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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MARYLAND GEORGE E. KUCIN, ET AL. v. DEBORAH H. DEVAN, ET AL. * * * * * ***** MEMORANDUM This is an appeal from the Bankruptcy Court's memorandum and order denying George E. Kucin, Paul D. Levine, Marvin S. Rice, and Kenneth Rodriguez (collectively, the "Executives") motions for allowance of administrative expense claims.1 Deborah H. Devan, the Chapter 7 Trustee for the bankrupt estate of Merry-Go-Round Enterprises, Inc. ("MGRE"), filed a cross-appeal arguing that the Bankruptcy Court incorrectly declined to account for the risk of nonpayment in determining the values of the Executives' claims. I find that the Bankruptcy Court did not err in calculating the amounts of the Executives' claims or denying them administrative priority. Therefore, I affirm the judgment of the Bankruptcy Court. I. Each of the Executives was a long-time senior executive at MGRE. In either 1984 or early 1985, the Executives individually entered into Deferred Compensation Agreements with MGRE. Each Deferred Compensation Agreement provided that the Executive would receive $100,000 per year for

Civil No. JFM-99-3584

By my March 24, 2000 order, this case has been consolidated with Robert Heyman v. Deborah H. Devan, No. 00-707 (D. Md. filed Mar. 10, 2000). The same reasoning outlined in this memorandum opinion applies equally to both cases.

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life commencing at age sixty-five, adjusted annually for increases in the cost-of-living. Furthermore, the Executive's interest would vest fully if he worked at MGRE for seven years after entering the agreement. On January 11, 1994, MGRE, which operated over 1,200 retail clothing stores nationwide, voluntarily filed for bankruptcy under Chapter 11. In an effort to reorganize, MGRE sought to retain key executives and employees including the Executives. Early on in its attempt to reorganize MGRE sought and obtained approval from the Bankruptcy Court to make payments for certain prepetition payroll and employee benefits expenses. Among other rulings made on April 11, 1994, the Bankruptcy Court ordered that "the Debtor shall be permitted to make any unpaid pre-petition contributions to its Executive Deferred Compensation plan" and "that the Debtors shall be permitted to honor and maintain the supplemental retirement agreements described in the Motion." Appellants' Br. App. 1 at 2. MGRE continued operating its business as a debtor-in-possession for more than two years while it attempted to reorganize. Ultimately, MGRE was unable to salvage its failing business, and in 1996 the Bankruptcy Court converted it to Chapter 7 and appointed Deborah H. Devan as Trustee. In January 1998, each of the Executives filed a motion, which relied on the language in the Bankruptcy Court's April 11, 1994 preconversion order, seeking to establish Chapter 11 administrative status for their claims under the Deferred Compensation Agreements.2

In addition to the April 11, 1994 order, Rodriguez points to the Bankruptcy Court's order entered August 31, 1995, which stated: [5]c. During the severance period, Mr. Rodriguez shall be entitled to continue to receive all existing employee benefits. Mr. Rodriguez shall also be entitled to receive his supplemental retirement benefits in which he is fully vested. 2

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II. Chapter 11 administrative expenses have priority over most other unsecured claims. See 11 U.S.C.

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