In re Spectrum Arena, Inc. (340 F. Supp. 755, 1971)

IN PROCEEDINGS FOR REORGANIZATION OF A CORPORATION UNDER CHAPTER X THE BANKRUPTCY ACT

HIGGINBOTHAM District Judge.

OPINION

I.

On May 1, 1968, the Spectrum Arena, Inc. (hereinafter referred to as the “Debtor” or the “Spectrum”) was involuntarily placed in reorganization under the Bankruptcy Act of July 1, 1898, Chapter X (11 U.S.C. 501, et seq.). Now three years later, after having handled more than $13,000,000.00 in gross receipts, Trustees Harvey N. Schmidt, Esquire and William David Webb, Esquire have so revitalized the Arena’s business that there is now a reorganization plan whereby after reorganization all secured and unsecured creditors could be paid 100% and the Arena could become a viable financial entity. To turn around this complex enterprise so that even unsecured creditors can be paid 100% is a spectacular management performance in light of most bankruptcy and corporate reorganization proceedings; for it is indeed rare when unsecured creditors are able to get any substantial payment for their just debts.

Three plans of reorganization have been filed, two of which have been supported with detailed financial data, extensive evidence, stipulations of fact, and legal arguments.

The plan filed, endorsed and preferred by the Trustees was proposed by Earl M. Foreman and Edward M. Snider. (This plan will hereinafter be referred to as the “Foreman-Snider Plan”, or the “Trustees’ Plan”.) Earl M. Foreman and his wife, Phyllis, are the holders of a fourth mortgage on the Spectrum’s leasehold interest, which mortgage had a book value as of April 30, 1971, of $1,481,969.76.

A second plan has been filed by Philip P. Kalodner, Esquire (hereinafter referred to as “Kalodner”). He appears in a triple-star role: first, as a proponent of a corporate reorganization plan; second, as a creditor with a claim against the Debtor for approximately $3,000.00 for past legal services; and third, as the present holder of 92% of the issued stock of the Debtor. In all of these roles, Kalodner has acted as his own counsel.

By agreement of April 22,1971, Kalodner obtained the 920 shares of stock of which Jerry Wolman was the registered holder, and 40 shares of which Kalodner was purportedly the beneficial owner. For the transfer of these securities, Kalodner made no payment in cash and will be obligated to pay Wolman at most $220,000 only if Kalodner receives any “cash proceeds ... by virtue of the ownership of such shares of stock in the form of dividends or by virtue of the sale of such shares.” (Kalodner’s Exhibit 1, hereinafter referred to as “K-l”. In Wolman’s own proceedings for an arrangement under Chapter XI of the Bankruptcy Act, in the United States District Court for the District of Maryland (Case No. 13072), on December 8, 1969, a stipulation was filed by and among Debtors, Creditors’ Committee and the Fidelity Bank which provided, inter alia, as follows:

“Debtors