Court Opinion

ID: 45257
Source: CourtListenerOpinion
Date Created: 2010-04-25 22:34:43+00
Date Added: 2024-06-11T09:39:02.546835
License: Public Domain

[DO NOT PUBLISH]

            IN THE UNITED STATES COURT OF APPEALS

                   FOR THE ELEVENTH CIRCUIT                      FILED
                     ________________________          U.S. COURT OF APPEALS
                                                         ELEVENTH CIRCUIT
                                                             October 4, 2006
                            No. 05-15212                  THOMAS K. KAHN
                      ________________________                CLERK

                          D. C. Docket Nos.
                      05-00248-CV-ORL-19-DAB
                          03-04926-BKC-JA

In re: BRUCE LEE JENNINGS,

Debtor.
________________________________________________

QUARLES AND BRADY LLP,

                                                          Plaintiff-Appellant,

                                 versus

BRANDON JAMES MAXFIELD,
UNITED STATES TRUSTEE,
Felicia S. Turner,

                                                       Defendants-Appellees.

                      _______________________

               Appeal from the United States District Court
                   for the Middle District of Florida
                    _________________________
                           (October 4, 2006)
Before MARCUS, WILSON and COX, Circuit Judges.

PER CURIAM:

       Appellant law firm Quarles and Brady, LLP (“Q&B”) appeals the district

court’s affirmance of the bankruptcy court’s determination that (1) Q&B violated

Bankruptcy Rule 2014's disclosure requirements by failing to include the numerous

connections between its many clients in its application for employment and an

accompanying affidavit, and (2) Q&B was encumbered by several “potential”

conflicts of interest and at least one “actual” conflict. Based on these findings, the

bankruptcy court disqualified Q&B from representing the eleven debtors in the

underlying consolidated bankruptcy proceeding, denied Q&B’s request for fees,

and required Q&B to disgorge any pre-petition retainer.

       Specifically, Q&B argues that even though it failed to include all of its

connections within its Rule 2014 application and affidavit, the connections were

actually disclosed to the bankruptcy court in other filings and pleadings. What’s

more, Q&B contends that it had only “potential” conflicts of interest, and that these

conflicts did not result in any harm to its clients. After thorough review, we

affirm.1

       1
          Whether or not a disqualification order standing alone is appealable, we are satisfied
that this case is appealable because it also involved a final order directing Q&B to disgorge any
pre-petition retainer fees and finally denied Q&B’s request for additional fees. See In re Charter
Co., 778 F.2d 617, 621 (11th Cir. 1985) (“In bankruptcy proceedings, it is generally the

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       We review the district court’s factual findings for clear error and its legal

conclusions de novo. Electro-Wire Prods., Inc. v. Sirote & Permutt, P.C. (In re

Prince), 40 F.3d 356, 359 (11th Cir. 1994). The district court’s decision not to

award attorneys fees will be reversed only for an abuse of discretion. Id. “An abuse

of discretion occurs if the judge fails to apply the proper legal standard or to follow

proper procedures in making the determination, or bases an award upon findings of

fact that are clearly erroneous.” Id. (quoting Hatcher v. Miller (In re Red Carpet

Corp. of Panama City Beach), 902 F.2d 883, 890 (11th Cir. 1990)). Similarly, “a

bankruptcy judge's discretion in awarding compensation for services performed

during bankruptcy proceedings deserves great deference,” id., and will be upheld

absent an abuse of discretion, Stroock & Stroock & Lavan v. Hillsborough

Holdings Corp. (In re Hillsborough Holdings Corp.), 127 F.3d 1398, 1401 (11th

Cir. 1997).

       The essential facts and procedural history are clear. Eleven related debtors

filed for reorganization under Chapter 11 of the Bankruptcy Code in Jacksonville,

particular adversary proceeding or controversy that must have been finally resolved, rather than
the entire bankruptcy litigation. . . . [Thus, to be appealable,] the separate dispute being assessed
must have been finally resolved and leave nothing more for the bankruptcy court to do.”); Jove
Eng’g, Inc. v. IRS, 92 F.3d 1539, 1548 (11th Cir. 1996) (“Viewed realistically, a bankruptcy
case is simply an aggregation of controversies, many of which would constitute individual
lawsuits had a bankruptcy petition never been filed. . . . [F]inality of bankruptcy orders cannot
be limited to the last order concluding the bankruptcy case as a whole. [A]ny order within a
bankruptcy case which concludes a particular adversary proceeding should be deemed final and
reviewable.”) (quoting In re Martin Bros. Tool Makers, Inc., 796 F.2d 1435, 1437(1986)).

                                                  3
Florida, on May 14, 2003, and the cases were consolidated for administrative

purposes. The debtors submitted a single application to the bankruptcy court to

employ attorneys Q&B, and Q&B submitted an affidavit purporting to reveal all of

its connections to the debtors pursuant to Rule 2014. Rule 2014 plainly states that,

where a debtor submits an application for employment of a law firm, the burden of

disclosing all connections between the law firm seeking employment and any

debtors lies squarely with the client and the law firm in its verified statement.2

Based on the debtors’ application and Q&B’s affidavit, the bankruptcy court

approved Q&B’s employment.

       2
           Rule 2014 of the Federal Rules of Bankruptcy Procedure states, in pertinent part:

                 (a) Application for an order of employment

                 An order approving the employment of attorneys, accountants, appraisers,
                 auctioneers, agents, or other professionals pursuant to § 327, § 1103, or §
                 1114 of the Code shall be made only on application of the trustee [or
                 debtor in possession] . . . . The application shall state the specific facts
                 showing the necessity for the employment, the name of the person to be
                 employed, the reasons for the selection, the professional services to be
                 rendered, any proposed arrangement for compensation, and, to the best of
                 the applicant'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.

                                                   4
      After Q&B filed its initial application seeking interim compensation,

Brandon James Maxfield, a creditor, moved to disqualify Q&B, alleging that Q&B

violated Rule 2014 and had several actual and potential conflicts of interest. After

two extensive hearings on the motion, the bankruptcy court granted Maxfield’s

motion, finding that Q&B violated Rule 2014 by failing to disclose fully the

connections between the firm and its eleven debtor clients and that the firm had at

least one actual and two potential conflicts of interests.

      As for the issue of disclosure, the bankruptcy court squarely rejected Q&B’s

contention that it was required to peruse the entire record to learn the relevant

facts, insisting that the relevant disclosures must appear in the application and

accompanying affidavit filed pursuant to Rule 2014. The district court affirmed,

and we agree. Bankruptcy courts are not obliged to hunt around and ferret through

thousands of pages in search of the basic disclosures required by Rule 2014. E.g.,

Kravit, Gass & Weber, S.C., v. Michel (In re Crivello), 134 F.3d 831, 839 (7th Cir.

1998) (“Bankruptcy courts have neither the resources nor the time to . . . root out

the existence of undisclosed conflicts of interest.”); In re EWC, Inc., 138 B.R. 276,

280 (Bankr. W.D. Okla. 1992) (courts have no obligation to “seek out conflicts of

interest not disclosed” by debtors and professionals); In re Marine Outlet, Inc., 135

B.R. 154, 156 (Bankr. M.D. Fla. 1991) (“There is no duty placed on the United

                                            5
States Trustee or on creditors to search the record . . . .”); In re BH & P, Inc., 119

B.R. 35, 44 (Bankr. D.N.J. 1990) (“It is not . . . the obligation of the bankruptcy

court to search the record for possible conflicts of interest.”).

      Plainly, Rule 2014 requires a law firm to disclose all of its relevant

connections in its verified statement so that a court may readily review the

appointment for conflicts. I.G. Petroleum, L.L.C. v. Fenasci (In re W. Delta Oil

Co.), 432 F.3d 347, 355 (5th Cir. 2005) (“‘[C]ase law has uniformly held that

under Rule 2014(a), (1) full disclosure is a continuing responsibility, and (2) an

attorney is under a duty to promptly notify the court if any potential for conflict

arises.’”); In re Keller Fin. Servs. of Fla., Inc., 243 B.R. 806, 812 (Bankr. M.D.

Fla. 1999) (“The professional must disclose all facts that bear on his

disinterestedness, and cannot usurp the court’s function by unilaterally choosing

which connections impact on his disinterestedness and which do not.” ); In re Gulf

Coast Orthopedic Ctr., 265 B.R. 318, 323 (Bankr. M.D. Fla. 2001) (“Under the

Rule the applicant and the professional must disclose all connections, not merely

those which rise to the level of conflict.”); In re EWC, 138 B.R. at 280 (noting that

debtors and professionals “cannot pick and choose which connections are

irrelevant or trivial”); In re Granite Partners, L.P., 219 B.R. 22, 35 (Bankr.

S.D.N.Y. 1998) (“The existence of an arguable conflict must be disclosed if only to

                                            6
be explained away.”); In re Mich. Gen. Corp, 78 B.R. 479, 482 (Bankr. N.D. Tex.

1987) (“[The predecessor to Rule 2014] does not give the attorney the right to

withhold certain information on the grounds that, in the attorney’s opinion, the

connection is of no consequence or is not adverse.”).

       As for conflicts of interest, the bankruptcy court identified one actual and

two potential conflicts. The trial court determined that the actual conflict arose

where one debtor depleted its assets despite another debtor’s secured claim against

those assets. The court determined that this forced Q&B to advance “two

diametrically opposed goals” and thus “created an actual dispute.” The court also

found potential conflicts when one debtor wiped from its financial statements and

tax return a $500,000 loan given to another debtor without any money changing

hands, and where real estate transactions between two debtors may have produced

an administrative claim in the case. The district court affirmed, explaining that

these conflicts “prejudiced the bankruptcy estates that the law firm represented and

deprived each of unbiased, independent assessments of the available and

outstanding claims.” Again, we agree. See In re Prince, 40 F.3d at 361 (finding a

conflict of interest where counsel “was in the unfortunate position of having to

serve too many masters”); id. at 360 n.1 (“[I]nability to independently evaluate

claims for its client . . . is the actual prejudice to the Debtor . . . .”).

                                               7
      Having made these determinations, the bankruptcy court was well within its

discretion to (1) conclude that “[Q&B]’s initial and continuing violation of the

disclosure rules coupled with its non-disinterestedness warrants its disqualification

in all of these related cases,” (2) deny Q&B all compensation, and (3) order the

firm to disgorge any pre-petition retainer. See In re Prince, 40 F.3d at 361 (holding

that, where a conflict of interests exists, counsel “should be denied compensation.

It is no answer to say that fraud or unfairness were [sic] not shown to have

resulted.” (alteration in original) (quoting Woods v. City Nat’l Bank & Tr. Co.,

312 U.S. 262, 268 (1941))).

      In short, we affirm based on the bankruptcy court’s findings of fact and

conclusions of law, and the thorough opinion of the district court.

      AFFIRMED.

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