                     United States Court of Appeals
                            FOR THE EIGHTH CIRCUIT
                                    ___________

                                    No. 03-3335
                                    ___________

In re: Farmland Industries, Inc.,                *
                                                 *
               Debtor.                           *
------------------------------------------------ *
Official Committee of Unsecured                  *
Creditors,                                       * Appeal from the United States
               Appellant,                        * Bankruptcy Appellate Panel
                                                 * for the Eighth Circuit.
        v.                                       *
                                                 *
Farmland Industries, Inc., et al.,               *
                                                 *
               Appellees.                        *
                                          ___________

                              Submitted: September 13, 2004
                                 Filed: February 10, 2005
                                  ___________

Before LOKEN, Chief Judge, BEAM and GRUENDER, Circuit Judges.
                              ___________

LOKEN, Chief Judge.

       Farmland Industries, Inc. and its affiliates (“Farmland”) filed voluntary
petitions for Chapter 11 bankruptcy relief. Because Farmland had two large groups
of unsecured creditors with competing claims, the United States Trustee used the
authority conferred by 11 U.S.C. § 1102(a) to appoint two creditors’ committees, the
Official Committee of Unsecured Creditors to represent trade creditors (the
“Unsecured Creditors Committee”), and the Official Committee of Bondholders to
represent bondholders (the “Bondholders Committee”). Each committee employed
its own financial advisor, Houlihan Lokey Howard & Zukin Financial Advisors
(“Houlihan Lokey”) for the Unsecured Creditors Committee, and Ernst & Young
Corporate Finance (“Ernst & Young”) for the Bondholders Committee. Each advisor
negotiated a flat monthly fee plus a contingent or “success” fee based upon the
amounts ultimately recovered by the members of the employing committee.

       The Bondholders Committee agreement provided that Ernst & Young’s
contingent fee would be paid from amounts recovered by the bondholders. Acting
pursuant to 11 U.S.C. §§ 328(a) and 1103(a), the bankruptcy court1 approved that
agreement. But the Unsecured Creditors Committee agreement provided that
Houlihan Lokey’s contingent “transaction fee” would be paid by all creditors as a
general administrative expense. Farmland and the Bondholders Committee objected
to this term of the engagement. The bankruptcy court ruled that Houlihan Lokey’s
transaction fee must be paid from amounts recovered by members of the Unsecured
Creditors Committee. That Committee appealed to the Eighth Circuit Bankruptcy
Appellate Panel (“BAP”), which affirmed the bankruptcy court. The Committee now
appeals the BAP’s decision. We affirm.

                        I. Court of Appeals Jurisdiction

       Once again, experienced bankruptcy attorneys have ignored the fact that
Congress has conferred broader appellate jurisdiction on the BAP than on this court.
Compare 28 U.S.C. § 158(b) with § 158(d). The bankruptcy court’s order was issued
prior to confirmation of Farmland’s Chapter 11 plan of reorganization. Although the
BAP’s jurisdiction is not limited to final orders, the BAP concluded that the ruling
was a final order because it finally determined one issue -- the manner in which


      1
      The Honorable JERRY W. VENTERS, United States Bankruptcy Judge for the
Western District of Missouri.

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Houlihan Lokey’s transaction fee would be paid. This court construes the final order
doctrine more flexibly in bankruptcy cases than in other contexts. But we have never
suggested that any interlocutory order that resolves a single issue is final for purposes
of 28 U.S.C. § 158(d). Rather, “an order entered before the conclusion of a complex
bankruptcy case is not appealable under § 158(d) unless it finally resolves a discrete
segment of that proceeding,” that is, a “relevant judicial unit” of the proceeding. In
re Woods Farmers Co-op. Elevator Co., 983 F.2d 125, 127 (8th Cir. 1993). To decide
that pragmatic question, we examine three factors, “the extent to which (1) the order
leaves the bankruptcy court nothing to do but execute the order; (2) the extent to
which delay in obtaining review would prevent the aggrieved party from obtaining
effective relief; (3) the extent to which a later reversal on that issue would require
recommencement of the entire proceeding.” In re Koch, 109 F.3d 1285, 1287 (8th
Cir. 1997) (quotation omitted).

        In December 2003, some three months after the Unsecured Creditors
Committee filed this appeal, the bankruptcy court approved Farmland’s Chapter 11
plan of reorganization effective May 1, 2004. The plan provides for payment of
Houlihan Lokey’s transaction fee in accordance with the order being appealed. The
confirmation order recites that this appeal is pending and provides that the plan “shall
automatically be deemed amended and modified as necessary” to reflect a contrary
decision by this court. Thus, even if the ruling on appeal was not final when issued,
it is now incorporated in the plan of reorganization, which is a final order. In these
circumstances, we conclude we have jurisdiction “because the bankruptcy proceeding
is on the verge of being completed pending the resolution of the dispute before this
Court [and] a delay in review [of this dispute] would serve no purpose.” First Nat’l
Bank v. Allen, 118 F.3d 1289, 1294 (8th Cir. 1997). Accord In re Broken Bow
Ranch, Inc., 33 F.3d 1005, 1008 (8th Cir. 1994): In re Interwest Business Equipment,
Inc., 23 F.3d 311 (10th Cir. 1994); 14 CHARLES ALAN WRIGHT, ARTHUR R. MILLER
& EDWARD H. COOPER, FEDERAL PRACTICE AND PROCEDURE § 3926.2, at pp. 290-91
n.28 (2d ed. 1996).

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       The plan of reorganization also dissolved the Unsecured Creditors Committee
and the Bondholders Committee on the plan’s effective date, May 1, 2004. Just prior
to oral argument in September 2004 (long after counsel were aware of the potential
problem), counsel raised the question whether the appeal to this court now lacked one
or more requisite parties. We canceled argument and called for additional
memoranda by interested parties. Counsel for the Unsecured Creditors Committee
and counsel for the Liquidating Trustee urged us to decide the appeal because the
merits were fully briefed before the plan’s effective date and trade creditors and
bondholders continue to have the same financial interest in the issue. As we have
explained, confirmation of the plan conferred rather than divested us of jurisdiction.
The confirmation order specifically provides that the affected portion of the plan may
be modified by our resolution of the issue presented. This provision demonstrates
that the bankruptcy court did not intend to affect this appeal by “dissolving” the
creditors’ committees that were conducting it on behalf of their respective members.
We therefore proceed to the merits.

                                   II. The Merits

       Like the BAP, we review the bankruptcy court’s interpretation of the
Bankruptcy Code de novo and its findings of fact for clear error. In re Quality
Processing, 9 F.3d 1360, 1363 (8th Cir. 1993). We review issues committed to the
bankruptcy court’s discretion for an abuse of that discretion. In re Jones Truck Lines,
Inc., 63 F.3d 685, 686 (8th Cir. 1995). The bankruptcy court abuses its discretion
when it fails to apply the proper legal standard or bases its order on findings of fact
that are clearly erroneous. Stalnaker v. DLC, Ltd., 376 F.3d 819, 825 (8th Cir. 2004).

      A. No abuse of discretion. Without objection, the bankruptcy court first
entered an interim order approving the retention of Houlihan Lokey as the Unsecured
Creditors Committee’s financial advisor but reserving decision on the transaction fee
dispute. Following extensive briefing and argument, the court ruled that, as a matter

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of fairness, the contingent portion of Houlihan Lokey’s total fee should be paid out
of the recovery by members of the Unsecured Creditors Committee. Noting that
bondholder estimated claims were substantially larger and the Bondholders
Committee agreement with Ernst & Young “is fairer and more equitable to all
creditors,” the court reasoned that bankruptcy success fees are customarily paid by
those who contract for them, Houlihan Lokey was engaged to work specifically for
the benefit of the trade creditors, and the Unsecured Creditors Committee should not
be able to impose this expense on all creditors over the objections of Farmland and
the Bondholders Committee.

       The BAP concluded that the bankruptcy court did not abuse its discretion in
ruling that the transaction fee “should be paid from any distributions made to the
unsecured creditors represented by” Houlihan Lokey because that advisor “is working
specifically for the benefit of those creditors,” the fee was negotiated by a committee
representing those creditors, and the bondholders should not be required to pay a
portion of the transaction fee because they are paying the contingent portion of Ernst
& Young’s fee. The Unsecured Creditors Committee does not appeal this portion of
the BAP’s decision. Rather, the Committee argues that the bankruptcy court’s order
was based on clearly erroneous findings of fact because there was insufficient
evidence that (a) Houlihan Lokey was working solely for the benefit of the trade
creditors, and (b) the fee agreement between the Bondholders Committee and Ernst
& Young “is fairer and more equitable to all creditors.” After careful review of the
record, we conclude these contentions are without merit because they address only
tangential issues. The bankruptcy court needed no evidentiary hearing to conclude
that, as a matter of fairness, it should exercise its discretion by treating on the same
basis the contingent portions of the fees to be paid to the financial advisors retained
by two competing classes of creditors.

      B. No Bankruptcy Statute Bars This Ruling. The Bankruptcy Code expressly
authorizes a creditors committee, with the court’s approval, to employ “a professional

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person . . . on any reasonable terms and conditions of employment.” 11 U.S.C.
§ 328(a). When applicable, § 330 sets forth standards for compensating professionals
who have been retained under § 328. Among other criteria, § 330(a)(4)(A)(ii)
provides that the court shall not allow compensation for services that are neither
beneficial to the debtor’s estate nor “necessary to the administration of the case.”
Section 503(b)(2) provides that compensation awarded under § 330(a) “shall be
allowed administrative expenses.” Section 507(a)(1) grants “first” priority to
“administrative expenses allowed under section 503(b).” See generally Hartford
Underwriters Ins. Co. v. Union Planters Bank, N.A., 530 U.S. 1, 4-5 (2000).

      Before the bankruptcy court, the parties agreed that Houlihan Lokey’s
transaction fee would be treated as an administrative expense under § 503 and be
subject to review by the bankruptcy court under § 330. Starting with that proposition,
the Unsecured Creditors Committee argues that, because § 330 and § 503 require that
compensated services benefit the Farmland estate, all payments for those services
must come from the estate’s general funds. Any other conclusion, the Committee
adds, would violate the first priority accorded administrative expenses in § 507. The
Unsecured Creditors Committee bases these contentions entirely on the purported
plain meaning of these statutes, citing no supporting case law.

       Like the bankruptcy court and the BAP, we disagree with the Committee’s
interpretation of these statutes. Neither § 330 nor § 503 provides that payments to
professionals that qualify as administrative expenses must be paid from any specific
funds of the debtor. We do not doubt that, in the typical Chapter 11 proceeding
where only one financial advisor is employed, the advisor’s administrative expense
claims are paid from the general funds of the debtor’s estate. But that is simply a
sensible way to proceed. The practice does not suggest that, when the bankruptcy
court determines that two advisors representing two competing classes of creditors
are “necessary to the administration of the case,” § 330(a)(4)(A)(ii) precludes the
court from providing at the outset that the contingent portion of each advisor’s fees

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will be paid out of the creditors’ recovery that was enhanced by that advisor’s
services. In our view, the discretion to impose such a provision (or to refuse approval
of an agreement that lacks such a provision) is clearly consistent with the bankruptcy
court’s statutory authority under § 328(a) to approve the employment of a
professional “on any reasonable terms and conditions of employment.”

       The Unsecured Creditors Committee further argues that the concept of fairness
invoked by the bankruptcy court would lead to absurd results “when applied broadly
in these cases.” But that is an argument addressed to the court’s exercise of
discretion, not to its statutory authority. Even if it would be unwise or inequitable in
many cases to decide that particular creditors should bear a disproportionate share of
an administrative expense claim, that does not mean that Congress has denied
bankruptcy courts the discretion to do so. Sections 330 and 503 are silent on this
question; reading their silence in conjunction with § 328(a) strongly suggests that the
Bankruptcy Code confers the discretion the bankruptcy court here exercised.

       We agree with the Unsecured Creditors Committee that § 507 must also be
considered in deciding this issue. It provides that administrative expense claims are
entitled to a higher “priority” than unsecured claims. Priority in a Chapter 11 case
means that the bankruptcy court may not confirm a plan unless it provides that the
holder of each administrative expense claim “will receive on account of such claim
cash equal to the allowed amount of such claim.” 11 U.S.C. § 1129(a)(9)(A); see In
re Hechinger Inv. Co., 298 F.3d 219, 224 (3d Cir. 2002). Here, there is no doubt that
the entire administrative expense claim will be paid because Houlihan Lokey is only
entitled to a transaction fee if the debtor’s estate has sufficient funds to permit a
recovery by the trade creditors, the recovery from which the transaction fee will be
paid. Thus, in confirming Farmland’s plan of reorganization, the bankruptcy court
found that the plan “provides for treatment of Administrative Expense Claims . . . in
the manner required by Section 1129(a)(9).” In these unusual circumstances, the
priority requirements of § 507 have been satisfied. Claim priority means that

                                          -7-
administrative claims must be paid in their entirety before lower priority claims may
be paid. It does not mean that the amounts to be paid to lower priority claimants may
not be calculated before the administrative expense claims are paid.

       The Unsecured Creditors Committee further argues that the bankruptcy court’s
order results in a surcharge on certain unsecured creditors that is contrary to 11
U.S.C. § 506(c). We agree with the bankruptcy court and the BAP that the order does
not effect a surcharge.

       Finally, the Unsecured Creditors Committee argues that the BAP erred in
failing to reverse the bankruptcy court for violating the “binding mandate” contained
in a footnote in an unrelated BAP opinion, In re Thermadyne Holdings Corp., 283
B.R. 749, 754 n.6 (8th Cir. BAP 2002). The Committee does not ask us to review the
merits of the legal rule suggested in the Thermadyne footnote nor the unsettled
question whether BAP decisions are binding precedent. See In re Carrozzella &
Richardson, 255 B.R. 267, 272-73 (D. Conn. 2000). Taking this contention as the
Committee frames it, we conclude it is without merit because the BAP’s analysis in
this case is entirely consistent with its prior decision in Thermadyne for the reasons
stated in the BAP opinion.

      The order of the BAP filed August 7, 2003 is affirmed.
                      ______________________________




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