PUBLISH IN THE UNITED STATES COURT OF APPEALS

FOR THE ELEVENTH CIRCUIT

No. 96-6981

D. C. Docket No. CV-94-G-1572-NE Bkcy Court. No. 88-6467

IN RE: DAS A. BORDEN & COMPANY,

Debtor.

ED LEIGH McMILLAN, II, MONTFORD COMPANIES, INC.,

Plaintiffs-Appellees,

versus

JOSEPH DECOSIMO AND COMPANY,

Defendant-Appellant,

DAS A. BORDEN & COMPANY,

Defendant.

Appeal from the United States District Court for the Northern District of Alabama

(December 31, 1997)

Before HATCHETT, Chief Judge, FAY and FARRIS*, Senior Circuit Judges.

___________________________________________________________________ *Honorable Jerome Farris, Senior U.S. Circuit Judge for the Ninth Circuit, sitting by designation. FAY, Senior Circuit Judge:

Appellant Joseph Decosimo and Company (“Decosimo”), an

accounting firm, appeals a district court’s decision to reverse a

bankruptcy court order granting Decosimo $99,053.10 in accounting

fees as an administrative expense of the bankruptcy estate of Das

A. Borden & Company. Decosimo contends the district court erred in

substituting its judgment for that of the bankruptcy court.

Because it appears from the record and from our review of the

applicable law that Decosimo improperly sought compensation for

accounting work that was not reasonable and necessary to the

maintenance of the bankruptcy estate of the debtor, we find no

error on the part of the district court and therefore affirm its

order. I. BACKGROUND

A. The Historical Facts

1. The Parties

The factual setting for this dispute is a bit complicated.

Appellant Decosimo is an accounting firm hired by Das A. Borden

(“Borden”), individually, and by Das A. Borden and Company (the

“Company”). Between January 1, 1990 and August 28, 1993, Decosimo

performed various accounting services including consulting, tax

audit duties, and other professional services for the Company,

Borden, and certain limited partnerships affiliated with the

Company and/or Borden. It is Decosimo’s work for Borden and the

eighteen other related entities that is the basis of this dispute.

The other entities are Turtle Lake, Ltd. (“Turtle Lake”), Navarro

2 Place Associates (“Navarro”), Riverchase, Ltd. (“Riverchase”),

Greentree Place Apartments (“Greentree”), Willow Wood Ltd. (“Willow

Wood”), Wood Village Ltd. (“Wood Village”) and twelve HUD-assigned

partnerships (“HUD”). With the exceptions of Willow Wood and Wood

Village, all of these partnerships had filed for bankruptcy, with

all of the bankruptcy cases, except that of Greentree, filed in the

U.S. Bankruptcy Court for the Northern District of Alabama.

Greentree’s bankruptcy case was filed in New Orleans, Louisiana.

The appellees are Ed Lee McMillan, II, and McMillan’s assignee, the

Montford Companies, Inc. (collectively “McMillan”). McMillan is a

secured creditor of the Company and Borden. Pursuant to a cash

collateral agreement, McMillan is obligated to pay the allowed

administrative expenses necessary to wind up the Company’s

bankruptcy case.1 2. Chronology

On July 8, 1988, the Company filed its voluntary petition for

Chapter 11 relief in the United States Bankruptcy Court for the

Northern District of Alabama. On July 11, 1988, Borden consented

1 Initially, Ed Lee McMillan, II, was a guarantor of $3,000,000 of debt of the Company and Borden owed to AmSouth Bank. At that time, First United Bank was a $4,500,000 secured creditor of the Company and Borden. Its security was the partnership interests and distributions, management fees, and advances to the partnerships of the Company and Borden. When First United Bank made public to all parties in interest that it desired to sell its secured claim, Mr. McMillan purchased the secured claim of First United Bank and then allowed his cash collateral, consisting largely of management fees, to be used by the Company to pay certain expenses necessary to preserving the Company’s bankruptcy estate. In the cash collateral agreement, this practice became formalized and Mr. McMillan agreed to have his cash collateral applied to the administrative expenses necessary to the preservation of the Company’s estate.

3 to the entry of an order of relief under Chapter 7. 2 On July 12,

1988, Borden converted his bankruptcy case to one under Chapter 11.

At the time of the commencement of the Company’s and Borden’s

bankruptcy cases, the Company and Borden were general partners of

approximately 40 limited partnerships which operated various

apartment complexes throughout the southeast.3

On October 8, 1991, the bankruptcy court approved the

employment of Decosimo as accountants for the Company. The

application stated that it was necessary for the Company to employ

the accountants for a number of reasons.4 In 1992, Borden applied

2 An involuntary bankruptcy petition had been filed against Borden on April 18, 1988. 3 Turtle Lake, the 12 HUD-assigned partnerships, Navarro, Riverchase, Willow Wood, and Wood Village were among the forty limited partnerships. Borden alone was a general partner of Greentree. 4 The reasons, as stated in the application, were limited to the following:

(a) Said accountants must prepare federal and appropriate state income tax returns of Das A. Borden & Company for the year ended March 31, 1991, in accordance with the attached engagement letter dated September 23, 1991, made exhibit A to this application; (b) Said accountants are to assist Debtors-In-Possession in preparing periodic statements of the Debtors-In- Possession operations as required by the rules of this court or the Estate Analyst; (c) Said accountants must inspect and verify financial records and reports and review financial transactions; (d) Said accountants must review claims and advise concerning the financial computations and bases for claims; (e) Said accountants must advise concerning the tax aspects of various partnership activities and the impact upon Debtors-In-Possession of partnerships of which for which Debtors-In-Possession are general partners; and (f) Said accountants are to render such other accounting services as will probably be required by Debtors-In-

4 to the bankruptcy court to have Decosimo perform personal

accounting work for Borden individually and this separate

application in a separate bankruptcy case was similarly approved.

In September of 1993, McMillan, the Company, and the Unsecured

Creditor’s Committee entered into an agreement in the Company

bankruptcy case which called for the liquidation of the Company and

payment of a small dividend to unsecured creditors. Under the

terms of this cash collateral agreement, McMillan agreed to the

use of his cash collateral to pay the administrative expenses

necessary to close the Company case. After an objection by

Decosimo, McMillan agreed to include Decosimo’s accounting fees as

an administrative expense of the Company’s case if such fees were

deemed by the bankruptcy court to have administrative expense

priority. On October 4, 1993, the bankruptcy court entered an

order approving the cash collateral agreement.

Prior to the court order approving the agreement, on September

30, 1993, Decosimo filed applications for payment in the Borden and

Company bankruptcy cases seeking payment from the Company for

various accounting services. The fees in dispute in the instant

case include:

1. Borden’s Personal Tax Work -- (1991) -- $31,961.07 for work on Borden’s federal and state income tax returns, tax accounting, and research and consulting.

2. Greentree -- (1992) -- $6,025.00 for tax and audit services, preparation of K-1's.

3. Turtle Lake -- (1990) -- $5,793.75 for services performed in 1990 related to litigation.

Possession.

5 4. The Twelve HUD-Assigned Partnerships -- (1992) -- $15,000.00 for preparation of financial statements to be submitted to HUD relating to various audits and tax returns.

5. Navarro -- (1991 & 1992) -- $12,981.22 for preparation of federal and state income tax returns and K-1's, assistance in preparation of a plan of reorganization and in supplementing disclosure statements.

6. Riverchase -- (1992) -- 2,266.66 for services relating to compiling tax basis financial statements and preparation of federal and state tax returns and K-1's.

7. Willow Wood -- (1990, 1991, & 1992) -- $15,875.00 for an audit of the financial statements and preparation of federal and state tax returns and Schedule K-1's.

8. Wood Village -- (1991 & 1992) -- $8,650.00 for performance of audit services and preparation of federal and state tax returns and Schedule K-1's.

Over the objections of McMillan, the Company, and Borden, on April

22, 1994, the bankruptcy court entered an order allowing all claims 5 in the Company case. McMillan appealed to the district court.

The district court conducted a de novo review of the record and

reversed the award of accounting fees. Decosimo appeals to this

court seeking a reinstatement of the bankruptcy court order.

II. Standard of Review

Our standard of review of the bankruptcy court’s findings of

fact is the clearly erroneous standard, while conclusions of law

made by the bankruptcy court or the district court are reviewed de novo. In re Miller, 39 F.3d 301, 304-05 (11th Cir. 1994). As the

second court of review in this bankruptcy matter, this court’s

5 McMillan disputes the process provided by the bankruptcy court after the bankruptcy court tried the case without allowing McMillan access to Decosimo’s source documents and work product.

6 review of the decision of the district court is entirely de novo.

In re Sublett, 895 F.2d 1381, 1384 (11th Cir. 1990). As this court

explained in In re Sublett, when a district court reverses the

factual findings of a bankruptcy court, we must be independently

convinced, upon de novo review, that the factual findings by the

bankruptcy court were clearly erroneous. Id. at 1384 n.5.

However, when the question at issue depends upon a proper

construction of the Bankruptcy Code by the bankruptcy court or

district court, we subject such interpretations to de novo review.

In re Haas, 48 F.3d 1153, 1155 (11th Cir. 1995). III. Discussion

Decosimo contends that in providing accounting services to

Borden individually and to various limited partnerships6 to which

the Company was either a general partner, managing partner, or

managing agent, Decosimo was acting on behalf of the Company’s

interests and is, accordingly, entitled to compensation for the

accounting services provided. The issue before this court is not

whether Decosimo is entitled to be compensated for the accounting

work done for Borden and the limited partnerships. Rather the

issue to be resolved by this court is whether the fees for such

services are to be categorized as an administrative expense of the

Company’s bankruptcy estate, for which McMillan would be liable

under the cash collateral agreement. We hold that the accounting

fees in dispute arising from services provided to Borden and the

6 Again, the Decosimo fees in dispute are for Borden, Turtle Lake, Navarro, Riverchase, Greentree, the twelve HUD partnerships, Willow Wood, and Wood Village.

7 limited partnerships are not administrative expenses of the

Company’s bankruptcy estate entitled to a favored priority, and

that the bankruptcy court’s decision to the contrary was in error

as a matter of law.

Initially, McMillan contends that Decosimo’s accounting fees

for services provided to Borden and the limited partnerships are

not administrative expenses of the Company’s estate because

Decosimo never received, as per 11 U.S.C. § 327(a), 7 the required

prospective approval in the Company case to provide services to any

of these challenged entities. While it is clear that Decosimo

never received prospective approval for the accounting services for

Borden and the limited partnerships, it is not clear that such

prospective approval is an absolute requirement. So far as we can

ascertain, this court has never grappled with the issue of whether

§ 327(a) of the Bankruptcy Code permits the nunc pro tunc,8 or post facto,9 approval of professional services after the services have

7 The pertinent statute states that “the trustee, with the court’s approval, may employ one or more . . . accountants . . . to represent or assist the trustee in carrying out the trustee’s duties under this title.” 11 U.S.C. § 327(a). The Company, as a debtor in possession, has the right to appoint professionals such as accountants through the operation of 11 U.S.C. § 1107(a) which grants to the debtor in possession all the rights (except the right to receive compensation), powers, functions and duties of a trustee serving in a case under Chapter 11. 8 Nunc pro tunc literally means “now for then”. See In re Singson, 41 F.3d 316, 318 (7th Cir. 1994). 9 It has not escaped our attention that Judge Easterbrook has noted that the use of the appellation “ nunc pro tunc” in this context is confusing given the use of that term in connection with the correction of court records. See Singson, 41 F.3d at 318. However, given that the parties in this dispute have elected to refer to such after the fact authorization as nunc pro tunc

8 already been rendered. In light of other grounds mandating

affirmance of the district court order, we reserve our opinion on

the propriety of nunc pro tunc authorizations for another dispute

demanding the resolution of this divisive issue.10

The narrow issue to be resolved by this court is whether the

accounting services in dispute were actual and necessary to the

administration of the bankruptcy estate of the Company so as to

render McMillan liable for payment of such services under the cash

collateral agreement as an administrative expense. We hold that

the accounting fees at issue were clearly not necessary to the

upkeep and maintenance of the bankruptcy estate of the company and

we therefore affirm the district court. “The threshold requirement

for an administrative expense is that it be actual and necessary to

the preservation of the estate; the benefit must run to the debtor

and be fundamental to the conduct of its business.” In re Colortex 11 Indus., Inc. , 19 F.3d 1371, 1383 (11th Cir. 1994). Here any

benefit from the accounting services rendered by Decosimo ran to

authorization, we will refer to it by that name in this opinion. 10 In 1983, the Fifth Circuit offered a brief review of the split between circuits on this issue of the requirement of prior court approval under § 327(a). See In re Triangle Chemicals, Inc., 697 F.2d 1280, 1285-88 (5th Cir. 1983). Since 1983, several decisions on this subject have been issued by federal courts. See, e.g., In re Jarvis, 53 F.3d 416, 419-21 (1st Cir. 1995); Singson, 41 F.3d at 319-20; In re Land, 943 F.2d 1265, 1267-68 (10th Cir. 1991); In re F/S Airlease II, Inc., 844 F.2d 99, 105 (3d Cir. 1988); In re THC Financial Corp., 837 F.2d 389, 391-92 (9th Cir. 1988). 11 The compensation Decosimo seeks under 11 U.S.C. § 330(a)(1) specifically provides that the compensation is to be for “actual, necessary services.”

9 Borden, individually, and to eighteen separate entities to which

the Company was either a general partner, managing partner, or

managing agent. While it is clear from the record that the

personal accounting work done for Borden is not an administrative

expense of the Company for which McMillan is liable,12 the

accounting work for the eighteen limited partnerships is a bit more

complicated.

Decosimo argues that under Alabama law the Company, as a

partner or managing agent of these partnerships, is obligated for

the debts of these partnerships.13 Assuming, without deciding, that such is correct, the avenue for recovery for fees for Decosimo

would not be as an administrative expense, but as an unsecured

creditor. Accounting fees arising from services performed for

other debtors in separate bankruptcy proceedings and arising from

work for entities other than the debtor in this case are not fees

incurred in the upkeep and maintenance of this debtor’s estate and

therefore are not to be reimbursed as an administrative expense.

The tenuous and incidental benefit Decosimo alleges it provided the

12 There is no written or verbal agreement by either the Company or McMillan to pay for the accounting services rendered to Borden. Decosimo contends that Borden told Decosimo that McMillan would pay for these services. The Company was never invoiced for these services; in fact, Decosimo only invoiced Borden in its search for payment. Consequently, there is no legal basis to allow Decosimo and administrative claim against the Company’s estate for these services. 13 Decosimo contends Ala. Code § 10-8-52(2) renders the Company liable for the debts of the various partnerships. § 10-8-52 states: “All partners are liable . . . (2) Jointly and severally for all debts and obligations of the partnership, except as may be otherwise provided by law.”

10 Company, without more, is insufficient basis for administrative

priority status. See In re Appliance Store, Inc. , 181 B.R. 237, 242 (Bankr. W.D. Pa. 1995). Rather than give Decosimo a leg up on

the other creditors of the Company by granting its fee claims

administrative expense priority, we would require Decosimo to

proceed against each of the parties for whom the services were

rendered. If Decosimo is successful in its suits against these

limited partnerships, and if it were found that the Company is

liable for Decosimo’s fees, then Decosimo would stand as a creditor

of the Company, no more and no less. Given the Bankruptcy Code’s

overriding concern for keeping administrative expenses to a minimum

so as to preserve as much of the estate as possible for the

creditors, we must carefully review the legitimacy of such claims.

See Otte v. United States, 419 U.S. 43, 53 (1974). Decosimo’s fees

for work performed for other entities are simply not administrative

expenses of the Company for which McMillan is liable under the cash

collateral agreement.

III. Conclusion

For the foregoing reasons, we AFFIRM the judgment of the

United States District Court for the Northern District of Alabama.

AFFIRMED.

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