Source: http://nj.findacase.com/research/wfrmDocViewer.aspx/xq/fac.20080328_0000573.DNJ.htm/qx
Timestamp: 2016-10-26 23:12:10
Document Index: 293394942

Matched Legal Cases: ['§ 324', '§ 101', '§ 324', '§ 101', '§ 324', '§ 327', '§ 327', '§ 327']

| Fischetti v. Scarpone
VICTOR FISCHETTI, APPELLANT,v.JAMES A. SCARPONE, ET AL., APPELLEES.IN RE: THOMAS A DIONISIO, DEBTOR,
The Trustee contends the bankruptcy court did not abuse its discretion in finding the Trustee and Trustee's counsel, RFBC, did not violate 11 U.S.C. § 324, 327 or Bankruptcy Rule 2014(a), because "there is no actual or potential conflict of interest between the trustee, Trustee's counsel and the Bankruptcy Estate," and therefore, there is no basis for removal.*fn2 In response to Mr. Fischetti's allegations the Trustee asserts that no conflict arises out of the Hilton Stein matter. In his role as Secretary for District V-A of the Office of Attorney Ethics, the Trustee did not review the Hilton Stein matter because the complaints were consolidated before the Central Ethics Unit of the Administrative Office of the Courts. The Trustee further contends the Bankruptcy court did not err in finding that any representation of RFBC by the Trustee or his firm in an unrelated Chapter 11 case or the adversary proceeding "involving a fee dispute or charging lien dispute does not raise any potential or conflict of interest." (Tr. 34:1-14).
A trustee in a bankruptcy case must be a "disinterested person," as defined in the
Bankruptcy Code. 11 U.S.C. § 101(14) defines a disinterested person as one who:
Once appointed, a trustee may only be removed for cause. 11 U.S.C. § 324. "Cause for removal of a trustee from a bankruptcy proceeding has been found only where there is evidence of fraud, an injury to the debtor's estate, or a breach of fiduciary duty by the trustee." In re Federowicz, Docket Nos. 88-3536, 83-01786, 1989 WL 200942, at *4 (D.N.J. 1989 August 07, 1989) (citing In re Freeport Italian Bakery, Inc., 340 F.2d 50 (2d Cir. 1965); In re Peckenpaugh, 50 B.R. 865 (Bankr. N.D. Ohio 1985); In re Rea Holding Corp., 2 B.R. 733 (Bankr. S.D.N.Y. 1980)). However, a trustee who is found not to be a "disinterested person," as defined in 11 U.S.C. § 101(14) should generally be removed for "cause" as required by 11 U.S.C. § 324. See In re BH & P , Inc., 949 F.2d 1300, 1308 (3d Cir. 1991).
The Bankruptcy Code also provides that the trustee may employ attorneys "that do not hold or represent an interest adverse to the estate, and that are disinterested persons, to represent or assist the trustee in carrying out the trustee's duties under this title." 11 U.S.C. § 327 (a); Fed. R. Bankr. P. 2014. Trustees may retain their own firms as attorneys, so long as such representation "is in the best interest of the estate." 11 U.S.C. § 327(d).
The trustees and their counsel have ""a duty to disclose actual or potential conflicts of interest which may bear upon their qualification. . . ." In re BH & P, 949 F.2d at 1317 (quoting In re Roberts, 75 B.R. 402, 410 (D. Utah 1987)). Indeed, the Bankruptcy Rules require that in the application for approval of employment of counsel, the trustee must provide: to the best of the [trustee's] knowledge, all of the person's connections with the debtor, creditors, any other party in interest, their respective attorneys and accountants, the United States trustee, or any person employed in the office of the United States trustee. The application shall be accompanied by a verified statement of the person to be employed setting forth the person's connections with the debtor, creditors, any other party in interest, their respective attorneys and accountants, the United States trustee, or any person employed in the office of the United States trustee.
Fed. R. Bankr. P. 2014 (a). Although this list appears to require exhaustive disclosures, the Bankruptcy Rule does not require disclosure of every conceivable "connection" the trustee or trustee's counsel may have to every other attorney related to the matter. "The decision by the drafters of the Bankruptcy Rules to use the term 'connections' in Rule 2014(a) is indeed 'an unfortunate one.'" In re Fibermark, Inc., No. 04-10463, 2006 WL 723495, at *9 (Bankr. D. Vt. March 11, 2006) (quoting 9 L. KING, COLLIER ON BANKRUPTCY, ¶ 2014.05 (15th ed. 2005)).
In bankruptcy practice there are often numerous "connections" among professionals due to the fact that professionals will interact in many cases. No court has yet suggested that the requirement of disclosure includes listing all such relationships. The "connections" cited by the courts run to fee sharing arrangements and the like which might affect the court's decision to approve the employment.
COLLIER ON BANKRUPTCY, ¶ 2014.05.
The decision of whether disqualification of trustee's counsel is required is "committed to the sound discretion of the bankruptcy court." In re BH & P, 949 F.2d at 1313. In determining whether to disqualify the bankruptcy trustee's counsel, courts are to apply the following standards: (1) an attorney with an actual conflict of interest shall be disqualified; (2) a court has discretion to disqualify an attorney who has a potential conflict of interest; and (3) a "court may not disqualify an attorney on the appearance of conflict alone." In re Marvel Entertainment Group, Inc., 140 F.3d 463, 476 (3d Cir. 1998).
Here, the Bankruptcy court held that the "representation by the Trustee or the Trustee's law firm of [RFBC] in an unrelated bankruptcy Chapter 11 case, Hilton Stein, . . . or the adversary proceeding . . . filed in the Hilton Stein case on a completely unrelated mater involving a fee dispute or charging lien dispute does not raise any potential or actual conflict of interest." (Tr. at 34:1-8).
First, to the extent Mr. Fischetti sought to raise such an argument, there is no conflict created by the Trustees electing his current or previous firm to serve as counsel to the Trustee. 11 U.S.C. § 327(d). Next, the bankruptcy court is correct in its finding that the Hilton Stein case and this matter are not related; therefore, the connections between Trustee, RFBC, Cole Schotz, Hellring Lindeman Goldstein & Siegal, or Wolff & Sampson arising from that matter do not give rise to a potential conflict of interest. Therefore, the bankruptcy court did not abuse its discretion in denying Mr. Fischetti's motion to remove the Trustee and RFBC for relationships stemming from the Hilton Stein matter. See In re Marvel Entertainment Group, Inc., 140 F.3d at 476.
Likewise, Mr. Fischetti has failed to demonstrate how the connections between RFBC and Cole Schotz in Madison Financial v. Berman, et al., Docket No. L-3364-01, another completely unrelated case, would give rise to a potential conflict of interest. Mr. Fischetti's statements regarding Cole Schotz seem to suggest that he is arguing the Trustee and RFBC abused their fiduciary duty by not preventing the sale of the Hill Road Property, the purchaser of which was represented by Cole Schotz, the firm that also represents the Debtor. This connection is tenuous at best. Any other connections between Trustee, RFBC, Cole Schotz, and Wolff & Samson are even more nebulous. As stated above, "In bankruptcy practice there are often numerous 'connections' among professionals due to the fact that professionals will interact in many cases. No court has yet suggested that the requirement of disclosure includes listing all such relationships." COLLIER ON BANKRUPTCY, ¶ 2014.05. Because there is no potential conflict of interest between the Trustee, RFBC, Cole Schotz, and Wolff & Samson, the bankruptcy court did not abuse its discretion in denying Mr. Fischetti's motion to remove the Trustee and RFBC. See In re Marvel Entertainment Group, Inc., 140 F.3d at 476.
Finally, although not clearly challenged in this appeal, to the extent Mr. Fischetti seeks review of the Bankruptcy court's finding that the Trustee's decision not to file a notice of lis pendens on the Marshall Hill property, the Court finds that Mr. Fischetti does not have standing to raise this concern. Furthermore, the bankruptcy court did not err in finding that the "Trustee's reliance on Orders of courts of competent jurisdiction to protect the estate's interest in the property" was a reasonable exercise of his business judgment and not arbitrary or capricious, particularly in light of the Trustee's efforts to pursue claims against the parties involved in the sale to mitigate any loss to the estate. See In re Miller, 302 B.R. 705, 709 (10th Cir. BAP 2003). Accordingly, the Court cannot find the court abused its discretion and therefore, the Court cannot reverse the decision.
For the reasons set forth above, the Court denies Mr. Fischetti's appeal of the bankruptcy court orders dated October 28, 2005, December 20, 2005, and June 2, 2006.