In re Ralph Lauren Womenswear, Inc.

• Decision Date: 21 January 1997
• Docket Number: Bankruptcy No. 95 B 43100 (TLB).
• Parties: In re RALPH LAUREN WOMENSWEAR, INC., now named Bidermann Womenswear Corp., Debtor.
• Court: United States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — Southern District of New York

204 B.R. 363 (1997)

In re RALPH LAUREN WOMENSWEAR, INC., now named Bidermann Womenswear Corp., Debtor.

Bankruptcy No. 95 B 43100 (TLB).

United States Bankruptcy Court, S.D. New York.

January 9, 1997.

As Amended January 21, 1997.

COPYRIGHT MATERIAL OMITTED

Stroock & Stroock & Lavan by Jay R. Fialkoff, Curtis C. Mechling, Alan Z. Yudkowsky, Brian M. Cogan, New York City, Applicant Pro Se.

Bondy & Schloss L.L.P. by James R. Kahn, New York City, for Stuart L. Kreisler.

DECISION ON MOTION TO ENFORCE CHARGING LIEN

TINA L. BROZMAN, Chief Judge.

Stroock & Stroock & Lavan ("Stroock") asks me to declare and enforce a $510,000 attorneys' charging lien on the settlement proceeds of Stuart L. Kreisler's claim against this estate. Kreisler does not dispute the validity of Stroock's lien, the overall quality of Stroock's work, or the $2 million settlement Stroock obtained on his behalf. Rather, Kreisler contends that Stroock did not manage or supervise its staff and experts efficiently and is therefore not entitled to full payment. At the end of the representation, Kreisler requested of Stroock a 25% discount off the total of all bills, including those of experts retained on his behalf with his consent. He asked this, he says, because of his belief that large law firms give discounts and also because he promised to continue to use Stroock's services for future matters. He reasoned that since his bonus and severance benefit resulted in a large personal tax liability, he ought be granted the discount. Notably, Kreisler did not base his request on any promises made to him during the representation. When Stroock declined to grant the discount and negotiations for a consensual resolution broke down, Stroock filed this motion seeking to collect fees from the proceeds on behalf of itself and the two experts. Kreisler has agreed to adjudicate the matter in this court and to treat Stroock's motion as an adversary proceeding.

I.

Stroock represented Kreisler, the former president and chief executive officer of Ralph Lauren Womenswear ("RLW"), in numerous matters in this bankruptcy proceeding, most of which pertained to his employment agreement and his pursuit of a severance award. Kreisler advocated the position that because of his postpetition termination when RLW was sold he was entitled to an administrative claim for the whole of his $2.2 million severance benefit and bonus (and his substantial legal costs in pursuing this claim). On the other hand, RLW and its corporate parent, Bidermann Industries, Inc. ("Bidermann" or collectively "the debtors") insisted that Kreisler was entitled only to an unsecured, prepetition claim which ought be avoided as a fraudulent conveyance. The official committee of unsecured creditors also asserted that Kreisler had received voidable preferences within one year of the petition date. The matters were interrelated, bottomed as they were on the validity of Kreisler's claim.

A. Background

Kreisler's relationship with Daniel Golden dates back to 1979, when Golden, then an associate at another law firm, performed legal services for Kreisler's insolvent company. In early July 1995, when Kreisler became concerned about the imminent bankruptcy of his employer, he communicated with Golden, who was by this time a partner at Stroock. RLW requested Kreisler to consent to recharacterize his written agreement to one for employment rather than consulting. Kreisler was concerned about the impact of chapter 11 on his severance and bonus rights. In response to Kreisler's request for assistance, Golden dictated a letter for the companies to sign which would protect Kreisler against negative consequences of the recharacterization. Golden did not charge Kreisler for his advice or preparation of the letter.

B. Stroock's Services

After RLW and Bidermann filed for chapter 11 relief, Kreisler retained Stroock. Stroock did not request a retainer nor Kreisler's execution of a retainer/engagement agreement. Golden had primary responsibility for Kreisler's engagement.

Golden informed Kreisler at the outset that he would need to retain an executive compensation expert to opine on the reasonableness of his severance and bonus benefits. On the legal side, Stroock endeavored to demonstrate that Kreisler was entitled to administrative expense priority for his claim. To protect Kreisler in the event he proved successful on his administrative claim, Stroock negotiated a reserve from the debtors' sale of the RLW assets. Hedging its bets, Stroock also filed an unsecured claim for the full amount. When the debtors sought to reject Kreisler's agreement after the sale, Stroock counseled Kreisler. In addition, believing that Kreisler's rights as a potential RLW unsecured creditor were not being adequately represented by the Bidermann-RLW official committee of unsecured creditors, Stroock moved to appoint an examiner. Kreisler was aware that the legal costs associated with the examiner motion might not be reimbursable from RLW under the terms of his agreement. Stroock also performed legal research on the liability of the debtors' officers and directors.

Seeing the mounting costs, I sent the Kreisler matter to mediation, which was not successful. Stroock then began preparing for trial on the administrative claim. The debtors had another idea, however. They moved to estimate the unsecured aspect of Kreisler's claim since confirmation of RLW's plan was imminent and Kreisler might have a swing vote if his claim were unsecured. Because the issues surrounding the merit of Kreisler's administrative claim were the converse of the merit to his unsecured claim, Stroock and Kreisler geared the estimation litigation accordingly. All the matters were vigorously contested, requiring discovery, depositions, numerous court conferences, a valuation hearing, and extensive negotiations among Kreisler, the debtor, the institutional lenders, and the official committee of unsecured creditors, all of whom were represented by sophisticated counsel. The estimation hearing lasted two days. The decision which I issued on the estimation motion itself required analysis. And the ultimate settlement of the dispute required extensive negotiations which I observed in part myself, having assisted the parties to resolve their differences.

Stroock's extensive services are catalogued in the monthly billing statements it had sent to Kreisler which detail each service performed and the time spent on each matter. Exs. 1-10. Stroock's time records were also submitted into evidence. Ex. G.

C. The Fees Sought

After a few months, Golden sent Stroock's first bill to Kreisler for services rendered through September 30 and requested that it be paid by year-end. Ex. 1. Kreisler paid the entire bill, which encompassed legal fees of $60,000 and expenses of $3,120.58. Unbeknownst to Kreisler, Golden had reduced the legal fees to $60,000 from $84,000, the difference representing the time Stroock needed to get itself "up to speed" on the Bidermann bankruptcy case. R. 77-80. Golden said he reduced the fees because he considered Kreisler a friend, but did so secretly because he did not want Kreisler to expect a discount off future bills. He also omitted from Stroock's first bill the hourly rates of the attorneys providing services to Kreisler so that Kreisler could not determine that the fees were discounted.

Stroock's legal bills were as follows:

                                                                                           Fees & Exp
                  Ex    Service Period        Bill Sent         Fees        Expenses     Cumulative Total
                   1   8/18/95 — 9/30/95    Oct. 18, 1995    $60,000.00    $ 3,120.58      $ 63,120.58
                   2     10/01 — 11/30      Dec. 12, 1995     42,257.50      2,839.84       108,217.92
                   3     11/03 — 12/31      Jan. 22, 1996     28,117.00      3,591.44       139,926.36
                   4   1/02/96 — 1/31/96    Mar. 14, 1996      9,741.00        281.61       149,948.97
                   5      2/01 — 2/29       Mar. 14, 1996     50,742.00      1,793.56       202,484.53
                   6      2/26 — 3/30        Apr. 9, 1996     58,715.50      6,034.46       267,234.49
                   7      4/01 — 4/30        May 13, 1996     74,134.00      9,733.91       351,102.40
                   8      5/01 — 5/31       June 13, 1996     81,732.50     10,915.89       443,750.79
                   9      6/02 — 6/30       July 15, 1996     23,917.50      5,187.04       472,855.33
                  10      7/02 — 7/31        Aug. 6, 1996     25,138.50      2,374.30       500,368.13
                

Exs. 1 — 10. Stroock's subsequent billing statements identified the service period, contained brief descriptions of the services rendered per day and per attorney, and identified the hourly rate of each person providing services on Kreisler's behalf. The expense portion of the statements contained categories of expenses and the total disbursements for each category.¹

In March, when Stroock and Kreisler decided to shift into high gear for the estimation hearing, Stroock counseled Kreisler to engage Kahn Consulting, Inc. ("Kahn") to opine on the reasonableness of his severance and bonus and Buck Consultants ("Buck") to opine on the reasonableness of the severance agreement. Kreisler understood that he was responsible for payment and gave a $10,000 retainer to Kahn, though Stroock formally retained both experts. Golden Repl.Decl. ¶ 8 at 6. On April 3, 1996, Kahn billed Stroock $13,469.30 for services rendered through March 31, 1996. The bill identifies the person who performed the services, his or her hourly rate, and the number of hours expended, as well as the dollar amount of expenses incurred. Ex. F. Kahn continued to bill Stroock for its services and, by early May, had issued bills for services rendered aggregating $50,000. Kahn did not bill Kreisler directly although Kreisler reviewed Kahn's bills in Stroock's offices at some point in early May. On July 11, 1996, Kahn prepared a summary of fees for its engagement through and including May 31, 1996, which was broken down by individual and area...