In re Edgewater Sun Spot, Inc.

174 B.R. 626, 8 Fla. L. Weekly Fed. B 229, 1994 Bankr. LEXIS 1722, 1994 WL 601919
CourtUnited States Bankruptcy Court, N.D. Florida
DecidedOctober 12, 1994
DocketBankruptcy Nos. 91-02304, 91-02303
StatusPublished

This text of 174 B.R. 626 (In re Edgewater Sun Spot, Inc.) is published on Counsel Stack Legal Research, covering United States Bankruptcy Court, N.D. Florida primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
In re Edgewater Sun Spot, Inc., 174 B.R. 626, 8 Fla. L. Weekly Fed. B 229, 1994 Bankr. LEXIS 1722, 1994 WL 601919 (Fla. 1994).

Opinion

MEMORANDUM OF OPINION

LEWIS M. KILLIAN, Jr., Bankruptcy Judge.

THIS CAUSE is before the Court for consideration of Pennington and Haben, P.A.’s fee application and the Debtors’ objection to the fee application. The Court having heard argument of counsel, and having reviewed the pleadings and other documents in the file, finds that Pennington and Haben, P.A. is entitled to the full amount of compensation requested in the fee application, as supplemented.

In early July 1991, Edgar L. Mathieu (“Mathieu”) retained Pennington and Haben, P.A. (“P & H”)1 to file Chapter 11 petitions on behalf of Mathieu and his wife, and for Edgewater Sun Spot, Inc. (“ESS”), Mathieu’s company (collectively referred to herein as the “Debtors”). Mark Hildreth (“Hildreth”), a P & H associate, was assigned to handle Debtors’ cases. The voluntary Chapter 11 petitions were filed on August 9, 1991, and the cases were ordered to be jointly administered. Shortly thereafter, Hildreth notified the Debtors by letter dated September 30, 1991, that he was leaving Tallahassee and P & H to join the firm of Abel, Band, Russell, Collier, Pitchford & Gordon in Sarasota, Florida. Hildreth stated that he would be available to assist P & H with the plan and other administrative details of the Debtors’ Chapter 11 cases.

D. Andrew Byrne (“Byrne”), joined P & H in August of 1991. Upon Hildreth’s departure, Byrne assumed full responsibility for representation of the Debtors. However, in a meeting with the Debtors on October 9th and 10th of 1991, it was decided to bring Hildreth back in to handle the Chapter 11 administration and Byrne would concentrate on a lender liability claim against Bay Bank and Trust (“Bay Bank”), the major adversary of the Debtors.

The lender liability claim was based upon commercial loans that the Debtors obtained from Bay Bank in March of 1987. The Debtors already had a Small Business Administration (SBA) loan in the amount of approximately $400,000. Debtors wanted to finance the acquisition of a new store with a new loan from Bay Bank of $600,000. According to the Debtors, instead of following their instructions, Bay Bank allegedly issued two new loans in the amount of $1.35 million2, and extinguished the existing SBA loan in the process. The loan documents were signed by the Debtors in March of 1987. Mathieu alleges that he was pressured by Bay Bank officials into signing these documents and never even read the loan agreements at the closing. Mathieu further alleges that he had no intentions of terminating the existing SBA loan in this manner or of incurring such a significant debt load.

Notwithstanding the circumstances behind the loans, Mathieu made payments without protest for over four years and remained current on the loans through the time he decided to file Chapter 11. It was only when he began having difficulty meeting the debt service and meeting all of his other obligations that he sought legal counsel to attempt to obtain relief against the bank.

[629]*629From the very beginning of the relationship between Mathieu and P & H, the ease strategy was to use the Chapter 11 to obtain discovery from the bank and to use the lender liability claim as leverage in order to obtain the bank’s consent to a favorable reorganization plan. While Hildreth disputed this position at the hearing on P & H’s fee application, his October 18, 1991 letter to Byrne reads differently. In that letter Hil-dreth clearly stated that he did not believe that the Debtors had “any substantial affirmative claims against Bay Bank” and that “[i]n my opinion, however, the facts which we are aware of could probably be used more to benefit a settlement of the Chapter 11 case on terms favorable to our clients as opposed to any type of affirmative action against the bank in the future.” Hildreth’s letter noted that it would be most efficient if he limited his involvement to preparation and drafting of the major bankruptcy documents like the Plan and the Disclosure Statement. Byrne confirmed with Hildreth by letter dated January 2, 1992, that Hildreth would work on the plan negotiations and strategy and that P & H would concentrate on the Debtors’ lender liability claim against Bay Bank.

The relationship between the Debtors and Bay Bank had rapidly declined after the filing of the petition. In November of 1991, Bay Bank moved for relief from the stay or for adequate protection, although the hearing was repeatedly postponed and was never held. In December 1991, Debtors filed their first Joint Plan of Reorganization, to which Bay Bank promptly filed an objection. On April 1, 1992, the Debtors filed an adversary proceeding against Bay Bank, objecting to the secured claim and asking for a determination of the validity and extent of the liens and seeking affirmative relief under various lender liability theories. In late June of 1992, Debtors filed a Disclosure Statement and the first Amended Plan. Negotiations between the parties continued and a settlement was proposed by Hildreth in July of 1992, without success. The second Amended Plan was filed in late August 1992. The third Amended Plan was filed in March 1993.

Discovery was being conducted by P & H throughout this period on the adversary proceeding issues. The adversary proceeding complaint alleged a breach of fiduciary duty, fraud and negligent misrepresentation, breach of contract and misapplication of loan proceeds, negligent mishandling of loans, and a violation of 12 U.S.C. § 1972 (anti-tying). The adversary proceeding was vigorously litigated by the parties. Numerous motions were filed and much discovery was conducted. One witness attempted to avoid service of the subpoena and even refused to answer questions at a deposition. Another witness’s deposition was the subject of a motion to compel by Bay Bank. A hearing was held in June of 1993 on summary judgment motions by both sides. After that hearing, at the suggestion of the parties, the Court entered an Order Requiring Mediation. Hildreth continued to negotiate a settlement and made a written confirmation of a proposal by letter dated September 20, 1993. This proposal was not accepted.

In November of 1993, the parties met for mediation. At the opening of the mediation, Bay Bank made a settlement proposal that was very similar to the terms Hildreth had negotiated earlier. Mathieu went to lunch with the mediator3, at the request of Hil-dreth or Byrne, to allow Mathieu a chance to relate his side of the case without others present. Throughout the day there was not much movement although Bay Bank did grant a few small concessions, but Mathieu refused to settle without receiving cash in hand from Bay Bank in addition to any other terms. Mathieu testified that Byrne became irate when the Debtors refused to accept a settlement offer. Mathieu said that Byrne demanded immediate payment of $50,000 or else he quit. Both Byrne and the mediator deny that Byrne made such a statement. Byrne had attempted to explain to Mathieu that the settlement was the best alternative, because prosecuting the lender liability claims would require a tremendous expenditure of both time and legal fees. Mathieu became irate at the idea of having to pay still [630]*630more attorney fees. Because Mathieu was so emotional about the case, the mediator called an adjournment to allow Mathieu to cool off and think rationally about his financial situation.

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Bluebook (online)
174 B.R. 626, 8 Fla. L. Weekly Fed. B 229, 1994 Bankr. LEXIS 1722, 1994 WL 601919, Counsel Stack Legal Research, https://law.counselstack.com/opinion/in-re-edgewater-sun-spot-inc-flnb-1994.