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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
  Rule X-18.
  "(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.

Id. at 1344-1345.

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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