Matter of Concrete Products, Inc.

• Decision Date: 02 July 1996
• Docket Number: Bankruptcy No. 88-20540.
• Citation: 208 BR 1000
• Parties: In the Matter of CONCRETE PRODUCTS, INC., Debtor.
• Court: U.S. Bankruptcy Court — Southern District of Georgia

208 B.R. 1000 (1996)

In the Matter of CONCRETE PRODUCTS, INC., Debtor.

Bankruptcy No. 88-20540.

United States Bankruptcy Court, S.D. Georgia, Brunswick Division.

July 2, 1996.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

William S. Orange, III, Brunswick, GA, for debtor.

E. Laney Russell, Jacksonville, FL, for Harold Zell.

William E. Dillard, III, Savannah, GA, for B.E. Bledsoe.

ORDER ON DEBTOR'S MOTION TO EMPLOY INSIDER HAROLD ZELL NUNC PRO TUNC AND MOTION TO COMPENSATE AND REIMBURSE HAROLD ZELL

LAMAR W. DAVIS, Jr., Chief Judge.

Harold Zell, chief executive officer and president of the board of directors of Concrete Products Inc. (hereinafter "Debtor"), filed the above Motion on April 8, 1996, and this Court scheduled a hearing in Brunswick, Georgia, on May 2, 1996. In the application, Zell seeks compensation totalling approximately $58,200.00 for services rendered to the Debtor between the years 1990 and 1995. Zell also seeks reimbursement for approximately $21,760.70 in actual expenses. This matter is a core proceeding under 28 U.S.C. Section 157(b)(2)(A). This opinion constitutes the Court's findings of fact and conclusions of law pursuant to Bankruptcy Rule 7052.

FINDINGS OF FACT

Debtor filed for Chapter 11 relief on October 3, 1988. At that time, the chief executive officer was B.E. Bledsoe; Harold Zell held no position with the Debtor corporation. However, in November 1988 the Debtor's shareholders elected a new board of directors which for the first time included Harold Zell. On January 10, 1989, the board convened and appointed Zell president and chief executive officer. At the time of his appointment the board established no salary for him, nor was there any agreement as to how he would be compensated. Because of litigation between the then president, B.E. Bledsoe, and the board, this Court temporarily enjoined the termination of Bledsoe. For a brief time, both Zell and Bledsoe acted as corporate officers until I entered an order for the appointment of a Chapter 11 trustee who served from May 1989 through November of 1990.

By Order of November 2, 1990, this Court excused the Chapter 11 trustee from further service and included the following language within the Order:

The Board now expresses a desire to reassume management of the company and attempt to liquidate it under the auspices of a Chapter 11 liquidation plan or possibly thereafter a Chapter 7 liquidation. The continuing expense that the estate will incur by the services of a Trustee as opposed to the services of its Board of Directors in an orderly Chapter 11 liquidation is no longer necessary. I conclude, therefore, that while the services of the Trustee have been of immense value of the Court, to the Debtor, and to the creditors of the estate, the essential purpose for the services of a Chapter 11 Trustee in this case no longer exists. Accordingly, the Trustee is excused from any further responsibility in this Chapter 11 case, with profound thanks from the Court for his services.

All matters of corporate governance are restored to the Board of Directors of Concrete Products, Inc., effective upon the date this Order becomes final. By separate order, the preliminary injunction issued in the related adversary proceeding will be vacated inasmuch as there are no remaining prospects for reorganization and the underlying reasons for entry of that preliminary injunction no longer exist.

Testimony at trial revealed that upon issuance of the Order restoring "corporate governance" to the board of directors, the board again elected Zell to serve as president and chief executive officer. As the CEO of a liquidating Chapter 11, Zell undertook to organize the liquidation of the business, to inventory and sell its assets, to reconcile its books and records, to provide for cleanup of hazardous waste on the property and to deal with products liability suits. See Memorandum in Support of Harold Zell's Application, Ex. `A' (Minutes of the Bd. of Dir. on Jan. 7, 1991), Ex. `B' (Minutes of the Shareholders on Jan. 7, 1991), Ex. `C' (Resolution of Shareholders to Orderly Liquidate on Jan. 7, 1991). He has spent considerable time since 1990 in pursuing these matters. There is no doubt that his services have benefited the estate¹ and have been of assistance to the attorneys representing the Debtor in bringing this case to the point where it is in a position to be concluded. In support of his application for compensation for these services, Zell submitted an extensive narrative of the activities he undertook during the five and one-half-year period from 1990 to the present. However, Zell maintained no time records during any of the years for which he now seeks compensation and only prepared his narrative explanation approximately three weeks before the hearing from memory and by means of reviewing his files from the company. For each calendar year he requests compensation in a lump sum as follows:

                1990         $ 6,000.00
                1991         $24,000.00
                1992         $14,400.00
                1993         $ 7,200.00
                1994         $ 4,200.00
                1995         $ 2,400.00
                             ==========
                   Total     $58,200.00
                

In addition, he seeks the reimbursement for expenses of $21,760.70 which he has advanced or incurred — comprised of office rental in the amount of $2,350.00, copy charges $16,636.80, computer usage $1,175.00, postage $191.00, supplies $120.00, travel $394.90, and telephone expense $893.00. With respect to these items, the testimony revealed that Zell is not personally out-of-pocket for any of the expense items; instead, at least since March 1992, "I-95 Mall, Inc.," a closely held corporation in which Zell holds a majority interest, has maintained the records and actually incurred the other expenses of the Debtor although Zell asserts that it is he who ultimately remains liable.

First and foremost, it is undisputed that Mr. Zell never obtained the express approval of this Court to be employed by the Debtor during the Chapter 11 liquidation although Zell concedes that he understood the Code requirements to seek court appointment of professionals. Indeed, the record reveals that following his reassumption of control of the business the Debtor timely filed applications for appointment of certain professionals. See Application for Leave to Retain Professional Persons — Attorneys, Doc. No. 350, Nov. 26, 1990; Application for Leave to Retain Professional Persons — Accountants, Doc. No. 351, Nov. 26, 1990.

It is also undisputed that Zell never listed his salary nor the accrual of any expenses related to his services on the periodic financial reports submitted to the Office of the United States Trustee. Throughout the time of his management, Zell, on behalf of the Debtor, has caused to be filed with the Office of the United States Trustee, all of the monthly financial reports required of a Chapter 11 Debtor. Because Zell has not paid himself any salary nor reimbursed himself for any expenses, there was no requirement for and, therefore, no disclosure of any salary or expense payment on these reports. Zell, however, contends that compensation and expenses have been accruing since 1990, yet nowhere in these reports has he disclosed the accrual of this obligation as an account payable.

At trial, Mr. Zell testified that he always expected to be paid for his services and that the language of disclosure statements filed on his behalf in 1990 and 1992 reveal that he expected compensation.² However, this Court never approved either disclosure statement. Although the 1990 statement states that salaries will be set by the Board, it is uncontradicted that the Board never voted Zell a salary. The 1990 statement is, therefore, unpersuasive. Moreover, the 1992 disclosure statement, to the extent it is relevant, is contradictory to his testimony. In particular, the 1992 disclosure statement reveals that Zell intended to manage the debtor's liquidation, but there is no mention of salary. See Disclosure Statement on Plan of Liquidation Proposed by Concrete Products, Inc., Doc. No. 536, para. 7, 11, Sept. 9, 1992. More notably, it fails to reveal any claims of insiders such as Zell.³ In fact, paragraph six of the disclosure statement, which is entitled "Transactions with Insiders," states "there are no unresolved matters involving insider transactions" that are known to Zell. Considering the compensation that Zell now requests for the years 1990-1992, at the time of the 1992 disclosure statement the Debtor allegedly owed Zell at least $37,000.00.⁴ Finally, the 1992 disclosure statement affirmatively asserts that there are no payments or promises of the type specified in Section 1129(a)(4),⁵ "which have not been disclosed to the court." In light of his current testimony, that statement is misleading at best. In summary, the 1992 disclosure statement supports an inference that Mr. Zell was working without compensation.

Debtor's counsel, William S. Orange, III, testified that he only became aware that Mr. Zell would seek compensation during the winter of 1995 when they had a chance encounter at a local grocery store. Orange testified that he thought Zell had been receiving compensation from the debtor-in-possession account even though the monthly reports filed with the Office of the United States Trustee clearly reveal no such expenditure. Nevertheless, he supports Zell's application. He testified that Zell's actions on behalf of the Debtor were beneficial, that Zell was acting, as he put it, "in the role of a quasi trustee," and that in the absence of Zell being so involved, the Debtor would have incurred expenses for the hiring of some other professional to perform similar duties.

As previously stated, Mr. Zell testified that the board of directors neither authorized an employment contract for him nor set any salary. Zell also admitted that, at the time the board employed him, he had no idea how he would be paid. Further, Zell conceded that the board never expressly authorized...