In re Athos Steel and Aluminum, Inc.
| Decision Date | 27 January 1987 |
| Docket Number | Bankruptcy No. 86-01486. |
| Citation | 69 BR 515 |
| Parties | In re ATHOS STEEL AND ALUMINUM, INC., Debtor. |
| Court | U.S. Bankruptcy Court — Eastern District of Pennsylvania |
Myron Bloom, Adelman Lavine Krasny Levin & Gold, Philadelphia, Pa., for debtor, Athos Steel and Aluminum, Inc.
Horace A. Stern, Fox, Rothschild, O'Brien & Frankel, Philadelphia, Pa., for objector, Jay Wechsler.
On March 31, 1986, Athos Steel and Aluminum, Inc. ("Athos Steel") filed a petition under chapter 11 of the Bankruptcy Code and since then has continued to operate its business as debtor in possession. On May 14, 1986, Athos Steel filed a Notice of Intention to Pay Compensation to Officer pursuant to Local Bankr.Rule 4002.1.1 The notice stated that the debtor intended to retain its chief executive officer and treasurer, David Wechsler, and pay him at his current salary, $87,646.00 per year. The notice also stated that any creditor or party in interest objecting to David Wechsler's retention or his salary should file an objection after which a hearing on the objection would be scheduled. On August 3, 1986, Jay Wechsler, the brother of David Wechsler, filed the sole objection in this matter, asserting that compensation should be set at $45,000.00 annually. A hearing was held on October 16, 1986.
For the reasons explained below, I hold that: (1) Jay Wechsler is not a party in interest and therefore may not object to David Wechsler's retention and compensation; (2) even in the absence of an objection, the bankruptcy court has the power to review and set the compensation which the debtor may pay its chief executive officer; and (3) David Wechsler's annual salary for his work at Athos Steel will be set at $70,000.00 per year.
1. David Wechsler is chairman of the board, president and treasurer of Athos Steel. (N.T. 34).
2. David Wechsler is a graduate of Cornell University. He also has received an M.B.A. from Harvard Business School. (N.T. 34).
3. He has been employed by Athos Steel since 1967. He began as Vice President of Marketing and later became Executive Vice President. In 1981, he obtained his position as Chairman of the Board. (N.T. 35).
4. Athos Steel is, in part, a family owned business. David Wechsler's father, at least in the past, had a significant role in the operation of the business. (N.T. 35, 94-95).
5. David Wechsler's highest annual salary was in 1981 when he received $99,600.00. (N.T. 36, 86). At that time, David Wechsler's father was on the board of directors. (N.T. 86).
6. His salary was set as a result of his direct discussions with the attorneys who represent Athos Steel. It is unclear from the record, however, the degree to which the attorneys were independent, particularly during the period after David Wechsler became chairman of the board. (N.T. 36-37, 93-94).
7. As a result of business losses beginning in 1982, David Wechsler's annual salary was reduced following discussions he had with Athos Steel's owners. (N.T. 94-95).
8. Also as a result the debtor's business losses, three members of the management staff left Athos Steel: the president, executive vice president and general manager. (N.T. 45).
9. In addition to his duties as chairman of the board of Athos Steel, David Wechsler assumed the duties of the management personnel who left the company. (N.T. 45-47).
10. In addition to his duties with Athos Steel David Wechsler is also the president of Athos Realty Co. ("Athos Realty"). (N.T. 49).
11. Athos Realty is owned almost entirely by Athos Steel. Athos Steel is Athos' Realty's sole tenant. (N.T. 49, 91).
12. Since January 1, 1986, David Wechsler has received an annual base salary of $87,000.00 from Athos Steel. (N.T. 74).
13. He also receives from Athos Steel the use of an automobile which has a value of $5,000.00 per year and the use of credit cards which has a value of $1,000.00 per year. (N.T. 88).
14. As president of Athos Realty, David Wechsler receives annual compensation of $29,400.00 per year. (N.T. 88-89).
15. David Wechsler spends approximately 48 to 50 hours per week on the affairs of Athos Steel and Athos Realty. He estimates that approximately four to six hours per week of this time is devoted to the business of Athos Realty. (N.T. 48, 89-91).
16. The gross annual sales for Athos Steel for the year ending September 1985 were $23 million and were between $16 and $17 million for the year ending September 1986. For the two months preceding the hearing in this matter, gross annual sales were running at a rate equivalent to $11.5 to $12 million annually. (N.T. 96).
17. Jay Wechsler, the objector herein, is the brother of David Wechsler. (N.T. 5).
18. Jay Wechsler is not a creditor of either Athos Steel or Athos Realty. (N.T. 5, 6).
19. Jay Wechsler has never been a shareholder of Athos Steel. He once owned stock in Athos Realty, but gave away the stock as gifts well before the filing of the debtor's bankruptcy petition. (N.T. 13-15).
20. He was once employed by Athos Steel but he left the company in 1965. (N.T. 12).
21. Certain shareholders of Athos Realty have filed a lawsuit in the Court of Common Pleas, Philadelphia County, Pa. against Athos Steel, which is presently pending, in which they seek to reverse a stock transfer which they claim wrongfully deprived them of control of Athos Realty. If successful, the lawsuit could deprive the debtor of an asset. However, although he has, for some reason not clear from the record, joined as a plaintiff in that action, Jay Wechsler has no financial stake in the outcome of that litigation. (N.T. 5, 27).
22. Jay Wechsler is not on good terms with his brother David Wechsler and has not spoken to him in fifteen years. (N.T. 13). Jay Wechsler's motivation in objecting to his brother's compensation is not based on any impact this bankruptcy may have on his pecuniary or legal interests. Rather, it is based on personal animus.
23. Taking into consideration David Wechsler's current duties, the debtor's place in the industry and the salaries paid to others for comparable employment, an annual salary of $70,000.00 for David Wechsler is fair and reasonable.
1. Jay Wechsler is not a party in interest and may not assert objections to the compensation paid to David Wechsler.
2. In the absence of an objection raised by a party in interest, the court has the power under 11 U.S.C. §§ 327, 328, 330, to review the compensation being paid to officers of a debtor corporation.
The threshold question in this case is whether objector Jay Wechsler is a party in interest who may be heard in opposition to his brother's request for court approval of the annual salary the debtor proposes to pay.2 The starting point in resolving this issue is 11 U.S.C. § 1109(b), which provides:
A party in interest, including the debtor, the trustee, a creditors\' committee, an equity security holders\' committee, a creditor, an equity security holder, or any indentured trustee, may raise and may appear and be heard on any issue under this chapter.
The Third Circuit has made clear that the term "party in interest" is not limited by the examples set forth in section 1109(b). In re Amatex Corp., 755 F.2d 1034, 1042 (3d Cir.1985). Collier states that "section 1109(b) must be construed broadly to permit parties affected by a chapter 11 case to appear and be heard." 5 Collier on Bankruptcy ¶ 1109.02, at 1109-24 (15th ed. 1986) (emphasis added). Courts must determine on a case by case basis "whether the prospective party in interest has a sufficient stake in the outcome of the proceeding so as to require representation." In re Amatex Corp., 755 F.2d at 1042.
The heart of Jay Wechsler's argument is that the concept of "party in interest" can mean something other than the term creditor. Under 11 U.S.C. § 1109(b) and In re Amatex Corp., there is no question that this is true. However, the argument goes only so far. The putative party in interest must still establish a sufficient stake in the outcome of the proceeding in order to be entitled to be heard.3 In a decision involving the related concept of standing, in the article III constitutional sense, the Third Circuit has stated that a claimant must demonstrate exposure to some actual or threatened injury. Frissell v. Rizzo, 597 F.2d 840, 844 (3d Cir.1979), cert. denied, 444 U.S. 841, 100 S.Ct. 82, 62 L.Ed.2d 54 (1979). Moreover, "even when a litigant has demonstrated a concrete and particularized injury to himself, he is usually permitted to assert only his own legal rights as a ground for a decision in his favor, not those of third parties not before the court." Id. at 844. But cf. American College of Obstetricians v. Thornburgh, 737 F.2d 283 (3d Cir.1984), aff'd, ___ U.S. ___, 106 S.Ct. 2169, 90 L.Ed.2d 779 (1986) ().
In this case, I conclude that Jay Wechsler has not met the minimum threshold of establishing that his interests may be affected by the Athos Steel bankruptcy. By his own admission, he has no present business relationship with the debtor. See In re O.P.M. Leasing Services, Inc., 21 B.R. 983, 986 (S.D.N.Y.1981) (). It is also undisputed that the Athos Steel bankruptcy will have no direct effect on the objector's pecuniary interests. What, then, is the reason advanced by Jay Wechsler for involving himself in this matter? He testified that he, too, is in the steel business as a buyer and seller of odd lots of steel through the Sugarbush Products Co. He claims that his own reputation in the steel business would suffer if the Athos Steel reorganization is unsuccessful.
I have doubts whether an, at best, indirect injury to reputation suffices to confer party in interest status in a bankruptcy proceeding, to an otherwise unrelated third party,...
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