UNITED STATES BANKRUPTCY COURT

EASTERN DISTRICT OF KENTUCKY

LEXINGTON DIVISION

IN RE:

TECHNOLOGIES INTERNATIONAL HOLDINGS, INC. CHAPTER 11

DEBTOR CASE NO. 99-50867

IN RE:

ADVANCED TECHNOLOGIES INTERNATIONAL, INC. CHAPTER 11

DEBTOR CASE NO. 99-50868

IN RE:

MERIDIAN TRANSPORT CO. CHAPTER 11

DEBTOR CASE NO. 99-50869

MEMORANDUM OPINION AND ORDER

This matter is before the court pursuant to Llama Capital Services, LLC’s Motion and Application for Allowance and Payment of Administrative Expense Claims [537] (“Application”) filed herein on June 27, 2000. By the Application, Llama Capital Services, LLC (“Llama”) seeks payment of the sum of $311,036.28 as an administrative expense pursuant to the terms of 11 U.S.C. §503(b). Various objections have been filed to the Application and will be discussed herein. For the reasons set out hereinafter, the court holds that Llama is entitled to reimbursement in the amount of $304,150.27.

The debtors in these proceedings were involved in the business of removal of gasoline storage tanks which constituted environmental hazards and the rehabilitation of the property on which the tanks were located. The debtors’ particular niche in this business involved small land owners who were eligible for reimbursement of the costs of removal and rehabilitation from funds held by the Commonwealth of Kentucky, Office of Petroleum Storage Tank Environmental Assurance Fund (the “Fund”). The land owners would assign to debtors their right to receive reimbursement from the Fund upon completion of the work. The court will refer to these rights to receive reimbursement as “accounts.”

In order to finance its operations, since reimbursement on these accounts was a tedious and lengthy process, the debtors borrowed funds from Bank One and assigned to Bank One a security interest in some accounts. At the time of this Chapter 11 proceeding, Bank One was owed approximately $10.5 million. The debtors also sold, indirectly, certain of these accounts to Llama, and at the time of the inception of this Chapter 11 proceeding, Llama held accounts amounting to, depending upon whose figure is used, about $30 million. In the Chapter 11 proceeding, Llama’s ownership and even its claim to any interest in these accounts was challenged by the Unsecured Creditors Committee in an adversary proceeding and that cloud was removed only upon confirmation of the Plan of Reorganization and approval of a settlement, in Llama’s favor, of the contention of the Unsecured Creditors Committee that Llama did not own or even have a security in these accounts.

On February 26, 1999, the debtors filed their petitions in the United States Bankruptcy Court for the District of Delaware. On April 5, 1999, [79] that court transferred venue of the cases to this court.

On May 14, 1999, [120] this court entered an Agreed Order granting adequate protection and authorizing the use of cash collateral. That order was subsequently “suspended” by an Agreed Order of May 28, 1999, [151] further addressing the same issues.

Paragraph 9 of the May 28, 1999, order reads as follows:

9. Priority Allowance for Bank-Llama. Bank-Llama is hereby granted a priority administrative allowance under Code §503(b)(1)(A) for all sums used by, loaned to or paid for the benefit of the Debtors hereunder. The post-petition advance or loan made by Bank on May 21, 1999 in the amount of $70,000 shall be treated as a loan to the Debtors and shall be afforded the aforesaid administrative priority nunc pro tunc.

Another Agreed Order granting adequate protection was entered on July 9, 1999 [199]. Paragraph 14 of that order provides as follows:

14. Priority Allowance for Bank-Llama. The Bank’s security interest in its Collateral as described in its Proofs of Claim, including the Accounts and the Retained Collateral, are hereby regranted post-petition without any need of re-recording to the same extent, validity and priority that the Bank enjoyed as of the Petition Date. Bank-Llama is hereby granted a priority administrative allowance under Code §503(b)(1)(A) for all sums paid, loaned to or used for the Debtors or their benefit under this Order. Llama’s costs and advances specified in this Order are also costs and expenses of collecting claims as contemplated by its agreements with TSPE.

Subsequent to these Agreed Orders addressing adequate protection and the use of cash collateral, various other orders addressing those issues were entered, making various minor changes but all of them adopted the language of paragraph 14 of the Order of July 9, 1999, as set out above. Llama and Bank One proceeded to allow the use of cash collateral from a lockbox arrangement from proceeds of payments by the Fund on the accounts or by advancements of funds. Llama has presented documentation identifying advancements in the sum of $604,823.21 through April 15, 2000. Pursuant to a settlement agreement and further hearings in this case, Llama agreed to limit any request for reimbursement of administrative expenses for sums advanced prior to April 15, 2000, to the sum of $300,000.

Bank One likewise advanced several hundreds of thousands of dollars and, in a settlement to be subsequently discussed herein, agreed to waive its administrative expense claims for sums advanced prior to January 31, 2000.

After protracted negotiations, a settlement was reached among the debtors, Bank One, the Committee, and the Fund settling and adjusting the accounts which the debtors owned and in which Bank One had a security interest for the payment of approximately $15 million dollars to those entities. This settlement has been referred to as “Global I” in this case. After this settlement was reached, but prior to its approval by the court, Llama moved for, and was granted, authority to take possession of and administer the collection of the accounts of which it claimed ownership. That motion was heard February 3, 2000, [427] and, it appears from the record herein, that the operative date by which all parties understood that this arrangement had become enforceable was February 11, 2000. In conjunction with this process, the debtors gave a notice to Perkins Law Group, a law firm retained by the debtors pursuant to court order to pursue administrative and other appeals of denials of the claims on the accounts, and to RSI Consulting, Inc., (“RSI”) a firm retained by the debtors and approved by the court for the purpose of administering the accounts and filing claims with the Commonwealth of Kentucky. The debtors’ notice to those entities was to the effect that, a settlement having been reached by the debtors, the only actions which should be taken thereafter, pending approval of the settlement, would be those necessary to preserve the validity and appeal rights of the accounts in case the settlement was not approved. The settlement itself called for all of the accounts owned by the debtor and in which Bank One had a security interest to be satisfied by the payment under the settlement agreement, Global I.

Llama then negotiated a settlement with the Fund and the Unsecured Creditors Committee by which it would receive approximately $22 million dollars for all of the accounts of which it claimed ownership. This settlement was commonly referred to as “Global II”.

After Global II was signed, neither the debtors, Bank One nor Llama had an interest in pursuing collection on the accounts, but all parties were interested in preserving the viability of their rights to pursue the collection of the accounts in case the settlements were not approved. While Llama had possession of the accounts it owned, they were not physically separated from the accounts owned by the debtors in which Bank One had a security interest. Because Bank One and Llama had effectively waived or capped their claims for administrative expenses and the debtors apparently had no funds to assure that the security and integrity of the accounts were preserved, the issue arose as to who would pay for those expenses during the interim while awaiting hearing on approval of the Plan of Reorganization, Global I and Global II. On May 11, 2000, [496] Llama filed its Motion to Determine Administrative Expense Priority Entitlement of Llama and Bank One as to Expenses Paid on or After April 15, 2000. After hearing on the matter, an order was entered on May 25, 2000, [510] reciting that while the court could not approve expenses in advance, the court would “look favorably” upon applications for reimbursement of administrative expense for preservation of the estate for sums expended after April 15, 2000, for certain items outlined by the court at the hearing and on the record. Part of Llama’s claim presently under consideration, the sum of $11,036.28, is for payments which it claims for expenses from and after April 15, 2000.

On June 9, 2000, [514] the court confirmed the Plan of Reorganization and gave final approval of Global I and Global II and those orders are now final.

THE OBJECTIONS

Bank One has objected to Llama’s Application on three essential bases: a) that the funds used or advanced were essentially adequate protection funds, and since Llama received adequate protection of its property with no demonstrated diminution in its value, it is not entitled to an administrative claim for the use of its cash collateral; b) that to the extent the funds were used to preserve assets owned by Llama, no benefit was conferred upon the estate; and c) that Llama essentially retarded progress of the case and should, effectively, be penalized by denial of its administrative claim in any sum.

The Unsecured Creditors Committee has filed an objection objecting only to two portions of Llama’s post April 15, 2000, request: a) the sum of $1,359.31 which the Committee contends was for services prior to April 15, 2000, which benefitted only Llama; and b) the sum of $5,527.50 to RSI which was also, the Committee contends, for services for the sole benefit of Llama after February 11, 2000, and before April 15, 2000.

Various other creditors have joined in portions of the objections without identifying separate amounts objected to or separate legal theories and those objections will be considered together with the objections of Bank One and the Committee.

THE BANK ONE OBJECTIONS

Bank One basically contends that Llama received what it bargained for when its collateral was protected pursuant to the terms of the adequate protection and cash collateral orders. However, the specific language of the order entered July 9, 1999, provided as follows:

“Bank-Llama is hereby granted a priority administrative allowance under Code §503(b)(a)(A) for all sums paid, loaned to or used for the Debtors or their benefit under this Order.”

In the absence of this language, Bank One’s argument might be more persuasive. However, it appears that both Bank One and Llama negotiated for and received an administrative expense claim for all sums advanced by them and the use of money in which they had a security interest or ownership interest and that they should have the benefit of this bargain. The fact that Bank One and Llama settled differently with respect to reduction of their administrative claims does not change their entitlement with respect to making a claim for those portions they did not waive.

Bank One contends that preserving Llama’s assets, i.e., the accounts in which Llama claimed ownership, did not benefit the estate. The record reflects that the Unsecured Creditors Committee filed a lengthy complaint challenging Llama’s position as owner of the accounts in question. That adversary proceeding was pending from its inception until approval of the Plan of Reorganization, Global I and Global II. Had Llama not advanced the funds, it would have been a hollow victory indeed if the Committee had won its claim against Llama but the accounts had no value since they were not preserved. Additionally, the funds of Llama, who contributed somewhat more monetarily than Bank One to preservation of assets, appear to have benefitted the estate since it cannot be said that Llama’s contributions were segregated solely to preserve and administer accounts which it owned. There was no segregation of these accounts until after the February, 2000, court order recited above. Additionally, as is true for all of the objections of Bank One, Bank One joined in the terms of the order of July 9, 1999, and is bound by them.

Bank One additionally claims that Llama retarded the progress of the case and should effectively be penalized therefor by denial of its claim for administrative expenses. While Llama’s counsel initially proceeded unilaterally with negotiations with the Fund in an attempt to reach a comprehensive settlement of issues involving the Fund, and while it is true that this attempt did not succeed in reaching one comprehensive agreement, there is no evidence before the court that Llama’s efforts impeded the progress of the case to its final conclusion. Arguably, Llama’s negotiations may have, in fact, benefitted other parties by setting a course for the settlement known as Global I. The court simply cannot conclude that Llama impeded progress in the case. It certainly did act under the terms of the cash collateral orders, as did Bank One, to provide life support to the debtors when no other funds were available. Clearly, this general objection also is not well taken as to Llama’s claim for administrative expenses.

THE COMMITTEE OBJECTIONS

Various objections have been filed regarding the balance of the sum to which Llama claims entitlement in the amount of $11,036.28. Of that sum, it appears that $1,980.80 was expended for services after April 15, 2000, and pursuant to the earlier hearing of the court, the court concludes that this sum should be reimbursed to Llama.

Another portion of that requested reimbursement is for $3,528.78 for reimbursement for payments made to Perkins Law Group. As above, from and after February 11, 2000, Llama was in control of the accounts of which it claimed ownership. At that point, responsibility for administration and collection of those accounts, the property of Llama (subject only to court approval of the various settlements) was up to Llama. For that reason, Llama should pay expenses incurred in connection with the accounts which it owned from February 11, 2000, to April 15, 2000. It appears that, of the sums paid to Perkins, no objection is raised by the Committee to the sum of $2,169.47 and that sum should be reimbursed to Llama. The remaining sum of $1,359.31 appears to relate to Llama’s own accounts after February 11, 2000, and is not reimbursable.

The remaining portion of the $11,036.28 sum for which Llama requests reimbursement is the sum of $5,527.50 paid to RSI. That sum appears to be for services rendered after February 11, 2000, and prior to April 15, 2000, and is not reimbursable.

It is therefore ORDERED AND ADJUDGED that the Application for Allowance and Payment of Administrative Expense Claims filed herein by Llama Capital Services, LLC be, and it hereby is, SUSTAINED in the total sum of $304,150.27 and the Disbursing Agent is directed to forthwith pay said sum to Llama Capital Services, LLC.

Dated this day of , 2000.

BY THE COURT

JUDGE

COPIES TO:

W. Thomas Bunch, Esq.

Michael H. Reed, Esq.

Thomas Miller, Esq.

Laura Day Delcotto, Esq.

Tracey Wise, Esq.

U.S. Trustee

Taft McKinstry, Esq.

Frank Becker, Esq.