Sunday, July 15, 2001

Scavenger court


Top of the food chain

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        Federal bankruptcy court is a good place to avoid. It's decorated in soft ivory and muted merlot — so quiet you can hear an interest rate drop. But back in the corners, where court files are stacked like the cordwood corpses of dead businesses, the bone-pickers are feeding.

        Most of the time they blend right in. But now and then, they snarl and snap over an especially fat elephant carcass and the noise draws unwelcome attention.

        Right now, they are finishing off the Swallen's bankruptcy case. The former Cincinnati appliance chain has been a good meal. Six years of fees and expenses. Six years of phone conferences among lawyers, shooting the breeze at $180 to $395 an hour. Six years of trips from New York to Cincinnati, at $900 a pop. Six years of meals at $199 for a “working dinner,” hotels, consulting — some even submitted bills for hours they spent adding up their bills.

        Paging through the lawyers' bills is like watching hyenas drag down a wildebeest in slow motion on the nature channel. From one random month in 1997: Cors & Bassett, $45,000; Cohen, Todd, Kite & Stanford, $69,000; Traub, Bonaquist & Fox, $303,000.

        The documents say the fees are all “actual, reasonable and necessary.”

        But the state of Ohio doesn't think so.

        The Ohio Attorney General's Office has filed a motion that says: “With all due respect for the professionals in this case, the fees and expenses incurred are approximately two-and-a-half times the amount proposed to be paid to creditors.”

        Unless the Swallen's settlement is rejected by the Sixth Circuit Court of Appeals, lawyers will collect about $2.8 million of what remains (the meter is still running), while hundreds of creditors divide $1.2 million.

        Reuel Ash of Cors Bassett says the state is wrong, because its figures don't include off-the-top millions paid to the biggest creditors, such as Whirlpool and Star Bank. He says the state could have complained when fee requests were filed.

        “I think they're objecting now because the case didn't turn out the way they wanted. Now they're turning their guns on a convenient target.”

        Mr. Ash defended the fees. “Without our work, there would be no distribution. One-hundred percent of all employee and consumer-related claims will be paid.”

        At the Federal Bankruptcy Court for Southern Ohio, files are crammed with claims from individuals: $411 for an extended warranty on a stereo; $759.55 for a stove paid for on layaway and never received. One family requested $216 for a Eureka vacuum cleaner they took in for repairs and never saw again.

        That's about the price of a “working dinner” when lawyers dine on the cadaver of Swallen's.

        Ohio has a claim, too: about $1 million in back taxes and penalties. In an early deal, the state settled for $548,000. Now the state will get less than $140,000.

        “Where's the money?” the Attorney General's motion asks.

        The lawyers ate it.

        “This isn't a pleasant case that we get a lot of joy out of,” said Thomas Straus, assistant attorney general for revenue recovery. “We've never filed anything like this.”

        Mr. Straus said even other bankruptcy lawyers in town have grumbled about the fat fees in the Swallen's case.

        He calculates that since 1996, a half-dozen law firms were paid more than $1 million to collect about $300,000 for Swallen's creditors.

        “I cannot understand how some receive payment and others do not,” said a letter from a dismayed former Swallen's customer.

        That's easy. In the bankruptcy jungle, scavengers are at the top of the food chain.

       

        Contact Enquirer Associate Editor Peter Bronson at 768-8301; fax: 768-8610; e-mail: pbronson@enquirer.com. Cincinnati.Com keyword: Bronson.
       

       



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