In re AroChem Corp., Bankruptcy No. 92-50505
| Decision Date | 10 May 1995 |
| Docket Number | Bankruptcy No. 92-50505,92-50506. |
| Citation | 181 BR 693 |
| Court | U.S. Bankruptcy Court — District of Connecticut |
| Parties | In re AROCHEM CORPORATION, AroChem International, Inc., Debtors. |
COPYRIGHT MATERIAL OMITTED
Timothy Miltenberger, E. Huntington Deming, Coan, Lewendon, Royston, Deming & Gulliver, New Haven, CT, for Richard Coan, Trustee.
Patricia Beary, Asst. U.S. Trustee, Office of U.S. Trustee, New Haven, CT.
Andrew Frackman, O'Melveny & Myers, New York City, for Victory Oil Co. and Eric C. Johnson.
Michael A. Caddell, Keith P. Ellison, Caddell and Conwell, Houston, TX, and James C. Graham, Pepe and Hazard, Hartford, CT, for Trustee, Essex Energy, Inc., Edwin Wells, Stetson Capital Corp. and Stetson Petroleum & Petrochemical Ventur.
Deirdre Martini, U.S. Attorney's Office, Bridgeport, CT, for I.R.S William S. Fish, Tyler, Cooper & Alcorn, Hartford, CT, for Shantou Ocean Enterprises Group, Bank Brussels Lambert and Skopbank.
Wilbur Foster and Richard C. Tufaro, Milbank, Tweed, Hadley & McCloy, New York City, for Chase Manhattan Bank, N.A., Banque Indosuez and Swiss Bank Corp.
Roger Juan Maldonado, Teitelbaum, Hiller, Rodman, Padem & Hidsher, P.C., New York City, for Government Development Bank for Puerto Rico and Treasury Dept. for Commonwealth.
Katherine A. Burroughs, Hebb & Gitlin, P.C., Hartford, CT, for CORCO (Commonwealth Oil Refining Co., Inc.).
ALAN H.W. SHIFF, Bankruptcy Judge.
Richard M. Coan, the Chapter 7 trustee for the bankruptcy estates in these administratively consolidated cases, seeks court approval under 11 U.S.C. § 327 to employ the law firm of Caddell & Conwell of Houston, Texas ("Caddell") as special counsel for the purposes, and under the conditions, described in the Trustee's Application for Entry of an Order Authorizing Trustee to Enter Into Agreement with Edwin E. Wells, Jr., and Authorizing, Pursuant to Section 327(c) of the Bankruptcy Code, the Retention and Employment Of Caddell & Conwell as Special Counsel, filed November 17, 1994, as amended on January 27, 1995, and further amended on February 3, 1995 (the "Application").
At the outset, the distinction between a motion and an application is noted. A request for an order generally requires a motion, see Fed.R.Bankr.P. 9013, which in turn requires notice and a hearing, see Fed. R.Bankr.P. 9014; see also 11 U.S.C. § 102(1); e.g. 11 U.S.C. § 330. In contrast, a request for an order approving a trustee's employment of an attorney pursuant to 11 U.S.C. § 327 is made by filing an application with a copy transmitted to the United States Trustee. See F.R.Bankr.P. 2014(a). Accordingly, the Trustee here was not required to serve notice on any party of his request for court approval of his employment of Caddell, and a hearing was not required under the bankruptcy code or rules. Notwithstanding these procedures, the Trustee gratuitously disseminated his Application to the parties appearing in this matter; and due to the magnitude and complexity of the issues raised by the Application, I have permitted those parties to present their views and offer evidence during a three-day hearing.
The scope of Caddell's proposed employment was not sufficiently defined in the Application. Paragraph 8 suggests that Caddell's employment is sought in connection with "non-bankruptcy causes of action brought on behalf of the Estate . . . and . . . certain adversary proceedings brought pursuant to 11 U.S.C. §§ 547 and 548." As to the non-bankruptcy causes of action, I note that Paragraph 4 recites that the Trustee has commenced a legal action "seeking recovery on various causes of actions sic for acts and omissions generally relating to AroChem during the period from 1988 through 1992." It is evident that the action referred to is the civil action styled Richard M. Coan, Trustee v. Chase Manhattan Bank, N.A., et al. (Civil Action H 94-3930), pending in the United States District Court for the Southern District of Texas (the "Trustee's Texas Action"). I have previously approved Caddell's employment for the limited purpose of commencing the Trustee's Texas Action to preserve any rights he may have against the possibility that an applicable statute of limitation might bar their prosecution. At an April 27, 1995 hearing, the Trustee stated that the Application also contemplated Caddell's representation of the estates in connection with six additional civil actions identified on the record at that hearing (the "Miscellaneous Actions").1 I will consider approval of the Application only for the purposes of Caddell's representation in the Trustee's Texas Action and the Miscellaneous Actions.
The Application also requests approval of the Trustee's agreement with Edwin E. Wells and certain of his corporate affiliates (the "Affiliates"), who are also clients of Caddell, for the pooling of certain claims and sharing of any net recoveries (the "Pooling Agreement"). Wells is a creditor of these bankruptcy estates, and a shareholder and former director of one or both of the Debtors. He and his Affiliates are prosecuting certain causes of action against various defendants (including all but one of the defendants in the Trustee's Texas Action) in connection with the corporate governance, operation, and decline of the Debtors' businesses. Those actions, which are presently pending in separate civil actions in the United States District Courts for the District of Connecticut and the Southern District of Texas (the "Wells Actions"), consist of both derivative and individual claims. The Pooling Agreement attempts, inter alia, to create a common fund from any net recoveries, to be shared equally by Wells and the Trustee after deduction of certain expenses of recovery, including counsel fees to Caddell.
The Trustee argues that unless he is given permission to employ Caddell, he will not be able to prosecute the Trustee's Texas Action, which he estimates could have a value of $100-200 million. The Trustee estimates costs, excluding counsel fees, in the range of $1-2 million. Due to a dearth of liquid estate assets, the Trustee is limited to employing special counsel willing to advance costs and provide services on a contingency fee basis. The Trustee has testified, and Paragraph 11 of the Application provides, that he has "after due diligence, found no other qualified firm willing to undertake representation of the Estate on terms even remotely as favorable to the Estate." Plainly, the Trustee believes that Caddell is willing to undertake the prosecution of the Trustee's Texas Action on a contingency fee basis because of its pre-existing representation of Wells against identical defendants on similar claims which arise from a largely common pattern of facts.
The Application is supported by the United States Department of the Treasury, Internal Revenue Service, which holds a substantial unsecured priority claim, and by several general unsecured creditors. The Government Development Bank of Puerto Rico reported during the hearing that it was withdrawing its objection to the Application. The Office of the United States Trustee has filed an objection to the Application. Several of the principal defendants in the Trustee's Texas Action also oppose the Application, e.g., Chase Manhattan Bank, N.A., Banque Indosuez, Swiss Bank Corporation, Bank Brussels Lambert, and the Victory Group (consisting of Victory Oil Company, Victory Holding Company, Crail Fund, et al.), (collectively, the "Bank Group") who are also creditors of these bankruptcy estates.
The Bank Group's objection challenges the propriety of Caddell's proposed dual representation of Wells and the Trustee. The Bank Group argues that Wells' status as a creditor, shareholder, and former director will infect Caddell's representation of the Trustee with an interest adverse to the bankruptcy estates and create actual conflicts of interest with respect to the matters on which Caddell is to be employed.
The issue addressed by this ruling is whether Caddell is employable under § 327. If Caddell fails to qualify because he holds or represents an interest adverse to these estates, I will discern whether the Pooling Agreement eliminates that conflict. This ruling does not address the legal sufficiency of the Pooling Agreement; but since, for the reasons that follow, I have determined that Caddell is employable under § 327 standards, I will consider that issue if the Trustee continues to seek approval of the Pooling Agreement, but only after appropriate notice to all parties in interest.2
Bankruptcy Code Section 327 provides, in pertinent part, as follows:
11 U.S.C. § 327(a), (c), (e) (emphasis supplied).
The bankruptcy goal of providing creditors with as great a distribution as possible requires that a trustee be given expansive powers to collect property...
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