In re Republic Financial Corp.

• Decision Date: 25 June 1991
• Docket Number: Bankruptcy No. 84-01460-W.
• Citation: 128 BR 793
• Parties: In re REPUBLIC FINANCIAL CORPORATION, Debtor.
• Court: U.S. Bankruptcy Court — Northern District of Oklahoma

128 B.R. 793 (1991)

In re REPUBLIC FINANCIAL CORPORATION, Debtor.

Bankruptcy No. 84-01460-W.

United States Bankruptcy Court, N.D. Oklahoma.

June 25, 1991.

Frederick Dorwart, Tulsa, Okl., for debtor.

Sam Bratton, II, Tulsa, Okl., for Trustee, R. Dobie Langenkamp.

ORDER GRANTING IN PART AND DENYING IN PART "FIRST INTERIM APPLICATION OF DEBTOR'S COUNSEL FOR COMPENSATION FOR SERVICES RENDERED AND REIMBURSEMENT OF EXPENSES INCURRED" INCLUDING SUPPLEMENT(S) THERETO

MICKEY DAN WILSON, Chief Judge.

The law firm of Holliman, Langholz, Runnels & Dorwart filed its first interim application for compensation for services and reimbursement of expenses. After hearings, the matter was taken under advisement. Before said hearings, objections were filed by the Trustee, Creditors' Committee, and many other parties in interest. At hearing, certain issues were raised by the Court. After hearing, supplemental and renewed requests were filed by Holliman, Langholz, Runnels & Dorwart; and a renewed objection was filed by the Trustee. Upon consideration of evidence introduced and received, and of the record herein, the Court, pursuant to Bankruptcy Rules 7052 and 9014, finds, concludes, and orders as follows.

FINDINGS OF FACT

Wesley R. McKinney ("McKinney") controlled and operated a number of business entities, including Republic Financial Corporation ("RFC"), Republic Trust & Savings Company ("RTS"), Republic Bancorporation, Inc. ("RBI"), Sunbelt Bancorporation, Inc., Central Bank & Trust Company, Petra International Corporation, Petra Petroleum Corporation, Petra Drilling Corporation, Petra Transportation Corporation, Petra Exploration, Inc., Petra Aviation Corporation, K & M Construction, Inc., and Arden Drilling Company ("the Petra companies"), Allied Oil and Gas Corporation ("Allied"), Illinois Pipeline Corporation, Trinity Operating Corporation, and HMC Resources, as well as others not named herein. Although these entities were ostensibly separate, and in many cases conducted different businesses, they dealt with McKinney and with each other and were interrelated in various complex and obscure ways. The extent of their interpenetration, the complexity of their relationships, the occasional synchronization of their behavior, and the difficulty of tracing and allocating funds and other assets among them, are all well illustrated by a series of transactions undertaken by some of them at McKinney's direction in mid-1984 and now known as "the divestiture," see Trustee's Report of Investigation in RFC and RTS filed August 6, 1985. This "divestiture" was occasioned by a combination of Federal regulatory pressure and downturn in the Oklahoma economy, and signaled the beginning of the end of McKinney's financial empire. When McKinney's empire fell, it fell largely into the arms of this Court.

On September 24, 1984, RFC, RTS and RBI filed their respective voluntary petitions for relief under 11 U.S.C. Chapter 11 in this Court, commencing Case Nos. 84-01460, -01461 and -01462 respectively. On January 9, 1985, the eight Petra companies filed their respective voluntary petitions for relief under 11 U.S.C. Chapter 7 in this Court, commencing Case Nos. 85-00024 through -00031. The next day, an involuntary petition for relief under 11 U.S.C. Chapter 7 was filed against McKinney individually in this Court, commencing Case No. 85-00042; and relief was granted on March 22, 1985.

RFC, RTS, RBI, and all the Petra companies were represented in bankruptcy by the law firm of Holliman, Langholz, Runnels & Dorwart ("HLR & D"). McKinney was not represented in his bankruptcy case by HLR & D; but he was represented by Judith S. Brune, an attorney formerly employed by HLR & D, who had recently resigned from HLR & D and entered solo practice and whose then husband, Kenneth L. Brune, continued to be employed by HLR & D.

With the debtor's petition in RFC, HLR & D filed, pursuant to 11 U.S.C. § 329(a) and Bankruptcy Rule 2016(a), a "Statement of Attorney's Compensation." Said statement was executed by "Frederic Dorwart on behalf of HLR & D." Said statement reads, in pertinent part,

. . . As compensation for the services rendered in connection with these proceedings, I have been paid the sum of $-0- including the sum of $-0- for costs and attorney\'s fees. Such sum was received from _____.

. . . In addition to the above amount, I have been promised the sum of $-0- by _____, who is the source of such sum; the additional amount to be paid as follows: _____.

Similar statements were filed with the petitions in RTS and RBI. The statement in RTS discloses payment of $16,000 received from RTS (in a manner which indicates that the statement was first filled out to read "$6,000" and was then altered to read "$16,000"). The statement in RBI discloses payment or promise of "$-0-." Similar statements were also filed with the petitions in the Petra cases, each disclosing payment of $200 received from each debtor.

Two days after the filing of the debtor's petition in RFC, HLR & D filed, pursuant to 11 U.S.C. § 327(a) and Bankruptcy Rule 2014(a), an "Application for Appointment of Attorneys for Debtors." Said application was executed by Frederic Dorwart, and requested "the appointment of Frederic Dorwart and Neal Tomlins and other members of the law firm of HLR & D as attorneys for the debtor . . ." Said application recited "that said Frederic Dorwart and Neal Tomlins and other members of the law firm of HLR & D . . . do not hold or represent an interest adverse to the estate, are disinterested persons, . . . and do not, in connection with the case, represent a creditor," although "Frederic Dorwart and Neal Tomlins and other members of the law firm of HLR & D have represented and do represent, on a limited basis in selected matters certain affiliates of the debtor." Said application was granted ex parte by order filed on the same day, i.e. on September 26, 1984. Substantially similar applications were filed in RTS and RBI, and were granted by orders filed on Sept. 26 and Sept. 27, 1984. No such applications were filed in the Petra cases, since attorneys for debtors in Ch. 7 cases are not normally employed by the bankruptcy estate with approval by the Court.

The McKinney-related cases, RFC and RTS in particular, were highly publicized and hotly litigated. RFC and RTS involved thousands of creditors, many of them innocent parties who had never before seen the inside of a courtroom and whose life savings were threatened by the debtor companies' financial difficulties. The other cases involved fewer creditors, but also fewer assets and fewer or more disorganized records. The intensity of involvement in these cases generated more heat than light: administration of the cases has been plagued from the beginning by anxiety, confusion, misunderstanding, acrimony, and vilification. At least some of this ill feeling was inevitable and duly provoked — for example, McKinney was eventually convicted on criminal charges (though for acts only incidentally related to the financial demise of the entities in bankruptcy); and the Trustee's investigation of the history of RFC and RTS uncovered substantial evidence of pre-bankruptcy mismanagement and finagling. These bankruptcy cases have proceeded in an atmosphere of suspicion, resentment, and desperate struggling over the remaining assets of the debtors.

HLR & D played an active part in the early stages of the proceedings in RFC and RTS. HLR & D prepared the petitions and other documents which were required to be filed to commence the cases; thereafter prepared the statements of financial affairs, schedules of debts and assets, and voluminous mailing lists which provided the information basic to administration of the cases (and, a rare event even in less difficult cases, got the statements and schedules filed within the period allowed by Bankruptcy Rule 1007(c)); performed initial general mailings instead of the Bankruptcy Clerk's Office, including the essential notice of meeting of creditors and of related events; fielded initial inquiries by parties in interest, a heavy burden where the number of creditors ran into the thousands and which sometimes required the full efforts of the firm (in addition to the time of debtors' own employees); "handled the press;" and contributed to the stage-management of the largest meeting of creditors ever held in a bankruptcy case in this District. Only one day after RFC entered bankruptcy, a creditor named Mize filed a group of motions calling for removal of debtor's own management and appointment of a Trustee, immediate determination of a long-standing dispute between RFC and Mize, and abandonment of an important asset of the estate. These motions were objected to by HLR & D on October 1, 1984. However, on October 10 and 11, 1984, the Creditors' Committees in RFC and RTS filed their own motions for appointment of a Trustee, which said motions were heard on October 30, 1984, and granted by orders filed October 31, 1984. HLR & D for debtors acquiesced in the Committees' motions and consented to the appointment of a Trustee. HLR & D assisted the Trustee and his attorneys in the transfer of responsibility for administration of RFC and RTS, but thereafter played no significant part in the development of these cases.

HLR & D's role was quite different in the Petra cases. A member of HLR & D actually signed the bankruptcy petitions in lieu of officers of the debtors. But all statements, schedules, etc., which even in Ch. 7 cases are normally prepared by debtor and debtor's attorney, were in these cases left to be prepared by the Ch. 7 Trustee; and all subsequent administration was likewise performed by the Ch. 7 Trustee. HLR & D was not directly involved in the McKinney case at all, except as will be noted below.

On March 22, 1985, HLR & D filed in RFC a "First Interim Application of Debtor's Counsel for Compensation for Services Rendered and Reimbursement of Expenses Incurred," requesting...