Court Opinion

ID: 4573452
Source: CourtListenerOpinion
Date Created: 2020-10-06 19:00:33.764439+00
Date Added: 2024-06-11T13:31:54.540506
License: Public Domain

NOT RECOMMENDED FOR PUBLICATION
                               File Name: 20a0566n.06

                                          No. 20-3300

                          UNITED STATES COURT OF APPEALS
                                                                                       FILED
                               FOR THE SIXTH CIRCUIT                              Oct 06, 2020
                                                                             DEBORAH S. HUNT, Clerk
In re: JEFFREY A. FELIX, et al.,                     )
                                                     )
      Debtors.
                                                     )     ON APPEAL FROM THE UNITED
_____________________________________
                                                     )     STATES DISTRICT COURT FOR
                                                     )     THE NORTHERN DISTRICT OF
ZIPKIN WHITING, CO., LPA,
                                                     )     OHIO
       Appellant,                                    )
                                                     )
       v.
                                                     )
ROBERT DOUGLAS BARR, Chapter 7                       )
Trustee,                                             )
                                                     )
       Appellee.                                     )

BEFORE: GUY, CLAY, and KETHLEDGE, Circuit Judges.

       RALPH B. GUY, JR., Circuit Judge. The bankruptcy court approved the Chapter 7

Trustee’s compromise of the Debtors’ pre-petition lawsuits for a sum of $33,300. The only issue

before us is whether Zipkin Whiting Co., LPA, the Debtors’ pre-petition counsel in those lawsuits,

was a party that had standing to object to the Trustee’s proposed compromise. The bankruptcy

court concluded that Zipkin Whiting was not such a party, and the district court agreed. Having

considered the arguments presented on appeal, we affirm.

                                                I.

       Jeffrey and Stacy Felix filed a Chapter 7 bankruptcy petition in October 2018. At that time,

the Felixes were the plaintiffs in two long-running consolidated Ohio state court actions alleging
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Zipkin Whiting, Co., LPA v. Barr, Chapter 7 Trustee

individual and putative class claims against Ganley Chevrolet, Inc., and Ganley Management

Company for violations of the Ohio Consumer Sales Practices Act, see Ohio Rev. Code § 1345.09.

That litigation—commenced 17 years earlier and the subject of two appeals—was back in the trial

court after the Ohio Supreme Court vacated the order granting class certification and remanded for

further proceedings. See Felix v. Ganley Chevrolet, Inc., 49 N.E.3d 1224, 1234 (Ohio 2015).

There is no dispute that those claims became property of the bankruptcy estate once the Felixes

filed their bankruptcy petition. See 11 U.S.C. § 541(a)(1); Cottrell v. Schilling (In re Cottrell),

876 F.2d 540, 542 (6th Cir. 1989).

        Zipkin Whiting represented the Felixes pre-petition pursuant to a contingency fee

agreement with the firm’s apparent predecessor (Zipkin, Fink & Whiting). That agreement,

however, was an executory contract that was deemed rejected by operation of 11 U.S.C.

§ 365(d)(1) (“[I]f the trustee [in a Chapter 7 case] does not assume or reject an executory contract

. . . within 60 days after the order for relief . . . then such contract . . . is deemed rejected.”). That

rejection permitted Zipkin Whiting to file a proof of claim, but it did not. See 11 U.S.C. §§ 365(g)

and 502(g); In re Richendollar, No. 04-70774, 2007 WL 1039065, at *7 (Bankr. N.D. Ohio Mar.

31, 2007). Nor was Zipkin Whiting otherwise retained to represent the Trustee post-petition with

respect to the pending claims.

        Chapter 7 Trustee Robert Barr was obligated to “collect and reduce to money the property

of the estate” and “close such estate as expeditiously as is compatible with the best interests of

parties in interest.” 11 U.S.C. § 704(a)(1). As it turned out, the primary asset in the estate was the

pending litigation and the claims made against it totaled approximately $115,000. The Trustee

testified that he undertook an assessment of the claims, communicated with Zipkin Whiting

concerning the Debtors’ desire to pursue the claims, and discussed settlement with counsel for the
No. 20-3300                                                                                     3
Zipkin Whiting, Co., LPA v. Barr, Chapter 7 Trustee

Ganley entities. In April 2019, with a settlement offer in hand, the Trustee filed a motion seeking

the bankruptcy court’s approval pursuant to Bankruptcy Rule 9019. FED. R. BANKR. P. 9019(a)

(“On motion by the trustee and after notice and a hearing, the court may approve a compromise or

settlement.”).

       Objections were filed by Zipkin Whiting—on behalf of the Debtors as well as itself—and

the Trustee supplemented the motion twice to incorporate modifications to the proposed

compromise. During an evidentiary hearing on the motion in September 2019, the bankruptcy

court rejected the Debtors’ request that the Trustee abandon the claims, agreed with Zipkin

Whiting that the Ganley entities had no standing to argue in support of the compromise, but also

found sua sponte that Zipkin Whiting did not have standing to object to the compromise either.

(Bankr. R. 104, pp. 63-76, 80-81.) Striking Zipkin Whiting’s objection and addressing the merits

of the Trustee’s uncontested motion, the bankruptcy judge approved the compromise of the claims

for the sum of $33,300. A stay pending appeal was denied, although the funds have yet to be

distributed. The district court found the bankruptcy court had not erred in striking Zipkin

Whiting’s objection. This appeal followed.

                                                II.

       This court examines the bankruptcy court’s decision directly, reviewing its legal

conclusions de novo and its factual findings for clear error. Lowenbraun v. Canary (In re

Lowenbraun), 453 F.3d 314, 319 (6th Cir. 2006); see also Zingale v. Rabin (In re Zingale),

693 F.3d 704, 707 (6th Cir. 2012). Here, as in the district court, Zipkin Whiting has not challenged
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Zipkin Whiting, Co., LPA v. Barr, Chapter 7 Trustee

the merits of the compromise—only the bankruptcy judge’s determination that it was not a “party

in interest” with standing to object to it.1

        The term “party in interest” is not defined by the Bankruptcy Code or Rules, although it is

used throughout both. Absent a precise or universal definition, the meaning of “party in interest”

depends on the context in which it is used. See, e.g., Jahn v. Burke (In re Burke), 863 F.3d 521,

526 (6th Cir. 2017) (citing In re Morton, 298 B.R. 301, 307 (B.A.P. 6th Cir. 2003)); In re Rice,

462 B.R. 651, 656 (B.A.P. 6th Cir. 2011). The definition endorsed in In re Morton describes the

term “party in interest” as “an expandable concept depending on the particular factual context in

which it is applied,” such as a party that “has an actual pecuniary interest,” one “who has a practical

stake in the outcome,” or “those who will be impacted in any significant way” by the matter.

298 B.R. at 307 (quoting In re Cowan, 235 B.R. 912 (Bankr. W.D. Mo. 1999) (citations omitted)).

        Although Bankruptcy Rule 9019(a) does not refer directly to parties in interest, it does

provide that notice “shall be given to creditors, the United States trustee, the debtor, and indenture

trustees as provided in [Bankruptcy] Rule 2002 and to any other entity as the court may direct.”

Rule 2002, in turn, provides for notice to parties in interest of a hearing on the approval of a

compromise or settlement. See FED. R. BANKR. P. 2002(a)(3). The purpose of Rule 9019’s notice

provision is to give interested parties an opportunity to be heard. Zipkin Whiting cared about the

litigation that it had prosecuted for some 17 years—the question is whether it had any actual

1
  This appeal does not implicate the more problematic question of whether bankruptcy appellate
standing may be more limited than Article III standing given the Supreme Court’s rejection of the
term “prudential standing” in Lexmark International, Inc. v. Static Control Components, Inc.,
572 U.S. 118, 125 (2014). See In re Capital Contracting Co., 924 F.3d 890, 896-97 (6th Cir. 2019)
(“Our court has yet to consider Lexmark’s effect, if any, on the person-aggrieved test governing
prudential standing in bankruptcy appeals.”).
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Zipkin Whiting, Co., LPA v. Barr, Chapter 7 Trustee

pecuniary interest, a practical stake in its own right, or would be impacted in any significant way

by the Trustee’s settlement of the claims against the Ganley entities. That answer has to be no.

       Asserting a practical stake in the outcome, Zipkin Whiting contends that if its objection

were sustained it “would get to continue representing the Felixes in state court against Ganley

Chevrolet and Ganley Management Company.” (Appt Br. p. 8.) But that is plainly not the case

because the claims no longer belonged to the Felixes. Nor was Zipkin Whiting retained to

represent the Trustee with respect to those claims even if the compromise was not approved.

       Alternatively, Zipkin Whiting claims a pecuniary interest in the settlement because it would

share 50% in any recovery pursuant to the contingency fee agreement. That might have been true

if the fee agreement had been assumed—but it was not. And, as the Trustee points out, Zipkin

Whiting had no valid attorney’s charging lien under Ohio law because no fund existed pre-petition.

In re Richendollar, 2007 WL 1039065, at *7; see also Kisling, Nestico & Redick, LLC v.

Progressive Max Ins. Co., 143 N.E.3d 495, 497, 499 (Ohio 2020); Corzin v. Decker, Vonau, Sybert

& Lackey, Co., LPA (In re Simms Constr. Svcs. Co.), 311 B.R. 479, 484 (B.A.P. 6th Cir. 2004).

       Finally, Zipkin Whiting argues that it is a party in interest with respect to the compromise

because it provided pre-petition legal services to the Felixes pursuant to the contingency fee

agreement (i.e., 1500 hours and $8,000 in costs). Under Ohio law, an attorney whose services

under a contingent fee agreement are discharged may pursue recovery on a theory of quantum

meruit. See Reid, Johnson, Downes, Andrachik & Webster v. Lansberry, 629 N.E.2d 431, 434

(Ohio 1994). Zipkin Whiting could have filed a proof of claim to pursue recovery for its pre-

petition legal services, but it did not. In re Nelson, 206 B.R. 869, 879 (Bankr. N.D. Ohio 1997);

11 U.S.C. § 101(5) (defining “claim” as a “right to payment” or “right to an equitable remedy for

breach of performance” whether or not such right is “reduced to judgment, liquidated,
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Zipkin Whiting, Co., LPA v. Barr, Chapter 7 Trustee

unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable,

secured, or unsecured”). As a result, any interest Zipkin Whiting may have had for pre-petition

legal services is unaffected by the Trustee’s settlement of the underlying claims because it asserted

no right to distribution from the bankruptcy estate. See, e.g., Andrews Davis Law Firm v. Loyd (In

re S. Medical Arts Cos.), 343 B.R. 258, 262 (B.A.P. 10th Cir. 2006) (“The flaw in [the law firm’s]

reasoning is that it is its lack of a distribution right that deprives it of standing to object to the

compromise.”).

                                          *       *       *

       The bankruptcy court’s order granting the Trustee’s motion to approve the compromise is

AFFIRMED.