In re Leonard Jed Co.

• Citation: 103 BR 706
• Decision Date: 07 July 1989
• Docket Number: Bankruptcy No. 84-BX-1813.
• Parties: In re The LEONARD JED COMPANY, Debtor.
• Court: U.S. Bankruptcy Court — District of Maryland

103 B.R. 706 (1989)

In re The LEONARD JED COMPANY, Debtor.

Bankruptcy No. 84-BX-1813.

United States Bankruptcy Court, D. Maryland.

July 7, 1989.

David S. Musgrave, Semmes, Bowen & Semmes, Baltimore, Md., for debtor, Leonard Jed Co.

Harvey M. Lebowitz, Frank, Bernstein, Conaway & Goldman, Baltimore, Md., for counsel to the Creditors' Committee.

MEMORANDUM OPINION SUSTAINING DEBTOR'S OBJECTION TO ALLOWANCE OF THIRD APPLICATION FOR INTERIM COMPENSATION TO CREDITORS' COMMITTEE COUNSEL

JAMES F. SCHNEIDER, Bankruptcy Judge.

By this opinion, the United States Bankruptcy Court for the District of Maryland at Baltimore sustains the Chapter 11 debtor's objection to interim fees claimed by creditors' committee counsel where (1) the case was not economically staffed; (2) counsel claimed fees for services which did not benefit the estate; (3) time records did not adequately describe the nature of many services rendered; and (4) creditors' committee counsel was not entitled to a premium fee claimed for increasing by 5% the distribution to unsecured creditors under a confirmed plan over the amount which the debtor originally proposed to pay.

FINDINGS OF FACT

1. On December 6, 1984, The Leonard Jed Company "Jed Co." filed the instant voluntary Chapter 11 bankruptcy petition. The debtor is a distributor of industrial hardware, tools, nuts and bolts. Mr. Leonard Jed has been president of the debtor for more than 20 years. Second Amended Disclosure Statement P. 214.

2. On January 8, 1985, this Court appointed the law firm of Frank, Bernstein, Conaway & Goldman "Frank, Bernstein" as counsel to the official committee of unsecured creditors P. 22. Harvey M. Lebowitz is senior partner and the head of the firm's bankruptcy department.

3. Throughout the history of this case, the relationship between the debtor and counsel to the official unsecured creditors' committee has been antagonistic.

4. On July 23, 1985, Frank, Bernstein filed its first application for interim compensation P. 108 on the same date as an objection P. 109 on behalf of the committee of unsecured creditors to the debtor's disclosure statement. Thereafter, on August 19, 1985, the debtor filed an objection P. 112 to the fee application. In its objection to fees, the debtor complained that creditors' committee counsel had not been cooperative with the debtor, had hampered the reorganization effort, was not committed to a successful reorganization, and exhibited a "hostile, overbearing and uncompromising attitude toward The Leonard Jed Company." Objection, ¶ 14 P. 112. "Indeed," the debtor disclosed, "counsel to the creditors' committee has repeatedly threatened to file a motion to convert this case to Chapter 7." Id. ¶ 12. On March 4, 1986, the law firm of Semmes, Bowen & Semmes "Semmes", counsel to the debtor filed an application P. 137 for interim allowance of compensation. Thereafter, on March 27, 1986, the creditors' committee filed an objection P. 140 to the Semmes application. On August 20, 1986, before the date of the scheduled hearing on these matters, the committee filed a withdrawal of its objection P. 150 and an amended fee application P. 151 on behalf of Frank, Bernstein. On August 21, 1986, the debtor's counsel filed an amended application for compensation P. 152 and a withdrawal P. 153 of the debtor's objection to the fee application of Frank, Bernstein.

5. By Orders PP. 158 and 159 dated September 22, 1986, the Court approved fees to counsel for the debtor-in-possession in the amount of $92,450.25 ($117,450.25 less a retainer of $25,000) and to creditors' committee counsel in the amount of $34,955.00, the latter amount for services rendered during the period ending June 30, 1986.¹

6. On December 31, 1986, the debtor filed an application P. 165 to employ Ellin & Tucker as accountants. The application was approved by Order P. 166 of this Court dated January 8, 1987. The same date, the official unsecured creditors' committee filed an objection P. 167 to the Ellin & Tucker application. On January 14, 1987, the committee filed a motion for reconsideration P. 169 of the Order approving the employment of Ellin & Tucker and a request for hearing. On March 13, 1987, the committee filed an objection P. 188 to the debtor's amended disclosure statement. On March 24, 1987, the Court signed an Order P. 191 approving a stipulation of the parties by which the committee withdrew its objection to the appointment of Ellin & Tucker, as accountants to the debtor. On July 18, 1987, the Court entered a Consent Order P. 215 on objections to the debtor's amended disclosure statement.

7. On June 23, 1987, the creditors' committee filed a motion P. 211 for contempt and sanctions against Leonard Jed and the Jed Co. On July 20, 1987, the committee filed a motion P. 221 for the appointment of a Chapter 11 trustee. On July 27, 1987, the creditors' committee filed an objection P. 238 to the debtor's proposed Chapter 11 plan and a motion to postpone P. 237 the hearing on confirmation. The postponement was vigorously opposed by the debtor.² Therefore, the Court scheduled a chambers conference between the parties in an attempt to resolve the postponement issue. During the meeting held in chambers on July 28, 1987, the Court declined to postpone the confirmation hearing and initiated negotiations between the committee and the debtor on the issue of confirmation. The Court ascertained that the committee wanted a 20% distribution to general unsecured creditors rather than the 15% which the debtor-in-possession had proposed. At a second meeting in chambers on July 31, 1987, the debtor agreed to the creditors' committee demand.

8. During the ensuing month, counsel for the debtor and the committee settled their differences relative to confirmation of the Chapter 11 plan, appointment of a Chapter 11 trustee and the motion for contempt. On August 14, 1987, the committee filed praecipes PP. 250, 251 withdrawing its motion for appointment of a Chapter 11 trustee and for postponement of the confirmation hearing. On August 24, 1987, at the conclusion of the confirmation hearing, this Court stated that confirmation would be granted to the debtor's Chapter 11 plan. On that occasion, Jay Shuster appeared on behalf of the committee and filed a withdrawal P. 260 of the committee's objection to confirmation.

9. At the hearing, Leonard Jed personally guaranteed the payment of all approved administrative expenses of the Jed Co. Transcript, p. 47 P. 268.

10. On August 28, 1987, this Court entered an Order P. 265 confirming the debtor's plan of reorganization.

11. On November 18, 1988, Frank, Bernstein, Conaway & Goldman filed the instant application P. 318 for interim allowance of compensation for services rendered and reimbursement of expenses incurred as counsel to the official committee of unsecured creditors for the period from July 1, 1986 through October 31, 1988. By the instant application, counsel seeks fees in the amount of $62,999.50 and reimbursement of out-of-pocket expenses in the amount of $3,380.76. The services performed by counsel to the creditors' committee for which compensation is sought are summarized in the instant application³ as follows:

a. Counsel for the Committee reviewed and analyzed numerous⁴ proposed compromises and settlement of claims by and against the Debtor, frequently negotiating changes in the terms of such agreements;

b. Counsel for the Committee reviewed the Debtor\'s proposed Amended Disclosure Statement, drafted objections thereto, and negotiated amendments which resulted in the Debtor\'s Second Amended Disclosure Statement, which the Court approved;

c. Counsel for the Committee objected to the Debtor\'s Amend sic Plan of Reorganization and engaged in intense litigation and negotiations with the Debtor during a two-and-a-half month period resulting in the amendment of the Debtor\'s Amended Plan of Reorganization and the filing of the Debtor\'s Second Amended Plan of Reorganization, which improved treatment of general unsecured creditors. In connection with this litigation, Counsel for the Committee prepared and filed notices of depositions and requests for production of documents to the Debtor and its former and current accountants, in preparation for the confirmation hearing on the Second Amended Plan of Reorganization;

d. Counsel for the Committee drafted the Motion for Contempt against the Debtor\'s president, Leonard Jed, for his failure to authorize release of funds for payment of professional fees of Debtor\'s counsel, Counsel for the Committee, and the Debtor\'s business consultant, in violation of the Court\'s order;

e. Counsel for the Committee drafted the Motion for Trustee because of the apparent mismanagement of the Debtor, as reflected in significant write-downs of its inventory and receivables after the commencement of this case, the Debtor\'s substantial post-petition losses, and the conduct of the Debtor\'s president;

f. Counsel for the Committee reviewed and analyzed daily reports, monthly operating reports, and aging receivable reports prepared by the Debtor;

g. Counsel for the Committee investigated the dismissal of the Debtor\'s accounting firm in the middle of the case, and objected to the appointment of new accountants because of the lack of an explanation for the dismissal, and the additional expense to be incurred by the estate as the new accountants familiarized themselves with the Debtor\'s records. As a result of this investigation and objection, counsel for the Committee learned that the dismissal of the Debtor\'s accountants was related to the accountants\' refusal to certify the Debtor\'s inventory; counsel for the Committee negotiated with the Debtors\' new accountants to save the estate the additional cost of the new accountants familiarizing themselves with the Debtor\'s records;

h. Counsel for the Committee engaged in several meetings and numerous conversations with members of the Creditors\' Committee and

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