UNITED STATES BANKRUPTCY COURT

EASTERN DISTRICT OF KENTUCKY

CORBIN DIVISION

IN RE:

EAST KENTUCKY LUMBER COMPANY, INC.

DEBTOR CASE NO. 93-60392

MEMORANDUM OPINION

This matter is before the Court on the Motion filed by creditor Cumberland Security Bank ("CSB") for an order directing the trustee to turn over the sum of $4,543.03. This amount was turned over to the trustee by counsel for the debtor. The trustee responded to CSB's Motion, and the matter was heard on March 9, 1995, and submitted for decision.

This case was originally filed as a Chapter 11 on September 20, 1993; it was converted to a Chapter 7 case by Order of this Court dated July 22, 1994. On February 7, 1994, the debtor and CSB had entered into an Agreed Order of Temporary Compromise, Adequate Protection and Cash Collateral Agreement. The Agreed Order set out that CSB was a secured creditor of the debtor "...pursuant to certain notes and validly perfected liens and mortgages entered herein prior to the Debtor filing bankruptcy,..." The total indebtedness to CSB was represented to be $447,003.66 as of November 17, 1993.

The Agreed Order further provides:

Having granted CSB a post-petition lien on all its property and the proceeds thereof, the debtor agreed to open and maintain a debtor-in-possession checking account into which it would deposit "all gross sales, receipts, collections and proceeds derived from [CSB's] Collateral and the Debtor's operations." CSB's post-petition security interest in the proceeds in this checking account did not, however, extend to "...any attorneys' fees due Debtor's Counsel as would be allowed by the Court upon proper application, notice and allowance by said Court,..."

On June 22, 1994, the debtor wire-transferred to W. Thomas Bunch from the CSB checking account an amount equal to counsel's fee allowance request ($31,956.59). Debtor's counsel (Bunch, W. Thomas Bunch II, and Charles J. McEnroe) had applied for a Final Allowance of Compensation on June 21, 1994. An Objection to the Application was filed by another creditor, Midwest Lumber and Dimension, Inc., on July 11, 1994. The outcome of that dispute was the reduction of debtor's counsels' fee allowance by the amount now sought by CSB.

It is clear that by the terms of the Agreed Order CSB had a valid security interest in the money in the debtor's checking account. The trustee contends in his Response herein that "[CSB] voluntarily released their lien when it directed that payment be made toward various attorneys' fees." The trustee is correct that CSB released its lien as regards the payment of attorneys' fees. He assumes, however, that the entire amount wire-transferred from the CSB checking account, $31,956.59, was properly characterizable as "attorneys' fees" at that time. In fact, it was not.

While the wire transfer occurred on June 22, 1994, this Court did not determine the amount that debtor's counsel would receive as attorneys' fees until December 28, 1994, when the Order setting out the final allowances was entered. The Agreed Order clearly states that CSB released its lien as to "...any attorneys' fees due Debtor's Counsel as would be allowed by the Court upon proper application, notice and allowance by said Court,...," not as to any and all amounts claimed. (Emphasis added.) As stated above, the amount allowed was less than the amount claimed.

The language of the Agreed Order is controlling in this matter, and it clearly provided that the release of CSB's lien as regards attorneys' fees only extended to fees which the Court allowed. Cumberland Security Bank's Motion for an Order directing the trustee to turn over the sum of $4543.03 should therefore be sustained. An order in conformity with this opinion will be entered separately.

Dated:

By the Court -

____________________________

Judge

Copies to:

Debtor

Bruce W. Singleton, Esq.

James R. Westenhoefer, Esq., Trustee

U.S. Trustee