IN RE COMMUNICATIONS MANAGEMENT & INFORMATION
| Decision Date | 11 January 1994 |
| Docket Number | Bankruptcy No. 92-61432. |
| Citation | 172 BR 136 |
| Parties | In re COMMUNICATIONS MANAGEMENT & INFORMATION, INC., Debtor. |
| Court | U.S. Bankruptcy Court — Northern District of Georgia |
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Kyle Woods, Atlanta, GA, for TelAmerica.
John Pennington, Wilson, Strickland & Benson, Atlanta, GA, for chapter 7 trustee.
This matter is before the court on the Third Amended Application of TelAmerica Corporation for Allowance and Payment of Administrative Claim for Services Rendered and Reimbursement of Expenses (the "Third Application") filed June 15, 1993 pursuant to 11 U.S.C. § 503(b)(1), 503(b)(3)(D) and 503(b)(4). The Third Application seeks compensation and reimbursement of expenses in the following amounts:
For services provided by TelAmerica employees:1
T. Larry Amick 163.3 hours @$110/hour $17,963.00
John C. Wilson 256.2 hours @$85/hour 21,777.00
M.N. Rosenmarkle 75.3 hours @$75/hour 5,647.50
Ira A. Hunt, Jr. 46.6 hours @$95/hour 4,427.00
Gerald L. Hornick 53.6 hours @$75/hour 4,020.00
George Adams 117.0 hours @$55/hour 6,435.00
For reimbursement of expenses of those five employees
Including airfares, lodging, meals and ground
transportation 14,230.54
For services of J.H. Marketing 27,202.59
For services of Stone Mountain Systems 26,800.00
For services of Stonebridge Management Services2 4,950.00
___________
TOTAL $124,419.08
On November 22, 1993, the Chapter 7 Trustee filed a motion for summary judgment denying the Third Application. TelAmerica Corporation ("TelAmerica") filed a response opposing the Trustee's motion. The Chapter 7 Trustee filed a reply. In addition to the pleadings filed in connection with the motion for summary judgment, the Third Application and the exhibits which accompanied it were considered.
Debtor was in the telecommunications business concentrating in providing 900 calling services. An involuntary petition was filed against Communications Management & Information, Inc. ("Debtor") January 24, 1992. A Chapter 11 Trustee was appointed February 14, 1992 and the order for relief was entered March 5, 1993. TelAmerica was interested in acquiring Debtor prepetition and was engaged in negotiations with Debtor for its acquisition prior to the filing of the bankruptcy petition. TelAmerica extended credit to Debtor postpetition but before the entry of the order for relief to allow Debtor to meet its payroll and other operating expenses. After the order for relief was entered, and with court authority, TelAmerica continued to extend credit to Debtor to fund payroll and operating expenses.
TelAmerica continued to pursue acquisition of Debtor postpetition and chose to do so via its plan of reorganization instead of a purchase from the Trustee. During the time that TelAmerica was formulating its plan and disclosure statement, TelAmerica consulted with Trustee and either or both of the petitioning creditors and the creditors' committee. TelAmerica filed a plan and disclosure statement as "Purchaser/Reorganizer" June 4, 1992.3 The case was converted, however, on the motion of the Chapter 11 Trustee to a Chapter 7 case by order entered September 3, 1992.
After the § 341 meeting held in July, 1992, Trustee removed Les Gable as Debtor's CEO and briefly replaced him with George Adams, an employee of TelAmerica. Two weeks later, Adams' services were terminated by Trustee when she decided to file her motion to convert. During the two week period Adams served as CEO of Debtor, Adams was paid by TelAmerica.
Between the filing of the January involuntary petition and Trustee's motion to convert, TelAmerica became involved in attempting to salvage and revive Debtor's operations, which had largely ceased when the petition was filed. TelAmerica's activities are detailed in the Third Application and are discussed below. TelAmerica contends it provided general management, marketing, financial management, collections and systems and data processing services to Debtor during this period. TelAmerica asserts that those services represent a substantial contribution to the case or were actual and necessary for the preservation of the estate.
After Trustee filed her motion to convert, she contacted TelAmerica to ask whether TelAmerica wished to purchase Debtor. At that time, Trustee had "locked down" Debtor. Approximately a week later, however, TelAmerica and Trustee executed a purchase agreement and Trustee allowed TelAmerica to resume operating Debtor's business. The purchase was closed September 22, 1992, shortly after the case was converted.
The purchase agreement between Trustee and TelAmerica, executed August 7, 1992, provided for acquisition by TelAmerica of the lease of Debtor's business premises; all Debtor's hard assets, including furniture, computers, telecommunications equipment; Debtor's intangibles, including software license rights, copyrights, etc.; Debtor's Georgia Dome Executive Suite License Agreement; and Debtor's accounts receivable. The agreement also provided for acquisition by TelAmerica of an interest in Debtor's claim against MCI and acceptance of the obligation to fund the litigation against MCI. The purchase price was $500,000 cash less $152,232.95 for the postpetition loans extended by TelAmerica to Debtor, less $30,000 payment to cure defaults on the Georgia Dome license, less $8,951.86 owed by the Trustee for accounts receivable not paid to TelAmerica as provided in the purchase agreement.
TelAmerica filed an application January 7, 1993, for payment of administrative expense for services rendered to the Debtor from January, 1992 through August, 1992 in the total amount of $138,942.63. Objections were filed to the application by the Chapter 7 Trustee, the U.S. Trustee, MCI Telecommunications Corporation ("MCI") and the petitioning creditors. Two amendments and supplements to the application were filed by TelAmerica February 8, 1993 and May 10, 1993.
Hearing was held May 10, 1993 on the amended and supplemented application. The court requested a third amendment to the application of TelAmerica, a detailed response thereto from the Chapter 7 Trustee, and established a briefing schedule on the issues presented. Trustee's motion for summary judgment was filed after the Third Application, Trustee's response and the briefs were filed.
The Third Application contains itemized lists of expenses and time summaries of the time expended by T. Larry Amick, John C. Wilson, Michael N. Rosenmarkle, Ira A. Hunt, Jr., and Gerald L. Hornick, all of whom were at all relevant times employees of TelAmerica. Also included is information on the services provided by J.H. Marketing, a firm employed by TelAmerica who performed services for Debtor; by Stone Mountain Systems and Development Corporation (the Trustee does not dispute that Stone Mountain is entitled to payment as an administrative expense); and by Stonebridge Management Strategies, an accounting firm employed by TelAmerica.
In the Third Application, TelAmerica classified each of the time entries of its employees as in one of four categories: Category A, Priority lender to Debtor; Category B, Management and administrative provider to Debtor; Category C, Proposer and organizer of the Plan for Debtor; and Category D, Purchaser of Debtor's asserts. Examples of entries designated as Category B include: "Review work of accountant on asset values," "Discuss with Rosenmarkle Debtor's cash needs/timing/alternatives." "Wire funds to Debtor for lease payment," "Review of accounts payable, budgets and forecasts," "Review proposal for support/acquisition of Debtor." Another example is Mr. Amick's time entry for May 14, 1992, which shows the following:
Work to prepare for court/creditor sessions; team with Wilson and with Debtor\'s staff on comprehensive financial report, respond to Stonebridge Management requests.
In Category B time entries for March, 1992, several discussions took place with Mr. Berglund (Debtor's current CEO) regarding a pay cut which the Trustee intended to implement which would reduce Mr. Berglund's salary by half. TelAmerica's employees had volunteered to discuss the matter with Mr. Berglund because TelAmerica wished to retain Mr. Berglund's services for its own benefit after its acquisition of Debtor. Other examples of Category B time entries include "Seek ATC business in Atlanta," "Collection of Debtor's accounts receivable," "Work with Debtor's CEO and staff on general management and accounting matters," "Work with Debtor's CEO and staff on reduction of operating expenses, Debtor's cash needs, receivables and general management and marketing matters."
TelAmerica's Third Application also includes services performed by TelAmerica's employees and J.H. Marketing which involved the collection of accounts receivable and the identification and recovery of estate assets. Although Trustee may not have specifically requested such services from TelAmerica, she knew of TelAmerica's involvement with Debtor, acquiesced to those activities, and accepted the benefit therefrom to the estate. Trustee now asserts that TelAmerica's activities resulted in no net gain for the estate and were, in fact, detrimental to the estate.
Pursuant to FRCP 56(c), incorporated in Bankruptcy Rule 7056, a party moving for summary judgment is entitled to prevail if no genuine issue as to any material fact exists and the moving party is entitled to judgment as a matter of law. The burden of proof is on the moving party to establish that a genuine issue of material fact is absent. Adickes v. S.H. Kress & Co., 398 U.S. 144, 90 S.Ct....
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