Matter of Multiponics, Inc., 71-218.
Decision Date | 13 July 1977 |
Docket Number | No. 71-218.,71-218. |
Citation | 436 F. Supp. 1072 |
Parties | In the Matter of MULTIPONICS INCORPORATED, Debtor. |
Court | U.S. District Court — Eastern District of Louisiana |
COPYRIGHT MATERIAL OMITTED
Peter J. Butler, New Orleans, La., for William W. Herpel, Trustee.
George J. Wade, Lansing R. Palmer, Shearman & Sterling, New York City, William M. Meyers, Stephen T. Victory, Liskow & Lewis, New Orleans, La., for Citibank, N.A., Indenture Trustee.
George W. Pigman, Chaffe, McCall, Phillips, Toler & Sarpy, New Orleans, La., Thad Grundy, Hutcheson & Grundy, Houston, Tex., and George A. Kimball, Jr., Peter A. Feringa, Jr., New York City, for Machinery Rental, Inc. and Carl Biehl.
David L. Stone, Stone, Pigman, Walther, Wittmann & Hutchinson, New Orleans, La., for William J. Casey.
Carl J. Schumacher, Jr., New Orleans, La., for Alfred J. Moran.
Citibank is the trustee under an indenture dated October 15, 1968, between it and Multiponics. Pursuant to the indenture, Multiponics issued $3,500,000 in 7½% subordinated debentures, which are due October 1, 1983. Citibank retained Shearman & Sterling of New York, and Liskow & Lewis of New Orleans, to advise and represent it generally in connection with Multiponics' Chapter X reorganization proceeding. These counsel have participated and continue to participate actively in the reorganization proceeding. In addition, in the fall of 1973, Citibank retained, as special counsel on the law of the State of Arkansas, the firm of Smith, Williams, Friday, Eldredge & Clark, Little Rock, Arkansas.
Citibank now seeks reimbursement for services rendered by counsel and for necessary disbursements incurred in rendering such services during the reorganization proceedings. While various applications for interim allowances have been filed, for reasons set forth in my opinion dated July 1, 1977 with respect to the reorganization trustee's fees, I will consider the total allowance for the entire proceeding.
The total amount sought is $576,123.25 in counsels' fees and costs. The fees of the trustee, trustee's counsel, and all other reorganization expenses and all of the claims of unsecured creditors must be satisfied out of a fund amounting to $2,308,314. From this fund the following administrative expenses have been allowed, or are likely to be allowed:
Trustee $ 135,000.00 Attorney for trustee 300,000.00 Auditor (not yet considered amount sought) 58,256.09 ____________ $ 493,256.09
The claims of unsecured creditors amount to a total of approximately $600,000; after this come the claims of Citibank's clients, $3,500,000; and, then, there are claims amounting to $3,200,000 which have been subordinated but are, nevertheless, due. Thus the funds on hand, after paying these administrative expenses, about $1,815,000, (less the amount allotted to Citibank), will satisfy only a fraction of the total claims.
Some of the services rendered by Citibank benefited only the debenture holders. Others were of benefit to the reorganization trustee or the reorganization estate. They were rendered over a period of six years and, as directed by the Court, Citibank has diligently attempted to determine the amounts of time its counsel spent in various aspects of this lengthy proceeding.
Citibank's counsel have throughout been able and diligent. Although this case was assigned to other judges prior to me, the services rendered after the case was allotted to me in 1976 have in every respect been of the highest quality. My duties with respect to the estate require me to comment on the amount of the claim, and to approve only a fraction of the sum sought as a charge against the estate, but these comments are in no way intended to qualify the praise I have already expressed.
In 1938 Congress considered several bills to amend the Securities Act of 1933, which provided for regulation of trust indentures, to increase the responsibilities of indenture trustees, especially where the obligor on the debentures entered insolvency proceedings. These bills resulted in the passage of the Trust Indenture Act of 1939, 15 U.S.C. § 77aaa, et seq., (the "Act").
To provide more adequate protection for debenture holders with respect to issuers who became insolvent, the Act requires every qualified indenture1 to impose certain duties on an indenture trustee in the event of the obligor's default under the terms of the indenture, for example, by the commencement of a reorganization proceeding. Section 315(c) of the Trust Indenture Act of 1939, 15 U.S.C. § 77ooo (c), in particular, requires indentures to provide (and this October 15, 1968, indenture does provide) that, upon the obligor's default, as defined in the indenture, the trustee is to exercise:
. . . such of the rights and powers vested in it by such indenture, and to use the same degree of care and skill in their exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs.
Accordingly, Citibank was required to act in accordance with the "prudent man" standard. Citibank conducted an independent and vigorous investigation into the reasons for the debtor's collapse. As a direct result of those efforts, the reorganization trustee was directed to bring an action against the former officers and directors of the debtor. A trial resulted in which counsel for the trustee acted as trial counsel, but Citibank's counsel played a major role in preparing for the trial and attended throughout; both Citibank's New Orleans counsel and New York counsel were in attendance. As a result of the trial, the claims of those officers and directors and the entities controlled by them were subordinated to the claims of the debenture holders and the trade creditors. Citibank's active participation in preparation for the trial was necessary and was of assistance to the trustee's counsel. But I do not believe that the personal attendance at the trial of New York counsel was required, and I believe that, throughout this case, in an effort to satisfy its duties to the debenture holders, Citibank rendered services far beyond the amount that benefited the reorganization trustee.
Citibank's initial vigorous representation of the debenture holders did alter the course of the proceeding in its earlier stages. Citibank objected to the claims that were eventually subordinated and, in the face of continuous opposition by other creditors, pressed for a speedy hearing on its objections. Judge Christenberry upheld Citibank's standing to object and granted the requested hearing. When that hearing was later consolidated for trial with the reorganization trustee's plenary action, Citibank was prepared to prove its case. Nevertheless, counsel for the reorganization trustee had a duty to act as lead trial counsel, and he, in fact, conducted the bulk of the examination of witnesses. Citibank's counsel assisted only in a relatively minor way in the examination of witnesses; they did introduce the majority of documents into evidence in what was, in large part, a "document" case, but these had been prepared and marshalled in advance of the trial.
In other facets of the reorganization, Citibank monitored the proceedings and participated actively in objecting to the claims of certain secured creditors whose claims, if sustained, would have seriously depleted the estate funds available for distribution to the debenture holders and other creditors.
The indenture trustee is not a creditor, did not risk its own funds and is not reaping the rewards of any investment in an issuer. It is in the service business and provides services for a fee. Accordingly, and in keeping with the policy articulated in Section 315(c) of the Trust Indenture Act of 1939, 15 U.S.C. § 77ooo(c), that indenture trustees take an aggressive role in Chapter X proceedings, Congress included in its revision of the Bankruptcy Act a new Section 242, which provides:
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