In re Cuisine Magazine, Inc.

• Decision Date: 28 May 1986
• Docket Number: Bankruptcy No. 82 B 10486 (TLB).
• Citation: 61 BR 210
• Parties: In re CUISINE MAGAZINE, INC., Debtor.
• Court: U.S. Bankruptcy Court — Southern District of New York

61 B.R. 210 (1986)

In re CUISINE MAGAZINE, INC., Debtor.

Bankruptcy No. 82 B 10486 (TLB).

United States Bankruptcy Court, S.D. New York.

May 28, 1986.

COPYRIGHT MATERIAL OMITTED

Levin & Weintraub & Crames, New York City, for debtor; by Mitchel H. Perkiel.

Siegel, Sommers & Schwartz, New York City, for the Official Committee of Unsecured Creditors; by James D. Beldner.

Elliot Hoffman, Chairman of the Official Committee of Unsecured Creditors, Harold D. Jones, New York City, U.S. Trustee; by John Campo.

DECISION AND ORDER DETERMINING APPLICATIONS FOR FINAL COMPENSATION AND REIMBURSEMENT OF EXPENSES

CORNELIUS BLACKSHEAR, Bankruptcy Judge.

A hearing was held by this court on March 16, 1986 to consider four applications for allowance of final compensation and reimbursement of expenses. The acrimony engendered by this case warrants a full exposition of the factors which the court considered in fixing such compensation. Said factors shall now be discussed, vis-a-vis each of the four applicants, in the detail necessitated by the gravity of the objections with which we were confronted, as well as the particular concerns of this court.

I. Factors to be Considered

The point of departure for an analysis of the reasonableness of a fee request is section 330 of the Bankruptcy Code of 1978 ("the Code"). 11 U.S.C. § 330 (West's 1979) (pre-BAFJA version cited as case was filed in 1982). Said section provides that, after notice and a hearing, the court may make an award to professionals of:

1) reasonable compensation for actual, necessary services rendered by such trustee, examiner, professional person, or attorney, as the case may be, and by any paraprofessional persons employed by such trustee, professional person, or attorney, as the case may be, based on the time, the nature, the extent, and the value of such services and the cost of comparable services other than in a case under this title; and

2) reimbursement for actual, necessary expenses.

11 U.S.C. § 330(a). Thus, the Code explicitly confers discretion upon bankruptcy judges in the awarding of fees. See Mann v. McCombs (In re McCombs), 751 F.2d 286 (8th Cir.1984).

A series of twelve factors to be considered by a court undertaking such a review was first articulated by the Johnson court as follows: (1) the time and labor required; (2) the novelty and difficulty of the questions; (3) the skill requisite to perform the legal service properly; (4) the preclusion of other employment by the attorney due to acceptance of the case; (5) the customary fee; (6) whether the fee is fixed or contingent; (7) time limitations imposed by the client or the circumstances; (8) the amount involved and the results obtained; (9) the experience, reputation, and ability of the attorneys; (10) the "undesirability" of the case; (11) the nature and length of the professional relationship with the client; and (12) awards in similar cases. Johnson v. Georgia Highway Express, Inc., 488 F.2d 714, 717-19 (5th Cir.1974). See also Prate v. Freedman, 583 F.2d 42, 48 (2d Cir.1978).

While Johnson involved the awarding of attorneys fees in a class action under title VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000e et seq. (employment discrimination), the factors enunciated by that court were subsequently made applicable to bankruptcy cases. American Benefit Life Ins. Co. v. Baddock (In re First Colonial Corp. of America), 544 F.2d 1291, 1298-99 (5th Cir.) (decided under the Bankruptcy Act of 1898), cert. denied, 431 U.S. 904, 97 S.Ct. 1696, 52 L.Ed.2d 388 (1977). It should be noted that the First Colonial court applied these twelve factors in conjunction with the spirit of economy principle mandated under the Act. Id. at 1299. Despite the abandonment of the spirit of economy by the Code, in a conscious effort to attract professionals of the highest caliber to bankruptcy practice, the aforementioned twelve factors remain in effect. See McCombs, supra, 751 F.2d at 288; 2 L. King, Collier on Bankruptcy § 330.052a at 330-23 (1985).

II. The Applications

A. Levin & Weintraub & Crames

The law firm of Levin & Weintraub & Crames ("Levin") which represented the debtor, Cuisine Magazine, Inc. ("Cuisine"), in the within action, seeks compensation in the amount of $92,656.95, plus reimbursement of expenses of $4,344.74. Said firm received a retainer of $25,000 from Cuisine which shall be credited to its fee request. No interim compensation has been awarded in this case.

While not raising any specific objections as to the work performed by Levin, the United States Trustee ("the Trustee") did point out that the mixed hourly rate of approximately $168 per hour appeared high. See Statement of the United States Trustee Regarding Applications for Final Compensation (filed March 3, 1986) (hereinafter cited as U.S. Trustee's Statement (3/3/86)).

At the hearing the Trustee indicated that the objection to the mixed rate of $168 per hour was based upon his estimation that too much senior attorney time was devoted to this case (Tr. at 30). In response thereto, it was explained that such was the case because, Mitchel Perkiel, the junior attorney assigned to the case became, through attrition over the years, the only person fully familiar with all of the aspects of the case. By such time, Mr. Perkiel had also achieved partnership level and was billing at a rate of $240 per hour. He opined that it would have been unprofessional, and possibly irresponsible, to have assigned lower level persons to the case at that point (three years after filing the petition) because, due to their unfamiliarity with the case, they would have generated twice as much billing time as he (Tr. at 31-32).

The Trustee also noted that the successful reorganization of a debtor is a significant factor to be considered by the court in determining the ultimate award of compensation. See U.S. Trustee's Statement (3/3/86) (citing In re Georgia Steel, Inc., 19 B.R. 834 (Bankr.M.D.Ga.1982); In re Mansfield Tire & Rubber Co., 19 B.R. 125 (Bankr.N.D. Ohio 1981)). He then observed that, in light of the fact that it took nearly four years to confirm this liquidating chapter 11 case where unsecured creditors will only receive about 10% on their claims, a lesser fee than that requested may be warranted.¹ Id.

At the hearing it was clarified that at least part of the delay in confirming a plan was due to the administrative problems engendered by Judge Ryan's decision to leave the bench² (Tr. at 28-29).

Delay in confirming the plan can also be attributed to two substantial claims against the estate which arose unexpectedly (Tr. at 13-19). In the aggregate, said claims amounted to nearly $10.5 million, against a net estate of approximately one million dollars (Tr. at 14-15). After protracted negotiations, both claims were settled in a manner favorable to the estate (Tr. at 14, 18). It is also noteworthy that Levin is the only applicant herein whose fee request was not objected to by Elliot Hoffman, the Chairman of the Official Committee of Unsecured Creditors (Tr. at 30).

Based on the foregoing, with the court being satisfied with the overall quality of the work performed by Levin in this case, and upon a careful examination of said firm's fee application and the papers in support thereof, it appears that the amounts requested are reasonable. Fees and expenses shall thus be awarded in full.

B. Siegel, Sommers & Schwartz

The law firm of Siegel, Sommers & Schwartz ("Siegel") was retained to represent the Committee of Unsecured Creditors ("the Committee"). Said firm seeks an award of compensation in the amount of $19,245, representing 118.7 hours of legal work, with a mixed hourly rate in excess of $162 per hour. Siegel also seeks reimbursement of $302.50 for expenses, to which the Trustee has no objection. See U.S. Trustee's Statement (3/3/86).

The Trustee voiced the same general objections to Siegel's fee request as were raised in conjunction with Levin's application. Said objections have already been subjected to the scrutiny of this court, and so need not be reconsidered at this point.³ Of a more disturbing nature to this court, are the objections raised by Hoffman, and the underlying acrimonious relationship between Siegel and the Committee which said objections entail.

Specifically, Hoffman voiced a litany of objections to Siegel's representation of the Committee, most of which can be attributed to a failure of communication between Siegel and Hoffman. See Affidavit of Elliot P. Hoffman ¶¶ 14-31 (filed March 10, 1986) (hereinafter cited as Hoffman Affidavit). In fact, such a personality conflict and failure to communicate is readily admitted by the attorneys representing the Committee. See Affidavit of Harris W. Schwartz ¶¶ 4, 5, 17 & 18 (filed March 24, 1986) (hereinafter cited as Schwartz Affidavit); Affidavit of James A. Beldner ¶ 11 (filed March 24, 1986) (hereinafter cited as Beldner Affidavit).

Said attorneys attempt to mitigate the gravity of this situation by stating that the estate and its creditors were not damaged or prejudiced in any way by the onus on this attorney/client relationship. See Schwartz Affidavit ¶ 18; Beldner Affidavit ¶ 11. The favorable aspects of the eventual distribution to creditors are not, however, sufficient to negate the serious implications raised by the stormy nature of this relationship. See Futuronics Corp. v. Arutt, Nachamie & Benjamin (In re Futuronics Corp.), 655 F.2d 463 (2d Cir. 1981), cert. denied, 455 U.S. 941, 102 S.Ct. 1435, 71 L.Ed.2d 653 (1982).

In Futuronics, the two law firms representing the debtor entered into a fee-splitting arrangement and also failed to disclose the same to the court, in violation of former Rules of Bankruptcy Procedure 215 & 219. In fact, in affidavits filed with the court, the two law firms deliberately misrepresented the nature of their relationship. 655 F.2d at 468-69. The Futuronics court denied any compensation on account of this reprehensible conduct, id. at...