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In Re: Capitol Hill Group v. Capitol Hill Group

April 19, 2011

IN RE: CAPITOL HILL GROUP,
DEBTOR. PILLSBURY WINTRHOP SHAW PITTMAN LLP, APPELLANT,
v.
CAPITOL HILL GROUP, APPELLEE.



02-bk-359

The opinion of the court was delivered by: Royce C. Lamberth, Chief Judge,

(Chapter 11)

MEMORANDUM OPINION AND ORDER

I. INTRODUCTION

We come now to the seventh year in a bitter feud between appellant Pillsbury Winthrop Shaw Pittman LLP ("Shaw Pittman")*fn1 and appellee Capitol Hill Group ("CHG") over attorneys' fees and services arising out of a Chapter 11 bankruptcy proceeding commenced nearly a decade ago, during which Shaw Pittman served as legal counsel to CHG. Shortly before Shaw Pittman withdrew as counsel, the parties reached an agreement that permitted CHG to delay full payment of Shaw Pittman's fees beyond the hearing date for confirmation of CHG's reorganization plan. In exchange for this extension, CHG promised that it would not challenge Shaw Pitman's fee applications in the bankruptcy proceeding. Despite this agreement, the matter before the Court today represents the latest skirmish in a prolonged dispute between the parties over attorneys' fees. The fighting began when CHG, having agreed not to object to Shaw Pittman's fees, raised objections to those fees. It continued when Shaw Pittman sought an unnecessary and overbroad declaratory judgment. It escalated when CHG, having been warned by the bankruptcy court that any future claims against Shaw Pittman would be barred by res judicata, brought new claims outside the bankruptcy proceedings. And now Shaw Pittman-unsatisfied with only obtaining dismissal of CHG's latest claims-seeks to extract additional fees from CHG. Having failed in this endeavor below, Shaw Pittman appeals from entry of summary judgment in favor of CHG in its adversary proceeding brought to collect fees the firm incurred while defending against a malpractice suit brought against it by CHG in 2008. On appeal, Shaw Pittman argues that the parties' original agreement extends to the claims of malpractice and requires reimbursement. For the reasons set forth below, the Court finds that the bankruptcy court properly interpreted and applied the agreement and therefore affirms its dismissal of the adversary proceeding.

II. BACKGROUND

While the parties have been engaged in protracted litigation for a number of years, to spare the reader and in the interest of brevity, the Court here recounts only those events which are necessary to its determination of the issues on appeal.

A. The Bankruptcy Proceedings

Following entry into Chapter 11 proceedings, CHG retained Shaw Pittman as counsel pursuant to an engagement approved by the bankruptcy court. Statement of Undisputed Material Facts ¶ 1, R. at 22, Jan. 10, 2011 [2] ("Stmt. of Facts").*fn2 Shaw Pittman represented CHG in these proceedings from early 2002 until approximately January 7, 2004, when Shaw Pittman withdrew as counsel. Id. Following nearly two years of litigation, CHG's restructuring plan was scheduled for confirmation by Judge Teel of the bankruptcy court on December 15, 2003. Stmt. of Facts ¶ 3. Pursuant to 11 U.S.C. § 1129(a)(9) of the bankruptcy code, Shaw Pittman was entitled to be paid in full for its services rendered at that time. Id. So begins our tale.

1. The Fee Agreement and Subsequent Disputes

Prior to the deadline, CHG's new counsel exchanged a series of emails with a Shaw Pittman attorney, the substance of which would form an agreement concerning Shaw Pittman's fees (the "Fee Agreement"). In the first email, CHG offered to pay $850,000 of Shaw Pittman's outstanding fees and to provide a lien in favor of Shaw Pittman for the remaining fees, pending approval of financing for CHG's restructuring. In re Capitol Hill Group, 313 B.R. 344, 353 n.5 (D.D.C. 2004) ("In re CHG"). Shaw Pittman accepted this proposal but inserted a new condition, stating "I will not be fighting with CHG about my fee applications (trust me, not that I am concerned; and I am sure you probably know, any fights about fee applications would be an expense to be paid by CHG)." Id. at 353 n.6. CHG responded "It's a deal," and then added another condition concerning discounts to Shaw Pittman's proposed fees. Id. at 353 n.7. The final email from Shaw Pittman rejected the proposed discount, and requested confirmation that all of the firm's fees would be paid. Id. at 353 n.8. Following this exchange, CHG appeared before the bankruptcy court and requested confirmation of a reorganization plan that incorporated the two-step payment structure envisioned in the emails.

Shortly thereafter, Shaw Pittman filed two fee applications for services rendered during the bankruptcy proceedings, Stmt. of Facts ¶ 6, and CHG-having apparently forgotten the Fee Agreement-filed various objections to those fee applications. R. at 111.*fn3 In particular, CHG objected to "the totality of fees billed by Shaw Pittman," and raised several concerns at subsequent hearings before Judge Teel. Id. Relying on the Fee Agreement, Judge Teel overruled CHG's objections, and on April 20, 2004 issued an order entitling Shaw Pittman to collect the fees and expenses that accrued prior to December 15, 2003. App. at 278.*fn4 This order was joined with several others and appealed to this Court. Stmt. of Facts ¶ 8.

On appeal, this Court held that when CHG declared "it's a deal" in response to Shaw Pitman's request that it not fight with the firm about fee applications, CHG did in fact waive its right to object to those fee applications. As this Court explained: "the emails unambiguously show the that final email from Shaw Pittman served to clarify the terms of [its prior email] as not including any . . . discount and requesting confirmation from CHG . . . . CHG's failure to respond show that at the conclusion of the emails, Shaw Pittman had extended an offer to CHG but CHG had not accepted that offer." In re CHG, 313 B.R. at 353. This Court then observed that the law required CHG to represent to the bankruptcy court-when requesting approval of its reorganization plan-that its administrative creditors (including Shaw Pittman) had been paid in full or had otherwise agreed not to receive full payment at the time of confirmation. It therefore held that by incorporating the payment schedule from the email exchange into the confirmation plan and not otherwise informing the bankruptcy court that Shaw Pittman had not been fully paid, CHG had accepted the Fee Agreement through its own actions and silence. Id. at 354--55. That Agreement included a "term prohibiting objections to Shaw Pittman's fee applications" and a provision which "required CHG to pay Shaw Pittman's expenses in the event that CHG attempted to object to any of Shaw Pittman's fee applications." Id. at 354 & 357. Based on these provisions, the case was remanded to the bankruptcy court to execute the prior fee award and to calculate Shaw Pittman's costs in defending against CHG's objections-including the costs of the appeal-and enter an award for those expenses. Id. at 358.

Following the appeal, the bankruptcy court entered a series of orders concerning payment of Shaw Pittman's fees. First, on December 1, 2004, Judge Teel granted Shaw Pittman's motion for attorneys' fees and ordered CHG to compensate Shaw Pittman for, inter alia, "fee application litigation fees and expenses" which it incurred during its defense of its initial fee application. App. at 368. That order referenced an earlier hearing, at which Judge Teel explained:

[CHG] and Shaw Pittman had entered into a contract that there would be no objections to Shaw Pittman's fee applications. And Shaw Pittman was entitled to enforce that contract. It was entitled to avoid any litigation by way of objection by [CHG] to its fee applications. Shaw Pittman, as a matter of right, stood up for its contractual right not to have any objections made to its fee application and pursued that contractual right. And in doing so, it incurred attorneys' fees and expenses. . . . And as I've already said, the reason the fees were so high was because [CHG] continued to defend against the contract's existence, raising often frivolous legal arguments, injecting factual questions into the proceeding that were stumbling blocks to a rapid disposition of the dispute.

Id. at 324--25. The bankruptcy court subsequently entered three additional orders granting Shaw Pittman's later fee applications. Id. at 422--27.

2. The Zoning Appeal

Prior to these fee disputes and throughout the bankruptcy proceedings, Shaw Pittman acted as counsel for CHG in several capacities, one of which was the representation of an affiliated entity-Capitol Hill Healthcare Corporation (the "Nursing Center")-in a zoning dispute. Id. at 760. Under the Certificates of Occupancy granted to the Nursing Center by the D.C. Zoning Administrator, CHG was obligated to maintain a 1:5 ratio between the number of parking spots it provided for the Center and the number of beds in the facility. Id. at 762. This ratio permitted CHG to operate the Nursing Center while maintaining only 25 parking spots. On March 26, 2003 the Zoning Administrator issued new Certificates to the Nursing Center that maintained the 1:5 ratio rather than-as had been proposed-instituting a 1:1 ratio between parking spots and beds. Id. Shortly thereafter, a neighborhood ...


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