May 9, 2007 — The court’s appointment of two highly-credentialed neutrals in the bankruptcy case of Innovative Telephone owner Jeffrey Prosser was supposed to speed the settlement of the case, but instead it has created a new series of controversies.
At the urging of the creditors, and over the vigorous objections of Prosser, U.S. Bankruptcy Judge Judith Fitzgerald appointed both a case trustee (to manage Prosser’s properties during the bankruptcy process) and an examiner (to sort out the status of Prosser’s finances).
The newly appointed trustee is Stan Springel, a seasoned West Coast business executive; the examiner is Steven A. Felsenthal, a former chief U.S. Bankruptcy judge in Houston. Prosser had argued that the appointment of a trustee would cause confusion within his operating staff, and once the appointment was announced, he appealed it to the U.S. District Court in St. Thomas. Judge Fitzgerald rejected a motion to suspend the appointment while the appeal was pending; both the trustee and the examiner are busy at their new jobs.
Now Prosser has fallen silent, but the attorneys for the Greenlight Companies, representing the former minority stockholders in the predecessor company to Innovative Communication Corp., have vigorously objected to paying the trustee and the examiner, and their various lawyers, consultants and accountants.
Among the new players in all this is a company started by former U.S. Attorney General John Ashcroft, a would-be consultant to the trustee. This Ashcroft is not to be confused with Prosser adversary Lord Michael Ashcroft, the member of the British House of Lords, who runs the Belize telephone company.
Both the trustee and the examiner state in court filings that they want to do a comprehensive job of handling their assignments, and both present long and detailed work plans. In order to do their work, each asks for the appointment of a group of professionals to help him. In the case of the trustee, he wants, in addition to the Ashcroft firm, two law firms and an accounting firm. In the case of the examiner, he wants two law firms and an accounting firm.
Among these seven firms are at least three familiar to either V.I. affairs or involved in previous Prosser battles:
–the trustee wants to retain Alvarez & Marsal, as his accounting firm; another A&M unit is helping the V.I. Department of Education with its federal grant program;
–the examiner wants to use Nichols Newman Logan & Grey, P.C., of St. Croix as local counsel; and
–the trustee also wants to employ Hunton & Williams, a major Richmond-based law firm; H&W had previously represented Belize in a Miami court case against Prosser, as he sought to regain control of that nation’s monopoly phone company.
However, it was Greenlight, not Prosser, that objected to the trustee’s use of H&W, on the grounds that it was too conflicted to be appropriate. One of the problems, in Greenlight’s eyes, was that H&W was barred from doing anything harmful to the Rural Telephone Finance Cooperative, another creditor, and thus would have to excuse itself from matters impacting RTFC.
One of the facts emerging from this sub-controversy was the fact that Belize plans to claim $2.3 million in legal fees from the Prosser interests if it prevails, later this year, in a U.S. Court of Appeals battle in the Atlanta circuit.
H&W has managed to secure the consent of the attorney general of Belize for dropping the nation’s case; Belize is now represented in that matter by the Miami-based firm of Moscowitz, Moscowitz & Magolnick,.
The major issue, in the eyes of Greenlight’s attorneys is the cost, in terms of money and time, created by the trustee’s and the examiner’s plans, and their proposed hiring of a small army of highly-paid professionals. Though it is not so stated, a dollar spent on the neutral officials and/or their professional helpers is a dollar presumably not available to pay the debtors.
And the fees, particularly at the partner level, are very substantial. In several cases the top range of the fees is $775 an hour. In one of the more modest submissions, A&M says that the rate charged for the person who will manage the case for the firm is $550 an hour.
The trustee’s reply to the attempt to defund him is plaintive: "The Greenlight Entities, which ironically supported the appointment of a Chapter 11 Trustee, now seek to compel the Trustee and his professionals to analyze complex Claims Litigation on an expedited basis while simultaneously challenging their ability to be paid. This is simply unfair.”
But trustee Springel is not above seeking to eliminate someone else’s salary — in this case Prosser attorneys Shearman and Sterling, the New York firm. Springel, in another document filed the same day (April 27) as the one described above, asked the court not to pay Shearman $179,122 for its work seeking to block the appointment of the trustee, in other words, Springel. The trustee said that the estate (i.e. Prosser’s holdings) should not be allowed to fund such an argument, saying that: “If a professional’s services benefit only a debtor individually, then the debtor [i.e. Prosser], not the debtor’s estate, must pay the professional’s compensation.”
Further, on a related matter, Springel argued that a smaller sum should not be paid to Shearman on the grounds that he, the trustee, had not authorized the services in question. Should Springel prevail on this point, he would be in a position to direct the estate-funded activities of Prosser’s lawyers, and that would be a major development.
A careful reader might note that none of the disputes described in this article are between the main players, the debtors, on one hand, and the Prosser interests, on the other. All the arguments are among and between third parties.
Such a reader might also question the wisdom of a regulated entity (like Greenlight) seeking to deny funding to a regulator (like the trustee and the examiner), but such tactics are not unprecedented in Prosser cases.
Several years ago Prosser objected to fees charged to his Vitelco by the V.I. Public Service Commission, but ultimately paid them. The PSC, apparently not holding a grudge, has been in his corner ever since.
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