Cle-Ware Industries, Inc. v. Sokolsky
| Citation | 493 F.2d 863 |
| Decision Date | 26 February 1974 |
| Docket Number | No. 73-1063.,73-1063. |
| Parties | In the Matter of Cle-Ware Industries, Inc., et al., Debtor. CLE-WARE INDUSTRIES, INC., et al., Appellants, v. Howard SOKOLSKY et al., Appellees. |
| Court | U.S. Court of Appeals — Sixth Circuit |
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Mark S. Lieberman, Chicago, Ill., for appellants; Jack B. Schmetterer, Gottlieb & Schwartz, Chicago, Ill., on brief.
Ned L. Mann and Cheryl S. Karner, Cleveland, Ohio, for appellees; Nadler, Sokolsky & Bahas, Benesch, Friedlander, Mendelson & Coplan, Cleveland, Ohio, on brief for Sokolsky, Friedlander and Phillips; Frank Whalen, Wells, Marks & Whalen, Cleveland, Ohio, on brief for Frank Whalen; Robert H. Jackson, Kohrman & Jackson, Cleveland, Ohio, on brief for Kohrman & Jackson.
Before PHILLIPS, Chief Judge, CECIL, Senior Circuit Judge, and ALLEN, District Judge.*
This is an appeal of an order of the District Court which affirmed an allowance of attorneys' fees entered by a Bankruptcy Judge in a Chapter XI proceeding under the Bankruptcy Act. Jurisdiction is based on 11 U.S.C. § 47.
Few issues in bankruptcy administration are litigated so frequently as the question of attorneys' fees.1 Yet few areas of bankruptcy law are as clouded by uncertainty about the meaning of statutes, rules and judicial opinions as the area of attorneys' fees. There is, however, agreement that the allowance of fees to an attorney depends largely upon the facts of each individual case.2 The facts in the present case are set out at length because of the large number of bankruptcy law issues which they raise.
This proceeding was commenced on February 18, 1971, by the filing of a petition for an arrangement under Chapter XI of the Bankruptcy Act by Cle-Ware Industries, Inc. (Cle-Ware). Approximately one week later similar petitions were filed by nine subsidiary corporations of Cle-Ware. All of the corporations were encountering financial difficulties and sought court-assisted rehabilitation. For purposes of more efficient administration, the cases of the ten corporations were consolidated by the Bankruptcy Court on March 3, 1971.
The debtor corporations were involved in the nationwide distribution and warehousing of automotive parts and accessories and hardware and plumbing parts and supplies. Corporate facilities were operated in Cleveland, New York, Atlanta, California and Puerto Rico, while the Cle-Ware Rayco, Inc. subsidiary maintained 159 retail outlets throughout the entire United States, in addition to a Rhode Island manufacturing plant. The total enterprise employed hundreds of people in various parts of the country and produced an annual sales volume of about $44 million.
At the time of the arrangement, unsecured creditor claims totaled over $15 million and secured creditor claims aggregated over $4 million. The plan of arrangement provided that secured creditors would be paid off completely and general creditors would receive five cents on the dollar with a stock option or the possibility of fifteen to twenty cents on the dollar for those who elected to take deferred payments. The Cle-Ware enterprise was revived by the plan of arrangement and is in full operation today.
When the arrangement proceedings began, the Bankruptcy Judge authorized the debtor-in-possession to continue to operate the corporate business. Attorneys Howard L. Sokolsky and Jerome Friedlander were appointed by the Bankruptcy Judge as counsel for the debtor-in-possession under a general retainer pursuant to General Order 44 of the General Orders in Bankruptcy.3 These appointments were made even though the debtor already had retained other counsel, namely Frank C. Whalen and the law firm of Kohrman and Jackson, who never applied to the Bankruptcy Judge for appointment pursuant to General Order 44. The debtor-in-possession and the debtor were one and the same parties, to wit, Cle-Ware and its nine subsidiaries.
The Bankruptcy Judge attempted "to establish rigid boundaries in which the debtor-in-possession was to operate the Cle-Ware empire." Believing that creditors had little faith in the debtor's ability to operate the corporate business successfully, the Bankruptcy Judge required counsel for the debtor-in-possession to devote their legal skills "to overseeing the entire management of the business in order to protect the assets and prevent losses." To attain this result, the Bankruptcy Judge required that all Cle-Ware expenditures "be made only upon application and order of the Court." Over an eight month period from February 1971 to October 1971, there were 2,487 of these applications submitted to and approved by the Bankruptcy Court.
After a plan of arrangement for all debtors was confirmed by the Bankruptcy Judge on October 13, 1971, the applications for attorneys' fees, which are the subject of this appeal, were filed. Sokolsky and Friedlander, counsel appointed by the court to represent the debtor-in-possession filed a joint application seeking $200,000 compensation. Whalen and the firm of Kohrman and Jackson at the same time filed an application for $180,000 in compensation as attorneys for the debtor.
The attorneys for the debtor also represented Gerald Levine, who owned 165,992 shares of the 394,000 outstanding shares of Cle-Ware stock. They represented Levine in his personal stock negotiations with various parties, including several persons known collectively as the 1300 Group, to whom Levine sold his Cle-Ware stock by an agreement also concluded on October 13, 1971.
The debtor companies, through their new management, filed written objections to the application submitted by the four sets of attorneys, raising serious factual questions about the claims. As to the attorneys for the debtor, it was charged, among other things, that (1) certain of their services were duplicated by the services rendered by attorneys for the debtor-in-possession or should have been rendered by the latter attorneys; and (2) extensive services were rendered on behalf of their personal client, Gerald Levine, the principal stockholder of Cle-Ware, which were not compensable in the bankruptcy proceedings. As to the attorneys for the debtor-in-possession, it was objected that they had failed to document their services with detailed time records. As to all attorneys, it was charged that they claimed compensation for extensive ministerial and administrative services that were not properly compensable as "professional services," and that counsel had duplicated much work of the administrative personnel of the debtor-in-possession and of each other. Without conducting any evidentiary hearing as to these issues of fact, the Bankruptcy Judge allowed a fee of $162,500 to the attorneys for the debtor and $197,500 to the attorneys for the debtor-in-possession.
The following schema outlines the requests and allowances for the respective attorneys:
Requested
Court Compensation
Client Attorneys Approved Allowance
Debtor Whalen and the No $180,000 $162,500
firm of Kohrman
and Jackson
Debtor-in-Possession Sokolsky and Yes $200,000 $197,500
Friedlander
________
Total Allowance $360,000
The appellant debtor companies then petitioned the District Court to review the Bankruptcy Judge's order and to suspend execution thereof, citing as errors the objections to the fee applications that had been overruled by the Bankruptcy Judge and the Bankruptcy Judge's failure to hold an evidentiary hearing. The District Court on November 20, 1972, affirmed the Bankruptcy Judge's Allowance of Fees and Second Order of Distribution in a five line order. From that order, this appeal has been perfected.
In determining whether the fees awarded counsel were excessive, we are guided by the economic spirit of frugality that underlies the Bankruptcy Act. In In re Mt. Forest Fur Farms of America, Inc., 157 F.2d 640, 644 (1946), this court, speaking through Judge Martin, said:
4
More recently, Bankruptcy Judge Asa S. Herzog has written as follows:
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In re Winom Tool and Die, Inc.
...was unequivocally accepted by the Sixth Circuit in a pre-Code, chapter XI case involving a debtor in possession. See In re Cle-Ware Indus., 493 F.2d 863, 870 (6th Cir.), cert. denied, 419 U.S. 829, 95 S.Ct. 50, 42 L.Ed.2d 53 (1974) ("The debtor and debtor in possession are treated as separa......
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In re Roberts
...v. Friedman, 230 F.2d 364 (7th Cir.1956), cert. den., 351 U.S. 943, 76 S.Ct. 337, 100 L.Ed. 1469 (1956); Cleware Industries, Inc. v. Sokolsky, 493 F.2d 863 (6th Cir. 1974).142 After analyzing this split in the opinions as to whether fees should be routinely denied attorneys whenever a confl......
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In re Garland Corp.
...items as rent, heat, light, secretaries and probably local transportation is not. See, e.g., Cle-Ware Industries, Inc. v. Sokolsky (In re Cle-Ware Industries, Inc.), 493 F.2d 863 (6th Cir. 1974), certiorari denied 419 U.S. 829, 95 S.Ct. 50, 42 L.Ed.2d 53; In re Mabson Lumber Co., 394 F.2d 2......
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Johnson, In re
...findings of fact unless they are clearly erroneous. In re Albert-Harris, Inc., 313 F.2d 447 (6th Cir. 1963); Cle-Ware Industries, Inc. v. Sokolsky, 493 F.2d 863 (6th Cir. 1974), cert. denied 419 U.S. 829, 95 S.Ct. 50, 42 L.Ed.2d 53 and sub nom. Whalen v. Cle-Ware Industries, Inc., 419 U.S. ......