2008 D e c i sion s O p inion s of the U nit e d S t at e s C our t of Appe al s for the Thir d C ir c uit 2-25-2008 

# In Re:R ich ard son Ind P r e c e de nt i al or N on-P r e c e de nt i al : N on-P r e c e de nt i al D ocke t N o . 07-2502

F o llow thi s and a dd it ion al work s at : http://d i git alc ommon s .l a w . vi ll anova . e du/thir dc ir c uit_2008

Thi s de c i sion i s br ou ght t o you for f r e e and ope n a c c e s s b y the O p inion s of the U nit e d S t at e s C our t of Appe al s for the Thir d C ir c uit at V i ll anova U nive r sity S choo l of L a

w Di git al Reposit ory

. It h as be e n a c c ept e d for inclusion in 2008 D e c i sion s b y an author i z e d a dmini s tr at or of V i ll anova U nive r sity S choo l of L a

w Di git al Reposit ory

. F or mor e inform at ion, p le as e c ont a ct Be n j amin . C arl s on@l a

w . vi ll anova . e du . Re c omme nde d C it at ion
" In Re:R ich ar d s on Ind " (2008). 2008 D e cisio n s . P ape r 1529. http://d i git alc ommon s .l a

w . vi ll anova . e du/thir dc ir c uit_2008/1529NOT P RE CE DE NT I AL UN I TED STATES CO UR T OF A PP EALS F O R T H E T H IR D C IR C U IT N O . 07- 2502

________________ IN R E : R IC H A R D S O N IN D U S T R IA L C O N T R A C T O R S , IN C ., D ebt or

HAR RY A. RI CH AR DS ON, A ppel l ant ANDR E A DOB I N, T rus t ee

____________________________________ O n A p p ea l Fro m the U n it ed S tat es D istri ct C o u rt

Fort he D i s t r i ctof N ew J er s ey ( D . C . C i vi l A ct i on N o. 05- cv- 00501) D istri ct Ju d g e: H o n o rab le G arrettE . B row n , Jr.

_______________________________________ Subm i t t ed U nderT hi r d C i r cui tL A R 34. 1( a)

FE B R U A R Y 12, 2008 Bef or e : SLO V I TER , BA RR Y A N D G RE EN BE RG , CI RC U I T J U D G ES.

( O pi ni on Fi l ed: February25, 2008 )

____________ OP I NI ON

____________I n hi s br i efs , R i char ds on r epea t edl yemphasi zes the di s par i t ybetw een thi s $75, 000 1 s e t t l e me n ta n d RI CI ’ s a l l e g e d $ 1 , 4 2 1 , 0 0 0 i n j u r y . Be f

o r e th e s e t t l e me n t , h o we v e r , RI CI a lre a d yh a d b e e n a w a rd e d a n d p a id $ 8 0 0 ,0 0 0 , so it ap p e a rs th a t o n lya p p ro x im a tely $600, 000 r emai ned i n di s put e. A s expl ai ned bel ow , the r eas onabl enes s of thi s s et t l ement is n o t b e f

o re th e C o u rt. P E R C UR I AM H arr yA . R i char ds on appea l s pr o s e fr om the D i s t r i ctC our t ’ s or der s aff i r m i ng t he B ankrupt cyC our t ’ s deni al of hi s m ot i on t o appoi nti ndepende nts peci al couns el and d e c lin in g to re c o n sid e r th a t ru lin g . W e w ill d ism iss th is a p p e a l as m o o t. I. R i char ds on w as an uns ecur ed cr edi t ori n t he C hapt er7 bankrupt cyof R i char ds on In d u stria l C o n tra c to rs, In c . (“R IC I” ), w h ich d e c lar e d b a n k ru p tcy i n 2 0 0 3 . O n e o f its
as s et s w as a br eac h of contr actcl ai m thathad bee n pendi ng i n t he East ern D i s t r i ctof N ew Y or k s i nce 1991 ( t he “ED N Y act i on”) . I n D ece m ber2003, j us tday s befor e thatact i on w as t o be di s m i s s ed forR I C I ’ s fai l ur e t o obt ai n couns el , the B ankrupt cyC our tappoi nt ed Pat r i ck Tobi a under11 U . S. C . § 367 t o s erve as s peci al l i t i gat i on couns el t o t he trus t ee fort he s ol e purpos e of pr os ecut i ng t hatact i on. T obi a al s o r epr es ent ed ce r t ai n s ecur ed
cr edi t or s i n t he R I C I bankrupt cy . A ta hea r i ng on D ece m ber10, 2003, the trus t ee a r gued t hat this j ointrepr esent at i on gav e ri se t o n o actual or potent i al con fl i ctof int eres tbecau se al l cr edi t or s had an i dent i t yof i nt er es ti n m axi m i zi ng r ecove r yi n t he ED N Y act i on. T he B a n k ru p tcy C o u rt a g re e d , an d a p p ro v e d T o b ia’ s re ten tio n . R ich a rd so n d id n o t ap p e a l. I n M ar ch 2004, T obi a r eac hed an a gr eementi n pr i nci pl e t o s et t l e the ED N Y act i on f o r $ 7 5 ,0 0 0 . In S e p tem b e r 2 0 0 4 , the tru ste e f iled a m o tio n w ith th e B a n k ru p tcy C o u rt to 1appr ove the s et t l ementunderB ankrupt cyR ul e 9019( a) . R i char ds on obj ect ed, and fi l ed a

c ro s s -m o tio n to d is q u a lif yT o b ia a n d re p la c e h im w ith “ in d e p e n d e n t” s p e c ia l c o u n s e l. R i char ds on ar gued thatt he s et t l ementamount w as unr eas onabl yl ow and thatT obi a w as oper at i ng undera conf

l i ctof i nt er es tbeca us e ent er i ng i nt o t he s et t l ementw as i n t he i nter est s of T ob i a’s secured-cr edit or cl i ents bu tno ti n the i nter est s of t he credit ors as a w h o le. O n N o v e m b e r 1 , 2 0 0 4 , the B a n k ru p tcy C o u rt h e a rd a rg u m e n t, an n o u n c e d its inten ti o n to ap p rov e the sett lem en t, an d d ee m ed R icha rdso n ’s m o ti o n m o o t. T h e c o u rt ent er ed a s um m aryor dert hats ame daydeny i ng R i char ds on’ s m ot i on. R i char ds on app eal ed thatorder t o the D i stri ctC ou rt , w hich di sm i ssed the ap peal because R i chardson ’s bri ef w as unti m el y . T his C ou rtrever sed, see I n re R i chardson Indus. C o n tra c to rs, In c ., 1 8 9 F e d . A p p x . 9 3 (3 d C ir. 2 0 0 6 ), an d th e D istric t C o u rt su b se q u e n tly ent er ed the or der s ati s s ue her e af fi r m i ng the B ankrupt cyC our t( A pr i l 2, 2007) and d ec li n ing to rec o n side r th at ruli n g (M ay4 , 2 0 0 7 ). In th e in ter im , o n Ja n u a ry5 , 2 0 0 5 , the B a n k ru p tcy C o u rt e n ter e d a n o rd e r f in a lly
a p p ro v in g th e s e ttle m e n t in th e E D N Y a c tio n , a n d th a t a c tio n w a s la te r s e ttle d . R ich a rd so n so u g h t to a p p e a l th e se ttl e m e n t ap p ro v a l, bu t th e D istric t C o u rt d ism iss e d h is app eal as unti m el yand t his C ou rtult i m at el yaffirm ed. S ee In r e R i chardson Indus. C ont r act or s , I nc. , 190 Fed. A ppx. 128 ( 3d C i r . 2006) . T he B ankrupt cyC our tauthor i zed T obi a t o di s t r i but e the s et t l ementpr ocee ds i n N ovember2005, then ent er ed the fi nal bankrupt cydecr ee i n J une 2006. R i char ds on di d nots eek orobt ai n a s t ayof the B a n k ru p tc yC o u rt ’s a p p ro v a l o f th e s e ttle m e n t o r t h e d is tr ib u tio n o f its p ro c e e d s .A lth o u g h w e d o n o t r ea ch the m erit s o f th is ap p ea l, w e n o te th at R icha rdso n ’s 2 p o sitio n a p p e a rs to lac k m e rit. T h e B a n k ru p tcy C o u rt w a s a u th o riz e d to d isq u a lifyT o b ia onl yi f hi s concurr entr epr es ent at i on of R I C I and ce r t ai n s ecur ed cr edi t or s gave r i s e t o an ac tual o r po tential co n fli ct of interest. S ee 1 1 U . S . C . § 3 2 7 (c); I n re M arv el E n tm ’t G r oup, I nc. , 140 F. 3d 463, 476- 77 ( 3d C i r . 1998) . W e w oul d r evi ew the B ankrupt cy C o u rt ’s de cisi o n fo r ab u se o f d iscreti o n . S ee In re P il low tex, 30 4 F . 3 d at 25 0 ; I n re M arvel , 140 F. 3d at470. O urr evi ew of the r ecor d r evea l s nothi ng s ugges t i ng thatthe R i char ds on al s o di d notappea l t he B ankrupt cyC our t ’ s author i zat i on of thatdi s t r i but i on, and has notappea l ed fr om t he fi nal decr ee. II. R i char ds on’ s appea l s uffe r s fr om a thr es hol d defi ci ency , w hi ch bec om es appar ent
w hen w e cl ar i fyt he i s s ue ac tual l ybefor e thi s C our t . R i char ds on devot es the maj or i t yof hi s br i efs t o at t acki ng t he r eas onabl enes s of the ED N Y s et t l ement . T he B ankrupt cy C our t ’ s appr oval of thats et t l ement , how ever , i s notbefor e us , and R i char ds on l os tthe rig h t to c h a llen g e it b yf a ili n g to f

ile a tim e lya p p e a l. In ste a d , the o n lyiss u e b e f o re u s is
w h e th e r th e B a n k ru p tcy C o u rt p ro p e rlyd e n ied R ich a rd so n ’s m o tio n to d isq u a lifyT o b ia and appoi ntdi ffe r ents peci al couns el t o pr os ecut e ( r atherthan s et t l e for$75, 000) the E D N Y act i on. A nyr el i ef on thi s i s s ue, how ever , w oul d eff ect i vel yi nval i dat e the
a p p ro v a l o f

th e s e ttle m e n t, w h ic h R ic h a rd s o n h a s f o rf e ite d th e ri g h t to c h a lle n g e . M or eover , t he s et t l ementhas been a ccompl i s hed, i t s pr ocee ds have be en di s t r i but ed, and th e R IC I b a n k ru p tc yh a s b e e n c lo s e d , n o n e o f w h ic h R ic h a rd s o n s o u g h t to a p p e a l o r s ta y . U nd er these ci rcum st ances, t his app eal i s now m oo t . S ee In r e H i gh w ayT ruck D ri vers & H el per s L ocal U ni on # 107, 888 F. 2d 293, 297 ( 3d C i r . 1989) ; I n r e C antw el l , 639 F. 2d 1050, 1053- 54 ( 3d C i r . 1981) . A ccor di ngl y , thi s appea l w i l l be di s m i s s ed. 2B ankrupt cyC our tabus ed i t s di s cr et i on her e. R i char ds on ar gues thatT obi a’ s s ett l ement

of the ED N Y act i on r evea l s a conf l i ctbeca us e i thad the ef fec tof s ecur i ng a r ecove r yfor hi s s ecur ed- cr edi t orcl i ent s s oonerthan theyot herw i s e w oul d have gott en i tand l eft R i char ds on, an uns ecur ed cr edi t or , w i t h no r ecove r yatal l . B utR i char ds on has never pr es ent ed anyevi dence t hatT obi a’ s r ecomm endat i on of the s et t l ementw as m ot i vat ed by anyt hi ng ot hert han hi s as s es s m entof i t s m er i t s . I ndeed, as one of Tobi a’ s s ecur edc re d ito r c lien ts n o tes , the se c u re d c re d ito rs’ c laim s w e re f a r f ro m sa tisf

ied in th is b a n k ru p tc y , a n d th e yto o , ju s t lik e R ic h a rd s o n , w o u ld h a v e p re f e rr e d a g re a te r r e c o v e ry. T h e m ere fa ct th at th e se tt lem en t netted in su ff ici en t pro ce ed s to p rov ide f o r an yrec o v ery byt he uns ecur ed cr edi t or s w oul d notes t abl i s h a conf l i ctof i nt er es t , beca us e the sett lem en t app ea rs t o h av e n ett ed insu ff ici en t pro ce ed s to sa ti sfythe c lai m s o f T o b ia’s s e c u re d -c re d ito r c lie n ts a s w e ll.