In re Stoecker
| Decision Date | 15 August 1990 |
| Docket Number | Bankruptcy No. 89 B 02873. |
| Parties | In re William J. STOECKER, Debtor. |
| Court | United States Bankruptcy Courts. Seventh Circuit. U.S. Bankruptcy Court — Northern District of Illinois |
Robert Radasevich, Neal, Gerber & Eisenberg, Chicago, Ill., for trustee.
Thomas Raleigh, Raleigh & Helms, Chicago, Ill., Trustee.
Jay A. Steinberg, Hopkins & Sutter, Chicago, Ill., Trustee, for The Grabill Corp., Windsor-Hamilton, Ltd., Foxxford Group, Ltd., Camdon Companies, Inc. and The Techna Group, Ltd.
Gerald F. Munitz, Michael P. O'Neil, Winston & Strawn, Chicago, Ill., Amy R. Wolf, Wachtell, Lipton, Rosen & Katz, New York City, for The Connecticut Bank and Trust Co., N.A.
Norman B. Newman, Much, Shelist Freed Denenberg Ament & Eiger, P.C., Chicago, Ill., for Westbank Nat. Banking Corp.
This matter comes before the Court on the application of Thomas E. Raleigh (the "Trustee"), pursuant to 11 U.S.C. §§ 326, 330, and 331 and Federal Rule of Bankruptcy Procedure 2016, for allowance of final compensation as Chapter 11 Trustee in the amount of $502,148.62 and reimbursement of expenses in the sum of $1,736.11. Proper notice was given to all creditors and parties in interest pursuant to Federal Rule of Bankruptcy Procedure 2002. Objections were filed by Westbank National Banking Corporation ("Westbank") and The Connecticut Bank and Trust Company, N.A. ("CBT"). A hearing was held on the application and the matter was subsequently taken under advisement.
The issue is whether in a large Chapter 11 case a trustee should be awarded the maximum compensation allowable under the Bankruptcy Code when the services performed have not been objected to as unnecessary, but the reasonableness of the amount requested is challenged. The short answer and holding is that maximum compensation should be allowed to a Chapter 11 trustee in a successful reorganization when maximum results and benefits are achieved. In an attempted, but failed reorganization case that is converted to Chapter 7, the maximum allowable compensation should not be awarded or expected. The Trustee has done a highly commendable job in a difficult and complex case. Therefore, the Court allows most, but not all, of the requested compensation in the sum of $418,307.18 and reimbursement of expenses in the amount of $1,736.11.
The Court has jurisdiction to entertain this fee application pursuant to 28 U.S.C. § 1334 and General Rule 2.33(A) of the United States District Court for the Northern District of Illinois. This matter constitutes a core proceeding under 28 U.S.C. § 157(b)(2)(A) and (O).
Some of the facts, background and history of this case are contained in earlier Opinions of the Court. See In re Stoecker, 114 B.R. 965, 967-968 (Bankr.N.D.Ill.1990); In re Stoecker, 103 B.R. 182, 184-185 (Bankr.N.D.Ill.1989). Additional background information concerning the related corporate cases is contained in other Opinions of the Court. See In re Grabill Corp., 110 B.R. 356, 358 (Bankr.N.D.Ill.1990); In re Grabill Corp., 103 B.R. 996, 997-998 (Bankr.N.D.Ill.1989).
An involuntary Chapter 11 petition was filed against the Debtor on February 21, 1989. On March 8, 1989, after a full evidentiary hearing, the Court ordered the appointment of a trustee. Shortly thereafter on March 14, 1989, the Court entered an order for relief under Chapter 11. The following day, the Court entered an order requiring the Debtor to file a plan of reorganization and disclosure statement by July 12, 1989. The U.S. Trustee subsequently appointed the Trustee on March 20, 1989.
The Debtor did not file a plan or disclosure statement. One creditor filed a plan and disclosure statement, to which numerous objections were filed. After the Court sustained some of the objections to the adequacy of that disclosure statement, no further plans or disclosure statements were filed. Due to a lack of movement and progress towards reorganization, the Court sua sponte issued an order to show cause why the case should not be converted to Chapter 7. On February 26, 1990, pursuant to 11 U.S.C. § 1112(b)(1)-(4), the case was converted. At the time of the hearing, the Trustee presented his motion for conversion. The estate has been administered as an orderly liquidation of the marshalled assets, concurrently with an intense investigation and review of the prior dealings of the Debtor, pending the sales of estate assets at fair and reasonable prices.
The Trustee previously received interim fee allowances under section 331 in the sums of $110,852.59, $75,294.06 and $176,688.89. Pursuant to the instant fee application, the Trustee seeks to have the three prior interim application allowances made final and receive the additional sum of $139,583.22.1 At the hearing on the fee application, no evidence was presented. Citibank, N.A., the largest single unsecured creditor, supported the Trustee's fee application as did the trustee in the related corporate cases (the "Grabill Trustee"), who concurred with the position taken by the Trustee that the negotiated one and one-half percent fee cap in those cases is not binding in this case. Given the fact that the liquidated asset base in the corporate estates is over four times greater than that of the case at bar, the seemingly facial altruism on the part of the Grabill Trustee is understandable and his support of the instant application will be weighed accordingly.
The Court ordered the Trustee to file a supplemental pleading showing the status of the estate with expected additional asset recoveries and estimated Chapter 7 administrative expenses, due to the potential problem involving subordination of Chapter 11 administration expenses to Chapter 7 administration expenses pursuant to section 726(b). After reviewing the pleading, no problem under section 726(b) appears likely based upon the current cash position of the estate and the anticipated earnings thereon, as well as potential added recoveries, compared with projected expenses of administration.
The Trustee contends that he marshalled and sold substantial assets of the estate without much assistance from the Debtor who never fully cooperated in the administration. The Debtor asserted various constitutional privileges, and as a result, the Trustee spent considerable time and effort in preparing and amending the schedules and locating assets. As Trustee during the Chapter 11 phase of the case, he distributed or turned over to secured and administrative claimants the sum total of $9,955,558.20 and has turned over to himself as the succeeding Chapter 7 Trustee an additional sum of $6,776,729.32. Thus, under the sliding scale established by section 326(a), the Trustee seeks the maximum allowable fee of $502,148.62.
The Trustee maintains that he and his law firm's staff spent a great deal of time on the case. He claims that he devoted over 2,100 hours of time, and his staff over 1,300 hours of their time, in the approximate one year period following his appointment. The Trustee further asserts that the efforts he and his staff expended on this case were substantial, and perhaps he should have billed his staff's time separately. The Trustee states that he was compelled to devote over ninety percent of his work on this case and is concerned with his future law practice. Moreover, the Trustee contends that some of the sales transactions were structured so that cash did not directly flow into the Trustee's hands to serve as an added basis for compensation. The Trustee further argues that the maximum compensation should be allowed because executives in charge of multimillion dollar corporations can obtain compensation at annual salaries of $500,000.00 or more.
The Trustee notes that under a lodestar approach, at his current hourly rate of $190.00 for attorney's services, he would bill his time at over $400,000.00. Although the Trustee concedes that the lodestar approach is a relevant factor for the Court to consider, he argues that it is only one of many factors to be considered including: benefit to the estate; time expended; intricacies of the problems encountered, their novelty and difficulty; the amounts involved; and the opposition encountered. The Trustee concludes that he is entitled to maximum compensation under section 326(a) in light of rulings by other judges of this Court and that even on a lodestar approach, the requested compensation would average approximately $230.00 per hour, roughly equivalent to the rates charged by some of the senior attorneys representing parties in this case and the related corporate cases. In short, the Trustee concludes that he took the case from hopeless obscurity and disruption to relative manageability and brought order to chaos despite obtrusive conduct of the Debtor, thereby entitling him to maximum compensation.
Two objections were made to the fee application. Westbank preserved the record by objecting until an accounting was provided. It asserted a secured lienholder status. The secured portion of its claims have been substantially paid through sales of the underlying security. The Trustee currently holds large sums for which an accounting of sales proceeds has yet to be completed. At the hearing, counsel for Westbank stated that the accounting was in process and that it no longer wished to stand on its objection.
CBT, on the other hand, argues that unsecured creditors have not received any distribution or dividend in the case. Rather, only secured creditors and the professionals holding allowed administrative priority claims have received the approximate ten million dollars distributed thus far, or roughly sixty percent of the estate assets recovered to date. CBT therefore asserts that the maximum three percent under section 326(a) should not be awarded to the Trustee in light of its concern that most of the remaining assets collected during the Chapter 7 phase of the case...
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