General Electric Credit Corp. v. Levin & Weintraub

In July 1981, Flagstaff Foodservice Corporation (Flagstaff) filed for reorganization under Chapter 11. Since 1978, Flagstaff had received financing from General Electric Credit Corp. (GECC) (plaintiff). At the time of the bankruptcy filing, Flagstaff owed GECC approximately $22 million, secured by $42 million in collateral. GECC and Flagstaff negotiated an agreement for GECC’s continued financing of Flagstaff during the reorganization process. The bankruptcy court issued a financing order permitting Flagstaff to borrow from GECC additional funds, which would be secured by a super-priority interest in all present and future estate property. The order gave GECC priority over all other current and future creditors as well as over all administrative expenses as set forth at 11 U.S.C. §§ 503(b) and 507(b). The order also gave GECC a first and prior lien on all of Flagstaff’s property and the proceeds therefrom. Despite borrowing an additional $9 million from GECC, Flagstaff was unable to emerge successfully from Chapter 11. When the process was abandoned, Flagstaff owed GECC $4 million but held less than that amount in collateral. The law firm Levin & Weintraub and other attorneys and accountants (defendants) applied for interim compensation for their services. GECC objected to the fee applications. After considering the matter on the papers, the bankruptcy court concluded that payment from the assets of Flagstaff was warranted because the attorneys and accountants had provided services that benefited GECC. The district court affirmed. GECC appealed.