Ames Dept. Stores, Inc., In re

• Decision Date: 05 February 1996
• Docket Number: 1051,Nos. 869,D,s. 869
• Parties: Bankr. L. Rep. P 76,953, 19 Employee Benefits Cas. 2675 In re AMES DEPARTMENT STORES, INC.; Eastern Retailers Service Corporation; and all subsidiaries of Ames Department Stores, Inc. In re ZAYRE CENTRAL CORP., successor in interest to Ames-G.C. Company, Inc., Debtors. Skadden, Arps, Slate, Meagher & Flom, Esqs., Appellant. ockets 93-5001, 95-5049.
• Court: U.S. Court of Appeals — Second Circuit

Page 66

76 F.3d 66

Bankr. L. Rep. P 76,953, 19 Employee Benefits Cas. 2675

In re AMES DEPARTMENT STORES, INC.; Eastern Retailers

Service Corporation; and all subsidiaries of Ames

Department Stores, Inc.

In re ZAYRE CENTRAL CORP., successor in interest to

Ames-G.C. Company, Inc., Debtors.

Skadden, Arps, Slate, Meagher & Flom, Esqs., Appellant.

Nos. 869, 1051, Dockets 93-5001, 95-5049.

United States Court of Appeals, Second Circuit.

Argued Jan. 10, 1996.

Decided Feb. 5, 1996.

Michael L. Cook, New York City (Brad J. Axelrod, Dennis F. Dunne, Neal Jacobson, Skadden, Arps, Slate, Meagher & Flom, New

York City, of counsel), for Appellant Skadden, Arps, Slate, Meagher & Flom

Unopposed.

Before: VAN GRAAFEILAND, MINER and CABRANES, Circuit Judges.

VAN GRAAFEILAND, Circuit Judge:

Skadden, Arps, Slate, Meagher & Flom ("Skadden"), a nationally known and highly regarded law firm, appeals from a final order of the United States District Court for the Southern District of New York (Duffy, J.). The order affirmed a final order of the United States Bankruptcy Court for the Southern District of New York (Goodman, J.) which denied Skadden $35,000 in attorneys fees. For the reasons that follow, we vacate and remand.

Skadden represented Ames Department Stores, its affiliates and subsidiaries (collectively "Ames") in its successful reorganization under Chapter 11 of the Bankruptcy Code. 11 U.S.C. §§ 101 et seq. One of the problems that arose during the Chapter 11 proceeding was whether Ames could exercise its contractual right to terminate a group life insurance plan. The plan, which was adopted in 1918 by G.C. Murphy Co., one of Ames' affiliated companies, provided modest life insurance benefits for its employees. When the Ames group acquired Murphy in 1985, it continued the plan in operation for Murphy retirees, a group that numbered approximately 2500 when Ames petitioned to terminate the plan in 1992. At that time, the annual cost of the plan exceeded $400,000, and it was estimated that, unless the plan was terminated, Ames would have to pay in excess of $4.7 million during the remainder of the plan's existence. Obviously, Ames would save a substantial sum if it could exercise the option given it by the terms of the plan to terminate it at will. However, developments in the law which antedated Ames' reorganization created a question as to whether Ames' option could be exercised.

In 1986, The LTV Corporation petitioned for Chapter 11 reorganization and then promptly announced the termination of the life and health insurance benefits of approximately 78,000 employees. A widespread adverse reaction to this move prompted Congress to enact amelioratory legislation, the end result of which was the Retiree Benefits Bankruptcy Protection Act of 1988, Pub.L. 100-334, 102 Stat. 610, codified in pertinent part in 11 U.S.C. §§ 1114 and 1129(a)(13). See Pension Benefit Guar. Corp. v. The LTV Corp., 496 U.S. 633, 640-41, 110 S.Ct. 2668, 2672-73, 110 L.Ed.2d 579 (1990); In re Chateaugay Corp., 140 B.R. 64, 67-69 (S.D.N.Y.1992), vacated as moot, 153 B.R. 409 (S.D.N.Y.1993). In substance, section 1114 precludes a debtor in possession from modifying retiree benefits unless "necessary to permit the reorganization of the debtor," and provides for consultation between the debtor or plan trustee and an "authorized representative" of the retirees towards the end that an agreement concerning modification might be reached and court approval sought.

As our exhaustive experience with RICO has taught us, a statute which at first glance appears to be "plain on its face," see description of RICO in United States v. Vignola, 464 F.Supp. 1091, 1096 n. 11 (E.D.Pa.), aff'd, 605 F.2d 1199 (3d Cir.1979), cert. denied, 444 U.S. 1072, 100 S.Ct. 1015, 62 L.Ed.2d 753 (1980), may require substantial judicial interpretation. Section 1114 turned out to be such a statute. In In re Ionosphere Clubs, Inc., 134 B.R. 515 (Bankr.S.D.N.Y.1991), Chief Bankruptcy Judge Lifland described this section as follows:

This provision, enacted with 11 U.S.C. § 1129(a)(13), has spawned diverse and sometimes inconsistent interpretations and theories as to the substantive and procedural standards necessary for modification of retiree benefits. Expressed colloquially, these interpretations are all over the lot. Some are well reasoned, some conclusory with limited analysis.

Id. at 517 (footnote omitted).

Judge Lifland then cited nine cases in support of the foregoing observation, among which were In re Chateaugay Corp., 945 F.2d 1205 (2d Cir.1991), cert. denied, 502 U.S. 1093, 112 S.Ct. 1167, 117 L.Ed.2d 413 (1992) and In re Doskocil Companies, Inc., 130 B.R. 870 (Bankr.D.Kan.1991). In Chateaugay At a later point in his opinion, Judge Lifland specifically discussed these two cases:

                the debtors were obligated by the terms of the 1984 National Bituminous Coal Wage Agreement to pay health benefits to their retired employees.   We held that upon termination of the Wage Agreement, the debtors' obligation to pay benefits ceased.   Ergo, the cessation procedures of section 1114 were not applicable.   The facts of Doskocil were more closely aligned to those of the instant case, in that the debtor relied upon language in its benefit plan permitting the debtor to modify or terminate the plan.   Despite this difference, the Doskocil court followed the lead of Chateaugay in holding that section 1114 was not applicable
                

The Creditors' Committee has argued that under the recent In re Doskocil Companies Inc., 130 B.R. 870 (Bankr.D.Kan.1991) and In re Chateaugay Corp., 945 F.2d 1205 (2d Cir.1991) decisions the Trustee is free to terminate retiree benefits as this right was preserved in various summary plan descriptions. These cases held that section 1114 does not protect retiree benefits beyond the contractual obligations of the debtor. Consequently, the Creditors' Committee argues that Eastern is free to terminate retiree benefits at any time. Such termination of benefits would be absolute; no claim whatsoever would arise against the estate. The Trustee, however, has not requested such a termination of benefits and, therefore, this court offers no opinion on the parties' rights in this respect.

Ionosphere, supra, 134 B.R. at 519 n. 4.

Like the attorneys for the creditors' committee in Ionosphere, Skadden moved the bankruptcy court for permission to terminate Ames' plan without regard to the provisions of section 1114. In a ruling from the bench, made without reference to the above cases or any other authority, Bankruptcy Judge Conrad said:

I have read what you wanted me to read. Let me make my finding just in case you appeal. I think it is clear beyond peradventure of a doubt, based upon the pleadings that are in this record, that 1114 applies. It is the clear intent of Congress. These are retiree benefits, period. Those are my findings of fact and conclusions of law under 7052.

The district court affirmed in an order not officially reported, and we are not asked to overturn that ruling. However, sua sponte and without notice, the district court decided that Skadden was not entitled to any fees for its services in connection with the appeal. Following the bankruptcy court's confirmation of a reorganization plan for Ames, Skadden filed an application for payment of its fees. The bankruptcy court, feeling "bound by the Judgment to disallow any of the fees that Skadden, Arps incurred in connection with the Appeal," reduced Skadden's total fee award by $35,000, "which represents all the fees incurred by Skadden, Arps in connection with the Appeal." Upon Skadden's appeal to the district court, this order was affirmed. The propriety of the order, promulgated as directed by the district court, is the sole issue on this appeal. No opposition to Skadden's requested reversal has been voiced. Skadden has announced that if it is successful, it will waive any recovery from Ames of fees and expenses incurred in challenging the bankruptcy court's fee determination.

DISCUSSION

Because of its singular relevance to Skadden's position herein, we begin our discussion with an excerpted statement of Shakespeare:

Who steals my purse steals trash; ...

But he that filches from me my good name ... makes me poor indeed.

Othello act 3, sc. 3.

Thirty-five thousand dollars is not exactly "trash," even to a large and successful law firm such as Skadden. However, because of the cost of challenging the fee determination for which Skadden seeks no reimbursement, the net financial benefit to Skadden, even if successful, might well fit the description of trash. In short, it is obvious that Skadden's primary purpose in pursuing this matter is to eradicate the damage to its good name resulting from the acts and comments of the district court in mandating the bankruptcy court's disallowance of fees.

As a general rule, an order of a district court acting as an appellate court in a bankruptcy case is subject to plenary review, which permits this Court to make an independent review of the bankruptcy court's findings and conclusions. In re Momentum Mfg. Corp., 25 F.3d 1132, 1136 (2d Cir.1994). In the instant case, however, the bankruptcy court made no factual findings and reached no legal conclusions in denying Skadden's fee application. It simply obeyed the district court's mandate. Accordingly, in determining the existence vel non of legal and/or factual error, we look to what the district court, not the bankruptcy court, did.

In its first order, which affirmed the bankruptcy court's holding concerning the applicability of section 1114, the district court, referring to Ames' expressed desire to avoid what it considered unnecessary expense in complying with the provisions of section 1114, said:

It appears to me that the only thing which is expensive and unnecessary here is this appeal. Clearly, the interests and rights of the Retired Employees should not go unprotected. The appointment of the Employees' Committee...