In re Sapolin Paints Inc.

• Decision Date: 09 March 1984
• Docket Number: 180-01807-21.,Bankruptcy No. 180-01691-21
• Citation: 38 BR 807
• Parties: In re SAPOLIN PAINTS, INC., Debtor. In re WOOLSEY MARINE INDUSTRIES, INC., Debtor.
• Court: U.S. Bankruptcy Court — Eastern District of New York

38 B.R. 807 (1984)

In re SAPOLIN PAINTS, INC., Debtor In re WOOLSEY MARINE INDUSTRIES, INC., Debtor.

Bankruptcy Nos. 180-01691-21, 180-01807-21.

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

March 9, 1984.

COPYRIGHT MATERIAL OMITTED

Angel & Frankel, P.C., Davis, Polk & Wardwell, Otterbourg, Steindler, Houston & Rosen, P.C., New York City, Attorneys for Creditors' Committee.

Stroock & Stroock & Lavan, Ryan & Silberberg, New York City, for debtor.

Main, Hurdman & Cranstoun, Danbury, Conn., Accounts for Creditors' Committee and for debtor-in-possession.

OPINION

CECELIA H. GOETZ, Bankruptcy Judge:

In this liquidating Chapter 11 proceeding the attorneys and accountants who have performed professional services in connection with the administration of this proceeding are seeking the allowance of compensation for such services and reimbursement of their expenses. All are in the nature of final allowances except the applications of Stroock & Stroock & Lavan ("S & S & L") and Main, Hurdman & Cranstoun ("Main").

Sapolin Paints ("Sapolin") filed for relief under Chapter 11 on April 8, 1980; Sapolin's wholly owned subsidiary, Woolsey Marine Industries, Inc. ("Woolsey") filed on April 14, 1980. On April 22, 1980, the Court ordered joint administration of the two proceedings. At a public auction held under the auspices of the Court on June 12, 1980 the assets of the two Debtors were sold in one package for the sum of approximately $2.6 million.

Distribution of the proceeds of the auction to general creditors has been delayed by several factors: uncertainty as to the amount the Debtors' largest secured creditor, Chemical Bank, would realize from its security; disagreement between the Woolsey and Sapolin Creditors' Committees regarding the appropriate division between the creditors of the two companies; and litigation arising out of the sale and other disputes. In the interim the estate grew to approximately $3.3 million of which a substantial fraction has already been distributed to priority creditors.

In accordance with the requirements of 11 U.S.C. § 330 and Bankruptcy Rule 2002(a)(7) (which replaces the former Bankruptcy Rule 11-24) notice of the applications for allowances was sent all creditors. No creditor appeared at the scheduled hearing to object to the amounts requested. However, Frederick Kremer, president and chief executive officer of both Sapolin and Woolsey and a member of the Board of Directors of these companies expressed his disappointment at the long time the proceeding had gone on. While Mr. Kremer was very supportive of the application of Stroock & Stroock & Lavan and of Ryan & Silberberg, both of whom had been employed by the Debtor, he was critical of the work of Main and of the attorneys for the Creditors' Committees. Because of Mr. Kremer's long and close involvement with these proceedings, the Court has taken his comments into consideration in reaching its conclusions.

I. THE CONTROLLING LAW

Analysis of attorneys' fees in bankruptcy proceedings begins with Sections 330 of the Bankruptcy Code, 11 U.S.C. § 330 (1980), which provides that the bankruptcy court, after notice and hearing, may award:

(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 time, the nature, the extent, and the value of such services, and the cost of comparable services other than in a case under this title; and

(2) reimbursement for actual, necessary expenses.

The Code rejects the concept that notions of economy should govern the allowance of attorney fees in bankruptcy cases. Otherwise, the same criteria as were developed under the Bankruptcy Act continue to be applicable. See, e.g., Matter of Hamilton Hardware Co., Inc., 11 B.R. 326 (Bkrtcy.E.D.Mich.1981); In re Garland Corp., 8 B.R. 826 (Bkrtcy.D.Mass.1981); In re J.R. Elkins, Bankr. No. XXX-XXXXX-XXX, Unreported Decision, Nov. 17, 1983) (Duberstein, B.J.) (Bkrtcy.E.D.N.Y.1983); 2 Collier on Bankruptcy, ¶ 330-052 at 330.05 (15th Ed.1980). They include: (1) the nature of the services rendered; (2) the difficulties and complexities encountered; (3) time necessarily expended; (4) the results achieved; (5) the burden the estate can safely bear; (6) the size of the estate; (7) duplication of services; (8) professional standing, ability and experience of the applicant; and (9) fairness to each applicant. Surface Transit, Inc. v. Saxe, Bacon & O'Shea, 266 F.2d 862, 865 (2d Cir.1959); In re Paramount Merrick, Inc., 252 F.2d 482, 485 (2d Cir.1958); Matter of First Colonial Corp. of America, 544 F.2d 1291, 1298-99 (5th Cir.1977).

Increasingly, however, the "lodestar" approach is coming to dominate. In re Casco Bay Lines, Inc., 25 B.R. 747, 755 (Bkrtcy. App. 1st Cir.1982). The lodestar is the result of multiplying the number of hours reasonably expended on the case by a reasonable hourly rate. Copeland v. Marshall, 641 F.2d 880 (D.C.Cir.1980). After arriving at this figure, further adjustment can be made for factors such as the quality of representation and delay in receipt of payment. In re Casco Bay Lines, Inc., supra, 25 B.R. at 756.

The lodestar approach requires accurate records of both the amount of time spent and the manner in which it was spent.

"Adequate time records are essential to the court in carrying out its duty to determine how much work was productive or necessary, and how much work required treatment by experienced attorneys." In the Matter of Interstate Stores, Inc., 437 F.Supp. 14, 16 (S.D.N.Y. 1977).

See also In re Meade Land & Development Co., 527 F.2d 280, 283 (3d Cir.1975); In re Orbit Liquor Stores, 439 F.2d 1351, 1353 (5th Cir.1971); In the Matter of Beverly Crest Convalescent Hospital, Inc., 548 F.2d 817, 820 (9th Cir.1976); In re Hudson & Manhattan Railroad Co., 339 F.2d 114, 115 (2d Cir.1964).

Addressing the question of the proper calculation of a lodestar in a civil rights case, Judge Bartels said: "While the use of reconstructed time records is permissible, the time must be reconstructed with reasonable specificity and must exhibit reasonable reliability. Uncertainties that arise because of poor records should be resolved against the applicant." New York State Association for Retarded Children, Inc. v. Carey, 544 F.Supp. 330, 338 (E.D.N.Y. 1982). (Citations omitted). His opinion continues: "Lack of documentation is not an evil in itself, but it creates problems precisely to the extent that it makes the court's task of determining the reasonableness of time claimed very difficult." Id. at 339.

What the Court must avoid is allowing a double charge for the same service where attorneys are acting jointly in the same capacity. Cle-Ware Industries, Inc. v. Sokolsky, 493 F.2d 863 (6th Cir.1974); In re Crutcher Transfer Line, Inc., 20 B.R. 705, 710 (Bkrtcy.W.D.Ky.1982). The debtor's estate should not bear the burden of duplication and if not avoided by counsel it should be disallowed by the court. In re Liberal Market, Inc., 24 B.R. 653, 658 (Bkrtcy.S.D.Ohio 1982). In a case involving multiple attorneys and a large number of claimed hours an across-the-board reduction is a necessary, but fair, expedient to correct for excessive or duplicative hours.

Furthermore, not all services should carry the same compensation. Correspondence and telephone conversations, unless the substance is set forth, should be compensated at a lower rate than truly legal services irrespective of the experience and competency of the attorney who performs them. In re Doyle-Lunstra Sales Corp., 19 B.R. 1003 (Bkrtcy. 7th So.Dak.1982); In re Hamilton Hardware Co., 11 B.R. 326, 331 (Bkrtcy.E.D.Mich.1981).

With this background in mind the task before the Court is to address individually the merits of each application. Before doing so, however, the Court wishes to commend all the attorneys for the high calibre of their work. All are expert in the bankruptcy field; all deservedly enjoy the highest professional standing. Their individual applications will now be evaluated.

II. THE ATTORNEYS FOR THE DEBTORS AND DEBTORS-IN-POSSESSION

A. STROOCK & STROOCK & LAVAN

S & S & L have represented the two Debtors in this proceeding since it was retained on January 8, 1980. At the time of its retention it received a fee of $75,000.00. On December 4, 1980 this Court authorized the payment to it of interim compensation in the amount of $85,790.75. This represented exactly half of the figure it had requested as an interim allowance and as reimbursement of expenses for the period from January 8, 1980 to August 31, 1980, after deducting the $75,000.00 retainer previously received.

Notice was sent to all creditors to advise them that the total compensation requested by S & S & L at the present time is $345,435.20 and that the reimbursement for expenses requested is $107,711.91. (At the hearing, S & S & L advised the Court that the total given for the reimbursement of expenses was inaccurate and the total amount for which reimbursement was sought was $36,675.88).

The figure of $345,435.20 is made up of two components: a charge predicated on hours worked for the period from August 31, 1980 to September 30, 1983 of $290,435.20, and a premium of $55,000.00 for the achievement of outstanding results. But it appeared from the applications filed by S & S & L that the firm is seeking more than compensation for the period from August 31, 1980 to September 30, 1983: it is renewing its application for compensation for services performed from January 8, 1980 to August 31, 1980 as to which it had previously received interim compensation equal to half the amount requested. In other words, it wants an allowance of $423,848.62, not simply $345,435.00. The disbursement for which reimbursement is requested also relates to two time periods: January 8 to August 31, 1980 and August...