USCA1 Opinion

United States Court of Appeals

For the First Circuit

____________________

No. 96-1819

RICHARD M. GALLIVAN AND EDWARD T. SMITH, JR.,

Appellants,

v.

SPRINGFIELD POST ROAD CORPORATION, ET AL.,

Appellees.

____________________

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MASSACHUSETTS

[Hon. Nathaniel M. Gorton, U.S. District Judge]

___________________

____________________

Before

Selya, Circuit Judge,

_____________

Coffin, Senior Circuit Judge,

____________________

and Lynch, Circuit Judge.

_____

____________________

Claudia J. Reed with whom David J. Noonan was on brief for

_______________
_______________
appellants.
Richard L. Neumeier for appellees.
___________________

____________________

April 7, 1997
____________________

COFFIN,

district

Senior Circuit Judge.

______________________

court judgment

approving a

This

appeal

is

from a

bankruptcy judge's

orders

denying

Smith

the

motions of

appellant real

estate brokers

Gallivan and

(1) to compel the payment of a brokerage fee by appellees,

debtors-in-possession

administrative

recover

from a

as

Chapter

expenses under

their respective

506(c),

in

11

secured party,

shares of

"reasonable,

11

U.S.C.

503(b);1

MBL Life

and (2)

as

to

Assurance Corporation,

the brokerage fee,

necessary

proceedings,

under 11

cost[]

of

U.S.C.

preserving"

debtors' property.2

The district court denied both motions, holding that neither

cited provision

gave appellants a

status of an unsecured creditor.

priority claim

but only

the

We agree.

Findings and Conclusions Below

The findings

of fact of

the bankruptcy court,

affirmed by

the

district

court, are

the following.

One of

the debtors,

____________________

Section 503(b) provides, in relevant part:

(b) After notice and a hearing, there shall be allowed,

administrative expenses ..., including (1)(A) the actual, necessary costs and
expenses of preserving the estate, including
wages, salaries, or commissions for services
rendered after commencement of the case ....

Section 506(c) provides, in relevant part:

[T]he trustee may recover from property secured as an

allowable claim the reasonable, necessary costs and
expenses of preserving, or disposing of, such property
to the extent of any benefit to the holder of such
claim.

Appellants also sought recovery under a restitution theory.

-2-

Springfield Post Road

strip

type shopping

remaining

debtor,

Corp., owned land

mall

in Springfield,

portion was leased under

Route

constituting part of

20-21 Associates,

Massachusetts.

a ground lease

Inc.

The

The

to the other

president

of both

debtors was Melvin Getlan.

In the spring of

broker

specializing

buyers or

1991 Getlan asked Gallivan, a

in

finding national

restaurant

real estate

chains as

lessees of property, to obtain a tenant for one of the

mall's buildings.

Getlan agreed

percent of gross rental for years

payable

on the

another

broker with

Gallivan pursued

as

commencement

to pay a

seven

one through ten of any

of construction.

experience

in finding

The Olive Garden, a

a division of General

commission of

lease,

Through

restaurant

Smith,

chains,

restaurant chain operating

Mills Restaurants, Inc.

Gallivan and

Smith agreed on an even split of the commission.

After two

1993 and

years, a lease was

signed by debtors on

by General Mills on June 17, 1993.

May 17,

The lease envisaged

the razing of the existing building and the construction of a new

one.

The

lease was to commence after General

that

all conditions had been met or waived.

issuance of a liquor

site plan

Mills gave notice

Conditions included

license and building permit, approval

by Marshall's,

the debtors'

largest tenant, and

of a

the

execution of nondisturbance agreements

by prior mortgagees.

seven percent brokerage commission came to $66,780.

1993 the debtors filed

petitions under Chapter 11

in possession.

and Gallivan, although

Smith

The

On June 25,

and continued

claiming to

have

-3-

worked seventy or eighty

the

hours on lease-associated matters after

filing of the petitions, were found to have "devoted perhaps

twenty-five hours" post petition, primarily to obtaining approval

of the site plan.

Several months after filing,

construction of

the new building commenced.

The

most

critical

findings

brokerage agreement, "the

lease

was signed

and

that

appellants

after

the

that,

commission was to

and was

commenced;"

were

to

Chapter

services

11

the

be earned when

become payable

whatever

under

the

when construction

were

petitions

oral

performed

were

filed

by

were

gratuitous and not required by their agreement, but were rendered

in

their

own

interest

to

"facilitate

consummation

of

the

transaction."

The

court held, with

respect to

that, since appellants' post-petition

the claim

under

503(b),

services were not required

by

the brokerage

costs"

agreement,

of preserving

rendered

after the

findings

dictated an

between

the

estate or

commencement of

alternate

the debtors

executory

they were

"commissions for

the case."

The

conclusion, that

and plaintiffs

contract at the time

not "actual,

could not

the

necessary

services

same fact

contract

be viewed

of filing, which

as an

could later be

assumed by the estate.

The

apply

court cited four grounds

506(c):

post-petition

since

(1)

in support of

its refusal to

that the statute contemplates only

services; (2)

that

plaintiffs

lacked

required

standing,

the statute specifies only that "The trustee may recover .

_______

-4-

. ." (emphasis added), and no special circumstances existed, such

as was the case in In re Parque Forestal, Inc., 949 F.2d 504, 511
___________________________

(1st Cir. 1991);3 (3) that the direct and

of

intended beneficiaries

any services were the debtors, not the secured party; and (4)

that any services rendered by appellants merely "enhanced, rather

than preserved" the collateral secured.

The

court

alternative

did

claim for

not

reach

or

deal

restitution, since

with

the

this depended

debtors'

on the

prior existence

of an executory

agreement, which the

court had

rejected.

Discussion

Before commencing

place

our analysis, we

appellants' claims in perspective.

which should be viewed in

metes and

point

whether

able,

estate brokers, who

not only

lessee,

to assure

but worked

conditions

of

the

lease,

Rather, we are dealing with

realm of bankruptcy, with

the

least

unfair

is useful

The issue

isolation, outside of the

bounds of bankruptcy law.

to consider

think it

That is, it

is not one

established

is beside the

persistent, resourceful

found a ready,

willing, and

the satisfaction

are entitled

to

to

of a

their

real

able

number of

commission.

a debt owed by an estate

within the

its various rules to assist

in making

allocation

of

inadequate

resources

among

contesting creditors.

The precise question is

whether the post-

____________________

In In re Parque Forestal, 949 F.2d 504, 511-12 (1st

_____________________

Cir. 1991), we agreed with two other circuits that third parties
may recover where they have equitably come to stand in the
trustees' shoes, especially where a colorable claim exists and
where a third party is the only one likely to pursue it.

-5-

petition services of these appellants were so bargained for or so

crucially indispensable as to elevate

unsecured

claim to

those

other

of

a priority

unpaid

what would otherwise be an

claim that

pre-petition

must be

suppliers

paid before

of

goods

and

services.

We

begin

proposition

our

having

analysis

to do

by

addressing

with our

standard

appellants'

legal

of review.

They

contend that whether or

not post-filing performance was required

of

only

the brokers

is not

(Massachusetts) law.

a question

Appellants cite such

of law,

but of

state

cases as Bennett v.
___________

McCabe, 808 F.2d 178 (1st Cir. 1987) and Tristram's Landing, Inc.
______
________________________

v. Wait,
________

367 Mass.

622 (1975)

estate brokers earn their

for

the proposition

that real

commissions, absent breach of contract

by their principals, when the transaction has been completed, not

when the

purchase and

This proposition,

court,

sale (or

lease)

say appellants,

forecloses any fact

agreement is

is binding on

executed.

the bankruptcy

finding, is reviewable

de novo, and
__ ____

warrants reversal of the judgment below.

We disagree.

the thrust of

Appellants, it seems to us, have

the authorities cited,

governing law.

In

as well as

misconceived

the source

Bennett we were addressing the

_______

of

sole question

whether, under current Massachusetts law, an unintended, innocent

seller's default

would

justify

resulting in

the

broker's commission.

the frustration of

seller's refusal

to

Bennett, 808 F.2d

_______

honor

a transaction

an

agreed upon

at 179-80.

Tristram's
__________

Landing announced the basic proposition that when a commission is

_______

-6-

payable "on the

until

the transaction

Mass. at

not

sale," a broker is not

626.

is

completed.

But there the

entitled to a commission

Tristram's Landing,
__________________

court made very clear

367

that it was

defining an obligation of the broker, but rather was dealing

with a special agreement or circumstance "wherein consummation of

the sale became a condition precedent for the broker

to earn his

commission."

Id. at 627.
__

This difference

Ltd.,
____

and

was explicitly recognized in

868 F.2d 1129, 1130-31

(9th Cir. 1989),

In re Munple,
_____________

where a purchase

sale agreement provided that a broker's commission was to be

payable "at the close of escrow."

delayed by a

dispute between seller and buyer.

filed under Chapter

differences

The conclusion of the deal was

11; the two

and the seller

agreement free

parties finally composed

then sought

and clear of

The seller then

to assume

the broker's claim

their

the purchase

for commission.

The

broker argued that the agreement was executory, and thus had

been

assumed by the estate because payment was contingent on the

closing of the sale.

This

argument

The Court of Appeals observed:

confuses

conditions precedent. . .

performance

obligations

and

. The condition precedent to

[seller's]
further
which

obligation to pay the commission imposed no

obligations
would have

commission.

[broker],

excused

Because

required of

on

[seller]

[broker]

it to earn the

had

nonperformance
from
done

paying

of
the

everything

commission, the commission

provision in the purchase agreement was not executory.

We therefore do

not agree that

these cases support

appellants'

claims.

Moreover, the

503(b).

governing statute in

this case is

11 U.S.C.

Its requirements are to be assessed under federal law.

-7-

In re Munple, Ltd., 868

__________________

Mammoth Mart, Inc.,

___________________

536

F.2d at 1130.

F.2d 950,

reference to the predecessor of

It

is . . .

under a

As we have held

954

(1st Cir.

1976)

with

503(b),

clear that a

claimant who fully performs

contract prior to

the filing of

will not be entitled to first priority

services may

in In re
_____

the petition

even though his

have resulted in a direct

benefit to the

bankrupt after the filing.

What is not

which may be

foreclosed under

assumed by the debtor.

generally settled

contract: "a

bankrupt

and

503(b)

is an executory

Federal

courts have pretty

upon the following definition

of an executory

contract under which the obligation[s]

the

unperformed that

other

party

the failure

to

the

of either to

contract,

contract

of both the

are

so

far

complete performance

would constitute

other."

a material

In re Columbia Gas System Inc., 50 F.3d

________________________________

Cir. 1995)(citation

We

been

of the

233, 239 (3d

omitted).

therefore proceed with our review for clear error of the

bankruptcy court's finding

had

breach excusing performance

done

as

of the

that the brokers' bargained-for

filing

of

the

petitions and

work

that

subsequent efforts were gratuitous.

Gallivan's

testimony was that not

seven percent,

but that in

where a tenant

must construct

leased), "There are

perform .

. . .

dealing with

only was the

ground leases

his own improvement

a number of conditions that

[s]uch as site

fee set at

on the

land

a broker has to

plan, hazardous waste,

case nondisturbance, liquor licenses."

(leases

A broker is,

in this

he further

testified, entitled to a

ground lease commission "normally" upon

-8-

the initiating of construction, when all the conditions have been

met.

Later, when he told Smith of the terms of the agreement, he

referred to

and

the "payable upon construction"

I have done a

common in our

number of restaurant

industry."

term, saying, "[H]e

deals and that's fairly

He said that Getlan

had indicated his

agreement

to a seven percent

fee, payable on

specific

conditions were

identified as

The lease

itself, signed

well after the

some dozen

construction.

having

No

been discussed.

discussions, contained

conditions, some requiring action

from the landlord,

some from the tenant.

Getlan

testified that

he had

never accepted

agreement that the brokers had prepared.

had agreed

on the fee and

court found against him.

commission

finding a

normal for

brokers to

interest.

He, however,

He even denied that

he

these points the

He said he normally did not

was different.

addition to

of

time of payment; on

details before he had

that every deal

a letter

a live tenant

As for

before him, and

discussing services

tenant, Getlan acknowledged

do

what they

settle on

could

that it

in their

thought that The Olive Garden

own

in

was

best

chain had

their own resources.

When asked

if he discussed

with Gallivan

help in

getting

other approvals, he said:

THE

WITNESS:

He volunteered

to help,

if necessary,

with the building department to get any permits or find

out what was needed

or what.

He volunteered

for that

and I assume he did whatever he was asked to do by them

or he may have done something on his own, I don't know.

THE COURT:

Did you ask him to do anything. . . ?

-9-

THE WITNESS:

I don't think I asked him to do

anything

personally.

On

this record, we cannot

find clear error

determination that appellants had

in the court's

earned their commission in the

sense that they had done all that they were obligated to do prior

to

the debtors'

gratuitous.

to

filing

and

We have already

that

approval

were

various governmental permits, such

The major efforts, according to

were directed toward obtaining the

site plan. Here, the

efforts

noted Getlan's comments with regard

any work done in pursuing

as liquor licenses.

their further

approval of Marshalls to

court could reasonably find that

had been given before

the court,

execution of the

the

the basic

lease and that

the delay in getting written approval of details long settled was

occasioned by a complete

of

Marshalls.

necessary

Similarly,

to

agreements,

change of staff in the

get

the

mortgagees

insofar as

efforts were directed

Getlan performed

to

the mortgagees

relevant office

whatever work

execute

was

nondisturbance

were involved.

Smith's

toward persuading the tenant that it could

live with what the first mortgagee had insisted on.

And there is

no

others, were

evidence that

these services,

as well

as the

requested by Getlan.

The

efforts

reminiscent of

expended

by

those of the

appellants,

post petition,

brokers in In re Munple, Ltd., 868

___________________

F.2d at 1131:

[Broker]

contends

that

"authorized" it to render
"strong

incentive"

payment of

to

are

the

purchase

agreement

such services and gave

help close

the commission was

the

deal

contingent on

it a

because
closing.

[Citation

omitted.]

Even if

true, these facts do not

-10-

render the commission agreement executory on [broker's]

part

after

it had

critical question

produced the

buyer.

. .

is whether [broker] was

perform such services in

. [T]he

required to
________

order to earn its commission.

[Emphasis in original.]

In short, we are

of

the

unable to find clear error

bankruptcy court

that

appellants

in the finding

had completed

their

services

under the contract before

the filing date.

This also

means that, as of the filing date, the brokerage contract was not

executory and could not be

assumed by the debtor.

As

the Third

Circuit has commented, in a similar situation,

In

cases

where the

nonbankrupt party

performed, it

makes no sense to

or rejection.

. . .

has fully

talk about assumption

Rejection is meaningless

context, and assumption would

in this

be of no benefit

to the

estate, serving only to convert the nonbankrupt's claim

into a

first

priority expense

of

the state

at

expense of the other creditors. [Citation omitted.]

the
In
__

re Columbia Gas System, Inc., 50 F.3d at 239.

____________________________

The claim under

We

address

503(b) was, therefore, properly denied.

briefly

the

claim

under

506(c).

Without

reaching other grounds relied on by the lower courts, we think it

sufficient

to hold that the finding that the direct and intended

beneficiaries of appellants' services was the debtor, and not the

secured party, was supported by the evidence.

revenues from the lease

payments

would help the debtors to

due MBL does

not suffice to

See In re Visual Industries, Inc., 57

___ _______________________________

1995) (mere fact that

creditor

assists

allows debtor

The mere fact that

meet mortgage

carry appellants' burden.

F.3d 321,

327 (3d

raw material furnished to debtor

debtor

to reduce

in continuing

operation,

indebtedness to secured

-11-

Cir.

by trade

and thereby

creditor, does

not entitle

trade creditor

to reimbursement from

collateral of

secured creditor.)

Collier, after noting

including

that recent circuit court

authority,

our own In re Parque Forestal, Inc., 949 F.2d 504 (1st

___________________________

Cir. 1991),

would

allow standing

in

some instances

to

third

parties, with lower courts being divided, concludes:

The

better view is that

direct

benefit

provision

of

from
goods

a secured creditor

the
[or

rendition
services]

of
by

who received a

services
an

of

the

administrative

claimant should have the collateral charged for that benefit

and that the claimant should have standing to seek to charge

the collateral
proof is on
the

for

the benefit

the party seeking

existence

and

Bankruptcy Manual
_________________

amount

of

received.

The burden

the recovery to
the

benefit.

of

demonstrate
2

Collier
_______

506.05, at 506-38 (Lawrence P. King, ed.,

3d ed. 1996).

Even

assuming this were a proper case in which to recognize

third party standing, appellants on

their burden

of establishing

the

this record have not carried

existence and

amount of

the

benefit to MBL.

Finally,

the bankruptcy and district courts

not addressing appellants' claim for restitution.

Affirmed.
________

did not err in

-12-