In re Hanson Industries, Inc.
| Decision Date | 18 August 1988 |
| Docket Number | Bankruptcy No. 4-87-1478. |
| Citation | 90 BR 405 |
| Parties | In re HANSON INDUSTRIES, INC., Debtor. |
| Court | U.S. Bankruptcy Court — District of Minnesota |
William Fisher, Thomas Darling, Gray, Plant, Mooty, Mooty & Bennett, Minneapolis, Minn., for Bank of New England.
Joseph Dicker, Charles Dietz, Larkin, Hoffman, Daly & Lindgren, Minneapolis, Minn., for Steven Hanson.
Melvin Orenstein, Lindquist & Vennum, Minneapolis, Minn., for Lindquist & Vennum.
Sheri Ahl, Faegre & Benson, Minneapolis, Minn., for Phillips Petroleum Co.
William Luther, Luther, Ballenthin & Carruthers, Minneapolis, Minn., for Heitzig plaintiffs.
Kathryn Page, Wagner, Johnston & Falconer, Minneapolis, Minn., Trustee.
The above-entitled matter came on for hearing before the undersigned on the 6th day of April, 1988, and on the 3rd day of May, 1988, on (i) an application of the Bank of New England, N.A. ("the Bank") by and through its attorneys, Gray, Plant, Mooty, Mooty & Bennett, P.A. ("Gray, Plant"), for an order allowing and authorizing the payment of administrative expenses pursuant to 11 U.S.C. §§ 503(b)(3)(A) and 503(b)(4), (ii) an application by 35 former employees of debtor ("the Heitzig plaintiffs"), by and through their counsel, Luther, Ballenthin & Carruthers ("Luther, Ballenthin") for an order allowing and authorizing the payment of administrative expenses pursuant to 11 U.S.C. §§ 503(b)(3)(A) and 503(b)(4); and (iii) a motion by the law firm of Lindquist & Vennum for allowance of its claim for attorneys fees and costs pursuant to 11 U.S.C. §§ 507(a)(2) and 502(f). Kathryn Page ("trustee") appeared in propria persona; William Fisher and Thomas Darling represented the Bank; Joseph Dicker and Charles Dietz represented Steven Hanson ("Hanson"); Melvin Orenstein represented Lindquist & Vennum; Sheri Ahl represented Phillips Petroleum Co; and William Luther represented the Heitzig plaintiffs. The United States Trustee filed written objections to a portion of the application of the Heitzig plaintiffs but did not make an appearance.
The court has jurisdiction to hear and decide these applications pursuant to 28 U.S.C. §§ 1334 and 157, and Local Rule 103(b). These are core proceedings pursuant to 28 U.S.C. § 157(b)(2)(A).
A. Procedural History
I have the rather unwelcome task of passing on requests for attorneys fees and costs arising out of one of the most complex and difficult involuntary bankruptcy cases in this district in recent years without having had the benefit of presiding at the time. Consistent with my obligations to carefully assess and review all fee applications in bankruptcy cases I have therefore examined the docket and papers in this bankruptcy case, which is now measured by weight of its papers, as well as the file in a pending adversary proceeding (Bank of New England, N.A. v. Hanson Indus., Inc., 83 B.R. 659 (Bkrtcy.D.Minn.1988)). The following brief procedural history is helpful to understanding my ruling on these requests for relief.
Debtor, Hanson Industries, Inc. ("debtor") was for nearly a decade, a successful basic processor of resin for the roto molding industry with a plant located in Fridley, Minnesota. It was owned, operated and managed by Hanson. In the summer of 1985 the Bank became debtor's principal lender and, as a result, advanced over $2 million to debtor and to Hanson, taking in return a secured interest in virtually all of debtor's and Hanson's property. The relationship remained stable until the spring of 1986 when debtor experienced substantial financial difficulties.
In late May, 1986, the Bank first learned that debtor was approximately $400,000.00 overadvanced; debtor expected to suffer excessive and unanticipated losses; debtor had been untruthful with respect to at least one major account; and debtor had presented false, incomplete or inaccurate monthly recapitulation reports to the Bank. The Bank then offset the balance in debtor's checking account with it against indebtedness due to the Bank and took other steps to protect its security. Thereafter debtor experienced severe limitations on the nature and volume of its business and the layoff of a number of its employees. A period of charges and countercharges between the Bank and debtor followed.
In August of 1986, the Bank commenced an action in state court seeking to recover its debt and to foreclose on its security. Debtor resisted and counterclaimed alleging a number of theories including breach of contract and lender liability. During the course of that action, the Bank obtained a prejudgment injunction order in an attempt to protect against suspected wrongful diversion of corporate assets. The Bank was represented in the state court action by Gray, Plant and debtor was represented by Lindquist & Vennum.
In November of 1986, debtor, Hanson, and others were sued by the Heitzig plaintiffs in state district court for claims arising out of their termination by the debtor. The Heitzig plaintiffs were represented by Luther, Ballenthin.
By order dated January 16, 1987, the Heitzig plaintiffs' state court suit and the Bank's state court suit were consolidated for all purposes and assigned to one judge. There followed considerable discovery activity in the consolidated case during which Gray, Plant and Luther, Ballenthin worked closely together to jointly develop the facts. These activities developed considerable information demonstrating potential suspected widespread diversion of corporate assets by Hanson to himself and a family member. These findings became the impetus for filing an involuntary petition in bankruptcy on May 1, 1987, by the Heitzig plaintiffs and the Bank.
It is undisputed that at the time of the filing debtor was not paying its bills as they came due, had been essentially out of business for nearly one year, and had virtually no assets. The filing of the petition was followed by a flurry of activity which culminated in entry of the order for relief on July 23, 1987. In general, this activity included:
(1) A motion by the petitioning creditors to appoint an interim trustee based on their claim and belief that Hanson was looting or diverting the corporate assets and which was denied early on in the case.
(2) A motion by the petitioning creditors for summary judgment on their complaint.
(3) A motion by the debtor to dismiss the petition on numerous grounds including a claim that there were an inadequate number of qualified petitioners signatory to the complaint and that the complaint was not properly verified.
(4) A motion to abstain brought by the debtor based on the debtor's position that it had its own separate workout plan and reorganization and that abstention would be in the best interest of the creditors, and
(5) A motion by the debtor to remand the consolidated state court action which had been removed by the plaintiffs to Bankruptcy Court shortly after the filing of the involuntary petition.
Rather than converting to chapter 11, which was an option, debtor chose to vigorously defend the petition for involuntary bankruptcy. Between the filing of the petition and the entry of the order for relief, the parties engaged in extensive discovery. They took eight depositions and exchanged written discovery. There were some unresolved discovery disputes which required court intervention. The court held four hearings on motions and conducted two days of evidentiary hearings relating to the involuntary petition. All of this culminated in the court's granting the petitioning creditors summary judgment on their complaint, denying the debtor's motion to abstain and the entry of an order for relief dated July 23, 1987.1
It is clear that both sides treated this case as important and unique. The debtor asserted virtually every possible defense to the filing of the involuntary petition. Its motion to dismiss was based on grounds of bad faith, lack of sufficient number of creditors without a bona fide dispute, and alleged improper verification. Its motion to abstain under 11 U.S.C. § 305 was based on its attempt to arrange a reorganization outside bankruptcy which was first developed after the filing of the petition and which contemplated a capital infusion from a source which subsequently failed to materialize. These defenses and responses raised significant factual and legal issues for the petitioning creditors. Discovery was conducted relating to issues such as whether the Bank had improperly solicited creditors; whether the purported workout arrangement outside bankruptcy was feasible and in the best interests of creditors; whether the petitioning creditors' claims were in bona fide dispute; and whether Hanson had engaged in preferential transfers or diversion of corporate assets. At times the debtor was especially litigious, as for example when Hanson refused to answer questions during his deposition, causing the Bank to move to compel responses after which the debtor did furnish the requested information. Also, perhaps to further confound the petitioning creditors, debtor attempted to depose counsel for the Heitzig plaintiffs and, at times, simply refused to cooperate in order to ease the cost being incurred by both sides. The debtor raised many issues and defenses which, in retrospect, were of extremely doubtful value to prompt resolution of the dispute in the best interests of the creditors of the debtor. Following entry of the order for relief defendant failed originally to file schedules, as a result of which the petitioning creditors began to prepare their own set of schedules.2
These activities have produced the following requests for fees and costs:
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