In re Prairie Cent. Ry. Co.

• Citation: 87 BR 952
• Decision Date: 09 June 1988
• Docket Number: Bankruptcy No. 85 B 05350.
• Parties: In re PRAIRIE CENTRAL RAILWAY CO., Debtor.
• Court: United States Bankruptcy Courts. Seventh Circuit. U.S. Bankruptcy Court — Northern District of Illinois

87 B.R. 952 (1988)

In re PRAIRIE CENTRAL RAILWAY CO., Debtor.

Bankruptcy No. 85 B 05350.

United States Bankruptcy Court, N.D. Illinois, E.D.

June 9, 1988.

COPYRIGHT MATERIAL OMITTED

Groupe & Katz, Chicago, Ill., for debtor Prairie Cent. Ry.

Stephen J. Schlegel, Ivar R. Azeris, Clausen Miller Gorman Caffrey & Witous P.C., Chicago, Ill., for trustee Stephen J. Schlegel.

MEMORANDUM OPINION

JOHN H. SQUIRES, Bankruptcy Judge.

One of the most unpleasant judicial duties which bankruptcy judges are called to perform involves reviewing fee applications submitted by professionals. The facts and circumstances of this case, as discussed below, and 11 U.S.C. §§ 326 and 330, mandate reduction of the compensation sought by the Trustee and the attorneys for the Trustee and only partial reimbursement of the expenses advanced.

JURISDICTION AND PROCEDURE

The Court has jurisdiction to entertain the application for interim compensation pursuant to 28 U.S.C. § 1334 and General Orders of the United States District Court for the Northern District of Illinois. The application constitutes a core proceeding under 28 U.S.C. § 157(b)(2)(A).

BACKGROUND AND SUMMARY OF APPLICATION

On April 13, 1988, the Trustee in bankruptcy Stephen J. Schlegel and Schlegel and Ivar R. Azeris of the law firm of Clausen Miller Gorman Caffrey & Witous, P.C., as attorneys for the Trustee filed an application for interim compensation under 11 U.S.C. § 331 for the period from the Trustee's appointment in May 1986 through October 31, 1987. The application together with the voluminous supporting exhibits sought a total of $36,584.00 in Trustee's fees based on hourly rates for Schlegel and three other individuals who expended in excess of 400 hours of time on trustee work. The application requested attorneys' fees totaling $24,214.00 for time expended by Schlegel and others at various hourly rates for time exceeding 230 hours. The application also sought compensation for paralegals totaling $13,213.00 for over 293 hours of time expended. Total professional fees sought were $74,010.00, less a $5,000.00 allowance received in November 1986, for a balance of $69,010.00. The application also sought reimbursement of costs advanced and incurred totaling $4,307.92 for long distance telephone charges, photocopying costs, messenger and witness expenses, records costs, postage, LEXIS and Westlaw research costs and document production costs. The initial portion of the application was a twenty-one page narrative summarizing the Trustee's efforts to sell the property of the debtor.

Applicants' summary of receipts and disbursements of the debtor's estate, Exhibit E, showed total receipts for the period covered by the application of $302,979.73 which included $169,599.78 of bank account proceeds from the debtor's bank accounts that were closed out and transferred to the Trustee upon his appointment. The balance of the receipts, or $133,379.95, were proceeds received from the sale of the debtor's railroad right of way, insurance proceeds, interest earned, proceeds from the sale of personal property and other smaller items. The Trustee's total disbursements for the period equaled $44,744.91 leaving a balance on hand in the Trustee's bank accounts as of December 31, 1987 in the amount of $258,234.82.

Exhibit G to the application showed debtor's right of way acreage totaled 311.28 acres to be sold during the course of administration. Through March of 1988, 72 percent of the available acreage had been sold with 28 percent yet to be liquidated. The debtor previously operated as a short-line railroad between the cities of Lawrenceville and Mt. Carmel in southeastern Illinois covering a right of way approximately 25 miles in length with a general width of 100 feet. Debtor ceased operating in May 1984 and thereafter the trackage along the line was removed. The debtor initially filed for relief in the Southern District of Illinois but that case was dismissed and refiled in this Court as a Chapter 11 reorganization on April 25, 1985. Thereafter, debtor operated as a debtor in possession until appointment of the applicant Trustee.

OBJECTIONS TO THE APPLICATION

The Creditors' Committee filed objections on May 4, 1988, claiming that the interim fee requests should be denied completely. The objections first raised the failure to comply with recent precedents of both the District and Bankruptcy Courts for the Northern District of Illinois concerning the format of the application. The application failed to group the separate activities performed under separate headings for each item of work performed and contained some improperly "lumped" items. Secondly, the objections asserted that the fees sought were excessive. Specifically, the Creditors' Committee was unsatisfied with the efforts performed by the Trustee and the Trustee's attorneys. No local area agents in Southern Illinois were utilized to liquidate the right of way and other assets sold to date. The Trustee and his counsel tried to "run" the liquidation efforts from Chicago using unsatisfactory appraisals and never properly advertised or followed any particular sales plan. The objections asserted substantial inefficiencies in the efforts to sell the real property. The Creditors' Committee also sought leave to inspect the underlying records and work product of the Trustee and urged that the application be resubmitted or revised as to format to allow it to more specifically "deal with each category of charges in a more specific way."

APPLICANTS' RESPONSE TO THE OBJECTIONS

The Trustee filed a memorandum on May 5, 1988, regarding his application contending that the format requirements established in recent precedents adopted by this Court and the District Court for the Northern District of Illinois were met by the instant application. The response acknowledged that 11 U.S.C. § 326(a) imposes a statutory limitation on the maximum compensation of a Trustee by which the Court is bound. The Trustee's response virtually conceded the fact that the itemized Trustee's work performed by the Trustee and others for which hourly rate compensation was sought clearly exceeded the statutory maximum limitations imposed by 11 U.S.C. § 326(a).

THE HEARING ON THE APPLICATION AND OBJECTIONS

Notice was sent out to all creditors in accordance with Fed.R.Bankr.P. 2002(a)(7) of the hearing on the application and the objections thereto. The hearing was held on May 11, 1988. By minute order dated that date as a result of the objections, leave was given the Trustee to file a supplement or amendment to the application on or before May 25, 1988. Leave was given the Creditors' Committee and the United States Trustee to file a response to any supplement to the application on or before June 8, 1988, with further order to be entered by this Court after said date. To date, neither the Trustee nor his counsel have filed any amendment or supplement. The Court, therefore, will pass upon the application in its present form without further hearing. The Court lacks time to consider any tardy or late filed amendments or supplements given the press of the Court's calendar. The Trustee has been afforded the opportunity to amend the application but has not exercised such in a timely fashion.

11 U.S.C. §§ 326(a) AND 330

The principal controlling statutory authorities are 11 U.S.C. §§ 326(a) and 330(a)(1) and (2) which provide as follows:

Limitation on compensation of trustee.

(a) In a case under Chapter 7 or 11, the court may allow reasonable compensation under section 330 of this title of the trustee for the trustee\'s services, payable after the trustee renders such services, not to exceed fifteen percent on the first $1,000 or less, six percent on any amount in excess of $1,000 but not in excess of $3,000, and three percent on any amount in excess of $3,000 upon all moneys disbursed or turned over in the case by the trustee to parties in interest, excluding the debtor, but including holders of secured claims.

11 U.S.C. § 326(a).

Compensation of officers.

(a) After notice to any parties in interest and to the United States trustee and a hearing, and subject to sections 326, 328, and 329 of this title, the court may award to a trustee, to an examiner, to a professional person employed under section 327 or 1103 of this title, or to the debtor\'s attorney —

(1) reasonable compensation for actual, necessary services rendered by such trustee, examiner, professional person, or attorney, as the case may be, and by any paraprofessional persons employed by such trustee, professional person, or attorney, as the case may be, based on the nature, the extent, and the value of such services, the time spent on such services, and the cost of comparable services other than in a case under this title; and

(2) reimbursement for actual, necessary expenses.

11 U.S.C. § 330(a)(1) and (2).

The ultimate issue to be reached is the question of the extent, value, necessity and reasonableness of the work performed for which compensation is sought by the Trustee and the attorneys and paralegals for the Trustee in this case. The Bankruptcy Court has wide discretion in reviewing fee applications. Matter of U.S. Golf Corp., 639 F.2d 1197, 1201 (5th Cir.1981).

In addition to the above statutory provisions contained in the Bankruptcy Code itself, this Court has adopted as general guidelines the following precedents on professional fee applications:

In re Continental Illinois Securities Litigation, 572 F.Supp. 931 (1983);

In re Wildman, 72 B.R. 700 (Bankr.N.D. Ill.1987);

In re Pettibone Corp., 74 B.R. 293 (Bankr.N.D.Ill.1987);

Cristancho v. National Broadcasting Company, Inc., 117 F.R.D. 609 (N.D.Ill. 1987);

In re Wiedau\'s Inc., 78 B.R. 904 (Bankr. S.D.Ill.1987); and

Matter of Ryan, 82 B.R. 929 (Bankr.N.D. Ill.1988).

The foregoing case holdings and extensive dicta contained therein setting the standards for fee applications need not be repeated here at length. Reference to all these...