Court Opinion

ID: 857854
Source: CourtListenerOpinion
Date Created: 2013-04-11 19:17:51.226385+00
Date Added: 2024-06-11T09:06:37.705622
License: Public Domain

UNPUBLISHED

                    UNITED STATES COURT OF APPEALS
                        FOR THE FOURTH CIRCUIT

                              No. 12-1244

In Re:    BON-AIR PARTNERSHIP,

                  Debtor.

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

ALEX RAHMI,

                  Plaintiff – Appellant,

            v.

ROBERT W. TRUMBLE, Trustee,

                  Trustee – Appellee,

            and

UNITED STATES TRUSTEE,

                  Trustee.

Appeal from the United States District Court for the Northern
District of West Virginia, at Martinsburg. John Preston Bailey,
Chief District Judge. (3:11-cv-00061-JPB; 3:09-bk-02621)

Argued:    March 21, 2013                   Decided:   April 11, 2013

Before MOTZ and DUNCAN, Circuit Judges, and Robert E. PAYNE,
Senior United States District Judge for the Eastern District of
Virginia, sitting by designation.

Affirmed by unpublished per curiam opinion.
ARGUED: John B. Simpson, MARTINWREN, PC, Charlottesville,
Virginia, for Appellant.    Mary Binns-Davis, MCNEER, HIGHLAND,
MCMUNN & VARNER, LC, Martinsburg, West Virginia, for Appellee.
ON BRIEF: Robert W. Trumble, Suzanne Williams-McAuliffe, MCNEER,
HIGHLAND, MCMUNN & VARNER, LC, Martinsburg, West Virginia, for
Appellee.

Unpublished opinions are not binding precedent in this circuit.

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PER CURIAM:

      This appeal arises from the bankruptcy proceedings of Bon-

Air     Partnership        (“Bon-Air”),          a     single-asset      real     estate

business.      The sole issue on appeal is whether a conflict of

interest arose from the trustee’s appointment of a law firm that

represented another party in a separate debt collection action

against one of Bon-Air’s general partners, Alex Rahmi (“Rahmi”

or “Appellant”).       Many months later, after the trustee’s sale of

the   partnership’s         sole    asset     had     already   occurred       and   been

approved by the court, Rahmi asserted this conflict of interest

as a reason to invalidate the sale.                    The bankruptcy court found

no conflict of interest, and declined to remove the trustee or

invalidate the sale.               For the following reasons, we conclude

that the district court correctly affirmed the judgment of the

bankruptcy court.

                                            I.

                                            A.

      Bon-Air    filed      for     Chapter      7    Bankruptcy   on    November    11,

2009, and Appellant signed the Petition as a general partner.

The partnership’s primary asset consisted of approximately 130

acres    of   land    in    Charles     Town,        West   Virginia    (the    “subject

property”),     and        was     valued   in       the    operative    Petition     at

$750,000.       The        total     debt   of       the    bankruptcy    estate     was

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$793,162.42,       consisting        almost       entirely    of     debt    held    by    two

creditors secured by the subject property.                              Appellee Robert

Trumble was appointed as trustee of the estate (“Trustee”) a few

days later.

       On April 27, 2010, the first priority creditor, Jefferson

Security Bank, moved to lift the automatic bankruptcy stay so

that it could enforce its deed of trust and initiate foreclosure

proceedings to sell the property.                   Seeking to avoid foreclosure,

and believing he could secure a higher value for the estate

through      a    private        sale,    Trustee     filed      a    Motion    to      Sell,

attaching        thereto     a    March    10,     2010    offer       to    purchase      the

property for $1.2 million.                Rahmi objected, asking the court to

delay the sale “in order for the Trustee to continue to market

the property in an effort to raise the selling price.”                                    J.A.

112.    Trustee thereafter filed a notice to allow an upset bid

private auction to be held immediately after the hearing on its

motion.      The day before the hearing was to occur, the court

continued it, stating that it would grant Trustee a period of up

to six months to market the property before allowing the bank to

seek a foreclosure sale.

       The   next     day,       Rahmi    sought     to    dismiss       the   bankruptcy

proceedings.        Both Trustee and the creditors objected, and the

court    denied      the     motion,      reasoning       that       Rahmi   had     already

repeatedly attempted to delay the sale of the subject property

                                              4
in   a   deliberate       effort    to   avoid    satisfaction      of      Bon-Air’s

creditors--by filing successive bankruptcy petitions and using

other delay tactics in those cases--and because Rahmi proffered

no alternatives to Trustee’s concrete offers to purchase.                           The

bankruptcy court concluded that, “while [Rahmi’s] conduct does

not conclusively show a lack of good faith, [his] last-ditch

effort to dismiss the case in the face of an impending sale

rings hollow.”      J.A. 156.

      On July 6, 2010, the Bankruptcy court approved Trustee’s

application to employ his law firm, McNeer, Highland, McMunn and

Varner (the “law firm”) as special counsel.                  Meanwhile, the law

firm had been representing Wells Fargo Bank (“Wells Fargo”) in

an   unrelated    action     to    collect    from   Rahmi   on   an       outstanding

$208,000 personal loan.            Notably, Rahmi did not object to the

law firm’s appointment as special counsel.

      At the upset bid auction on September 2, 2010, the winning

bid of $3 million was submitted, and approved by the bankruptcy

court.    Neither the debtor nor Rahmi objected to the sale at

that time.       The court noted that Trustee’s sale of the subject

property at private auction was an arms-length transaction, free

of fraud or collusion, and made in good faith in accordance with

the relevant bankruptcy code, 11 U.S.C. § 363(m).

      Following     the    sale,     Trustee     reported    that      a    total   of

$945,411.19 had been paid to creditors to satisfy liens on the

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property.       Additional deductions of $180,000 in commissions and

$4,151.37 in expenses left a total of $1,870,437.44 available

for distribution to Bon-Air’s partners, including Rahmi. *                  Those

funds were deposited into an interest-bearing account opened by

Trustee on behalf of the bankruptcy estate, where they remain

still.

     On       January      25,   2011,   the    law   firm   discontinued      its

representation        of    Wells   Fargo      in   the   separate   proceedings

against Rahmi.          Nonetheless, on April 1, 2011, Rahmi filed a

Motion to Remove Trustee for Conflict of Interest based on the

law firm’s involvement in both actions, which the bankruptcy

court       denied.     Rahmi    initially     appealed    that   order   to   the

district court, but then voluntarily dismissed it.

                                         B.

     On May 16, 2011, Rahmi filed a Motion to Amend Judgment and

to Invalidate Foreclosure Sale (“Motion to Amend”), arguing that

Trustee was not disinterested, and had violated his fiduciary

duty by selling the subject property at a grossly inadequate

price.       Rahmi based this assertion on real property assessments

for surrounding properties that he presented for the first time,

        *
       Rahmi claims to be one of four partners in Bon-Air,
holding a 50% interest, although the extent of his ownership
interest is apparently disputed. J.A. 32, 52; Appellee’s Br. at
2 n.1.

                                          6
and which      he     contended        valued       the    subject     property       at   $16.2

million.        The     bankruptcy        court       denied       the    motion.          Rahmi

appealed, and the district court issued a memorandum opinion

affirming the order of the bankruptcy court, Rahmi v. Trumble,

464    B.R.   710     (N.D.W.     Va.    2011)       (“Memorandum         Opinion”).            The

district court rejected Rahmi's conflict of interest arguments

in an order denying interlocutory appeal, issued on the same day

as its Memorandum Opinion.                See Rahmi v. Trumble, No. 11-CV-61,

2011    WL    6887728       (N.D.W.      Va.    Dec.        29,    2011)       (“Conflict       of

Interest Order”).           Rahmi timely appealed from both orders.

                                               II.

       At oral argument, counsel for Rahmi clarified that he did

not seek to have the Trustee’s sale set aside by this court.

Thus, Rahmi contests only the bankruptcy court’s finding of fact

that    no    actual    conflict        of     interest         existed,       asking      us    to

overturn      that    finding      and    remand          for     “whatever      consequences

might flow from that.”                 Because we see no actual conflict of

interest,      and     no    basis      for     concluding         that    the     bankruptcy

court’s factual findings were clearly erroneous, we affirm.

       The    Bankruptcy         Act    allows        trustees,        with     the     court’s

approval, to 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

                                                7
trustee’s duties.”            11 U.S.C. § 327(a); see also In re Harold &

Williams Dev. Co., 977 F.2d 906, 909 (4th Cir. 1992) (describing

the    bankruptcy        court’s        “broad         discretion”         to    approve        such

requests).       The Act defines a “disinterested person” as a person

who    “does    not    have        an    interest         materially        adverse       to     the

interest of the estate or of any class of creditors or equity

security       holders,       by        reason       of     any     direct        or      indirect

relationship to, or connection with, or interest in, the debtor,

or for any other reason.”                 11 U.S.C. § 101(14)(C).                  Courts have

interpreted these provisions to mean that trustees “may employ a

creditor’s       attorney           under        §     327(c)        provided          the      dual

representation presents no actual conflict of interest.”                                        Byrd

v.    Johnson,     467      B.R.        832,     849      (S.D.    Md.      2012)        (citation

omitted).

       Although       Rahmi     confusingly               presents       several         different

arguments      regarding       the       impact        of    the     law        firm’s    alleged

conflict of interest, we need not parse them because they all

necessarily fail at the first step: there was no actual conflict

of    interest.        At     the       most    basic       level,       the     separate       debt

collection proceeding was against Rahmi as an individual, while

the    bankruptcy      proceedings             dealt      with     the     property       of     the

partnership--an          unrelated         matter.           As      the       district      court

observed, under West Virginia law, “‘[p]roperty acquired by a

partnership      is    property          of    the     partnership         and     not     of    the

                                                 8
partners      individually.’”         Conflict      of     Interest         Order,        2011    WL

6887728, at *3 (quoting W.Va. Code § 47B-2-3).

       Thus, the fact that the law firm represented Wells Fargo in

an     action      against      Rahmi     personally            is        not       an   interest

“materially adverse” to the partnership’s bankruptcy estate, and

Rahmi’s arguments to the contrary are far too attenuated to gain

traction.       Any interest Wells Fargo might have had in obtaining

a judicial sale of the subject property so that surplus could be

paid out to Bon-Air’s partners, including Rahmi, in order for

Rahmi to be able to satisfy his personal debt to Wells Fargo, is

at best a questionable basis for a conflict of interest.                                   Taking

the    additional      step,     as     Rahmi      presses,          of    considering           the

motivation      of    Wells     Fargo’s      counsel,          further          strains    logic.

Rahmi’s speculative chain of inferences could just as easily

lead us to conclude that Wells Fargo (and its counsel) would

have    had   an     interest    in   obtaining          the    highest          possible    sale

price for the subject property, to ensure that Rahmi possessed

sufficient funds to fully satisfy his personal debt to Wells

Fargo.        Accordingly,      we    find    no        grounds      for        a   conflict      of

interest here.

       Furthermore,      assuming       for       the    sake     of       argument       that     a

conflict did exist, Rahmi was aware of such conflict from the

outset but failed to raise the issue until after the (apparently

disfavorable) sale was affirmed.                        Even if equitable estoppel

                                              9
does not bar Rahmi’s belatedly asserted conflict of interest

challenge, it certainly calls the propriety of his motives, and

any potential for harm to him, into question.    Rahmi has been

unable to articulate any way in which Trustee’s disqualification

at this stage of the proceedings would impact the bankruptcy

court’s disposition of the estate.

                              III.

     For the foregoing reasons, the judgment of the district

court is

                                                       AFFIRMED.

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