In re Washington Mfg. Co.
| Decision Date | 23 June 1989 |
| Docket Number | 388-01468 and 388-01469.,Bankruptcy No. 388-01467 |
| Citation | 101 BR 944 |
| Parties | In re WASHINGTON MANUFACTURING COMPANY, Washington Industries, Inc. and KSA, Inc., Debtors. |
| Court | U.S. Bankruptcy Court — Middle District of Tennessee |
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William J. Rochelle, III, Kronish, Lieb, Weiner & Hellman, New York City, James R. Kelley, Dearborn & Ewing, Nashville, Tenn., for debtors.
Russell H. Hippe, Jr., Trabue, Sturdivant & DeWitt, Nashville, Tenn., for Unsecured Creditors Committee.
Frank Childress, U.S. Trustee, Nashville, Tenn.
Ronald W. Hanson, Latham & Watkins, Chicago, Ill., Bradley A. MacLean, Farris, Warfield & Kanady, Nashville, Tenn., for Citicorp North America, Inc.
Craig V. Gabbert, Jr., Harwell, Bar, Martin & Stegall, Nashville, Tenn., for Chapter 11 Trustee.
This core proceeding1 was initiated by the filing of an "Application Of Kronish, Lieb, Weiner & Hellman, Attorneys For The Debtors In Possession, For Final Allowance Of Compensation and Reimbursement Of Expenses." The application was heard with the comments or objections filed by the Unsecured Creditors' Committee, by the Assistant United States Trustee for Region VIII and by the Chapter 11 Trustee, and with oral statements of counsel. At the hearing a briefing schedule was established and, after extensions, the final memoranda have now been filed. Having considered the entire record related to this application, comments, objections, oral hearing, exhibits and legal memoranda, the Court makes the following findings of fact and conclusions of law, pursuant to Bankruptcy Rule 7052.
Three voluntary chapter 11 cases were filed by the debtors on March 1, 1988, which cases are being jointly administered. On March 15, 1988, upon application dated March 1, 1988, this Court entered an order approving the employment of the New York law firm of Kronish, Lieb, Weiner & Hellman ("Kronish, Lieb") and the Nashville law firm of Dearborn & Ewing to represent the debtors in possession. On March 18, 1988, with the consent of the debtors, the Court appointed a Chapter 11 Trustee, Timothy L. Finley, after which time the role of debtors' counsel diminished. The cases have continued in Chapter 11, with a liquidation being conducted by the Trustee.
The issues presented are not necessarily unique but are numerous. The primary issues are whether the Kronish, Lieb firm will be allowed to charge at its customary rates or will be limited to Nashville, Tennessee rates and whether the Kronish, Lieb firm will be allowed an expense charge for work requested by the law firm but performed by another professional entity, Kalliste Corporation ("Kalliste"). Related to the first issue is a question of whether the debtors should have retained counsel outside the Nashville area. Further, issues of duplication of services, unnecessary charges, overhead charges, and value of the services are presented. Because the requested charges and expenses are relatively large, and because the issues are important for their potential impact upon future fee applications in this District as well as in the Western District of Tennessee,2 the Court will address each issue separately in this opinion.
Underlying the objections to the allowance of charges higher than the normal Nashville, Tennessee rates for bankruptcy practitioners is an issue of whether these debtors had good cause to seek out and retain counsel from outside the Nashville area. It was argued by the Chapter 11 Trustee that local counsel existed with adequate ability to represent these debtors. The Court has no doubt that is true; however, there has been no showing that local counsel existed who were in a position to represent these debtors. The debtors' local counsel, Dearborn & Ewing, correctly believed that it should not serve as primary debtors' counsel in the bankruptcy cases because one of its partners had served as a director of one of the debtor corporations and therefore would not have been "disinterested" as required by 11 U.S.C. § 101(13)(D) and § 327(a). The creditors and other interested parties should not, as a general rule, be able to dictate the debtors' choice of its counsel. In re Microwave Products of America, Inc., 94 B.R. 971 (Bankr.W.D.Tenn.1989); In re Hecks, Inc., 83 B.R. 410, 17 B.C.D. 542 (S.D.W.Va.1988); 2 King, COLLIER ON BANKRUPTCY, ¶ 327.03-2 (15th Ed.1989). Section 327(a) of the Bankruptcy Code provides that the debtor in possession3 "with the court's approval, may employ one or more attorneys." The Kronish, Lieb firm promptly filed an application for its employment, which was approved by the entry of the Court's Order, and no objection was made to that employment until the fee application was filed.
It might be argued that the objectors had waived their objections to the employment of nonlocal counsel by not timely moving that the Court set aside its order approving the employment of Kronish, Lieb, and the Court notes that immediately upon the filings of these cases, there was activity before the Court in which Kronish, Lieb's participation was made known to the objecting parties. However, it is not necessary for a waiver to be imposed because the Court finds that there was good cause for these debtors to choose a nonlocal firm. Not only was the debtors' local counsel unable to serve as general counsel, that same local counsel was involved in the initial meeting between the debtors' chief operating officer and Mr. Rochelle of the Kronish, Lieb firm. It certainly may be inferred that the Dearborn & Ewing firm played a role in the selection of the Kronish, Lieb firm. It is also logical that Dearborn & Ewing, a Nashville firm, would be in position to advise the debtors of local counsel to consider. Neither this Court, creditors, the case trustee nor the U.S. Trustee were in a position, nor should they be, to make such a choice for these debtors. See, e.g., In re Hecks, Inc., supra; In re Allard, 23 B.R. 517, 7 C.B.C.2d 854 (E.D. Mich.1982). Rather, if the choice is inappropriate for any reason, a party in interest should promptly bring that to the Court's attention by a motion seeking to set aside or to terminate the employment of the debtor-in-possession's choice of professional persons.
Further, both representations made in support of the pending fee application, as well as the case history before the Court, indicate that these were not "simple" nor "local" cases. As represented in one of Kronish, Lieb's memoranda, The Chapter 11 Trustee's counsel argued that the joint case was not "national" in scope but rather was limited in significant impact to a 150 mile radius of Nashville. That is negated by the fact that within four days of the Chapter 11 filing, this Court conducted an emergency hearing involving a national manufacturer and its North Carolina attorneys. An emergency hearing was also conducted before the United States District Court for the Middle District of Tennessee involving the debtor, national manufacturers and the United States Department of Labor. Other hearings have been held throughout the case which involved entities outside of Nashville or the Middle Tennessee area. The Chapter 11 Trustee has paid in excess of seventeen million dollars in administrative and operating expenses. The primary secured creditor filed a proof of claim for in excess of $39 million. While this may not be a "national" case, it is obviously not a local or routine one.
The size and nature of the cases demanded rapid response to critical needs of the debtors. As is typical, cash collateral was an immediate problem, and the debtors' primary lender was Citicorp North America, Inc. ("Citicorp"), which has been represented by Chicago and Nashville counsel. The underlying reality is that a debtor in a crisis environment may not enjoy the luxury of shopping extensively for counsel, even locally. Rather, rapid decisions are required. This Court does not choose to adopt a policy of requiring potential bankruptcy debtors to exhaust the local attorney pool before hiring nonlocal counsel, and the Court will not preface this opinion with any assumption that there is something inherently wrong with debtors retaining nonlocal attorneys or other professionals. See, In re Public Service Co. of New Hampshire, 86 B.R. 7, 17 B.C.D. 673 (Bankr.D.N.H.1988) (hereinafter "Public Service"). Rather, on a case by case basis a decision must be made, ultimately by the Court if necessary, as to whether the debtors' choice of counsel is proper. One of the considerations certainly may be the level and nature of the bankruptcy experience of the nonlocal firm. William Rochelle, a partner in the Kronish, Lieb firm, represented to this Court that one of the reasons for his firm's selection as debtors' counsel was the experience of both the firm and of Mr. Rochelle in similar cases, as well as in "national" bankruptcy cases. As a general concept, this Court sees no justification for a blanket rule prohibiting nonlocal counsel and the Court doubts that debtors generally will search for nonlocal counsel in the typical case. On the other hand, in a case with more than a local impact, nonlocal counsel certainly is not unusual.
Discouraging nonlocal counsel in this case would be an anomaly since the primary secured creditor has both local and Chicago counsel and especially since the case trustee is not local. With the advice and consent of creditors, the Court appointed, prior to the effective date of the U.S. Trustee for this Region, a chapter 11 Trustee from North...
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