UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF KENTUCKY
MIDWEST COMMUNICATIONS CORPORATION CASE NO. 91-21031
This matter is before the Court upon the Application of Cors & Bassett ("C & B") for Allowance of Attorney's Fees filed herein on October 28, 1991. The United States Trustee has objected to the allowance of attorney's fees in its Comments filed on November 25, 1992. Additionally, Central Trust Company, a creditor herein, filed its Objection to the First Application for Approval of Interim Compensation for Services Rendered and Reimbursement of Expenses Incurred by Cors & Bassett.
The substance of the objections filed by the United States Trustee concerns an alleged lack of notice of the Application filed in this Court on June 25, 1991 of the Application to Employ C & B and an objection to their employment as not "disinterested" pursuant to the terms of In re Middleton Arms Limited Partnership, 934 F.2d 723 (6th. Cir. 1991). The Objection by Central Trust Company, N.A. was withdrawn subsequently by the filing of its Withdrawal by Central Trust Company N.A. of its Objection and Additional Comments to First Fee Application of Cors & Bassett.
The Application to Employ C & B was filed in this Court on June 25, 1991, accompanied by an appropriate affidavit of William G. Kohlhepp, a partner in C & B, disclosing his position as managing partner of C & B and corporate secretary of the Debtor and as a director of the Debtor. The Application filed to employ C & B sought to employ them as General Corporate Counsel pursuant to'327(a) of the Bankruptcy Code. This Court entered an Order on July 3, 1991 authorizing Debtor to employ C & B pursuant to '327 of the Bankruptcy code describing certain areas in which services would be rendered, although without limitation. On the same date, the Court entered Orders authorizing the Debtor to employ Graydon, Head & Ritchie, who has served as General Counsel for the Debtor-in-Possession in the practice of the Chapter 11 case and to employ Newberry, Hargrove and Rambicure as co-counsel to also function as counsel for the Debtor-in-Possession in the matter. The firms of Graydon, Head & Ritchey and Newberry, Hargrove & Rambicure have represented the estate generally in the practice of this Chapter 11 proceeding as described in Bankruptcy Code '327(a) and have served as "reorganization counsel." C & B have performed limited functions for the Debtor as described in the Fee Application under consideration and consistent with the Application to Employ C & B filed herein.
With respect to the Objection by the United States Trustee concerning notice, while the Application to Employ does not bear a certificate of service upon the Office of the United States Trustee, at a hearing conducted by the Court on July 10, 1991, at Covington, the United States Trustee appeared by and through an Assistant United States Trustee in accordance with the minutes from that date. The Trustee's Office became aware, at least at that time, that the Court had entered the Order allowing the retention of C & B by the Debtor and, upon expressing misgivings with respect to the Order in open Court, was invited by the Court to file an appropriate motion to set aside the Order or otherwise address the matter. No subsequent relief was sought by the Office of the United States Trustee until the Comments were filed herein upon the Application for Attorney's Fees for C & B. The Court concludes that the Office of the United States Trustee had sufficient notice, at least after the entry of the Order, and that failure to timely seek relief from the Order operated to waive objections with respect to notice of the Application to Employ C & B.
Bankruptcy Code'327(a) places two requirements upon the employment of professionals: (a) that they do not hold or represent an interest adverse to the estate, and (b) that they are "disinterested persons." An exception to '327(a) is provided by Bankruptcy Code '1107(b) which provides that a person is not disqualified to serve as attorney for the debtor-in-possession under '327 solely by virtue of the pre-petition employment by or representation of the debtor. This exception to the provisions of '327(a) has been held to be a narrow exception and does not eliminate the requirement of disinterestedness set forth in '327(a). In re Leisure Dynamics, 9 C.B.C.2d 265 (Bankr. D. Minn. 1983).
Bankruptcy Code'327(e) provides for employment by the Trustee or Debtor-in-Possession of special counsel and deletes the requirement of disinterestedness but maintains the requirement that the special counsel not hold any interest adverse to the Debtor or to the estate. The purpose of '327(e) is to allow the trustee or debtor-in-possession to retain attorneys who have previously represented the debtor to represent the trustee or debtor-in-possession on specifically identified matters but not to serve as "reorganization counsel" in the practice of the Chapter 11 proceeding itself. In re Inslaw, Inc., 13 C.B.C.2d 1131 (Bankr. D.D.C. 1985).
Because Mr. Kohlhepp, a partner in C & B, has served as a director and officer of the Debtor-in-Possession in recent months, that firm is not "disinterested" within the meaning of'327(a) since Bankruptcy Code '101(14) by its definition excludes C & B from being disinterested persons.
A review of the Application to Employ C & B and the Order employing C & B leads the Court to conclude that, although the term "without limitation" was used in paragraph 1 of the Order, the employment of C & B was for the purpose of serving as General Corporate Counsel, handing ongoing litigation matters and giving securities advice to the Debtor-in-Possession as well as advising with respect to the sale of subsidiaries and divisions of the Debtor. As such, it appears that the Order should properly be interpreted as employing C & B pursuant to the terms of'327(e) of the Bankruptcy Code. As such, the disinterestedness requirement, as addressed in In re Middleton Arms Limited Partnership, supra, is not applicable. There has been no allegation that C & B has any interest adverse to the Debtor. The Court concludes that the employment of C & B was proper pursuant to Bankruptcy Code '327(e). While there is scant discussion of employment of special counsel as "general corporate counsel," it appears that the general concept is not foreign to the practice of Chapter 11 proceedings. In re Glosser Brothers, Inc., 102 B.R. 38 (Bankr. W.D. Pa. 1989).
The Objections of the United States Trustee herein having been addressed and the Court having reviewed the Application for Compensation herein, and it appearing that the only Objections having been filed addressing the particulars of the amount of compensation having been withdrawn, it appears that an Order should be entered sustaining the Application. As pointed out by the United States Trustee, this is an interim fee application and the Court will review the case at its conclusion and take into account the results obtained in making a final allowance in the matter.
Dated this _____ day of ______________, 1992.
BY THE COURT
Margaret Burgin, Esq.
William Rambicure, Esq.
Cors & Bassett