DEBTOR CASE NO. 92-21467



The Court has several motions before it in this case: the Application of Co-Trustees Under Covington Landing Unsecured Creditors= Trust for Distribution of Proceeds of Sale of Debtor=s Assets, an Application to Pay Accountant filed by the trustee, and the Amended Application of Trustee for Allowance of Compensation and Reimbursement of Expenses and Order for Payment Thereof. This case began as a Chapter 11, and was converted to a Chapter 7.

The issue presented by these applications is the order of and participation in the distribution of the remaining proceeds of the sale of the debtor=s assets by the Chapter 7 trustee. Resolution of this issue will be governed by the applicable statutory provisions, 11 U.S.C. '726, Distribution of property of the estate, 11 U.S.C. '507, Priorities, and 11 U.S.C. '503, Allowance of administrative expenses. In addition, a First Amended Plan of Reorganization (Athe Plan@) was confirmed in the Chapter 11 case on January 5, 1994. The Confirmation Order has never been set aside or overturned, and pursuant to the great weight of authority is res judicata in this case. In In re Chattanooga Wholesale Antiques, Inc., 930 F.2d 458 (6th Cir. 1991), the court was dealing with a Chapter 11 case that had been converted to a Chapter 7, and in considering whether the Chapter 7 trustee could take certain actions stated:

Confirmation of a plan of reorganization by the bankruptcy court has the effect of a judgment by the district court and res judicata principles bar relitigation of any issues raised or that could have been raised in the confirmation proceedings.

At 463. See also In re Pierce Packing Co., 169 B.R. 421 (Bkrtcy.D.Mont. 1994), and In re Laing, 146 B.R. 482 (Bkrtcy.N.D.Okl. 1992).

This case was converted to a Chapter 7 and the trustee appointed on or about May 8, 1997. On September 8, 1997, the trustee moved for approval and authorization of the sale of the debtor=s property and the assumption and assignment of certain tenant leases to the City of Covington. The Co-Trustees Under Covington Landing Unsecured Creditors= Trust (Athe Co-Trustees@) objected to the trustee=s motion on September 26, 1997. However, an Order Authorizing and Approving the Sale of Debtor=s Assets, etc. was entered on February 23, 1998. Pursuant to the terms of the Order, the trustee retained $35,000.00, the appropriate distribution of which was to be determined later. This amount was set out in &4, Distribution of Purchase Price, of the Notice of Sale of Debtor=s Property and Assumption and Assignment of Tenant Leases, which provides:

There will be no distribution to creditors of the estate from this Sale. The City is assuming or paying the liens of Huntington Bank and Kentucky Economic Development Foundation Authority and the payment of certain flood repair expenses as approved by this Court credit bidding its secured claims to establish the purchase price. The City will be paying the trustee his compensation as set forth in the Offer and will be paying $35,000.00 to the trustee for unsecured creditors and administrative expenses.

The Co-Trustees filed an Application .... for Distribution of Proceeds of Sale of Debtor=s Assets on June 30, 1998. There they contended that the entire $35,000.00 should be distributed to them pursuant to the terms of the debtor=s Plan. Under the Plan, unsecured creditors= claims were denominated AClass 6 Claims.@ Paragraph 3.7 of the Plan provided that Class 6 Claims would be satisfied by a cash distribution, and certain notes. To secure those notes, and the interest on them, the Class 6 creditors were granted a valid and perfected security interest in and lien against all the debtor=s assets. Under the terms of the Confirmation Order, the Class 6 lien was subordinate only to the security interests of the AClass 1" through AClass 5 A claims. Therefore, the Co-Trustees argue, their interest in the sale proceeds is prior and superior to any other party=s.

The order of distribution in a Chapter 7 case is set out in 11 U.S.C. '726 which provides that property of the estate shall first be distributed according to the priorities set out in 11 U.S.C. '507. That subsection gives administrative expenses first priority. Chapter 7 administrative expenses have priority over Chapter 11 administrative expenses in a converted case. See In re Summit Ventures, Inc., 135 B.R. 478 (Bkrtcy.D.Vt. 1991).

The Co-Trustees= argument that their interest is prior and superior to any other party=s does not take into account the fact that the one of the terms of the sale was that there would be no distribution to creditors from the sale itself. The $35,000.00 was set aside to pay both administrative expenses and unsecured creditors. The term Aunsecured creditors@ was not a defined term in the order and should thus be taken to include all unsecured creditors of whatever class.

The Chapter 7 administrative expenses consisting of the trustee=s commission and accountant=s fee have first priority. The trustee filed an Amended Application for Allowance of Compensation and Reimbursement of Expenses on September 8, 1998. There the trustee sought compensation and reimbursement of expenses totaling $40,939.75 for the sale of the debtor=s property and administration of the debtor=s estate pending the sale. Of the total sought, $15,000.00 was to be paid by the City of Covington as buyer of the debtor=s property. See &4 of the Notice of Sale of Debtor=s Property, etc., supra. Further, the Order Authorizing and Approving the Sale of Debtor=s Property, etc., sets out at &7: ATrustee is hereby authorized to collect the commission due the Trustee at the closing as specified in the OFFER.@

The remainder of the compensation was sought by the trustee pursuant to 11 U.S.C. '326 in the sum of $24,951.95 for services rendered in administering the estate and conducting the debtor=s business, and reimbursement of $987.80 for costs. The trustee calculated his commission on $825,731.79, an amount which he stated he will have administered in the course of his duties as Chapter 7 trustee. His calculation was based on the schedule which was in effect pursuant to '326 on the date the debtor filed its Chapter 11 petition. The Co-Trustees objected to the trustee=s Amended Application. They also objected to the trustee=s Application to Pay Accountant.

The compensation described in 11 U.S.C. '326(a) is the maximum the trustee may receive in any given case. See Matter of England, 153 F.3d 232, 235 (5th Cir. 1998); In re Frost, 214 B.R. 295, 297 (Bkrtcy.S.D.N.Y. 1997); In re Hance Meyer, Inc., 161 B.R. 839, 840 (Bkrtcy.N.D.Cal. 1993). The trustee herein is entitled to a maximum of $24,951.95, including the $15,000.00 set aside for him by the buyer of the debtor=s assets. He is also entitled to reimbursement for his expenses in the amount of $987.80. Therefore, of the $35,000.00 allotted for unsecured creditors and administrative expenses, $10,939.75 is due the trustee.

As concerns the accountant=s fee which the trustee seeks to have paid, 11 U.S.C. '327 allows the employment of professional persons, including accountants, with the court=s approval, and 11 U.S.C. '330 allows such professionals reasonable compensation for their services. The accountant was hired by the trustee with the court=s approval. His itemized fee application appears to be reasonable, and the Court finds that he is due a fee of $3,000.00 plus $50.00 for costs advanced.

At the hearing on these applications and objections, the Court determined that it was necessary to review information concerning the alleged existence of outstanding and unsatisfied Class 5 claims. The trustee was therefore directed by Order entered on November 6, 1998, to file a memorandum stating the nature and amount of all outstanding and unsatisfied Class 5 claims, as defined in &2.6 of the Plan. That paragraph states: AThe Class 5 Claim shall consist of that portion of the Claims of the Commonwealth of Kentucky, Kenton County and the City of Covington against the Debtor for pre-petition personal property taxes owed by the partnership.@

The trustee filed a Memorandum on November 12, 1998, setting out that there were two Class 5 creditors, the City of Covington and Kenton County, and that they were owed, respectively, $31,310.84 and $175,182.98 on their Apre-confirmation claim[s].@ Affidavits in support were attached to this Memorandum. The affidavit on behalf of the City of Covington was submitted by its special counsel. There he stated that there were still personal property taxes due and outstanding for the years 1991 and 1992 in the amount set out above. The Kenton County Attorney submitted an affidavit setting out Apartial payments applied to the delinquent tax liens,@ and showing the balance owed for Apersonal property tax liability@ for the years 1991 and 1992 as the amount set out above.

The Co-Trustees point out in their Response filed on November 25, 1998, that neither of the affidavits Acontains any express representation that any or all of the amounts described therein either (1) arose pre-petition, or (2) constitute personal property tax obligations of the debtor, as opposed to interest, penalties, or other amounts falling outside of the Plan=s >Class 5 Claim= definition.@ The Court agrees that the information provided in the trustee=s Memorandum and the accompanying affidavits is not specific enough to resolve the question of the nature and amount of any outstanding and unsatisfied Class 5 claims as defined in the Plan. The other argument advanced by the Co-Trustees, that these taxing authorities have not prosecuted any claims they have against the $35,000.00 and so are precluded from participating in the distribution, has no merit. As stated above, the Plan and its contents place the interests of Class 5 claimants ahead of those of Class 6 claimants. There was no need for Class 5 claimants to make a special application for any monies that may be due them.

Based on the foregoing it is the opinion of this Court that the trustee should be paid $10,939.75, and that the accountant should be paid $3,050.00. It appears to the Court, however, that before a distribution of the remaining $21,010.25 may be made, a more specific accounting of unpaid and outstanding Class 5 claims is required. The trustee will therefore be directed to file a supplemental memorandum, with accompanying affidavits, which sets out specifically that sums being claimed by the City of Covington and Kenton County are for pre-petition personal property taxes owed by the debtor, and that the sums include neither interest nor penalties. An order in conformity with this opinion will be entered separately.


By the Court -





Copies to:

Charles L.J. Freihofer, Esq., Trustee

Jack J. Defevers, Esq.

Dennis R. Williams, Esq.

Paul J. Vesper, Esq.

U.S. Trustee