In re Cook & Sons Mining, Inc.
| Decision Date | 19 October 2020 |
| Docket Number | CASE NO. 03-70789 |
| Parties | IN RE COOK AND SONS MINING, INC. DEBTOR |
| Court | U.S. Bankruptcy Court — Eastern District of Kentucky |
James D. Asher seeks approval of a contingency fee in Debtors' Special Counsel James Asher's Application for Final Allowance of Compensation and Reimbursement of Accrued Expenses and Contingency Fees and related papers. [ECF Nos. 1348, 1357, 1359.] Hearings were held on August 20 and September 17, 2020. [ECF Nos. 1355, 1360.] Asher stated that no other evidence is forthcoming and asked for a decision on the record. [ECF No. 1355.]
Asher was retained as special counsel on a contingent fee basis years ago, and he received payment for the work in 2007. The case was reopened over a decade later to administer a contract-based reimbursement of unearned premiums for insurance coverage unrelated to Asher's special counsel engagement. There is no support for a contingent fee related to the current refund of unearned premiums, so the Application is denied.
The Debtors are Cook and Sons Mining, Inc., and Earnest Cook & Sons, Mining, Inc. They filed voluntary chapter 11 bankruptcy petitions on August 25, 2003. [Case No. 03-70789, ECF No. 1; Case No. 03-70790, ECF No. 1.] The cases were substantively consolidated. [Case No. 03-70789, ECF No. 336; Case No. 03-70790, ECF No. 60.] The Debtors attempted to restructure as an operating entity, but they ultimately ceased operations. The Debtors then pursued a liquidating plan of reorganization [ECF No. 634], which was confirmed on August 15, 2004 [ECF No. 692].
The Plan created a liquidating entity called the Reorganized Debtor. [ECF No. 634, Art. 6.] All assets of the Debtors' estates became property of the Reorganized Debtor at confirmation. [Id.] The Plan further established a Post-Confirmation Committee that consisted of members of the unsecured creditors committee in the bankruptcy case. [Id.] The Plan granted the Post-Confirmation Committee the power to make all decisions for the Reorganized Debtor and its assets. [Id.]
The Post-Confirmation Committee was assisted by a Disbursing Agent, who held the assets and wrote checks to distribute funds to creditors. [Id.] The Disbursing Agent could also perform other tasks assigned by the Post-Confirmation Committee but had no decision-making authority. [Id.] W. Thomas Bunch was appointed Disbursing Agent. Bunch's law firm, Bunch & Brock, represented the Debtors and the Reorganized Debtor.
On October 30, 2003, the Debtors sought authority to appoint James D. Asher as "Special Counsel under Code Section 327(e)" on a contingent fee basis ("Employment Application"). [ECF No. 242.] The Employment Application provided that the Debtors would employ Asher for the "special and specific purposes" listed. [Id.] The relevant work involved insurance related to the Debtors' preparation plant and related equipment. [Id.]
Attached to the Employment Application were two contingency fee agreements executed by the Debtors and Asher on October 28, 2003 ("Contingency Fee Agreements"). [Id.] One Contingency Fee Agreement addressed damages related to the collapse of a silo based oninsurance coverage provided by Underwriter's at Lloyd's of London ("Lloyds"). The other Contingency Fee Agreement addressed water damages related to the same insurance coverage. The Contingency Fee Agreements contemplated compensation based on a percentage of the recovery for authorized work, if approved by required periodic and final fee applications. [Id.]
Asher was approved as special counsel for the Debtors on November 18, 2003. [ECF No. 285.] The terms of the Order were consistent with the Employment Application and Contingency Fee Agreements.
Asher filed an action styled Earnest Cook and Sons Mining, Inc. v. Underwriters at Lloyd's, London, and CS&W Insurance Services, Inc., Case No. 04-CI-165, in the Letcher Circuit Court on April 29, 2004. [ECF No. 1348-2 at ¶ 4.] The Debtor Earnest Cook & Sons Mining, Inc.1 alleged in the initial Complaint that it asked CS&W Insurance Services, Inc., its insurance broker ("CS&W Insurance"), to procure an insurance policy covering the coal preparation plant and related property for the period September 22, 2002, to September 22, 2003. [Id., Exh. C at ¶ 6.] The property insurance was a condition to a mortgage loan secured by the coal preparation plant and related property. [Id., Exh. C at ¶ 9.]
According to allegations in the Complaint, CS&W Insurance told the Debtor that Policy No. GEP 5005 issued by Lloyds was in place. [Id., Exh. C at ¶ 6.] The Complaint argued that Policy No. GEP 5005 ("Lloyds Policy") provided coverage:
The Debtor's raw coal silo blew out and collapsed in early 2003 and coverage under the Lloyds Policy was denied. [Id., Exh. C at ¶¶ 7, 8.] The Debtor argued coverage was denied because CS&W Insurance was negligent and breached its duty when placing the insurance. [Id., Exh. C at ¶ 9.]
Asher filed a First Amended Complaint on July 17, 2006. [ECF No. 1348-2, Exh. D.] The First Amended Complaint added claims against another party involved in placing the insurance, Casualty & Surety, Inc. ("Casualty"). [Id., Exh D. at ¶ 2.] The First Amended Complaint also added earlier insurance periods and alleged CS&W Insurance was responsible for the failure to refund unearned premiums caused "by listing the same pieces of equipment on more than one schedule." [Id, Exh. D at ¶ 8.]
Asher filed a Second Amended Complaint on December 4, 2006, that named two more defendants, James Allen and Crawford and Company ("Crawford"). [ECF No. 1348-2, Exh. E at 1.] The Second Amended Complaint claimed that Allen and Crawford performed a negligent inspection of the coal preparation plant that ultimately contributed to the silo damage and denial of coverage under the Lloyds Policy. [Id., Exh. E at 2-4.] The Second Amended Complaint also alleged that Lloyds, CS&W Insurance, Casualty, and Crawford knew Allen was not qualified to perform the inspection. [Id.]
On January 19, 2007, the Letcher Circuit Court decided the Debtor's silo was covered by the Lloyds Policy. [ECF No. 1348-2 at ¶ 9.] The state court defendants appealed the decision. [Id. at ¶ 10.] On August 7, 2007, the Kentucky Court of Appeals entered an order granting the Debtor's motion to dismiss the appeal and remanded the matter for further proceedings. [Id.at ¶ 11.] The matter settled in November 2007 for payments of $1,250,000.00 from Lloyds, $1,000.00 from Lexington Insurance Co., and $11,500.00 from CS&W Insurance. [ECF No. 1294.] Asher received $451,134.77 for his contingent fee and expenses on December 24, 2007. [Id.]
The Post-Confirmation Committee filed the Final Report in Chapter 11 Proceeding a few months later on May 16, 2008 [ECF No. 1308], and moved to close the case [ECF No. 1310]. The motion was granted [ECF No. 1311], and the bankruptcy case was closed on June 9, 2008 [ECF No. 1313]. A final decree discharging the Post-Confirmation Committee was entered on June 11, 2008. [ECF No. 1313.]
Over a decade later, Matthew B. Bunch, a lawyer with Bunch & Brock, moved to reopen the case. [ECF No. 1315.] A representative of AIG Insurance contacted Bunch & Brock because the insurance company was holding "Return Premiums of approximately $367,472" that it would not turn over without a court order ("AIG Reimbursed Premiums"). [Id. at ¶ 4.] The case was reopened on September 24, 2018, to issue the order and allow the Court to administer the AIG Reimbursed Premiums. [ECF No. 1318.]
The AIG Reimbursed Premiums arose from insurance policies issued by American International Group, aka AIG Global Energy, d/b/a National Union Fire Insurance Company of Pittsburg, PA ("AIG/National Union"). [See ECF Nos. 252, 1331.] The AIG Reimbursed Premiums are made up of the following:
Premium Earned Commission Reimb. Premium Contract # Policy Period Refund / (Due) Refund / (Due) Refund / (Due) 968400 09/25/00-09/25/01 $49,106 $6,744 $42,362 968402 09/25/02-09/25/03 ($377,472) ($24,006) ($353,466) 968403 09/25/03-04/12/04 $771,224 $92,650 $678,574 $367,470
AIG/National Union provided workers compensation, automobile, and general liability insurance coverage. [ECF No. 252.] The majority of the AIG Reimbursed Premiums arise from the 2003-04 period, which only lasted six months because the Debtors' cases became administratively insolvent. The workers compensation coverage accounted for the vast majority of the premiums paid and recovered. For example, the premium reimbursement for workers compensation coverage in 2003-04 was 83% of the $771,224.00 gross refund. [Id.]
CS&W Insurance placed the insurance coverage for the first two policy years, but it was replaced by South West Insurance Agency ("South West") for the final 2003-04 period. [See ECF No. 122.] South West did not have a part in the Lloyds insurance coverage and was not a target of the Letcher Circuit Court litigation.
Despite receiving payment for the work he was hired to do, Asher now seeks to recover one-third of the AIG Reimbursed Premiums, $146,988.73, based on his contingent fee arrangement. [ECF No. 1348.] Asher supports his request with (i) his own affidavits; (ii) an affidavit from his legal assistant, ...
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