Judge to Decide on Hiring Lawyers for Kmart Board

Attorneys for Kmart Corp.’s creditors said the estate has no business paying for a new set of lawyers to represent a board of directors accused of impropriety.

Richard Cieri, attorney for some of the retailer’s creditors, argued in federal court Wednesday that paying to defend board members was contrary to the estate’s interests.

“How can it be in your best interest to be funding your potential opponent’s defense?” Cieri asked.

Attorney Jack Butler, arguing for the company, said it was just good business sense to have the board represented and getting advice as it helps oversee reorganization.

He moved for the hiring of Dewey Ballantine, a New York law firm with fees ranging from $102 to $595 an hour.

U.S. District Judge Susan Pierson Sonderby said she would rule July 17 on whether to allow the hiring.

“It goes without saying the board should have counsel,” she said. “The question is whether the estate should pay for it.”

Butler said it would be “imprudent if not reckless” to force the board to make business decisions without its own legal counsel.

Kmart filed court documents Wednesday outlining its “stewardship investigation” to determine whether corporate executives acted properly in the months leading up to the January bankruptcy filing.

The investigation was started by an anonymous Jan. 9 letter from Kmart employees to the Securities and Exchange Commission about unspecified accounting matters.

News reports in the No. 2 discount retailer’s home state of Michigan have said the company is investigating whether executives exceeded their authority in making loans to senior executives as a way of retaining them.

Butler said part of the investigation eventually would involve questioning board members about what they knew of the loans and other accounting measures.

He said they were entitled to legal counsel.