Alexus International, Inc.

UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF MARYLAND
(Greenbelt Division)
In re: 	*
ALEXUS INTERNATIONAL, INC., 	* 	Case No. 04-26864-NVA
(Chapter 7)
Debtor. 	*
* 	* 	* 	* 	* 	* 	* 	* 	* 	* 	* 	* 	*
MEMORANDUM OF DECISION IN SUPPORT OF INTERIM
ORDER GRANTING APPLICATIONS [185] AND [189] FOR ALLOWANCE
OF COMPENSATION OF PROFESSIONALS PALEY, ROTHMAN, GOLDSTEIN,
ROSENBERG, EIG & COOPER, CHTD. AND SAUL EWING LLP
On February 1, 2005, the Court conducted a hearing (the “Hearing”) to consider six
applications for compensation submitted by various professionals for services rendered and
reimbursement of expenses incurred on behalf of the Debtor and/or the Official Committee of
Unsecured Creditors (collectively, the “Fee Applications”) before the case was converted from a
case under Chapter 11 of the Bankruptcy Code to a case under Chapter 7 of the Bankruptcy
Code. On May 12, 2005, the Court entered an Order granting the Fee Application of Executive
Sounding Board Associates, Inc. [249]. On May 16, 2005, the Court entered an Order granting
the Fee Application of Tranzon Fox [251]. On May 16, 2005, the Court also entered an Order
granting the Fee Application of Jeffrey Kohne, CPA and Kositzka, Wicks & Company [252].
Signed: September 30, 2005
SO ORDERED
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1 The First and Final Application [165] for Allowance of Compensation and Reimbursement of Expenses
for Garza, Regan & Associates, prior counsel for the Debtor, is dealt with by separate order.
2 The Court notes that Paley Rothman holds a retainer in the amount of $30,000, and also holds in escrow
the amount of $33,250 representing proceeds from the sale of certain assets. Paley Rothman seeks to apply both the
retainer and the sale proceeds to the amount sought in its Fee Application.
3 The Court notes that Saul Ewing holds a retainer in the amount of $10,000, which it is not requesting be
applied to the amount sought in its Fee Application.
2
The Fee Applications and amounts sought by the remaining professionals are as follows: 1
1. 	First and Final Application for Approval of Fees and Expenses for Paley,
Rothman, Goldstein, Rosenberg, Eig & Cooper Chtd. (“Paley Rothman”),
subsequent counsel for the Debtor: fees in the amount of $81,916.50 and expenses
in the amount of $5,038.74 [185];2
2. 	First Application for Allowance of Interim Compensation for Saul Ewing LLP
(“Saul Ewing”), counsel for the Official Committee of Unsecured Creditors (the
“Committee”): fees in the amount of $54,500.00 and expenses in the amount of
$1,121.25 [189].3
On December 6, 2004, an unsecured creditor of the Debtor, Quince Diamond Limited
Partnership (“Quince Diamond”), filed an objection to the Fee Applications of Paley Rothman
and Saul Ewing [198], asking the Court to consider all Fee Applications together in light of the
Debtor’s possible administrative insolvency. On January 24, 2005, the Debtor’s former counsel,
Garza, Regan & Associates (“Garza”), filed an objection to Paley Rothman’s Fee Application
[225] and an objection to Saul Ewing’s Fee Application [226], although only as to payment and
not as to allowance of the amounts sought therein. Garza objected to both of these Fee
Applications in order to preserve whatever rights it may have to pursue indemnification and/or
cross-claims against Paley Rothman and Saul Ewing.
As the Debtor’s former counsel, Garza had also filed its own fee application which is
addressed by separate Order (see fn. 1, herein). At the Hearing, the Chapter 7 Trustee asked the
Court to defer entering an order regarding the Garza fee application for 90 days so that she could
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investigate the necessity for further action against Garza without running afoul of res judicata
principles set forth in Grausz v. Englander, 321 F. 3d. 467 (4th Cir. 2003). The Chapter 7
Trustee appears to be concerned that allowance of Garza’s fee application may bar her under
Grausz from pursuing a potential claim against Garza, the merits of which she had not evaluated
at the time of the Hearing. The court in Grausz found, among other things, that the order
approving the law firm’s final fee application was a final judgment on the merits, that the debtor-
client could not bring a malpractice claim against his lawyers because he did not object to their
fee application, which fee application sought compensation for the very services he later said he
found unsatisfactory. Grausz, 321 F. 3d at 472. The Grausz court also held that the malpractice
action arose from the same core of operative facts as the fee application, and that the Debtor’s
malpractice claim was barred by principles of res judicata. Id. at 473.
As a consequence of these concerns raised by the Trustee, the Court announced at the
Hearing that its ruling would be limited to the allowance of fees and that no record or ruling was
made as to any alleged malpractice of the Garza firm or of Mr. Garza individually, or as to any
indemnification or other claims Garza may have against others. The Court also asked all
applying counsel whether they would agree to the entry of an order awarding fees and
reimbursement of expenses on an interim basis without prejudice to further review by this Court,
and without prejudice to any claim or cross-claim of any party in interest. The Court notes that
Saul Ewing’s Fee Application was already a request for interim allowance of fees. However,
Saul Ewing indicated on the record that it was willing to accept an interim fee award for this
purpose, and Paley Rothman also agreed to do so. Section 331 of the Bankruptcy Code permits
interim compensation, and orders entered allowing interim fees are not final orders. 11 U.S.C.
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§331; Guinee v. Toombs (In re Kearing), 170 B.R. 1, 12 (citing In re Callister, 673 F. 2d 305,
307 (10th Cir. 1982); see also In re Energy Cooperative, Inc., 55 B.R. 957, 965 (interim
allowance of fees is always subject to court’s re-examination and are refundable to the estate in
cases of misconduct).
Accordingly, having considered the Paley Rothman Fee Application and the Saul Ewing
Fee Application, the objections thereto, the testimony, pleadings and the record in this matter,
the Court finds that the amounts sought by Paley Rothman and by Saul Ewing are reasonable and
appropriate and will enter an order granting the relief requested. The Court further finds that
Paley Rothman may apply the retainer in the amount of $30,000 to the approved fee request, but
that sale proceeds held in escrow in the amount of $33,250 are to remain in escrow until further
order of the Court.
Further, the Fee Applications of Paley Rothman and Saul Ewing are granted on an
interim basis and without prejudice to further review by the Court and without prejudice to any
claim or cross-claim of any party in interest, as set forth herein and as set forth in the Order
accompanying this Memorandum of Decision.
Cc:
Wendelin I. Lipp, Esq.
Paley Rothman, et al.
4800 Hampden Lane, 7th Floor
Bethesda, MD 20814
Irving E. Walker, Esq.
Saul Ewing, LLP
100 S. Charles Street
Baltimore, MD 21201
Office of the U.S. Trustee
6303 Ivy Lane, Suite 600
Greenbelt, MD 20770
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Cheryl E. Rose, Esq.
50 W. Edmonston Drive, Suite 600
Rockville, MD 20852
John Garza
Garza, Regan & Associates
17 W. Jefferson Street, Suite 200
Rockville, MD 20850
Janet M. Nesse, Esq.
Morrison & Hecker
1150 18th Street, N.W., Suite 800
Washington, DC 20036
Kenneth W. Irvin, Esq.
William McCarron, Jr., Esq.
Morrison & Foerster, LLP
2000 Pennsylvania Avenue, N.W. Suite 5500
Washington, DC 20006
Morton A. Faller, Esq.
11921 Rockville, Pike, 3d Floor
Rockville, MD 20852
Richard L. Costella, Esq.
Miles & Stockbridge, P.C.
10 Light Street
Baltimore, MD 21202
End of Memorandum of Decision
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