This section contains the nature of the case and procedural background.

Flagstaff Foodservice Corporation filed petitions for reorganization under chapter 11. Flagstaff continued to operate their businesses as debtors in possession. P had made secured loans and advances on accounts receivable and inventory. Flagstaff owed P $22 million secured by assets worth $42 million. Just before Chapter 11, Flagstaff's attorneys met with P to obtain immediate short-term financing to maintain sufficient cash flow to support Flagstaff's operations. Flagstaff was permitted to use up to $750,000 of P's collateral for the limited period of five days. Flagstaff's attorneys also prepared an application for a more permanent financing arrangement with P. The bankruptcy court authorized Flagstaff to borrow additional money from P, the loans to be secured by a super-priority interest in all present and future property of the estate. Flagstaff had generated enough income from its accounts receivable to pay all of P's pre-petition liabilities. During the Chapter 11 proceedings, P advanced an additional $9 million. Flagstaff's reorganization ultimately failed. The realizable value of the collateral which remained was insufficient to satisfy the unpaid balance. D petitioned the court to award them approximately $250,000 and to direct that interim fees and disbursements of attorneys and accountants be paid from the encumbered collateral. The court agreed, and P appealed. The district court affirmed, and P appealed.

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