Court Opinion

ID: 994883
Source: CourtListenerOpinion
Date Created: 2013-07-04 00:29:30.373472+00
Date Added: 2024-06-11T12:18:45.722692
License: Public Domain

UNPUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

In Re: JAMES L. BOHRER,
Debtor.

NELSON DECKELBAUM, Chapter 11
Trustee of the Estate of James L.
Bohrer,
Plaintiff-Appellee,

v.
                                                                 No. 97-2286
JAMES L. BOHRER; HILARIE R.
BOHRER; HRB, INCORPORATED;
DUNHILL MANAGEMENT,
INCORPORATED; JAMES L. BOHRER
IRREVOCABLE TRUST,
Defendants-Appellants,

and

UNITED STATES TRUSTEE,
Party in Interest.

Appeal from the United States District Court
for the District of Maryland, at Baltimore.
Catherine C. Blake, District Judge.
(CA-97-1881-CCB, BK-92-1513-PM, AP-97-1066PM)

Argued: March 4, 1998

Decided: May 8, 1998

Before WILKINSON, Chief Judge, NIEMEYER, Circuit Judge, and
MOON, United States District Judge for the Western District of
Virginia, sitting by designation.

_________________________________________________________________
Affirmed by unpublished per curiam opinion.

_________________________________________________________________

COUNSEL

ARGUED: Dale Andrew Cooter, COOTER, MANGOLD, TOM-
PERT & WAYSON, P.L.L.C., Washington, D.C., for Appellants.
Nelson Deckelbaum, DECKELBAUM, OGENS & FISCHER,
CHARTERED, Washington, D.C., for Appellee. ON BRIEF: Morton
A. Faller, MEYER, FALLER, WEISMAN & ROSENBERG, P.C.,
Washington, D.C., for Appellant James L. Bohrer.

_________________________________________________________________

Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).

_________________________________________________________________

OPINION

PER CURIAM:

Nelson Deckelbaum, Chapter 11 Trustee for the Estate of James L.
Bohrer ("the Trustee"), brought suit against James L. Bohrer ("the
Debtor"); Hilarie R. Bohrer ("Ms. Bohrer"); HRB, Inc. ("HRB");
Dunhill Management, Inc. ("Dunhill"); and the James L. Bohrer Irrev-
ocable Trust ("the Trust"), and sought a preliminary injunction to set
aside the post-Chapter 11 petition transfer by the Debtor of his gen-
eral partnership interest in Sugarloaf Centre Limited Partnership
("Sugarloaf"). The Debtor, Ms. Bohrer, HRB, Dunhill, and the Trust
now appeal the district court's affirmation of the bankruptcy court's
grant of the injunction. We affirm.

In March 1992, the Debtor filed a voluntary petition for bankruptcy
under Chapter 11 of the Bankruptcy Code. The Debtor continued to
manage his property and conduct the business of his estate as a debtor
in possession, pursuant to 11 U.S.C. §§ 1107-08, until the January 27,
1997 appointment of the Trustee. Prior to November 22, 1995, the

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Debtor held a 5% general partnership interest and an 85% limited
partnership interest in Sugarloaf.

Sugarloaf's sole asset is Sugarloaf Centre, a shopping center.
Throughout the period when the Debtor was a debtor in possession,
the property was encumbered by an $11.75 million first priority deed
of trust and a second priority judgment lien in favor of Charles
Vaughn ("Vaughn") in the approximate amount of $1 million.
Vaughn was also one of the Debtor's creditors. Prior to November 22,
1995, the Debtor's sole partner in Sugarloaf was his estranged wife,
Ms. Bohrer, who held the remaining 10% partnership interest as a
limited partner.

The Debtor held the right to purchase Ms. Bohrer's interest for
$1000 under the terms of an option agreement exercisable at the
Debtor's sole discretion. Additionally, pursuant to a power of attorney
granted to him by the agreement, the Debtor had complete control
over Ms. Bohrer's 10% interest. Finally, pursuant to the agreement,
distributions to Ms. Bohrer's interest were limited to $1000 over the
lifetime of the partnership.

The most valuable asset listed by the Debtor in his schedule of
assets and liabilities filed with the bankruptcy court was his interest
in Sugarloaf, which he valued at $9 million. On or about January 30,
1995, several of the Debtor's creditors proposed a Creditor's Plan of
Reorganization ("the Plan"). Under the Plan, the Debtor would be
ousted and control of his interests in Sugarloaf and his rights under
the Option Agreement would vest in a trustee. The proposed trustee
would be responsible for operating and managing or, if necessary,
selling or refinancing Sugarloaf Centre and making payments to cred-
itors from revenues generated by Sugarloaf. A hearing to consider
confirmation of the plan was scheduled for September 18, 1995 and
later continued to November 22, 1995.

On August 1, 1995, Peter Yeskel ("Yeskel"), a friend of the Debtor,
formed the appellant Trust by an agreement ("Trust Agreement")
between Yeskel, as grantor, and the Debtor, as trustee. Under the
Trust Agreement, the Debtor was both sole beneficiary and trustee of
the Trust. Yeskel funded the Trust with a $200 payment. The same
day he formed the Trust, Ms. Bohrer's attorney incorporated the

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appellant Dunhill Management. All of Dunhill's stock was issued to
the Trust, and the Debtor was named as Dunhill's sole director.

On August 7, the Debtor named himself president, secretary, and
treasurer of Dunhill, and Sugarloaf and Dunhill entered into a man-
agement agreement ("Management Agreement"). The Debtor signed
the Management Agreement on behalf of Sugarloaf as its general
partner and signed it on behalf of Dunhill as its president. Under the
Management Agreement, Dunhill was to manage Sugarloaf Center
until December 31, 2033 in return for a commission of 10% of the
gross rents generated by the shopping center. The Management
Agreement also contains a poison pill provision entitling Dunhill to
approximately $1 million in liquidated damages in the event the
agreement was ever terminated by Sugarloaf. In September 1995, in
a seemingly unrelated move, Ms. Bohrer's attorneys incorporated
appellant HRB, with Ms. Bohrer as the sole shareholder and president
and the Debtor as vice president.

The appellants did not give prior notice of these activities to the
Debtor's creditors, and they did not obtain the approval of the bank-
ruptcy court. The morning of November 22, 1995, the bankruptcy
court orally indicated at a hearing on reorganization that it would con-
firm the Plan proposed by the creditors, and the Debtor's committee
of unsecured creditors ("the Committee"), along with creditors Chevy
Chase, F.S.B. and Vaughn, prepared and submitted a proposed order
confirming the Plan. Later that afternoon, without notice to the credi-
tors and without the bankruptcy court's authorization, the Debtor pur-
ported to withdraw as general partner of Sugarloaf; Ms. Bohrer
purported to unilaterally revoke the Option Agreement and assigned
to HRB her right under the Sugarloaf partnership agreement to pur-
chase a bankrupt partner's interest; HRB served notice on the Debtor
of its intent to exercise this purchase right with respect to his partner-
ship interests; the partners elected to continue Sugarloaf as a limited
partnership; Ms. Bohrer's interest in Sugarloaf was divided into a 5%
limited partnership interest and a 5% general partnership interest; and
Ms. Bohrer transferred to HRB her 5% general partnership interest.

The bankruptcy court learned of these events and, in a memoran-
dum of decision regarding reorganization, found that the Plan was no
longer feasible "because of the deliberate pattern of obstruction

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undertaken on behalf of the debtor and those in concert with him."
J.A. 61. Because of the events of August 1 and 7 and November 22
and diversions of funds made possible by those events, the court on
January 27, 1997 removed the Debtor from control of the estate as
debtor in possession and appointed the Trustee as Chapter 11 trustee,
explaining:

         [The Debtor] has done everything he possibly could to avoid
         his responsibilities as a fiduciary.

          He has entered into a management agreement that is an
         affront and an insult to the Court. There is no business justi-
         fication for it. It is an agreement that was entered into by
         him for a single purpose only, and that is to protect his own
         interest and to further throw a monkey wrench into the reor-
         ganization here.

          The idea of collecting 10 percent commissions for leasing
         or management is an aberration. . . .

          The idea of locking that into the year 2033, and the idea
         of putting what has been termed a poison pill into the mix,
         is . . . a situation that the Court can not countenance . . . .

          I would point out further that it would appear, from
         everything that the Court has seen here, that his wife Hilary
         Rooney Bohrer, is his alter ego, and will follow his guidance
         and do what he says for whatever is in the best interest of
         the Bohrers.

          And, indeed, it was in the best interest of the Bohrers for
         Debtor to cause the transfer of the general partnership inter-
         est in this Estate. A transaction absolutely prohibited by
         Section 549 of the Bankruptcy Code.

J.A. 101-02.

After his appointment, the Trustee filed a complaint seeking,
among other things, avoidance of the transactions outlined above. On

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March 7, 1997, the Trustee filed a motion for a temporary restraining
order and preliminary injunction ("Injunction Motion") to prevent the
appellants from siphoning any further sums of money from Sugarloaf,
to force the appellants to transfer back to the estate any property or
cash generated as a result of the Debtor's partnership interest in Sug-
arloaf, and preventing the Debtor and Ms. Bohrer from continuing to
use HRB to control Sugarloaf as its purported general partner.

Between the time when the Trustee filed the Injunction Motion and
the hearing scheduled for March 26, 1997, the Debtor and Ms. Bohrer
formed yet another entity, BRH, L.L.C. ("BRH"). BRH was used to
purchase, for $112,000, creditor Vaughn's approximately $1 million
judgment secured by the second judgment lien against Sugarloaf's
assets. Before the Trustee's appointment, the Debtor had caused Dun-
hill to pay $65,000 to purchase a judgment held by Darryl Longest
against Vaughn and to commence collection actions on the judgment.
After the BRH-Vaughn transaction, Dunhill agreed to dismiss, for no
other consideration than that which BRH received, the $65,000 Lon-
gest judgment.

After a three-day hearing, the court found that the post-petition
transactions were breaches of the Debtor's fiduciary duties, that the
Debtor's purported withdrawal as Sugarloaf's general partner was a
nullity, and that Ms. Bohrer, HRB, Dunhill, BRH, and the Bohrer
Trust were all alter egos of the Debtor. The court therefore entered an
order granting the injunction, which declared that the Debtor's pur-
ported withdrawal as Sugarloaf's general partner was a nullity and
that the Debtor's general partnership interest in Sugarloaf is property
of his estate. The order also prohibited the appellants from causing
Sugarloaf to pay any further sums to themselves and required the
Trust, Dunhill, and HRB to turn over all their assets to the Trustee,
with the exception of the $200 used to form the Trust. The appellants
appealed to the district court, which affirmed the entry of the injunc-
tion.

We conclude that the district court correctly decided the issues
before it. As this Court noted in Kremen v. Harford Mutual Insurance
Co., 958 F.2d 602 (4th Cir. 1992), a debtor-in-possession under Chap-
ter 11 is a fiduciary and should act not in his own interests but rather
in the interests of his creditors. Id. at 605 (citing Wolf v. Weinstein,

                    6
372 U.S. 633, 649-50 (1963); Stein v. United Artists Corp., 691 F.2d
885, 892 (9th Cir. 1982)). As the bankruptcy court noted, the Debtor
"has done everything that he possibly could to avoid his responsibili-
ties as a fiduciary," J.A. 101, and to permit these transfers and the
Debtor's withdrawal as general partner would thwart both his fidu-
ciary duties and the public policy rationales which support bankruptcy
declarations.

Appellant's argument that the bankruptcy court's decision resulted
in a form of involuntary servitude also lacks merit. Although the Thir-
teenth Amendment prohibits a court from specifically enforcing a per-
sonal service contract, Andrews v. Riggs National Bank of
Washington, D.C., 80 F.3d 906, 912 (4th Cir. 1996), the bankruptcy
court's preliminary injunction did not compel the Debtor to perform
any services for the estate; it simply held that because the right of
control is property of the estate, the Debtor could not transfer the right
without notice to his creditors. J.A. 793-94.

We further conclude that the appellants' constitutional and public
policy arguments lack merit because Ms. Bohrer, HRB, Dunhill,
BRH, and the Trust are all alter egos of the Debtor. See J.A. 471.

Accordingly, we affirm on the reasoning of the district court. See
J.A. 1131-36.

AFFIRMED

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