1995 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

6-22-1995

Fellheimer v Charter Tech

Precedential or Non-Precedential:

Docket 94-3461

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Recommended Citation

"Fellheimer v Charter Tech" (1995). 1995 Decisions. Paper 171.

http://digitalcommons.law.villanova.edu/thirdcircuit_1995/171
 UNITED STATES COURT OF APPEALS 

 FOR THE THIRD CIRCUIT 

 ------------- 

 No. 94-3461 

 ------------- 

 FELLHEIMER, EICHEN & BRAVERMAN, P.C., 

v. 

 CHARTER TECHNOLOGIES, INCORPORATED, 

 d.b.a. ELGIN ELECTRONICS; 

 KNOX, McLAUGHLIN, GORNALL & SENNETT, P.C.; 

 and GUY C. FUSTINE, ESQUIRE, 

 Fellheimer, Eichen, Braverman 

 and Kaskey, P.C., 

 Appellants

 ------------------------------------------------------ 

 On Appeal From the United States District Court 

 For the Western District of Pennsylvania 

 (D.C. Civ. No. 93-345E) 

 ------------------------------------------------------ 

 Argued: March 7, 1995 

 Before: BECKER, SCIRICA, and 

 WOOD, JR.,* Circuit Judges

 (Filed: June 22, 1995) 

 DAVID L. BRAVERMAN, ESQUIRE (ARGUED) 

 MAIA CAPLAN, ESQUIRE 

 KENNETH S. GOODKIND, ESQUIRE 

 MATTHEW A. NYMAN, ESQUIRE 

 W. THOMAS TITHER, ESQUIRE 

 2100 One Liberty Place 

 Philadelphia, PA 19103 

 Attorneys for Appellant

 GUY C. FUSTINE, ESQUIRE 

 RICHARD A. LANZILLO, ESQUIRE (ARGUED) 

 120 West Tenth Street 

 Erie, PA 16501 

 

 * The Honorable Harlington Wood, Jr., United States Circuit 

Judge for the Seventh Circuit, sitting by designation. 
 Attorneys for Appellees. 

 ----------------------------- 

 OPINION OF THE COURT 

 ----------------------------- 

WOOD, JR., Circuit Judge. 

 Fellheimer, Eichen & Braverman, P.C. ("FE&B") appeals the 

denial of its entire fees application. The bankruptcy court 

found that during the course of FE&B's representation of Charter 

Technologies, Incorporated, d.b.a. Elgin Electronics ("the 

Debtor"), in the context of the Debtor's Chapter 11 proceedings, 

that FE&B had wrongfully represented the interests of the 

Debtor's president and principal shareholder, Joseph Burke. The 

bankruptcy court found that FE&B had sought to further Mr. 

Burke's interests over the interests of the Debtor by, among 

other things, filing a patently false $4,250,000 lawsuit against 

the counsel to the Official Committee of Unsecured Creditors, and 

by making repeated and knowing misrepresentations to the 

bankruptcy court. The bankruptcy court further found that FE&B 

was motivated throughout its representation of the Debtor by 

subjective bad faith. Consequently, the bankruptcy court 

sanctioned FE&B by denying its fees application in its entirety. 

On appeal, the district court upheld the denial of FE&B's fees 

application. The district court did, however, substitute its own 

justifications for the bankruptcy court's action. Because we 

feel that the bankruptcy court's factual findings are not clearly 

erroneous, and because we find the district court's 
justifications for the sanctions to be acceptable, we affirm the 

denial of FE&B's entire fees application. 

 I. BACKGROUND

 On January 20, 1993, the Debtor filed a voluntary petition 

under Chapter 11 of the Bankruptcy Code. The Debtor also filed a 

motion at this time to employ FE&B as its counsel. On February 

17, 1993, the bankruptcy court conducted a hearing regarding the 

employment of FE&B. Based, in part, on the testimony of Alan 

Fellheimer that FE&B would seek to file a reorganization plan for 

the Debtor between March 15 and March 30, 1993, and that FE&B had 

"already arranged . . . a significant equity infusion into the 

company, seven figure infusion, a million dollars," the 

bankruptcy court approved the employment of FE&B. 

 Despite these confident assertions, neither a reorganization 

plan nor a large equity infusion was forthcoming by the end of 

March 1993, and a meeting was subsequently arranged to discuss 

the future of the Debtor. This meeting, which took place on May 

20, 1993, was attended by Mr. Fellheimer; Mr. Burke; Guy Fustine 

of Knox, McLaughlin, Gornall & Sennett, P.C. ("the Knox Firm"), 

counsel to the Official Committee of Unsecured Creditors ("the 

Committee"); and certain representatives of the Committee. The 

representatives of the Committee indicated that the Committee was 

willing to work with the Debtor to solve its financial woes, to 

wit, the Committee would be willing to accept a plan in which the 

unsecured creditors as a whole exchanged debt for equity, or a 

plan in which two members of the Committee--REM Electronics and 
Advacom, Incorporated--would extend credit to the Debtor or 

invest cash in the Debtor. 

 The representatives of the Committee also made it clear that 

they lacked confidence in the managerial skills of Mr. Burke: If 

the Debtor's reorganization plan was hinged upon the long-term 

viability of the Debtor, the Committee pledged to withhold its 

support unless the Debtor's top-level management was replaced--

particularly Mr. Burke. At this point, Mr. Burke and Mr. 

Fellheimer left the meeting to confer privately. Upon their 

return, Mr. Fellheimer presented the representatives of the 

Committee with Mr. Burke's demands. According to Mr. Fellheimer, 

Mr. Burke would agree to leave the management of the Debtor only 

if the reorganization plan provided him with: (1) a written 

employment contract with the Debtor; (2) an equity position in 

the Debtor; and (3) a release from the personal guarantees Mr. 

Burke had previously executed which secured certain obligations 

of the Debtor. 

 Following this meeting, in a letter dated June 4, 1993, Mr. 

Fustine reiterated the Committee's views regarding Mr. Burke's 

long-term future in the Debtor's management.1 In response, in 

 

 

1 In the June 4th letter, Mr. Fustine stated that 

 [t]he position of the Committee with respect to 

Joe Burke is clear. It will not accept any Plan of 

Reorganization which provides for payments over time or 

which provides for the conversion of debt to equity if 

the Plan also provides that Joe Burke will continue in 

a management role. Joe Burke is believed to be a part 

of the problem and not a part of the cure. I am 

telling you this again now so that there is no 

confusion in the future. 
letters dated June 8 and June 14, 1993, Mr. Fellheimer charged 

Mr. Fustine with representing individual members of the Committee 

and demanded that the Knox Firm withdraw as counsel to the 

Committee and, moreover, that certain members of the Committee 

also withdraw from the Committee. Mr. Fellheimer furthermore 

threatened to file a motion with the bankruptcy court seeking the 

dismissal of the Knox Firm if the Knox Firm did not voluntarily 

withdraw. Mr. Fustine and the Knox Firm responded by again 

restating the position of the Committee in a letter to FE&B dated 

June 16, 1993. That same day, Mr. Fustine and the Knox Firm also 

filed a motion on behalf of the Committee to ratify the 

appointment of Mr. Fustine and the Knox Firm as the Committee's 

counsel. 

 FE&B filed the Debtor's response to the Committee's motion 

to ratify its counsel on June 28, 1993. FE&B also filed a sevencount complaint on behalf of the Debtor against Mr. Fustine and 

the Knox Firm seeking $4,250,000 in damages and a preliminary 

injunction to prevent Mr. Fustine and the Knox Firm from 

representing the Committee ("the complaint"). The complaint made 

the following allegations: Count One charged Mr. Fustine and the 

Knox Firm with breaching their fiduciary duty to the Committee by 

representing individual members of the Committee; Counts Two and 

Three charged Mr. Fustine and the Knox Firm with breaching a 

contract that they had allegedly entered into with the Debtor 

which required them to refrain from communicating with potential 

investors in the Debtor; Counts Four and Five charged Mr. Fustine 

and the Knox Firm with libeling and slandering the Debtor in 
their letters of June 4 and June 16, 1993; Count Six charged Mr. 

Fustine and the Knox Firm with intentionally and negligently 

interfering with the Debtor's existing and prospective 

contractual relations; and Count Seven charged Mr. Fustine and 

the Knox Firm with unfairly competing with the Debtor by 

representing individual members of the Committee. The complaint 

was signed by Jeffrey Eichen of FE&B. 

 Viewing the complaint as an insurmountable barrier to a 

successful reorganization effort, the bankruptcy court quickly 

scheduled a hearing for July 8, 1993. Mr. Fellheimer telephoned 

the court on July 6, 1993, however, and requested that the 

hearing be rescheduled as Mr. Burke--whose testimony Mr. 

Fellheimer characterized as essential to the complaint--was out 

of the country and would not return before the hearing. The 

bankruptcy court consequently rescheduled the hearing for August 

3, 1993. In fact, Mr. Burke was not out of the country and Mr. 

Fellheimer was aware of Mr. Burke's actual whereabouts on the 

same day--July 6, 1993--that he telephoned the bankruptcy court. 

On July 19, 1993, FE&B again sought to delay the hearing by 

filing a motion to postpone the hearing. In this motion, FE&B 

asserted that Vito Casoni, another allegedly essential witness, 

would be unavailable on the new date of the hearing. The 

bankruptcy court, however, refused to further reschedule the 

hearing. 

 On July 20, 1993, the Knox Firm, Mr. Fustine, and the 

Committee filed a Motion for Sanctions Pursuant to Bankruptcy 
Rule 9011 and Rule 11 of the Federal Rule of Civil Procedure2

against FE&B ("the sanction motion"). The sanction motion 

alleged that sanctions were appropriate in that the complaint 

filed by FE&B lacked a reasonable basis in law and in fact and 

that the complaint was filed for improper tactical purposes. 

 In one last salvo before the hearing, FE&B filed a Motion to 

Disqualify Defendants from Acting as Legal Counsel to Witnesses 

("motion to disqualify"). The motion to disqualify alleged that 

Mr. Fustine and the Knox Firm suffered from an irreconcilable 

conflict of interests due to their representation of individual 

members of the Committee and due to their status as parties and 

material witnesses in the litigation on the complaint. 

 On August 3, 1993, the hearing on the Debtor's complaint was 

held. At the conclusion of the first day of the hearing, Mr. 

Fellheimer sought to withdraw the complaint on behalf of the 

Debtor and to terminate the entire adversary proceeding. In the 

words of Mr. Fellheimer, the Debtor decided to withdraw the 

complaint "[b]ecause it doesn't see any benefit . . . in 

proceeding in the long run." Mr. Fellheimer further stated: "I 

don't want to burden the Court any further with this. And I also 

feel that . . . the best interest of the debtor would be served 

by ending it and working towards a reorganization." The 

bankruptcy court then withdrew the complaint and chastised Mr. 

Fellheimer for, in its view, representing the interests of Mr. 

 

 

2 Bankruptcy Rule 9011 essentially tracks Rule 11 in all 

pertinent respects, as those rules then existed. 
Burke over the interests of the Debtor.3 The Committee reserved 

its right to proceed with its sanction motion at a later date. 

 On August 25, 1993, FE&B filed an interim fees and expenses 

application for the period January 20, 1993, through August 21, 

1993 ("fees application"). FE&B requested $200,275.50 in 

compensation and $21,916.83 for the reimbursement of expenses. 

The Committee thereafter filed an objection to FE&B's fees 

application on September 23, 1993. 

 II. THE PROCEEDINGS BELOW

 A. The Bankruptcy Court

 The bankruptcy court held a hearing on the fees application 

and on the sanction motion on October 20, 1993, and issued its 

 

 

3 The bankruptcy court warned: 

 [Y]ou're on a knife's edge, Mr. Fellheimer. You're 

representing Mr. Burke, he has no independent counsel. 

He may be a lawyer himself, but he met with you outside 

the Erie Club in order to determine what he should 

personally get out of the reorganization for him to 

step out as manager. In that instance you're acting as 

his lawyer. And that's adverse to the interests of the 

[Debtor]. 

 . . . . 

 . . . You have to be very careful about how you 

represent Mr. Burke. Because to the extent that you 

represent him to the detriment of the [Debtor] and the 

creditors, you're violating your fiduciary duty to the 

[Debtor]. And you're representing him individually and 

you're risking whatever fee you might get out of this. 

 . . . And for Mr. Burke to get upset because the 

creditors committee thinks that he's incompetent, is 

unfortunate. You as a lawyer, as a practicing lawyer 

have to tone him down. You can't file this kind of 

lawsuit that you filed here just because Mr. Burke is 

upset. That's ridiculous. 
opinion and order regarding these matters on November 2, 1993. 

Charter Techs., Inc., d.b.a. Elgin Elecs. v. Knox, McLaughlin, 

Gornall & Sennett, P.C. (In re Charter Techs., Inc.), 160 B.R. 

925 (Bankr. W.D. Pa.). The bankruptcy court granted the sanction 

motion and denied FE&B's entire fees application, except for 

$15,000 which the court allowed for reimbursement of expenses. 

The bankruptcy court also granted the motion of the Committee for 

the appointment of a Chapter 11 trustee. In reaching its 

decision, the bankruptcy court made the following factual 

findings. 

 First, the bankruptcy court found that "[t]he evidence 

establishing that Fustine and the Knox Firm represented the 

Committee, and only the Committee, is overwhelming." Charter 

Techs., 160 B.R. at 927. In this regard, the bankruptcy court 

further found that "[t]he Debtor failed to present any evidence 

that Fustine and the Knox Firm represented any individual member 

of the Committee." Id. 

 Second, the bankruptcy court found that "[t]he overwhelming 

evidence supports the fact that the language of the June 4th 

letter accurately reflected the Committee's position." Id. at 

928. The bankruptcy court found that the Debtor's allegations to 

the contrary were based upon "a complete lack of evidence." Id. 

The Debtor had attempted to prove that the June 4th letter was a 

vehicle designed to further the interests of individual members 

of the Committee, rather than a statement of the consensus of the 

Committee. Towards this end, the Debtor alleged in its complaint 

that two Committee members--Robert E. Miller and Frank 
Slurkanich--telephoned Mr. Burke and "stated that Fustine and the 

Knox Firm were not authorized to send the June 4th letter and 

that it does not represent the position or opinion of the 

Committee." Id. The bankruptcy court found, however, that Mr. 

Slurkanich--a former employee of the Debtor--never denied the 

authority of Mr. Fustine to send the June 4th letter. Instead, 

Mr. Slurkanich merely indicated that he did not personally "put 

out" the letter. Furthermore, the bankruptcy court found that 

"Slurkanich did not call in response to the June 4th letter, but 

rather in response to a notice of termination as a sales 

representative which Slurkanich received from Burke on June 7, 

1993, which Burke had issued in retaliation for the Committee's 

June 4th letter!" Id. The bankruptcy court found, moreover, 

that the Committee had objectively sound reasons for wishing to 

replace Mr. Burke.4 

 Third, the bankruptcy court summarily rejected the Debtor's 

defamation allegations. The Debtor had claimed that Mr. Fustine 

and the Knox firm stated falsely that the Debtor had accumulated 

$1,600,000 in pre-tax losses since October 1989 and that the 

Debtor had nonetheless paid $315,000 in stock dividends over that 

same time period. The bankruptcy court found that it was 

"readily determin[able]" through the Debtor's own financial 

 

 

4 The bankruptcy court cited a draft report prepared by the 

accounting firm of Ernst & Young for a potential investor which 

"identified numerous management deficiencies from which it would 

have been reasonable for the Committee to determine the need to 

replace Burke." Id. 
records that these statements were "true and accurate." Id. at 

929. 

 Fourth, the bankruptcy court found that there was 

"absolutely no evidence" to support the Debtor's allegation that 

Mr. Fustine breached an agreement that he had allegedly entered 

into that forbade him from meeting with potential investors in 

the Debtor. Id. According to the complaint, Mr. Fustine 

breached this agreement when he met with Vito Casoni and George 

Leone of SMG Control Systems. As the bankruptcy court found, 

this meeting took place on May 20, 1993. The earliest date that 

Mr. Fellheimer discussed such an agreement with Mr. Fustine, 

however, according to Mr. Fellheimer's own time sheets, was May 

21, 1993--one day after the alleged breach of the agreement took 

place. 

 Fifth, the bankruptcy court found that, contrary to the 

assertion in the Debtor's complaint, the statements of Mr. 

Fustine to Mr. Casoni of SMG Control Systems did not cause SMG 

Control Systems to lower its bid for the Debtor. Id. As the 

bankruptcy court noted, the affidavit of Mr. Casoni submitted by 

the Debtor explicitly states that "the session of May 20th with 

Mr. Fustine did not alter SMG's offer as to price." The 

bankruptcy court also found that Mr. Fustine did not, as further 

asserted in the complaint, cause Kulicke & Soffa to withdraw its 

business from the Debtor. Id. As indicated by the affidavit of 

Jim King of Kulicke & Soffa, that firm "retracted business from 

the debtor as a result of the debtor's inability to fulfill 

Kulicke & Soffa's production schedule on time and serious 
problems we perceive in the debtor's quality and recycling 

procedure." The bankruptcy court found that FE&B had not 

bothered to contact Mr. Casoni, or anyone at Kulicke & Soffa, to 

ascertain the veracity of these allegations before filing the 

complaint. Id. 

 Last, the bankruptcy court was greatly offended by Mr. 

Fellheimer's misrepresentation to it that Mr. Burke would be out 

of the country and unable to attend the hearing on the complaint 

on the day it was originally scheduled. Id. at 929-30. After 

noting that FE&B had made six telephone calls to the Debtor on 

July 6, including at least one direct call between Mr. Fellheimer 

and Mr. Burke, the bankruptcy court concluded: "There is no 

rational basis favorable to Fellheimer as to why he would 

represent to the Court on July 6 that he thought Burke was in 

England and unavailable for the scheduled hearing on July 8." 

Id. at 930. 

 On the strength of these preliminary findings, the 

bankruptcy court determined that sanctions against FE&B were 

appropriate: 

 Debtor's counsel failed to make any reasonable inquiry 

into the underlying facts before filing the within 

Complaint. Debtor's counsel knew or should have known 

that many of the allegations were baseless without any 

inquiry. . . . 

 . . . . 

 . . . The conclusion is inescapable that the 

purpose of the Complaint was to separate the Committee 

from its chosen counsel due to the fact that counsel 

for the Committee was advocating the Committee's 

position that it would be appropriate to remove Burke 

from upper-level management. 
 . . . . 

 In short, Fellheimer filed a lawsuit against the 

attorneys for the Creditors' Committee seeking $4.25 

million in damages for the sole purpose of protecting 

his real client, Burke, from the legitimate actions of 

the Creditors' Committee in opposing Burke's management 

of the Debtor's business. . . . 

 We further conclude that Fellheimer never had any 

intent to proceed with a trial on the merits of this 

complaint. He knew when he filed the Complaint that 

the allegations were unsupported. His scheme was to 

file the Complaint, demand the $4.25 million from the 

Creditors' Committee counsel, and then delay a hearing 

on the merits while he used the lawsuit as a wedge to 

intimidate the Creditor's Committee and its counsel for 

the benefit of Burke. . . . That illicit purpose plus 

the total lack of any evidentiary basis for the serious 

accusations made in the Complaint cry out for judicial 

recognition and appropriate sanction. 

Id. at 930-32. 

 After discussing the nature and scope of Rule 11 of the 

Federal Rules of Civil Procedure and Bankruptcy Rule 9011, the 

bankruptcy court decided to deny FE&B its entire fee in the case. 

Although FE&B had arguably performed some services of value to 

the Debtor, the bankruptcy court did not allow it any 

compensation because "Fellheimer's inappropriate conduct affected 

and continues to affect this entire case. Both the Debtor and 

its counsel have exhibited conduct of dishonesty, incompetency 

and gross mismanagement of the affairs of the Debtor." Id. at 

933. 

 B. The District Court

 FE&B then appealed the imposition of sanctions to the 

district court. Before the district court, FE&B argued primarily 
that the bankruptcy court's decision to impose Rule 11 and 

Bankruptcy Rule 9011 sanctions was factually unsupported and that 

FE&B's filing of the complaint was justified. FE&B also argued 

that the bankruptcy court had erred by imposing Rule 11 and 

Bankruptcy Rule 9011 sanctions upon the entire firm of FE&B, 

instead of merely upon the individual attorney who had signed the 

complaint, Mr. Eichen. 

 The district court first found that the record supported the 

bankruptcy court's findings regarding the factual baselessness of 

each of the complaint's material allegations. The district court 

also found that the record supported the finding that FE&B filed 

the complaint for an improper purpose and in subjective bad 

faith. 

 The district court did, however, agree with FE&B that Rule 

11 and Bankruptcy Rule 9011 sanctions, as they then existed,5

could only be imposed upon the individual attorney who had signed 

the offending document. See Pavelic & LeFlore v. Marvel 

Entertainment Group, 493 U.S. 120 (1989). The district court 

nonetheless affirmed the imposition of sanctions on the following 

alternative grounds: (1) FE&B waived the right to contest the 

imposition of sanctions against it as a firm by failing to raise 

the issue in the bankruptcy court and by failing to include the 

issue in its Bankruptcy Rule 8006 statement of issues for 

 

 

5 Effective December 1, 1993, after the bankruptcy court 

had issued its opinion and order in this case, Rule 11 of the 

Federal Rules of Civil Procedure was amended to explicitly allow 

the imposition of sanctions against law firms. 
appellate review; (2) the imposition of sanctions represented a 

proper exercise of the bankruptcy court's inherent power to 

sanction; and (3) the imposition of sanctions represented a 

proper exercise of the bankruptcy court's authority under 11 

U.S.C. § 328(c)6 to deny professional fees in appropriate cases. 

Appeal to this court followed. 

 III. STANDARD OF REVIEW

 Because the district court sat as an appellate court in 

reviewing this matter, our own review of that court's factual and 

legal determinations is plenary. Universal Minerals, Inc. v. 

C.A. Hughes & Co., 669 F.2d 98, 101-02 (3d Cir. 1981). In 

reviewing the bankruptcy court's determinations, we exercise the 

same standard of review as the district court. Brown v. 

Pennsylvania State Employees Credit Union, 851 F.2d 81, 84 (3d 

Cir. 1988). 

 We may not set aside the bankruptcy court's factual findings 

unless we first conclude that they are clearly erroneous. 

Bankruptcy Rule 8013; Brown, 851 F.2d at 84 (citation omitted). 

As we have stated before in other contexts, the clearly erroneous 

standard is fairly stringent: "It is the responsibility of an 

 

 

6 Section 328(c) provides: 

 [T]he court may deny allowance of compensation for 

services and reimbursement of expenses of a 

professional person employed under section 327 or 1103 

of this title if, at any time during such professional 

person's employment under section 327 or 1103 of this 

title, such professional person is not a disinterested 

person, or represents or holds an interest adverse to 

the interest of the estate with respect to the matter 

on which such professional person is employed. 
appellate court to accept the ultimate factual determination of 

the fact-finder unless that determination either is completely 

devoid of minimum evidentiary support displaying some hue of 

credibility or bears no rational relationship to the supportive 

evidentiary data." Hoots v. Pennsylvania, 703 F.2d 722, 725 (3d 

Cir. 1983) (citation omitted). Furthermore, in reviewing the 

bankruptcy court's factual findings we are to give "due regard" 

to the opportunity of that court to judge first-hand the 

credibility of witnesses. Bankruptcy Rule 8013. Our review of 

the bankruptcy court's legal determinations is plenary. Brown, 

851 F.2d at 84. 

 In our review of the imposition of sanctions, the primary 

question before us is whether the sanctioning court abused its 

discretion. See, e.g., Cooter & Gell v. Hartmarx Corp., 496 U.S. 

384, 405 (1990) ("[A]n appellate court should apply an abuse-ofdiscretion standard in reviewing all aspects of a district 

court's Rule 11 determination."); Chambers v. Nasco, Inc., 501 

U.S. 32, 55 (1991) ("We review a court's imposition of sanctions 

under its inherent power for abuse of discretion."). We do not 

seek to determine whether we would have applied the sanction 

ourselves in the first instance. See Eavenson, Auchmuty & 

Greenwald v. Holtzman, 775 F.2d 535, 540 (3d Cir. 1985) 

 IV. DISCUSSION

 As discussed above, the bankruptcy court acted pursuant to 

Rule 11 of the Federal Rules of Civil Procedure and Bankruptcy 

Rule 9011 when it sanctioned FE&B by denying FE&B's fees 

application. All parties are in agreement, however, that 
sanctions could not properly be imposed against law firms under 

the Supreme Court's interpretation of the version of Rule 11 then 

in effect. See Pavelic & LeFlore v. Marvel Entertainment Group, 

493 U.S. 120 (1989) (holding that Rule 11 sanctions may only be 

imposed upon the attorney who actually signs the documents in 

question). The district court affirmed the bankruptcy court's 

denial of FE&B's fees application despite that court's 

misapplication of Rule 11 by finding three alternative grounds 

for upholding the sanction. The district court did so after 

noting the Supreme Court's long-standing holding that "'[i]n the 

review of judicial proceedings the rule is settled that if the 

decision below is correct, it must be affirmed, although the 

lower court relied upon a wrong ground or gave a wrong reason.'" 

Brown v. Allen, 344 U.S. 443, 459 (1953) (quoting Helvering v. 

Gowran, 302 U.S. 238, 245 (1937)) (other citation omitted). Of 

the three grounds provided by the district court, we find the 

characterization of this sanction as an exercise of the 

bankruptcy court's inherent power to be the most appropriate 

justification under these circumstances and it is to this ground 

that we first turn. 

 A. Inherent Power to Sanction

 In Chambers v. Nasco, Inc., 501 U.S. 32 (1991), the Supreme 

Court addressed the nature and scope of the federal courts' 

inherent power to control the conduct of those who appear before 

them. The Court began by surveying its long history of case law 

in this area: "It has long been understood that '[c]ertain 

implied powers must necessarily result to our Courts of justice 
from the nature of their institution,' powers 'which cannot be 

dispensed with in a Court, because they are necessary to the 

exercise of all others.'" Id. at 43 (quoting United States v. 

Hudson, 7 Cranch 32, 34 (1812)) (other citation omitted). Among 

the implied and "'incidental'" powers of a federal court is the 

power "to discipline attorneys who appear before it." Id. 

(quoting Ex parte Burr, 9 Wheat. 529, 531 (1824)). Included 

among the types of sanctionable conduct discussed by Chambers are 

those cases where 

 a party has "'acted in bad faith, vexatiously, 

wantonly, or for oppressive reasons.'" . . . The 

imposition of sanctions in this instance transcends a 

court's equitable power concerning relations between 

the parties and reaches a court's inherent power to 

police itself, thus serving the dual purpose of 

"vindicat[ing] judicial authority without resort to the 

more drastic sanctions available for contempt of court 

and mak[ing] the prevailing party whole for expenses 

caused by his opponent's obstinacy." 

Id. at 45-46 (internal citations and quotations omitted). See 

also Gillette Foods Inc. v. Bayernwald-Fruchteverwertung, 977 

F.2d 809, 813 (3d Cir. 1992) (quoting Chambers). "Because of 

their very potency," however, the federal courts must be careful 

to exercise their inherent powers "with restraint and 

discretion." Chambers, 501 U.S. at 44. "A primary aspect of 

that discretion is the ability to fashion an appropriate sanction 

for conduct which abuses the judicial process." Id. at 44-45. 

In this case, the bankruptcy court determined that denying FE&B's 

entire fees application constituted an appropriate sanction. 

 We first note here that the advent of Rule 11 and the other 

statutory sanctions did not eviscerate the courts' inherent power 
to sanction: "[W]hereas each of the other mechanisms reaches 

only certain individuals or conduct, the inherent power extends 

to a full range of litigation abuses. At the very least, the 

inherent power must continue to exist to fill in the 

interstices." Id. at 46. Moreover, we have previously rejected 

the proposition "that once a claim is held not to violate Rule 

11, the court is prevented from imposing sanctions under its 

inherent power." Gillette Foods, 977 F.2d at 813. 

 Against this backdrop, FE&B challenges the bankruptcy 

court's exercise of its inherent sanction power on two main 

grounds. First, FE&B argues that this result deprives FE&B of 

due process because the bankruptcy court indicated that it was 

exclusively acting pursuant to Rule 11 and Bankruptcy Rule 9011. 

Second, FE&B argues on the merits that the record is insufficient 

to support the finding that it acted in bad faith during the 

course of its representation of the Debtor. 

 1. Due Process 

 The key to FE&B's due process claim is the distinction 

between Rule 11 sanctions and inherent power sanctions--if these 

sanctions were identical in all respects, particularized notice 

as to one sanction would arguably suffice to fully inform FE&B as 

to the pendency of the other sanction. Rule 11 sanctions and 

inherent power sanctions do, of course, differ markedly in at 

least one aspect pertinent to this case: Invocation of a federal 

court's inherent power to sanction requires a finding of bad 

faith. Chambers, 501 U.S. at 49; Landon v. Hunt, 938 F.2d 450, 

454 (3d Cir. 1991). The imposition of Rule 11 sanctions, on the 
other hand, requires only a showing of objectively unreasonable 

conduct. E.g., Lony v. E.I. Du Pont de Nemours & Co., 935 F.2d 

604, 616 (3d Cir. 1991). 

 We have previously held that "[p]rior to sanctioning an 

attorney, a court must provide the party to be sanctioned with 

notice of and some opportunity to respond to the charges" in 

order to satisfy the requirements of due process. Jones v. 

Pittsburgh Nat'l Corp., 899 F.2d 1350, 1357 (3d Cir. 1990) 

(citations omitted). Moreover, we have stated that "we think 

particularized notice is required to comport with due process." 

Id. (citation omitted). FE&B has raised a fairly significant 

argument here as the bankruptcy court never indicated that it was 

acting under its inherent sanction power in this case. Indeed, 

neither the motion for sanctions nor the bankruptcy court ever 

mentioned any ground for sanctions other than Rule 11 and 

Bankruptcy Rule 9011. As discussed above, it was the district 

court that first justified the bankruptcy court's conduct on the 

ground of the inherent power to sanction. Nonetheless, we agree 

with the district court's reasoning and we likewise find that 

justifying the bankruptcy court's conduct on that ground does not 

violate FE&B's right to due process on the record of this case. 

 We do not intend to disturb the line of case law cited to by 

FE&B in its brief. See Simmerman v. Corino, 27 F.3d 58, 64 (3d 

Cir. 1994); Landon, 938 F.2d at 454; Jones, 899 F.2d at 1357-58; 

Gagliardi v. McWilliams, 834 F.2d 81, 83 (3d Cir. 1987); 

Eavenson, Auchmuty & Greenwald, 775 F.2d at 540-41; Eash v. 

Riggins Trucking Inc., 757 F.2d 557, 570-71 (3d Cir. 1985). 
Rather, our holding is a narrow one, compelled by our finding 

that FE&B was provided with sufficient, advance notice of exactly 

which conduct was alleged to be sanctionable and, furthermore, 

that FE&B was aware that it stood accused of having acted in bad 

faith. 

 (a) Particularized Notice

 In Jones we stated that the reason behind the particularized 

notice requirement was to put "a party . . . on notice as to the 

particular factors that he must address if he is to avoid 

sanctions." Jones, 899 F.2d at 1357. Generally speaking, 

particularized notice will usually require notice of the precise 

sanctioning tool that the court intends to employ. In Jones, as 

was the case here, the sanctioned attorney was initially informed 

that only Rule 11 sanctions were being considered. Id. Only 

when the sanctioned attorney received the district court's order 

was he informed that sanctions were also being imposed pursuant 

to 28 U.S.C. § 1927,7 which has been interpreted to require a 

finding of bad faith conduct. Id. On appeal, we vacated the 

imposition of sanctions under § 1927 because the sanctioned 

 

 

7 § 1927. Counsel's liability for excessive costs 

 Any attorney or other person admitted to conduct 

cases in any court of the United States or any 

Territory thereof who so multiplies the proceedings in 

any case unreasonably and vexatiously may be required 

by the court to satisfy personally the excess costs, 

expenses, and attorneys' fees reasonably incurred 

because of such conduct. 
attorney had not been provided with sufficient notice that his 

subjective bad faith was in question.8

 The situation confronting the sanctioned attorney in Jones

is to be contrasted with the situation facing FE&B: First, the 

sanction motion filed by Mr. Fustine, the Knox firm, and the 

Committee explicitly charges FE&B with bad faith in the filing of 

the complaint on behalf of the debtor. Specifically, the 

 

 

8 The motion for sanctions filed by the sanctioned 

attorney's opponents pursuant to Rule 11 was hinged primarily 

upon procedural noncompliance: "[The motion] alleged that 

plaintiff had failed to file a pre-trial statement, to submit a 

RICO case statement, to answer interrogatories, to produce 

documents requested and to conduct any discovery and that 

plaintiff had had no factual basis for the RICO count." Id. at 

1353. This request for sanctions was reiterated on at least two 

occasions, but again these requests were insufficient to put the 

attorney on notice of the fact that he stood accused of having 

acted in subjective bad faith: The first reiteration "recited 

that it sought dismissal and fees based upon plaintiff's 'conduct 

of [the] litigation in general,' including the failure to answer 

interrogatories, failure to file a RICO case statement or pretrial statement and failure to produce requested documents." Id. 

at 1354. 

 The sanctioned attorney's answer to his opponent's motion 

for counsel fees--which constituted his sole opportunity to 

respond to the question of sanctions--was insufficient to 

demonstrate that he was on notice that he stood accused of more 

than objectively unreasonable conduct. His response merely 

repeated the requirements of Rule 11: 

 In response to the charge of having violated Rule 11, 

appellant asserted that he "believed throughout a large 

portion of the instant litigation . . . that the 

Complaint was warranted by existing law; that, 

alternatively, it was warranted by good faith arguments 

for extension, modification or reversal of existing 

laws; and that it was not interposed for delay or 

needless increase in cost of litigation." 

Id. 
sanction motion charges that FE&B was actually aware of, or had 

at least remained deliberately indifferent to, the factual and 

legal baselessness of the complaint. 

 Second, and much more importantly, the bankruptcy court also 

made it clear that it suspected FE&B of having acted in bad faith 

both in its representation of the debtor's interests and in the 

filing of the complaint. At the conclusion of the August 3, 1993 

hearing on the Debtor's complaint, after Mr. Fellheimer had 

sought to withdraw the complaint, the bankruptcy court first 

stated that it believed that FE&B was representing the interests 

of Mr. Burke over the interests of the Debtor: "[Y]ou're on a 

knife's edge, Mr. Fellheimer. You're representing Mr. Burke . . 

. . And that's adverse to the interests of the [Debtor]. . . . 

[T]o the extent that you represent [Mr. Burke] to the detriment 

of the [Debtor] and the creditors, you're violating your 

fiduciary duty to the [Debtor]." The bankruptcy court then 

stated its belief that FE&B had filed the complaint in bad faith: 

"[F]or Mr. Burke to get upset because the creditors committee 

thinks that he's incompetent, is unfortunate. You . . . have to 

tone him down. You can't file this kind of lawsuit that you 

filed here just because Mr. Burke is upset. That's ridiculous. . 

. . [T]his whole litigation is a lot of nonsense." The 

bankruptcy court even indicated the nature of the sanction that 

it was considering: "[Y]ou're representing [Mr. Burke] 

individually and you're risking whatever fee you might get out of 

this." 
 If the bankruptcy court had then and there conducted a 

hearing on the sanction motion, FE&B would arguably possess a 

stronger due process argument--this is the key factor which 

distinguishes this case from Jones. In Jones, the record was 

insufficient to demonstrate that the sanctioned attorney had 

advance notice that the sanctioning court was contemplating the 

imposition of sanctions which hinged upon a finding of bad faith. 

In this case, FE&B had over eleven weeks once it had learned of 

the bankruptcy court's leanings on this matter--until October 20, 

1993--to prepare for the hearing on the sanctions motion. In the 

words of our Jones opinion, we can say "with reasonable assurance 

on this record" that FE&B was "on notice as to the particular 

factors that [it had to] address if [it was] to avoid sanctions." 

Jones, 899 F.2d at 1357. Furthermore, it appears evident from 

Mr. Fellheimer's soliloquy at the October 20, 1993 hearing that 

he was fully aware of what he and FE&B were up against: 

 I have been searching in vain for a way to stop it 

or to get away from it. I want to tell the Court. I 

don't want this Court to think that I'm standing here, 

that I believe what happened was right. I believe it 

was wrong. If I had it to do over again, I would do it 

differently. And I can promise you, whatever you 

decide to do, it won't happen again. I would approach 

it differently and I would make sure my firm approaches 

it differently. I'm very unhappy with the way it came 

out. I will tell you that there were a lot better ways 

to resolve that problem than the one we selected. And 

I want to acknowledge that to you and admit that to 

Your Honor and admit to Your Honor that the result was 

bad. For that I apologize. 

 . . . . 

 . . . I would like to step aside. Whatever I'm to 

pay, I'll pay. Whatever fee I'm paid, I'll take, and 

step aside in the interest of all. I don't think it's 
good for this to just go on and on. It doesn't 

accomplish anything for this debtor. . . . 

 . . . . 

 And I want to publicly say to Guy Fustine in the 

courtroom, I think we were wrong in filing the 

Complaint. And maybe I'm handing it to Mr. Lanzillo. 

And I will, if that's what it is. I apologize to you 

publicly. I think we got carried away with the problem 

and we went too far, and for that I apologize. And 

whatever the Court decides to do, I will accept. 

 Therefore, we hold that the record adequately demonstrates 

that FE&B was sufficiently on notice that it faced allegations of 

having acted in subjective bad faith. 

 (b) Opportunity to be Heard

 The requirements of due process also require a meaningful 

opportunity to be heard. See, e.g., Simmerman, 27 F.3d at 64. 

This requirement is especially important in cases such as this 

where a law firm's reputation is at stake: 

 Sanctions are not to be assessed without full and 

fair consideration by the court. They often entail a 

fine which may have more than a token effect upon an 

attorney's resources. More importantly, they act as a 

symbolic statement about the quality and integrity of 

an attorney's work--a statement which may have tangible 

effect upon the attorney's career. 

Id. As discussed above, once the bankruptcy court had made its 

position regarding FE&B's conduct clear, FE&B had over eleven 

weeks before the hearing to further brief the issue. FE&B was 

then afforded ample opportunity to be heard at the hearing 

itself--the transcript of the October 20, 1993 hearing stretches 

on for 321 pages. Based on this record, we cannot find that FE&B 

was denied a meaningful opportunity to be heard. 
 (c) Conclusion

 Ideally, there would have been some explicit indication here 

that the bankruptcy court was acting pursuant to its inherent 

sanction power. We refuse, however, to go along with FE&B's 

argument and overturn the bankruptcy court's decision merely 

because that court applied the wrong label to the righteous use 

of its inherent sanction power. See Brown v. Allen, 344 U.S. 

443, 459 (1953) (citations omitted). We do not expect, however, 

that the result reached here will be often justified in future 

cases where the sanctioned party was not explicitly informed 

beforehand of the precise ground for the imposition of sanctions. 

To summarize, our finding here was primarily driven by (1) the 

bankruptcy court's clear warning to FE&B eleven weeks prior to 

the hearing on the sanctions; and (2) the evidence pertaining to 

FE&B's actual awareness of the nature of the charges pending 

against it, such as Mr. Fellheimer's statements at the October 

20, 1993 hearing. 

 2. Sanctions Under the Court's Inherent Power 

 FE&B also argues on the merits that the record is 

insufficient to support a finding of bad faith. As discussed 

above, a finding of bad faith is required to support a court's 

employment of its inherent sanction power. Chambers, 501 U.S. at 

49 (citations omitted). 

 We first note that, contrary to FE&B's assertions, the 

bankruptcy court did find that FE&B had acted in bad faith in the 

course of its representation of the debtor: 
 The conclusion is inescapable that the purpose of the 

Complaint was to separate the Committee from its chosen 

counsel due to the fact that counsel for the Committee 

was advocating the Committee's position that it would 

be appropriate to remove Burke from upper-level 

management. 

 . . . Fellheimer . . . abandoned his fiduciary 

obligations as counsel to the Debtor corporation and . 

. . undert[ook] representation of Burke, individually. 

As Burke's attorney in such circumstances, he was 

hostile to the Debtor corporation and its creditors. 

 . . . . 

 In short, Fellheimer filed a lawsuit against the 

attorneys for the Creditors' Committee seeking $4.25 

million in damages for the sole purpose of protecting 

his real client, Burke, from the legitimate actions of 

the Creditors' Committee in opposing Burke's management 

of the Debtor's business. . . . Viewed in this light, 

the actions of Fellheimer as an officer of the Court in 

violating his fiduciary duties and in bringing such an 

action are absolutely not to be condoned. We view it 

as a disgrace to the legal community which we otherwise 

hold in high regard. 

 We further conclude that Fellheimer never had any 

intent to proceed with a trial on the merits of this 

complaint. He knew when he filed the Complaint that 

the allegations were unsupported. His scheme was to 

file the Complaint, demand the $4.25 million from the 

Creditors' Committee counsel, and then delay a hearing 

on the merits while he used the lawsuit as a wedge to 

intimidate the Creditors' Committee and its counsel in 

his negotiations with it for the benefit of Burke. 

Charter Techs., 160 B.R. at 931. We may not disturb these 

findings, nor may we disturb the bankruptcy court's preliminary 

findings which led up to them, unless we first find that they are 

clearly erroneous. Brown, 851 F.2d at 84. Since FE&B offers 

nothing but tepid contradictions in rebuttal, we must affirm the 

bankruptcy court's findings, which are sufficient to support its 
conclusion that FE&B did act with bad faith in the proceedings 

below. 

 Second, we take note of the Supreme Court's cautionary 

language in Chambers: 

 [W]hen there is bad-faith conduct in the course of 

litigation that could be adequately sanctioned under 

the Rules, the court ordinarily should rely on the 

Rules rather than the inherent power. But if in the 

informed discretion of the court, neither the statute 

nor the Rules are up to the task, the court may safely 

rely on its inherent power. 

Chambers, 501 U.S. at 50. In this case, only Mr. Eichen of FE&B 

could be properly sanctioned under the versions of Rule 11 and 

Bankruptcy Rule 9011 then in effect as only Mr. Eichen actually 

signed the complaint. It is evident, however, that the 

bankruptcy court imposed firm-wide sanctions because it felt that 

other attorneys at FE&B, particularly Mr. Fellheimer, were 

primarily responsible for the sanctionable conduct.9 Indeed, Mr. 

Fellheimer himself testified as to his primary role in the filing 

of the complaint at the October 20, 1993 hearing: "Your Honor 

told me what he thought of [the complaint] at the time when we 

withdrew it. And I bear full responsibility for it, Your Honor." 

We cannot conclude, after reviewing this record, that the 

bankruptcy court abused its discretion by employing its inherent 

power to sanction the entire firm of FE&B. 

 B. Denial of Fees Under 11 U.S.C. § 328(c)

 

 

9 We have previously recognized that a court may employ its 

inherent sanction power to reach attorneys who did not personally 

sign the document in question. See Gillette Foods, 977 F.2d at 

813. 
 We also find that the denial of FE&B's fees application may 

be upheld as a proper exercise of the bankruptcy court's 

authority under 11 U.S.C. § 328(c). Section 328(c) authorizes 

the bankruptcy court, in its discretion, to deny a professional 

person's request for fees if that person "represents or holds an 

interest adverse to the interest of the estate with respect to 

the matter on which such professional person is employed." While 

it is true that the bankruptcy court did not indicate that it was 

acting pursuant to § 328(c), the bankruptcy court did explicitly 

find that FE&B had represented the interests of Mr. Burke, which 

were adverse to the Debtor's interests: "Fellheimer . . . 

abandoned his fiduciary obligations as counsel to the Debtor 

corporation and . . . undert[ook] representation of Burke, 

individually. As Burke's attorney in such circumstances, he was 

hostile to the Debtor corporation and its creditors." Charter 

Techs., 160 B.R. at 931. Having already concluded that the 

bankruptcy court's underlying factual findings in this regard are 

not clearly erroneous, we find that the denial of FE&B's fees 

application may be upheld as an exercise of the bankruptcy 

court's authority under § 328(c). 

 In light of our finding that the denial of FE&B's fees 

application may be upheld as a proper exercise of the bankruptcy 

court's inherent sanction power, and that the sanctions may 

alternatively be upheld under 11 U.S.C. § 328(c), we need not 

address the third ground provided by the district court for 

upholding the sanctions--namely, that FE&B waived its right to 

contest the imposition of sanctions. In this regard, we note 
only that we would require a fairly persuasive showing that FE&B 

had waived the right to contest a matter as important as Rule 11 

sanctions, given the effect that such sanctions may have upon a 

law firm's primary stock in trade--its reputation. 

 C. Amount of the Sanction

 As discussed above, the bankruptcy court sanctioned FE&B by 

denying FE&B's entire fees application, except for $15,000 for 

reimbursement of expenses. In its initial brief before this 

court, FE&B claims that the total amount of compensation due to 

it amounts to approximately $260,000. This figure represents 

$167,246.50 allegedly accrued from January 20, 1993, through 

August 21, 1993,10 plus $92,169 which allegedly accrued from 

August 22, 1993, through December 15, 1993. As the district 

court noted, however, there is nothing in the record to indicate 

that FE&B ever submitted a fees application to the bankruptcy 

court for this latter time period. Therefore, FE&B's claim for 

fees for this latter time period is not properly before this 

court. Thus, our review of the bankruptcy court's denial of 

FE&B's fees application reaches only the amount attributable to 

the period before August 22, 1993: $167,246.50. Needless to 

say, absent the sanction, FE&B would not necessarily have 

received even this reduced amount: The Committee, for example, 

 

 

10 FE&B had attempted to appease the bankruptcy court by 

"sanctioning itself" for the filing of the complaint. FE&B had 

accordingly subtracted $33,029--the amount attributable to the 

filing of the complaint--from its original request of $200,275.50 

for this time period. 
had hotly contested FE&B's hourly rates as they exceeded those 

normally charged in that area. 

 FE&B contests the bankruptcy court's decision to deny its 

entire fees application on the ground that it did perform at 

least some services of value to the Debtor. Assuming arguendo

that FE&B has performed services of value to the Debtor, we 

nonetheless uphold the sanctions in their entirety. 

 The bankruptcy court justified its decision to deny FE&B's 

entire fees application as follows: "[A]ny fees to be collected 

by [Fellheimer] shall be collected from his real client, Burke. . 

. . Fellheimer's inappropriate conduct affected and continues to 

affect this entire case. Both the Debtor and its counsel have 

exhibited conduct of dishonesty, incompetency and gross 

mismanagement of the affairs of the Debtor." Charter Techs., 160 

B.R. at 932-33. Based on the extensive record of wrongdoing 

documented by the bankruptcy court, which we have already upheld, 

we cannot find this result to be clearly erroneous. Accordingly, 

we must affirm the denial of FE&B's entire fees application. 

 V. CONCLUSION

 For all of the foregoing reasons, the decision of the 

district court upholding the decision of the bankruptcy court is 

affirmed. 
Fellheimer, Eichen & Braverman, P.C. v. Charter Technologies, 

Inc., d/b/a Elgin Electronics; Knox, McLaughlin, Gornall & 

Sennett, P.C.; and Guy C. Fustine, Esquire, No. 94-3461. 

BECKER, Circuit Judge, concurring and dissenting. 

 The majority opinion is quite powerful and thorough, and 

almost entirely convincing. It would have my full joinder were 

the sanction it approves not so very large -- on this record it 

could apparently amount to more than $167,000. I cannot conceive 

that we would approve a sanction which required FE&B to actually 

pay anywhere near that amount under the facts of this case. 

While I acknowledge that we deal here with deprivation of a fee 

rather than an ordinary out-of-pocket payment, that difference is 

not, to me, of great legal significance. Accordingly, while I 

agree with the majority that the bankruptcy court was warranted 

in assessing a sanction against FE&B, and concur in the 

majority’s opinion to that extent, I believe the court abused its 

discretion if in fact the sanction imposed was as high as 

$167,000 (the fees requested by FE&B), given the nature of the 

conduct involved. 

 I do not attempt to put a much different cast than does the 

majority on FE&B's offending conduct (though I think the question 

whether it was conflicted between its apparent representation of 

Mr. Burke and the debtor to be far closer than does the 

majority).11 My position is instead impelled by the fact that I 

 

 

11In my view, FE&B could have reasonably concluded that 

successful reorganization of the debtor hinged on the retention 

of Mr. Burke. Nevertheless, I cannot say that the bankruptcy 

court's finding of a conflict was clearly erroneous. 
find the opinions of the bankruptcy court, the district court, 

and the majority to be either silent or unconvincing on one of 

the most critical aspects of the decision to deny FE&B its fees -

- the contribution vel non of FE&B to the reorganization. The 

record is not sufficiently developed as to this point and I 

suspect that the efforts of FE&B had far more to do with the 

ultimately successful reorganization, albeit sans Mr. Burke, than 

their adversaries admit or the other reviewing judges in this 

case apparently believe. Moreover, the bankruptcy court's 

apparent finding that FE&B demonstrated "incompetency and gross 

mismanagement of the affairs of the debtor," is, in my view, 

unsupported on the record and clearly erroneous. Indeed, the 

majority's affirmance of that finding is wholly conclusory. 

 I agree that the filing of the lawsuit against the Knox firm was 

outrageous.12 I also agree that the bankruptcy court’s finding 

of a conflict by FE&B and Mr. Fellheimer's temporizing about the 

availability of Mr. Burke justify a large sanction. But, in view 

of the totality of circumstances, I cannot agree that the 

bankruptcy court could be justified in imposing a sanction 

anywhere near as high as $167,000, even given our deferential 

review. Accordingly, I would vacate the challenged order, remand 

the case to the bankruptcy court for a finding as to the value of 

FE&B’s fee absent sanction, and then permit the court to take 

 

 

12I say this even though it is not as clear to me as it is 

to the majority that FE&B lacked a colorable basis, at least at 

one point, to allege a conflict in the Knox firm's 

representation. 
another look at the matter and appropriately reduce that award, 

pursuant to its inherent authority,13 as a sanction for FE&B’s 

conduct. To this extent, I respectfully dissent. 

 

 

13The majority also rests its decision on the bankruptcy 

court’s power to deny fees under 11 U.S.C.A. § 328(c) (1993), 

which provides that "the court may deny allowance of compensation 

for services . . . if, at any time . . . such professional person 

is not a disinterested person, or represents or holds an interest 

adverse to the interest of the estate with respect to the matter 

on which such professional person is employed." While this 

section might have justified a complete denial of FE&B’s fees in 

this case, I cannot join in affirming this sanction as a proper 

exercise of the bankruptcy court’s discretion under § 328(c), 

since, as the majority recognizes the bankruptcy court did not 

rely on § 328(c) in imposing this sanction on FE&B.