In re Hartley, Bankruptcy No. 81-01855.
| Decision Date | 24 February 1984 |
| Docket Number | Bankruptcy No. 81-01855. |
| Citation | 39 BR 273 |
| Parties | In re James Ross HARTLEY, Indiv. and dba Hartley Trucking and Sharon Lee Hartley, Debtors. |
| Court | U.S. Bankruptcy Court — Northern District of Ohio |
Quentin M. Derryberry, II, Wapakoneta, Ohio, Trustee in Bankruptcy.
Melanie Rovner Cohen, Antonow & Fink, Chicago, Ill., for trustee.
Thomas D. Drake, William E. Clark, Findlay, Ohio, for The Peoples Banking Co. of McComb.
Reginald S. Jackson, Jr., Steven R. Smith, Toledo, Ohio, for The Toledo Trust Co.
Theodore M. Rowen, Kenneth J. White, Andrew E. Anderson, Chris E. Steiner, Toledo, Ohio, for St. Joseph Bank & Trust Co.
Paul Burson, Carey, Ohio (creditor).
C. Richard Gottfried, Upper Sandusky, Ohio (creditor).
Richard L. Ettensohn, Schaumburg, Ill., for Union Oil Co. of California.
This matter came on to be heard on February 3, 1984 upon the "Trustee's Application to Obtain Secured Credit pursuant to 11 U.S.C. § 364 and to Pay Additional Retainer" and upon objections thereto filed by The Peoples Banking Company of McComb, Ohio, The Toledo Trust Company, and the St. Joseph Bank and Trust Company. Considering the motion, the written and oral objections thereto, and the evidence adduced at the hearing, the court concludes that the relief requested should be granted.
On November 14, 1983 the Trustee filed the present motion for authority to obtain secured credit pursuant to 11 U.S.C. § 364(c) and to pay an additional retainer of $25,000.00 to the law firm of Antonow & Fink, his duly appointed counsel retained upon the Trustee's application and order of this Court dated May 27, 1983. The court ordered the Trustee to send notice of his motion to all creditors and parties in interest and to further notify them that they had 20 days from the date thereof to file written objections and to request a hearing. Pursuant to such order, notice was mailed by the Trustee on November 21, 1983 and three creditors of the estate, The Peoples Banking Company of McComb, Ohio (Peoples Bank), The Toledo Trust Company (Toledo Trust), and the St. Joseph Bank and Trust Company of South Bend, Indiana (St. Joseph Bank), filed timely objections.
On September 8, 1981 the debtors, James Ross Hartley and Sharon Lee Hartley, filed a voluntary petition under Chapter 7 of the Bankruptcy Code. Pursuant to order of the court, Quentin M. Derryberry, II, was then appointed trustee of the estate.
In December of 1981, the Trustee invited representatives of several of the creditors of the estate to attend a meeting in his office. Among those parties participating in the meeting were representatives of the Union Oil Company of California (Union Oil) and the Peoples Bank. At the meeting, the Trustee discussed, among other things, the prospects of recovery for unsecured creditors of the estate. In the view of the Trustee, considering the assets of the estate and the scheduled claims, the only substantial prospects for recovery by the creditors lay in the Trustee's pursuit of certain litigation on behalf of the estate. In order to pursue such litigation, the Trustee solicited funds from the parties in attendance. As a result of the meeting, Union Oil offered funds to the Trustee on terms he found unacceptable and rejected.
On June 4, 1982, after a hearing on notice to all creditors, the court entered an "Order on Application of Trustee for Instructions and Advice." The Trustee had requested guidance from the court respecting the propriety of his accepting $13,880.00 proffered from certain creditors of the estate for purposes of the investigation and possible pursuit of certain litigation on behalf of the estate. There being no objections to such application, the court finding that the grant of the application would be in the best interests of the estate and its creditors, the court authorized the Trustee to accept the funds offered and additional sums on the following conditions:
The Trustee never took possession or control of the $13,880.00 proffered by the creditors under the June 4, 1982 order. These funds were initially and apparently remain under the control of one Merle C. Weber, an independent investigator with whom the Trustee is sharing information relating to the affairs of the debtors. According to the testimony of the Trustee, the $13,880.00 submitted to him under the June 4, 1982 order remains unused and intact in a banking institution in Phoenix, Arizona. The Trustee has filed an adversary proceeding, Case No. 84-0003, against Mr. Weber seeking a turnover of the money.
In May of 1983, with the approval of the court, the Trustee paid a $10,000.00 retainer to the law firm of Antonow & Fink, a "professional person" employed by him pursuant to § 327 of the Bankruptcy Code. The general terms of the retainer were that Antonow & Fink perform services and advise the Trustee in pursuing his statutory duties. Pursuant to the order permitting the payment of the retainer, the funds to pay the retainer were to come from the proceeds of the sale of certain stock in the hands of the Trustee on which the Peoples Bank claimed an interest. In fact, however, the Trustee paid the retainer from other estate funds.
In approximately June or July of 1983, the Trustee convened a meeting in Chicago, Illinois at the offices of Antonow & Fink. Representatives of Union Oil, an unsecured creditor of the Hartley estate for approximately $910,000.00, attended the meeting and were given draft copies of certain complaints the Trustee eventually filed in this court and the United States District Court for the Northern District of Illinois. Upon review of the content of these complaints, Union Oil agreed to lend the Trustee the $25,000.00 in question subject to the approval of this Court.
The Trustee entered into no written or oral agreement with Union Oil regarding the extension of credit. Also, there were no conditions imposed on the proffered money, although the Trustee did agree to provide Union Oil with a periodic assessment of the progress of the litigation.
Union Oil has not attempted to influence the Trustee in any aspect of the litigation, and expressed no intention of doing so in the future. There was no discussion between the Trustee and Union Oil regarding the compromise of any claim the Trustee might have against Union Oil.
Union Oil's expressed motivation in lending the funds was its belief, based upon the evaluation of several of its own in-house counsel, that the Trustee may have some viable claim that would result in recovery of funds for the estate and itself as an unsecured creditor. In particular, the representative of Union Oil testified that they felt that a certain preference action against the Peoples Bank had a significant probability of success. Union Oil viewed the $25,000.00 as "seed money" in that, if the preference action against Peoples Bank succeeded, adequate funding for the much broader litigation initiated or anticipated by the Trustee would be provided.
The Trustee subsequently filed three adversary proceedings against the objectors in this Court: Case No. 83-0748 against the Peoples Bank; Case No. 83-0749 against the St. Joseph Bank; and Case No. 83-0750 against Toledo Trust. Also, the Trustee filed a complaint in the United States District Court for the Northern District of Illinois against Milton Ratner, et al. According to the motion to obtain credit, the complaints "contain multiple counts setting forth causes of action under both state and federal law." The $25,000.00 borrowing is being sought to fund, in part, the prosecution of these complaints.
There presently exists no substantial source of funding for the litigation commenced by the Trustee. Although through liquidation of property of the estate the Trustee presently has in his possession approximately $600,000.00 in funds, less than $10,000.00 of this amount is held free from any claims of creditors or parties in interest. Furthermore, the Trustee has already received anticipated administrative claims in excess of the amount of funds presently available.
The Trustee estimates that conduct of the litigation previously mentioned will cost $150,000.00-$200,000.00. The only source of funding for this litigation readily available is the $25,000.00 offered by Union Oil. The Trustee anticipates that at least part of the funding needed to complete the litigation will be derived from his prevailing on a preference claim against the Peoples Bank asserted as a claim in one of the cases filed in this Court.
The Trustee has not attempted to employ counsel to pursue the litigation in question on a contingent fee basis. Two...
To continue reading
Request your trial