the successful defense
of a lower court’s fee award. The court followed the reason-
ing of Nucorp and awarded the fees. Noting that “Congress
5
While Section 503(b)(4) has remained largely unchanged since 1978,
Section 330(a) was expanded in 1994. The portion addressing reasonable-
ness of compensation now includes more detail regarding each factor that
a court is to consider. See 11 U.S.C. § 330(a)).
14448 IN RE WIND N’ WAVE
made the decision under § 330 and § 503(b)(4) to reimburse
[both creditors’ and debtors’] attorneys fees from the estate”
on a priority basis, the court held that “the underlying purpose
of [both Sections 330(a) and 503(b)(4)] would be subverted
if the fee award could be diluted through the appeal process.”
Id. at 244; In re On Tour, 276 B.R. 407, 418 (D. Md. Bankr.
2002) (“This court had taken the majority position set out in
cases such as [Nucorp] . . . that bankruptcy counsel should be
compensated for preparing and defending fee applications. . . .
This court sees no basis for applying a different rule when
applying for compensation under 11 U.S.C. § 503(b) than
used when applying for compensation under 11 U.S.C.
§ 330.”); see also In re Celotex, 227 F.3d 1336, 1341 (11th
Cir. 2000) (“Section 503(b)(4) expressly provides that allow-
able attorney compensation should be ‘based on the time, the
nature, the extent, and the value of such services, and the cost
of comparable services other than in a case under this title
. . .’ This standard is identical to the standard in § 330(a)(1)
which provides for attorney’s fees for counsel to the bank-
ruptcy trustee.”) (internal citations omitted); In re Sedona,
220 B.R. 74, 78 (9th Cir. BAP 1998) (“It is important to
observe the integration in section 503(b)(4) of the standards
of section 330(a)(1) applicable to professional services ren-
dered to the trustee for which compensation is sought. The
legislative comments to section 330 are surely applicable here
as well.”) (quoting 4-503 Collier on Bankruptcy 15th Ed.
503.11).
[6] In sum, Congress enacted Sections 330(a) and 503(b)(4)
of the Bankruptcy Code at the same time, chose the same lan-
guage for the two sections, and intended that both debtors and
creditors be compensated on a priority basis at levels reflect-
ing fees in other fields. Thus, we see no reason why the com-
mon sense principles of Nucorp, Smith, and Riverside-Linden
should not apply in cases involving creditors as well as debt-
ors. Our holding that creditors who receive compensation
under 503(b)(4) should also be compensated for costs
incurred in litigating a fee award, so long as the services meet
IN RE WIND N’ WAVE 14449
the Section 503(b)(4) requirements and the case “exemplifies
a ‘set of circumstances’ where litigation was ‘necessary,’ ” is
not only consistent with our analysis of compensation for
debtor’s attorneys in Smith and Riverside-Linden, but is nec-
essary to prevent the dilution that would result if creditors’
attorneys were forced to absorb the time devoted to success-
fully litigating a fee award—an outcome that would be con-
trary to Congressional intent against fee award dilution.
III. Application to the Instant Case
Here, the BAP awarded attorney’s fees to the Petitioning
Creditors for their services in placing the debtor into involun-
tary bankruptcy under Sections 504(b)(4) and 503(b)(3)(A).
Therefore, the litigation over the award is also compensable
so long as the services for which compensation are sought
meet the requirements of Section 503(b)(4), and the case “ex-
emplif[ies] a ‘set of circumstances’ where the time and
expense incurred by the litigation is ‘necessary’ ” per Smith.
[7] That standard is easily met here. The compensation that
the Petitioning Creditors seek meets the statutory require-
ments because the creditors demonstrated an allowable
expense under 503(b)(3) (specifically, filing an involuntary
petition under 503(b)(3)(A)), and there is no dispute that the
amount of compensation they are pursuing for their appellate
work is reasonable. See 11 U.S.C. § 503(b)(4) (allowing for
“reasonable compensation for professional services rendered
by an attorney . . . of an entity whose expense is allowable
under [503(b)(3)]”).
[8] Further, the appellate litigation in this case was neces-
sary because, like the attorneys in Smith, the Petitioning Cred-
itors did not frivolously appeal the lower court’s decision
merely to acquire litigation fees.6 To the contrary, the fact that
6
The respondents attempt to assert that “willfully deciding . . . to prose-
cute an appeal” of a denial of a fee award, as is the case here, is somehow
less worthy of compensation than defending a fee award, as was the case
in Smith. We see no distinction between pursuit or defense for the pur-
poses of determining whether litigation was “necessary.”
14450 IN RE WIND N’ WAVE
the Petitioning Creditors were erroneously denied their fee
award in the bankruptcy court—notwithstanding Ninth Circuit
precedent urging otherwise—suggests that the litigation
expenses incurred on appeal were unavoidable, as appeal to
the BAP was the only avenue through which the creditors
could receive their due compensation. Thus, because the BAP
awarded the Petitioning Creditors legal fees under 503(b)(4)
and because the litigation leading up that decision satisfies the
Smith standard, we hold that the BAP erred in denying recov-
ery of legal fees incurred in litigating the BAP appeal. While
we recognize that this holding may result in the drawing down
of an already limited estate, that cannot deter us from the cor-
rect result.
Conclusion
The BAP erred in summarily denying the Petitioning Credi-
tors compensation for services arising out of the successful
appeal of the lower court’s denial of a fee award. We
REVERSE and REMAND to the BAP for determination of
reasonable compensation.