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In re Trigee Foundation, Inc.

United States District Court, District of Columbia

August 3, 2018

In re Trigee Foundation, Inc.
v.
JEFFREY M. SHERMAN LERCH, EARLY & BREWER, CHTD, Appellees. NANCY DURANT, Appellant,

          MEMORANDUM OPINION

          CHRISTOPHER R COOPER UNITED STATES DISTRICT JUDGE

         Dr. Nancy Durant is a creditor of Trigee Foundation, Inc., the debtor in possession in a closed Chapter 11 reorganization proceeding before the United States Bankruptcy Court in this district. Dr. Durant appeals three orders by the bankruptcy court in that proceeding. All three stem from the court's decision not to monetarily penalize Trigee's attorney for failing to disclose a conflict of interest. For the reasons that follow, the Court will affirm all three orders.

         I. Background

         In September 2012, Trigee Foundation, Inc., which operates an apartment building in Washington, D.C., filed a voluntary petition for reorganization under Chapter 11 of the Bankruptcy Code, 11 U.S.C. §§ 101 et seq. App. 263. A few days later, Trigee petitioned the bankruptcy court to approve the retention of Jeffrey Sherman, an attorney with Lerch, Early & Brewer (“LEB”), to represent it during the proceedings. The bankruptcy court approved the petition on October 2, 2012, and Sherman represented Trigee (first as an attorney with LEB and later as a solo practitioner) until the bankruptcy court dismissed the case. App. 121. In January 2014, LEB filed a final compensation application seeking fees for previously billed time. App. 253. Trigee did not object to the final application, and on February 4, 2014, the bankruptcy court issued an order directing Trigee to pay LEB the approved fees.[1] App. 361.

         About two years later, in March 2016, Trigee filed a malpractice claim in D.C. Superior Court against LEB and Sherman, which the defendants removed to the bankruptcy court. App. 742. One of the malpractice allegations was that Sherman had failed to disclose to Trigee that prior to j oining LEB, he and another LEB attorney had represented a creditor against Trigee. App. 353-94. Specifically, Sherman failed to disclose the conflict in a Rule 2014(a) affidavit, which requires attorneys seeking employment from a bankruptcy estate to submit a verified statement setting forth the attorney's connections with the debtor, the creditors, and any other party in interest. See Fed.R.Bankr.P. 2014(a). The bankruptcy court ultimately ruled that Trigee's malpractice action was barred by the res judicata or collateral estoppel effect of the fee order. App. 353. See Capitol Hill Group v. Pillsbury, Winthrop, Shaw, Pittman, LLC, 569 F.3d 485 490-92 (D.C. Cir. 2009) (holding that a bankruptcy court's approval of a fee application operates as a res judicata bar to subsequent malpractice claims as long as the debtor was on notice of the alleged malpractice at the time the final fee application was filed). Trigee thus moved to vacate the fee order pursuant to Federal Rule of Civil Procedure 60(b). The bankruptcy court denied the motion as untimely in October 2016. App. 75.

         Meanwhile, the bankruptcy court issued an order to show cause why it should not impose sanctions against Sherman for failing to disclose that he and another LEB attorney had previously represented one of Trigee's creditors. App. 398-99. The bankruptcy court held a hearing on the show cause order in December 2016 and, after receiving testimony from Mr. Sherman, concluded that “the evidence does not show an intentional, as opposed to a negligent, failure” to disclose the conflict and that “vacating the final fee award would be an inappropriate sanction.” App. 629. The court instead admonished Sherman to disclose future conflicts and to include a list of clients he represented at LEB in his conflict-check software. App. 632.

         In early December 2016, Dr. Nancy Durant, a creditor in the Trigee bankruptcy proceeding and relative of Trigee's principals, filed her own motion to vacate the fee order on the same grounds-that Sherman failed to disclose his conflict. App. 400. The bankruptcy court scheduled a hearing to consider the motion for January 26, 2017. It noted, however, that Dr. Durant faced an “uphill battle” because the court had already found that the issue was time barred in a previous order and had held a sanctions hearing in which it found that Sherman had not acted intentionally in failing to disclose his prior representation. App. 447-48. Dr. Durant moved to reschedule the hearing to May so that she could travel to Washington, D.C. and appear in person. App. 642. Dr. Durant was 88 years old at that time and indicated that she had difficulty traveling by herself in the winter. Id. She also was not represented by counsel. Id. The bankruptcy court denied the motion, App. 656, and held the hearing as scheduled on January 26 with Dr. Durant appearing by phone. App. 1271-1389. An attorney for Trigee and one of its principals attended in person. Id The bankruptcy court ultimately denied Dr. Durant's motion to vacate the fee order the following month. App. 741. Dr. Durant filed her notice of appeal on February 9, 2017.

         II. Legal Standards

         This Court has jurisdiction over appeals of final orders issued by the Bankruptcy Court. See 28 U.S.C. § 158(a) (conferring on U.S. district courts jurisdiction over “appeals . . . from final judgments, orders, and decrees”). Findings of fact are reviewed for clear error; questions of law are considered de novo. See Foskey v. Plus Properties, LLC, 437 B.R. 1, 8 (D.D.C. 2010). In other words, the appellant “must show that the [bankruptcy] court's holding was clearly erroneous as to the assessment of the facts or erroneous in its interpretation of the law and not simply that another conclusion could have been reached.” In re WPG, Inc., 282 B.R. 66, 68 (D.D.C. 2002).

         III. Analysis

         Dr. Durant has appealed three bankruptcy court orders: (a) the February 1, 2017 order denying her motion to vacate the fee order; (b) the January 27, 2017 order denying her motion to continue the hearing on the motion to vacate the fee order; and (c) the December 22, 2016 disposal of the order to show cause why Mr. Sherman should not be sanctioned. The Court will affirm all three rulings.

         A. Order Denying Motion to Vacate the Fee Order

         Dr. Durant sought to have the fee order vacated on the ground that Mr. Sherman failed to disclose in his Rule 2014(a) statement that he had previously represented a secured creditor whose interests were adverse to his client's in the case. Appellant's Br. at 7. Despite having reservations about whether Dr. Durant was the real party in interest (as opposed to Trigee), the bankruptcy court proceeded to the merits of the motion.

         Durant originally filed the motion under Federal Rule of Civil Procedure 59, which permits motions “to alter or amend judgements.” Fed.R.Civ.P. 59(e). In bankruptcy actions, such motions must be filed with 14 days after entry of judgment. Fed. R. Bank. P. 9023. As the bankruptcy court explained, Dr. Durant could not obtain relief under Rule 59 ...


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