In re WHET, Inc.

• Decision Date: 13 September 1983
• Docket Number: Bankruptcy No. 80-1542-HL.
• Citation: 33 BR 443
• Parties: In re WHET, INC., Debtor.
• Court: U.S. Bankruptcy Court — District of Massachusetts

33 B.R. 443 (1983)

In re WHET, INC., Debtor.

Bankruptcy No. 80-1542-HL.

United States Bankruptcy Court, D. Massachusetts.

September 13, 1983.

Anthony R. Martin-Trigona, pro se.

Jon D. Schneider, Goodwin, Proctor & Hoar, Boston, Mass., for trustee of WHET, Inc.

David Ferrari, trustee.

MEMORANDUM ON ADMINISTRATIVE CLAIM.

HAROLD LAVIEN, Bankruptcy Judge.

The trustee's objection to the administrative claim of Anthony R. Martin-Trigona was heard by this Court on July 15, 1983. As a threshold issue, Mr. Martin-Trigona questions this Court's jurisdiction to decide his administrative claim. Mr. Martin-Trigona has recently filed a Chapter 13 petition in New York, which is in addition to a Chapter 7 in Connecticut filed on December 2, 1980. Aside from the question of the validity of his Chapter 13 filing, see In re Cowen, 29 B.R. 888 and 10 B.C.D. 738 (Bkrtcy.S.D.Ohio 1983). Mr. Martin-Trigona misconstrues the automatic stay. 11 U.S.C. § 362 stays actions against the debtor, not actions by the debtor. In re Ideal Roofing & Sheet Metal Works, Inc., 9 B.R. 2 (Bkrtcy.S.D.Fla.1980). In this Chapter 11, Mr. Martin-Trigona has taken the position of a plaintiff seeking a share of the estate's assets.

Additionally, 28 U.S.C. § 1471 gives this Court exclusive jurisdiction of the debtor's property and original jurisdiction of any claims against the debtor.

Finally, it is an accepted rule of comity that between courts of equal jurisdiction that the first to assert jurisdiction maintains it. See Farmer's Loan and Trust Co. v. Lake Street Elevated R.R. Co., 177 U.S. 51, 61, 20 S.Ct. 564, 568, 44 L.Ed. 667 (1900); Merrill, Lynch, Pierce, Fenner & Smith, Inc. v. Haydu, 675 F.2d 1169, 1174 (11th Cir.1982). Note that this concept is applied in the venue provisions. Former Bankruptcy Rule 116(c) and Bankruptcy Rule 1014(b).

As to the merits of the administrative claim, although this Court has discussed the facts of this case on several occasions, a brief review of the facts is appropriate.

Mr. Martin-Trigona purchased all of the stock and became the chief officer of the debtor on April 28, 1978. Subsequently, he entered into a management contract between himself, individually, and himself as an officer. Mr. Martin-Trigona assigned his rights under this contract to others.

The debtor experienced various difficulties and on August 6, 1980, a state court receiver was appointed. On August 15, 1980, the debtor filed a voluntary Chapter 11 petition in New York. Two days after that filing, while incarcerated in the Metropolitan Correctional Center of Chicago, Illinois,¹ Mr. Martin-Trigona entered into a second management contract with himself. On September 4, 1980, this Chapter 11 was transferred from New York to Boston. A trustee was appointed on September 9, 1980. At least subsequent to the trustee's appointment, Mr. Martin-Trigona performed no services under this second management contract. Indeed, Mr. Martin-Trigona was in federal custody during the entire period of the trustee's operation of the radio station.

The trustee never formally rejected the second management contract. According to the trustee, he did not see a copy of the contract until the summer of 1983, well after the sale of the station. Further, Mr. Martin-Trigona admitted in an August 15, 1983 filing that he himself only discovered the originally signed contract in papers received from his former attorneys on "June 24th or 23rd," 1983. In any case, the trustee did not seek Mr. Martin-Trigona's services and, indeed, he took active steps to prevent Mr. Martin-Trigona from participating in the management of the radio station. For his part, Mr. Martin-Trigona contends that he was always willing to perform and could have done so despite his physical absence. I believe that Mr. Martin-Trigona sincerely thinks that he could have managed the station and performed better than the trustee. The trustee did not share this view and considering the rapid build up of vitriolic accusations, it is self-evident that the trustee and Mr. Martin-Trigona could not work together.

Mr. Martin-Trigona contends that as the result of a telephone conversation with the trustee in mid-October, 1980, the trustee was advised of the claim that Mr. Martin-Trigona had rights under a management contract.

On July 1, 1981, this Court approved the private sale of the operating assets and broadcasting license of the debtor to Action Corporation for $1,250,001.50. In re WHET, Inc., 12 B.R. 743 (Bkrtcy.Mass. 1981). The trustee completed the sale to Acton Corporation on July 2, 1982 and took no further role in the station's operations.

The second management contract is dated August 17, 1980. Although Mr. Martin-Trigona has filed a steady stream of papers including several other claims, he did not file this claim until January 3, 1983, when he sent the following cryptic telegram:

Please file this telegram under In re WHET, Inc. 80-1542-HL The debtor hereby objects to the plan and disclosure statement filed by the trustee. Anthony R. Martin-Trigona hereby submits a claim for priority administrative expense in the amount of $290,000 from August 1980-December 1982 as per books and records of debtor 11 USCA 503 507. Memorandum in support of objections and priorify sic claim to follow

Anthony R. Martin-Trigona and WHET, Inc. jointly and severely sic.

Although the timing and form of Mr. Martin-Trigona's proof of claim is certainly questionable, it is not fatal if the claim is otherwise well-founded.

The original management contract was apparently the manner chosen by Mr. Martin-Trigona to compensate himself rather than take an officer's salary. This was his privilege, at least before bankruptcy. The present management contract was not in the debtor's files nor made available to the trustee nor the Court until nearly three years after its execution by Mr. Martin-Trigona, individually, and with himself as an officer of WHET, Inc. Further, Mr. Martin-Trigona was in a most unlikely location for one claiming a management role in a crisis beset Chapter 11 debtor. This was clearly the ultimate insider transaction which would require the closest court scrutiny. The words articulated by Chief Justice Taft in a case involving a contract that was concealed from the Court are particularly relevant:

The contract is contrary to public policy —plainly so. What is struck at in the refusal to enforce contracts of this kind is not only actual evil results but their tendency to evil in other cases. Even if the ultimate results in the management of the . . . estate were good, that could be no excuse for a contract plainly illegal, because tending to produce the recognized abuses which follow fraud and disloyalty by agents and trustees. Enforcement of such contracts when actual evil does not follow would destroy the safeguards of the law and lessen the prevention of abuses.

Weil v. Neary, 278 U.S. 160, 173-74, 49 S.Ct. 144, 149-50, 73 L.Ed. 243 (1929); see also, Woods v. City National Bank and Trust Co. of Chicago, 312 U.S. 262, 61 S.Ct. 493, 85 L.Ed.820 (1941); In re Arlan's Department Stores, Inc., 615 F.2d 925 (2d Cir.1979); In re Lucille's Inc., 26 F.Supp. 943 (D.Me. 1939); 3A Collier on Bankruptcy, ¶ 62.05 (14th Ed.1978).

Had Mr. Martin-Trigona been functioning on the premises when the Chapter 11 petition was first filed or when the trustee was appointed, an inquiry by the trustee would have been made as to duties and compensation and some eventual consideration by the trustee would have been necessary. Mr. Martin-Trigona was not present and the tax returns, alerting the trustee to the first agreement, would only lull the trustee into finding that any reference, during the mid-October telephone conversation, referred to the prefiling agreement under which no present services were being performed. However, there are other problems with this claim.

Administrative expenses are defined by the Bankruptcy Code as:

the actual, necessary costs and expenses of preserving the estate, including wages, salaries, or commissions for services rendered after the commencement of the case. . . .

11 U.S.C. § 503(b)(1)(A); see also, 11 U.S.C. §§ 330(a)(1), 503(b)(2); 503(b)(4). Administrative expenses must be approved by the bankruptcy court after a notice and hearing. 11 U.S.C. § 503(b). The purpose of mandatory court approval of administrative claims is to provide the bankruptcy court with centralized control over fees, Brown v. Gerdes, 321 U.S. 178, 182-184, 64 S.Ct. 487, 489-490, 88 L.Ed. 659 (1944); and to guard against a recurrence of "the many sordid chapters" in "the history of fees in corporate reorganizations." Dickinson Industrial Site, Inc. v. Cowan, 309 U.S. 382, 388, 60 S.Ct. 595, 599, 84 L.Ed. 819 (1940). Specifically,

The aim of the expanded controls over reorganization fees and expenses is clear. The practice had been to fix them by private arrangement outside of court. . . . This gave rise to serious abuses. There was the spectacle of fiduciaries fixing the worth of their own services and exacting fees which often had no relation to the value of services rendered.

Leiman v. Guttman, 336 U.S. 1, 6-7, 69 S.Ct. 371, 373-374, 93 L.Ed. 453 (1949) (footnotes omitted); see also, S.Rep. No. 95-989, 95th Cong. 40-41, 2d Sess. (1978), U.S.Code Cong. & Admin.News, p. 5787.

Mr. Martin-Trigona did not render management services during the trustee's operation of the radio station. Regardless of why, Mr. Martin-Trigona was not asked to provide services and, in fact, was actively prevented by the trustee from participating in any way in the operation of the station. Compensation, as an administrative expense, can only be awarded for actual services. 11 U.S.C. 330(a)(1), § 503(b)(1)(A). Indeed, Mr. Martin-Trigona's activities, as they related to the operation of the station and its sale, added to the expense of the trustee's management and did not benefit the estate. Not only have his actions added to the legal costs, but the...