In re Durango Ga. Paper Co.
| Decision Date | 31 March 2021 |
| Docket Number | CASE No. 02-21669 |
| Parties | IN RE: DURANGO GEORGIA PAPER COMPANY, et al., Debtor. |
| Court | U.S. Bankruptcy Court — Southern District of Georgia |
Presently before the Court is Worldwide Group LLC's ("Movant") Application for Allowance of a Claim for Administrative Expenses (ECF No. 2766) (the "Application") pursuant to 11 U.S.C. § 503(b)(1)(A)(i). Debtor is the owner of the former Durango paper mill site located in St. Marys, Georgia (the "Property"). (Id. at 1; ECF No. 2803 at 3.) In 2014, Movant and creditor ASM Capital, L.P. ("ASM") contracted for Movant to provide certain consulting services related to the potential redevelopment of the Property. (Id.; ECF No. 2811-1 at 1.) Movant subsequently performed a variety of services from 2014 to 2017 in furtherance of its agreement with ASM. (ECF No. 2766 at 1.) On March 13, 2020, Movant filed the at-issue Application, arguing that the services it provided increased "the value and marketability" of the Property. (Id.) Based on these alleged benefits, Movant contends it is entitled to administrative expenses from Debtor's bankruptcy estate (the "Estate") in the amount of $405,000.00. (Id.) Debtor and ASM oppose Movant's Application (ECF Nos. 2803 and 2804, respectively), as does the Pension Benefit Guaranty Corporation ("PBGC"). The parties presented their arguments and evidence to the Court during the two-day hearing (collectively, the "Hearing"). For the reasons set forth below, Movant's Application will be DENIED.
Debtor filed its chapter 11 case in 2002. As noted above, this proceeding arises out of the potential redevelopment of the Property, a former paper mill site in St. Marys, Georgia. (ECF No. 2803 at 3.) In 2006, the Estate sold the Property to North River, LLC ("North River") which sought to "redevelop the site into a mixed-use residential and commercial" area. (Id.) In 2007, the St. Marys City Council (the "City") approved a rezoning plan for the Property submitted by North River. (Id.) However, North River ultimately did not proceed with its plans and Debtor subsequently reacquired the Property in 2010 through its subsidiary, Old Weed and Ready Plantation, Inc. ("OWR"). (Id.) The Property remained available for sale and ASM, having previously invested in the Property,1 hired Movant to assist in maximizing ASM's "existing financial interest." (ECFNo. 2811-1 at 1.)
On September 2, 2014, Movant2 and ASM entered into an agreement (ECF No. 2811-1) (the "Agreement") under which Movant would provide ASM with "port development consulting services and port and logistics-related business development services" related to redeveloping the Property into a "working, multi-modal port, a domestic and international logistics hub, and a multi-user, environmentally friendly, industrial park." (Id. at 1.) At some point thereafter, ASM3 and Movant conceived and decided to move forward with accomplishing a "vision" to redevelop the Property as "The Port of St. Marys Industrial Logistics Center" (the "Redevelopment Plan"). (ECF No. 2828 at 102.) KOGS, an affiliate of ASM, intended to acquire the Property through a subsidiary; however, a different use for the Property was envisioned by the subsidiary such that any sale would require the Property to be rezoned to allow for the uses contemplated under the Redevelopment Plan. (ECF No. 2803 at 3-4; ECF No. 2828 at 241.)
Under the Agreement, ASM would pay Movant an initial retainer of $12,500, amonthly retainer of $8,500, and reimburse Movant for its travel and expenses. (ECF No. 2811-1 at 1.) Additionally, if certain conditions were satisfied, Movant would be entitled to receive a substantial incentive payment for its efforts under the Agreement.4 (Id. at 2.) The Agreement was for a term of six months; however, ASM continued to reimburse Movant for its expenses and pay the $8,500 monthly retainer through at least December 2017. (See id. at 3; ECF No. 2766 at 4.) In total, ASM paid Movant $335,000 in fees under the Agreement for services rendered during the period of September 2014 through December 2017.5 (ECF No. 2766 at 4.)
Between 2014 and 2017, Movant's president and sole member, Christopher T. Ragucci, performed a variety of services related to the Property pursuant to the Agreement. (Id. at 1.) According to Movant, these services included "development services, analysis, marketing services, site and engineering reviews, and rezoning-related services" that benefitted the Estate. (Id.) With its Application, Movant submitted "Exhibit A," which includes a one-paragraph summary generally describing the services Movant asserts Mr. Ragucci performed from September 2014 through December 2017. (Id. at 4.) The summary does not include specific dates, parties, or the amount of time that Mr.Ragucci expended on any specific task. (Id.) While the summary does not delineate between services rendered to ASM and those benefitting the Estate, Movant does subtract the amount it was paid by ASM for the time period in question from the total number of hours allegedly worked by Movant. (Id.) Movant further asserts that Debtor should pay Movant $405,000 as an administrative claim for "uncompensated professional time expended for the benefit of the Estate." (Id.) Below is a summary of the figures Movant provided as the basis of its alleged administrative claim:
| 1,850 |
| Total hours spent during 9/2014 - 12/2017 |
| x $400 |
| Movant's hourly rate |
| $740,000 |
| (- $335,000) |
| Amount paid by ASM for services rendered 9/2014 - 12/2017 |
| $405,000 |
| Amount of alleged administrative claim |
(See id.)
In its Application, Movant asserted that it provided professional services "for the benefit of Debtors [sic] as procured by ASM." (Id. at 1.) However, at the Hearing, Movant also asserted that the services provided by Movant were beyond the scope of the Agreement with ASM and done with the Trustee's knowledge.6 (See ECF No. 2827 at 10;ECF No. 2828 at 328.) At the Hearing, Movant highlighted three overarching tasks to illustrate that its services conferred benefits to the Estate: (1) the updated wetlands survey and delineation; (2) the creation of a tax allocation district; and (3) the rezoning of the Property.7
First, Movant stressed that Mr. Ragucci worked to coordinate the procurement of an updated wetland survey and a new jurisdictional determination8 (the "Wetland Permit") from the U.S. Army Corps of Engineers (the "Corps"). Mr. Ragucci testified that the Wetland Permit "is a critical basic document for any purchaser" because it defineswhich areas of the Property are regulated wetlands and, therefore, "non-buildable," and which areas are nonregulated and, therefore, "buildable." (ECF No. 2828 at 213.) According to Movant, the Estate had an expired wetland survey that did not accurately represent the buildable portion of the Property. Consequently, Mr. Ragucci hired consultants to produce environmental reports9 and coordinated with Mr. Newsom on the preparation of a new wetland survey (the "Survey"),10 which revealed that the Property's buildable acreage had decreased from approximately 550 acres to 425 acres. (ECF No. 2827 at 48.) Mr. Ragucci then recruited an environmental consulting firm to verify this conclusion with the applicable regulatory agencies. (Id.) On February 22, 2016, the Corps issued the Wetland Permit, which confirmed the Survey's assessment. (ECF No. 2822.) The Wetland Permit was scheduled to expire on February 22, 2021. (Id.) Mr. Ragucci testified at length about the many ways the Survey and the Wetland Permit benefitted the Estate. In particular, he testified that in his opinion:
This is a critical basic document for any purchaser. Any bank would require it at closing, and they would require a currently valid delineation. And it just happens that these delineations are valid for 5 years. . . . So this is a very important fact, and it is a very significant document as part of anynew purchaser's due diligence, and there would be no purchaser in their right mind that would ever close on a site like this, without such a document. It's just a basic requirement of today's practice.
Next, Movant argued that its services resulted in the City's creation of a tax allocation district11 (the "TAD") and the issuance of TAD bonds in support of the redevelopment of the Property. At the Hearing, Mr. Ragucci testified that the Property required substantial improvements to external infrastructure to be transactable, and that the City did not have the funds to make those improvements. (ECF No. 2828 at 217-18.) As a solution, Mr. Ragucci testified that he proposed creating a TAD comprised of the Property and its surrounding areas. (Id.) Mr. Ragucci also testified that he recruited a consulting firm and met with City officials to present a plan for the TAD, resulting in the City's approval in December 2015. (Id. at 219.) Although the TAD is currently in place, it has not been funded because, as Mr. Ragucci explained, "you can't trigger the bonding process and actually fund the TAD until such time as there's revenue stream to backstop the bond because they're going to be carrying interest, and there's also closing expenses."(Id. at 219-20.) He also explained that "having the TAD in place assures this purchaser or any other purchaser that he will have the ability to use tax increment financing under this TAD to allow bonds to be issued to help fund the infrastructure external of the site that's required to be built." (Id. at 220.)
Finally, Movant asserted that it successfully worked to rezone the Property. The Property was previously zoned for "PD-Mixed Use." (ECF No. 2811-5 at 19.) However, the Redevelopment Plan required changing the Property's zoning designation to allow for industrial and commercial uses. (ECF No. 2828 at 240.) Mr. Ragucci testified that he was involved in "coordinating and...
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