LOUISVILLE, KY. (AP) — The Kentucky Supreme Court on Thursday publicly reprimanded an attorney involved in the massive bankruptcy of Big Rivers Electric Corp., for his handling of fees and contact with creditors during the case.
The high court found that J. Baxter Schilling of Louisville improperly sought fees from several of the utility co-op's largest creditors while portraying himself as a disinterested examiner to the bankruptcy court.
The court appointed Schilling as examiner for Big Rivers in 1996, giving him the role of helping the electric company and its creditors arrive at a consensual plan of reorganization. The company couldn't meet financial obligations on $1.2 billion in debt. The company emerged from bankruptcy in 1997, about a year after initially filing.
The reprimands do not affect Schilling's ability to practice law. Schilling's attorney, Peter Ostermiller of Louisville, said his client is disappointed in some of the technical aspects of the court's ruling that didn't allow the justices to consider testimony from three bankruptcy judges who found his work to be ethical.
Baxter is pleased that the Supreme Court recognized that he had devoted a substantial amount of time to the Big Rivers case, and that there was a very successful outcome as a result of his efforts," Ostermiller said. "Baxter has never believed that he acted inappropriately before the Bankruptcy Judges whom he appeared."
Examiners appointed in bankruptcy cases investigate the details of the company that sought protection and reorganization in federal court. In some cases, the examiner may negotiate or help the parties negotiate a settlement. That was partially Schilling's role with Big Rivers, which serves 112,000 member-consumers in 22 western Kentucky counties.
Big Rivers owed $1.1 billion of its debt to the Rural Utilities Service of the United States Department of Agriculture, which held an interest in all of Big Rivers' assets. Chase, Bank of New York and Mapco were three of the largest unsecured creditors of the utility.
"The Big Rivers case was one of the largest, if not the largest, bankruptcy cases ever filed in Kentucky," Chief Justice John D. Minton wrote for the court.
Schilling met with the creditors in Washington, D.C., in 1996 in an attempt to negotiate an agreed reorganization plan. After that attempt falters, Schilling tried to reach a fee agreement with Chase, Bank of New York and Mapco. But, Schilling did not disclose that attempt to the bankruptcy court when asking the judge to award him fees.
Schilling later disclosed a fee deal with the creditors, prompting Rural Utilities Service, another large creditor, and the bankruptcy trustee to question what other deals Schilling had reached. RUS and the trustee also asked that Schilling be required to give up all the fees received during the case.
Schilling then denied reaching an agreement with Mapco, but the company produced letters Schilling had sent insisting a fee agreement had been reached. Bank of New York took a similar step.
In 1998, Schilling submitted his final fee application to the court seeking $4.41 million. The bankruptcy trustee asked a judge to force Schilling to give up all the funds he had received because of the improper side agreements with the creditors.
Bankruptcy Judge David T. Stosberg eventually awarded Schilling a fee of a little over $2.6 million, but the U.S. 6th Circuit Court of Appeals reversed the decision. The appeals court found Schilling violated his duty to remain a disinterested party by entering into oral agreements for fees with creditors. The appeals court described Schilling's behavior as "secretive and deceptive" and ordered him to return all the fees.
"Schilling's professional misconduct relates to his actions when soliciting the unsecured creditors to pay his fee and not simply from requesting an enhanced fee," Minton wrote.
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Associated Press reporter Brett Barrouquere is on Twitter: http://twitter.com/BBarrouquereAP
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