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Advantage Healthplan, Inc. v. Potter

July 14, 2008

ADVANTAGE HEALTHPLAN, INC., APPELLANT,
v.
PATRICK J. POTTER, ET AL., APPELLEES.



The opinion of the court was delivered by: Colleen Kollar-kotelly United States District Judge

REDACTED VERSION

MEMORANDUM OPINION

The bankruptcy case underlying the above-captioned appeal involves a Plan of Reorganization (the "Plan") approved by the United States Bankruptcy Court for the District of Columbia ("Bankruptcy Court") in In re The Greater Southeast Community Hospital Foundation, Inc., et al., Case No. 99-01159. Appellant Advantage Healthplan, Inc. ("Advantage") is one of the two current members of the Plan Committee established by the Plan. This appeal is also purportedly brought by Elliot R. Wolff, President of Advantage and Advantage's corporate representative on the Plan Committee. However, appellees contest Mr. Wolff's standing on appeal. Appellees in this action are the Plan Committee itself, the Plan Committee's former counsel, Pillsbury Winthrop Shaw Pittman LLP, and Patrick J. Potter, a partner at the Pillsbury law firm who formerly served as Plan Agent pursuant to the Plan (collectively, with the Pillsbury law firm, "Pillsbury"). During the course of the underlying bankruptcy proceeding, a fee dispute arose between the Plan Committee and Pillsbury. On December 21, 2007, the Bankruptcy Court entered an Order approving a settlement of the fee dispute (hereinafter "Settlement Approval Order"). Advantage appeals both the Settlement Approval Order and a previous Order, signed by the Bankruptcy Court on December 20, 2007 and entered on the Bankruptcy Court docket on December 21, 2007, which struck an Objection to the proposed settlement filed by Mr. Wolff on behalf of Advantage (hereinafter "Striking Order").

Currently pending before this Court are a number of initial motions, filed before the parties filed their appellate briefs, as well as the actual appeal. The initial motions include: (1) Pillsbury's [5] Motion for Summary Affirmance of the Striking Order, which is joined by the Plan Committee, see Docket No. [17]; (2) Pillsbury's [13] Motion to Strike Elliot Wolff As Appellant, also joined by the Plan Committee, see Docket No. [16]; (3) and Pillsbury's [22] Motion to Suspend Briefing on Advantage's appeal pending resolution of the initial motions. The Court has conducted a searching review of the parties' various filings, the voluminous record of the Bankruptcy Court proceedings before the Court on appeal, and the relevant statutes and case law. Based upon the foregoing, the Court shall GRANT [5/17] Appellees' Motions for Summary Affirmance of the Striking Order and shall AFFIRM the Striking Order. In addition, the Court shall GRANT [6/16] Appellees' Motions to Strike Elliot Wolff as Appellant, finding that Mr. Wolff lacks standing to appeal the Bankruptcy Court's Orders. As the parties have already completed briefing on Advantage's appeal, the Court shall DENY AS MOOT Pillsbury's [22] Motion to Suspend Briefing, and shall DENY [33] Advantage's Motion for Oral Argument, concluding that the issues presented in this appeal may be resolved on the extensive briefing filed by all parties. Finally, the Court shall AFFIRM the Settlement Approval Order, and shall DISMISS this appeal in its entirety.

I. BACKGROUND

The following facts are relevant to all of the initial motions the Court resolves in this Memorandum Opinion, as well as to Advantage's appeal.

A. Nature of the Bankruptcy Case, Plan, and Confirmation Order

As noted above, this appeal arises from the jointly administered bankruptcy case of the Greater Southeast Community Hospital Foundation, Inc. ("GSCHF") and three GSCHF affiliates (collectively, "Debtors"). Brief of Appellee The Plan Committee (hereinafter "Plan Comm. App. Br.") at 2. The Debtors filed petitions for relief under Chapter 11 of the United States Bankruptcy Code in the Bankruptcy Court in 1999. Id.; Brief of Appellants (hereinafter "Appellant's Br.") at 5. On October 23, 2001, the Bankruptcy Court entered an order (the "Confirmation Order") confirming the Debtors' Second Amended Joint Plan (the "Plan"). Joint Appendix ("JA") at 29-87, 88-129.*fn1

The Plan created the Plan Committee, as well as a Plan Agent, to take control of the assets of the Debtors' bankruptcy estates, including the Debtors' causes of action against third parties. Id.; Plan Comm. App. Br. at 2, 6.*fn2 The Plan Committee was originally comprised of three members: a bondholder representative (Eaton Vance), Advantage (with Mr. Wolff serving as corporate representative), and Welcome Home Inc. (with Stanley Zupnik serving as corporate representative). Pillsbury's Appellee Brief at 7 (citing JA 551, 1044); Appellant's Br. at 5-6. Eaton Vance resigned from the Plan Committee in June of 2007, leaving Advantage and Welcome Home as the members of the Plan Committee. Plan Comm. App. Br. at 6, Pillsbury App. Br. at 7; Appellant's Br. at 6. The Plan also provided for the appointment of a Plan Agent. Appellant's Br. at 6. Patrick J. Potter assumed the role of Plan Agent on March 31, 2006, and following Potter's appointment as Plan Agent, the Pillsbury law firm served as counsel to the Plan Agent and the Plan Committee. Id.

B. The PricewaterhouseCoopers Litigation

In 2002, pursuant to its powers and duties under the Plan, the Plan Committee filed suit against PricewaterhouseCoopers, LLP ("PwC") in the United States District Court for the District of Columbia, seeking damages based upon PwC's alleged pre-bankruptcy petition accounting malpractice. Plan Comm. App. Br. at 6; Pillsbury App. Br. at 8. That case is still pending and has not advanced past the pleading stage. See The Plan Committee v. PricewaterhouseCoopers, LLP, 365 B.R. 234 (D.D.C. 2005) and The Plan Committee v. PricewaterhouseCoopers, LLP, Civil Action No. 02-1487, 2007 WL 1191917 (D.D.C. Apr. 20, 2007).*fn3 In May 2007, the Plan Committee asked Pillsbury, which did not represent the Plan Committee in connection with the PwC litigation, for assistance in remedying certain defects identified in the Plan Committee's complaints in that litigation. Plan Comm. App. Br. at 7; Pillsbury App. Br. at 9. In particular, Pillsbury sought and obtained a Bankruptcy Court Order clarifying the authority of the Plan Committee to pursue the PwC complaint. Plan Comm. App. Br. at 7; Pillsbury App. Br. at 9; JA 551-53.

C. The Fee Dispute Litigation and Settlement

A fee dispute subsequently arose between the Plan Committee and Pillsbury over Pillsbury's requested payment of $137,000 in legal fees and costs. Plan Comm. App. Br. at 7; Pillsbury App. Br. at 9; JA 267-75. On August 3, 2007, Pillsbury commenced a contested matter with the Bankruptcy Court by filing motions within the bankruptcy case seeking Plan Committee payment of the requested fees, as well as authority for Pillsbury and Potter to resign as Plan Committee counsel and Plan Agent, respectively. Plan Comm. App. Br. at 7; Pillsbury App. Br. at 9; Appellant's Br. at 6; JA 267-75. Thereafter, the Plan Committee terminated the services of Pillsbury and Potter, leaving the fee dispute as the sole issue. Plan Comm. App. Br. at 7; Appellant's Br. at 6. Between August and December 2007, the Plan Committee and Pillsbury conducted extensive litigation over the fee dispute before the Bankruptcy Court. Plan Comm. App. Br. at 8; Pillsbury App. Br. at 9. That litigation included significant discovery and multiple rounds of briefing and hearings on whether the Bankruptcy Court had jurisdiction to try the fee dispute. Pillsbury App. Br. at 9-10; Plan Comm. App. Br at 8. On November 15, 2007, Bankruptcy Judge S. Martin Teel, Jr. issued an Order setting forth his decision (made during a November 8, 2007 hearing) that the Bankruptcy Court had subject matter jurisdiction to try the fee dispute. JA 323-64, 365. The fee dispute litigation before the Bankruptcy Court also included a motion for summary judgment by Pillsbury and an initial hearing on that motion. Pillsbury App. Br. at 10. The fee dispute was scheduled for trial before Bankruptcy Judge Teel on January 8, 2008. Id.; JA 1051.

The evidence proffered by Pillsbury demonstrates that in late November 2007, the Plan Committee approached Pillsbury regarding settling the fee dispute and, on November 29, 2007, Mr. Zupnik--acting on behalf of the Plan Committee--offered to pay Pillsbury $100,000 in settlement of the fee dispute. JA 964-65 (11/30/07 e-mail from P. Potter to counsel for Plan Committee confirming Mr. Zupnik's authority; 11/30/07 e-mail from Plan Committee counsel, copied to Mr. Wolff, Mr. Zupnik and Mr. Potter, confirming Mr. Zupnik's "authoriz[ation] by the Plan Committee to discuss a resolution of the fee dispute between the Plan Committee and [Pillsbury]"; 12/2/07 e-mail from Plan Committee counsel, copied to Mr. Wolff, Mr. Zupnik and Mr. Potter, advising that Mr. Zupnik had "specific authority from the Plan Committee to resolve the dispute. If the proposal is beyond that authority, he will need to obtain further authority from the Committee"). Pillsbury declined that offer, and according to both Pillsbury and the Plan Committee, on December 10, 2007, Plan Committee counsel telephoned Pillsbury and proposed a payment of $130,000. Pillsbury App. Br. at 11; Plan Comm. App. Br. at 8; JA 995 (Tr. of 12/14/07 Hrg. at 5). Pillsbury and the Plan Committee maintain that Pillsbury accepted, subject to standard mutual release language, and that Plan Committee counsel responded by accepting Pillsbury's condition. Pillsbury App. Br. at 11; Plan Comm. App. Br. at 8; JA 995. Plan Committee counsel subsequently prepared a draft settlement agreement, to which Pillsbury made non-substantive edits. Pillsbury App. Br. at 11; Plan Comm. App. Br. at 8; JA 995-97 (12/14/07 Hrg. Tr. at 5-7).

For its part, Advantage asserts that counsel for the Plan Committee spoke with Pillsbury about a potential settlement during the first week of December 2007, but that "Advantage never consented to settlement on the terms set forth" in the Settlement Agreement ultimately approved by the Bankruptcy Court. Appellant's Br. at 6-7. On December 13, 2007, Plan Committee counsel filed two emergency motions to withdraw as counsel for the Plan Committee, and to continue the January 8, 2008 trial on the fee dispute as a result. JA 975-88. Plan Committee counsel's motion stated that:

4. On December 10, 2007, after a lengthy in-person meeting with Elliot R. Wolff and Stanley R. Zupnik, [Plan Committee counsel] contacted [Mr.] Potter and discussed settlement of all disputes pending before the [Bankruptcy] Court among the parties. [Plan Committee counsel] agreed to prepare a draft settlement agreement and a motion to be filed pursuant to Federal Bankruptcy Rule 9019. On December 11, 2007, [Plan Committee counsel and Mr.] Potter spoke with [the Bankruptcy Court Courtroom Deputy] and informed her that the parties had reached a settlement of all disputes, subject to documentation of such settlement, and that the parties anticipated filing a notice of such settlement and a motion pursuant to Federal Bankruptcy Rule 9019 to approve such settlement.

5. As a result of the foregoing, the parties agreed that certain depositions scheduled for December 12-14, 2007 would not proceed as scheduled. On December 11, 2007, [Plan Committee counsel] sent a draft settlement agreement and motion to [Mr.] Potter.

6. Subsequent to the December 11th call with [the Courtroom Deputy] and the sending of drafts to [Mr.] Potter on December 11, 2007, a conflict arose between [Plan Committee counsel] and the Plan Committee.

JA 983. Plan Committee counsel's motion, "[c]onsistent with its duty of confidentiality and the attorney-client privilege," did not disclose the nature of the conflict, but stated that the purported conflict had "irreparably damaged" the attorney-client relationship. Id. 983-84. A hearing on Plan Committee counsel's emergency motions was scheduled for December 14, 2007.

On December 13, 2007, Mr. Wolff sent a letter to the Bankruptcy Court, which he copied to Mr. Zupnik, informing the Bankruptcy Court that he would be unable to attend the December 14, 2007 hearing "because of an essential commitment made four months ago," and further advising that Advantage supported "both motions of former Plan Committee legal counsel . . . as well as [the Plan Committee's Motion to Dismiss Pillsbury's fee request motions]." JA 989. Mr. Wolff's letter also informed the Bankruptcy Court that

If the [Pillsbury] litigation is not dismissed, Advantage hopes that your final scheduling order will recognize the factors and corresponding time necessary to select a successor legal counsel by the Plan Committee, as well as the Holiday vacation plans of both representatives of the Plan Committee. My family will be on vacation outside the United States from December 19 through January 5.

Id.

D. The December 14, 2007 Bankruptcy Court Hearing

On Friday, December 14, 2007, the Bankruptcy Court held its scheduled hearing on Plan Committee counsel's emergency motions. JA 991-1030. The participants in the hearing were Plan Committee Counsel, Mr. Potter, and Mr. Zupnik. Id. At the outset of the hearing, Bankruptcy Judge Teel quickly identified that addressing Plan Committee counsel's motion to withdraw necessitated a discussion of the purported conflict that gave rise to the motion. Pillsbury App. Br. at 11-12; Plan Comm. App. Br. at 9; JA at 993. Bankruptcy Judge Teel then continued, on the public record, to examine Plan Committee counsel and Mr. Potter as to whether a settlement had been reached, with both indicating their belief that a settlement had been agreed to on all essential terms. JA at 993-1001. During that discussion, Plan Committee counsel communicated to Bankruptcy Judge Teel that Mr. Zupnik (president of Plan Committee member Welcome Home) wished to address the Bankruptcy Court. Id. at 1000. In light of concerns regarding the attorney-client privilege applicable to nature the purported conflict between Plan Committee counsel and the Plan Committee, as well as concerns regarding the potential use of the fee dispute settlement discussions in the PwC litigation, Bankruptcy Judge Teel swore Mr. Zupnik in as a witness and accepted his testimony under seal. Pillsbury App. Br. at 12. This Court has thoroughly reviewed the transcript of the sealed portion of the December 14, 2007 hearing. JA 1016-30.*fn4

After receiving Mr. Zupnik's testimony, the Bankruptcy Court hearing returned to the public record, and Plan Committee counsel--with the approval of Mr. Zupnik--made an oral motion to enforce the settlement agreement. JA 1004:14-17. Bankruptcy Judge Teel made clear that he was not approving the actual settlement during the December 14, 2007 hearing "because somebody might object to it," but instructed Plan Committee counsel and Mr. Potter to prepare and file a notice of the settlement and a motion for its approval pursuant to Federal Rule of Bankruptcy Procedure 9019. JA 1005:15-19. Bankruptcy Judge Teel specifically explained:

What's going through my mind is that Mr. Wolf[f] is not here . . . Mr. Zupnik's here, communicating his version of what happened and that it's not that Mr. Wolf[f] says, 'This isn't what we agreed to,' it's that Mr. Wolf[f] wants to come back and ask for different terms.

Of course, if that's accurate then there's no harm in saying go ahead and notice up the settlement and, at least on this evidence, I find there was an agreement to file the settlement with the Court and notice it up to creditors for any possible objections.

JA 1008:20-1009:8. In addition, Plan Committee counsel acknowledged that he was not sure whether Mr. Wolff would sign the eventual settlement agreement, but that the Bankruptcy Court could "approve the settlement and it's an enforceable settlement or not. Whether or not Mr. Wolf[f] signs it." JA 1006:14-18.

At the end of the December 14, 2007 hearing, Bankruptcy Judge Teel instructed Plan Committee counsel and Mr. Potter to:

Prepare an order that says that the emergency motion to withdraw as attorney to the Plan Committee . . . was heard today. The Court heard evidence establishing that a settlement was reached between the Plan Committee and [Pillsbury] and Mr. Potter that contained all of the necessary terms for an enforceable settlement, and there is no evidence that the Plan Committee has, by formal vote, reached a decision that the settlement ought [to] be receded or . . . to take the position that the papers evidencing the settlement do not accurately reflect the settlement.

The evidence is that the papers do accurately reflect the settlement.

There is, further, no evidence that the Plan Committee has formally decided to instruct the Plan Committee's law firm not to proceed with implementation of the settlement.

The evidence is, further, that a reasonable time has elapsed for the Plan Committee to communicate its views regarding the settlement papers and that [Plan Committee counsel] should be free to proceed to implement the settlement based on the expiration of that reasonable period of time.

Because the settlement, if approved, will resolve this controversy, and because there is no conflict between the Plan Committee and its law firm that has been established that would arise from approval of the settlement, there is no reason at this juncture to permit the law firm to withdraw from representing the Plan Committee. In the event that the settlement agreement is not approved, the Court will address the emergency motion to withdraw at that juncture.

There being no evidence that the papers that the parties' attorneys have drafted regarding the proposed settlement [are] inconsistent with the settlement, either party is authorized to proceed to file the proposed settlement with the Court along with the motion contemplated by the terms of the settlement that would seek approval of the settlement by the Court.

JA 1010:12-10:12:1.

Finally, Bankruptcy Judge Teel agreed to schedule a hearing on the approval of the settlement for Friday, December 21, 2007, and fixed the deadline for filing objections at 5:00 p.m. on Wednesday, December 19, 2007, based on Mr. Potter's assertion that notice would be sent out "today," i.e., on Friday, December 14, 2007. JA 1012:23-1013:1.

E. Notices Sent Between the December 14 and December 21, 2007 Hearings

Following the December 14, 2007 hearing, Pillsbury electronically filed with the Bankruptcy Court a Notice of Hearing and Objection Deadline for the December 21 hearing (hereinafter "December 14 Notice"). ...


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