In re Narragansett Clothing Co.
| Decision Date | 04 November 1993 |
| Docket Number | Bankruptcy No. 90-10149. |
| Citation | 160 BR 477 |
| Parties | In re NARRAGANSETT CLOTHING COMPANY, Debtor. |
| Court | U.S. Bankruptcy Court — District of Rhode Island |
Whitton E. Norris III, Mintz, Levin, Cohn, Ferris, Glovsky & Popeo, P.C., Boston, MA, for trustee.
Joseph B. Garb, Post-Confirmation Trustee, Wellesley, MA.
Joseph M. DiOrio, Hinckley, Allen & Snyder, Providence, RI, for Official Unsecured Creditors' Committee.
Allan M. Shine, Winograd, Shine & Zacks, P.C., Providence, RI, for debtor.
John V. Snellings, Peabody & Brown, Boston, MA, for Signal Capital Corp.
DECISION AND ORDER
Heard on March 23, 1993, on the fourth of a series of fee applications in this liquidating and professionally beleaguered Chapter 11 case. To date, the following fees and expenses have been paid to professionals:
Two applications remain sub judice and are dealt with herein: (1) the Final Application for Fees and Expenses of the attorney for the Trustee, Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. ("MLCFG & P") (Docket No. 484) in the amount of $139,256 for services and $11,216 in expenses; and (2) the Second Interim Application for Fees and Expenses of Joseph B. Garb, as "Post-Confirmation Trustee," (Docket No. 493) in the amount of $43,800 for services and $423 in expenses. The Official Unsecured Creditors' Committee objects to both applications, principally on the ground that the administrative fees and expenses generated in the case are too high, in light of the anticipated distribution to general creditors.
At the hearing, both the Trustee and his counsel kept noticeably clear of any discussion of their combined fee requests and total prior allowances, many of which now appear to have involved the rendering of excessive, unnecessary and duplicative services. Also, both drew a bright line between pre and post-confirmation services, arguing that the Court is without jurisdiction to revisit pre-confirmation fee awards. Although unique, we believe this argument is without merit, and for appellate purposes, rule that all on account compensation, pre and post-confirmation, is subject to final review at the completion of the case, when all of the results, claimed and actual, are in. See Matter of Evangeline Refinery Co., 890 F.2d 1312, 1321 (5th Cir.1989) ; see also In re Scoggins, 142 B.R. 940, 943 (Bankr.D.Or. 1992).
Of the two requests presently before us, only MLCFG & P's is presented as a final application. Therefore, we shall consider it together with all previous applications, in determining the reasonable value of the services rendered by MLCFG & P as counsel to the Trustee in this case.
The Trustee, however, has not filed a final application. Instead, before us is Mr. Garb's "Second Interim Application" for the period January 1, 1992 through February 26, 1993. Thus our task with respect to the Trustee is to address only the present application (again, however, with previous allowances in mind).
Based upon our review and consideration of: (1) the entries and narrative detail contained in all of the applications; (2) the time expended and the hourly rates charged; (3) the objections and comments of the Creditors' Committee and Signal Capital Corporation; (4) compensation previously allowed; (5) the results obtained; (6) the amount available for distribution to creditors; as well as all relevant factors under the lodestar analysis, see In re Swansea Consol. Resources, Inc., 155 B.R. 28 (Bankr.D.R.I.1993), we find $420,000 to be the total reasonable compensation due MLCFG & P for services in this case.
With all of the oral and written embellishment aside, we make the following observations about the travel and conclusion of this case:
(1) Narragansett filed its Chapter 11 petition on February 5, 1990, as the Debtor in Possession of an operating business;
(2) Two months later, on April 5, 1990, Joseph Garb was appointed as the Chapter 11 Trustee, and he ran the business for approximately seven months, with the intention of selling it as a going concern;
(3) During that time a buyer, J.L. Sanford, was located and a two-stage sale of the business for $3.1 Million took place on November 21, 1990 and January 10, 1991. $1.67 Million was paid in cash at the closing, and notes of $1.39 Million were taken for the balance. The personal guarantee of the buyer's principal, Sanford Zimmerman, was also obtained by the Trustee, in the amount of $700,000;
(4) Several interim fee requests of Messrs. Garb and Norris (for MLCFG & P) were scheduled, heard, and determined, based on their representations that unsecured creditors would receive, over time, a substantial dividend approaching sixty-two percent (62%).1 Early on in the case, the projected result was so good that in his application dated January 24, 1991, Mr. Garb requested a bonus of $76,145, "in recognition of the superior results obtained for the benefit of the unsecured creditors and complexity of the multiple successful negotiations necessary to conclude this case expeditiously."
(5) Within five months of the sale, however, J.L. Sanford was itself in bankruptcy, and the prospect of collecting anything on the balance of the purchase price became practically nil — i.e. J.L. Sanford is a no-asset bankruptcy case, and its principal, the guarantor of $700,000 of Sanford's debt to Narragansett, is allegedly insolvent and threatening bankruptcy himself. In short, the sale did not work out as planned, and the result, when compared with the early predictions, has been disastrous for creditors.
A major issue in considering the reasonableness of these fee applications, therefore, is the quality of the services and level of due diligence performed by the Trustee and his attorney regarding the J.L. Sanford sale and, after it went sour, the value of the time spent investigating and trying to salvage what was left. In other words, after all of the narrative and detail provided by the Applicants as to their activities and accomplishments, the important question remains — how much have the services of Messrs. Garb and Norris benefitted this estate and its creditors? See In re Lederman Enterprises, Inc., 997 F.2d 1321 (10th Cir.1993).
Based on the July 21, 1993 hearing on the Trustee's motion to approve the compromise of his claim against Sanford Zimmerman for $50,000, plus the acknowledgment that no dividend is expected from the Sanford bankruptcy, it is now obvious that many of these meticulously chronicled and categorized services have been of very little benefit to the estate. This is not to say that fees of professionals should be based solely upon results,2 and we acknowledge that the outcome is only one of the factors to be considered in determining reasonable compensation. In this case, however, the spotlight is on achievement and result because it was in that context that the Applicants based their earlier requests, and it was likewise on the assumption of a quantified "job well done" that the Court made its prior awards. Accordingly, our inquiry is also based upon consideration of the following factors:
A. Due Diligence
It is now clear, in hindsight, that the Applicant failed to perform adequate or reasonable due diligence during at least two critical periods in its representation of this estate, to the extent that a downward adjustment is required in the lodestar. It has become quite apparent that the pre-confirmation service devoted to investigating the substance of the J.L. Sanford offer was not time well spent, and that the demise of J.L. Sanford within five months of its celebrated sale indicates major shortcomings in the due diligence area,3 for which creditors are now faced with some very heavy legal/Trustee charges.4 Equally disconcerting is the investment of...
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