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IN RE CYBERN EDUCATION
June 28, 1974
IN THE MATTER OF CYBERN EDUCATION, INC., DEBTOR.
The opinion of the court was delivered by: McLAREN, District Judge.
MEMORANDUM OPINION AND ORDER
This matter is before the Court for approval of a plan of
reorganization; on the motion of the United States of America
for an examination of a payment made by the bankrupt, Cybern
Education, Inc. ("Cybern"), to two attorneys, Leonard Gesas
("Gesas") and Nicholas G. Manos ("Manos"); and on the motion of
the trustee's attorneys for an award of attorneys' fees. For
the reasons set forth below, the plan is confirmed, the
trustee's attorneys will be awarded $10,000 in fees, and Gesas
and Manos shall repay to the trustee $4,800 of a $6,000 fee
they previously received.
The early history of this matter is set out in the Seventh
Circuit Court of Appeals opinion, In re Cybern Education, Inc.,
478 F.2d 1340 (7th Cir. 1973) (Cybern I). In that opinion,
the court vacated an order allowing interim attorneys fees and
ordered a remand of the case with the following instructions:
"(1) This proceeding shall be reassigned by the executive
committee of the district court to another judge.
"(2) No applications for compensation or reimbursement shall be
considered until the proceeding is ready to be closed and then
only as full and final compensation.
"(3) Compensation and reimbursement shall be justified by a
record showing the specific services performed and such other
factors which bear upon the reasonableness of the awards.
"(4) Petitions for compensation and reimbursement shall comply
with Section 249 of the Bankruptcy Act and with district court
"(5) Notices of presentment of petitions shall be given to all
persons specified in Section 247 of the Bankruptcy Act.
"(6) Notices of presentment of petitions shall in particular be
served upon the Secretary of the Treasury and the Securities
and Exchange Commission sufficiently in advance of hearing to
permit their staffs to formulate recommendations to their
superiors and to obtain authorization for positions to be taken
upon such petitions in the district court.
"(7) Costs of this appeal shall be charged against the
appellees and shall not be paid from the debtor's estate nor
shall any attorney's fees relating to this appeal be charged to
the debtor's estate.
Since that time extensive proceedings have gone on before this
Court. An amended plan of reorganization has been submitted. In
addition, the Internal
Revenue Service ("IRS") and the Securities and Exchange
Commission ("SEC") sought and were granted leave to conduct an
audit of Cybern. Upon completion of the audit, which was
time-consuming, a motion to surcharge the Trustee, Harry Ash
("Ash"), and his attorneys, Kevin Gillogly ("Gillogly") and
Louis I. Kessler ("Kessler"), was filed by a creditor, James
McGraw. Briefs were filed and in an unpublished opinion this
Court denied the motion with certain reservations.*fn1 See
In re Cybern Education, Inc., 70 B 5299 (Memorandum Opinion and
Order of April 12, 1974 (Cybern II).
The trustee's attorney then filed his application for fees.
Hearings were held and briefs filed. During the course of those
hearings, it came to the attention of the Court, the government
and the creditors that a pre-petition attorneys' fee had been
paid to Gesas and Manos. The government sought leave to
investigate this fee, a hearing was ...
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