In re Capitol Hill Group

• Decision Date: 17 August 2004
• Docket Number: Civ.No. 04-750(RCL).,Civ.No. 04-751(RCL).,Bankruptcy No. 02-0359.
• Parties: In re CAPITOL HILL GROUP, Debtor, Capitol Hill Group, Appellant, v. Shaw Pittman LLP, Appellee.
• Court: United States Bankruptcy Courts. District of Columbia Circuit

Page 344

313 B.R. 344

In re CAPITOL HILL GROUP, Debtor,

Capitol Hill Group, Appellant, v. Shaw Pittman LLP, Appellee.

Bankruptcy No. 02-0359.

Civ.No. 04-750(RCL).

Civ.No. 04-751(RCL).

United States Bankruptcy Court, District of Columbia.

August 17, 2004.

COPYRIGHT MATERIAL OMITTED

Donald R. Hartman, MedLink, Washington, DC, for Appellant.

Patrick J. Potter, Shaw Pittman, Washington, DC, for Appellee.

MEMORANDUM OPINION

LAMBERTH, District Judge.

This matter comes before the Court on appeal from the bankruptcy court of the District of Columbia. Appellant Capitol Hill Group ("CHG") appeals three rulings of the bankruptcy court in favor of Shaw Pittman, CHG's bankruptcy counsel in its Chapter 11 reorganization proceedings. CHG appeals under Bankruptcy Rule 8001(a) and this Court has jurisdiction under 28 U.S.C. § 158(a). Also before the Court is Shaw Pittman's motion for a hearing, Shaw Pittman's motion for summary affirmance, and Shaw Pittman's motion to file excess pages. Upon consideration of the appellate briefs of the parties, the joint appendix filed in support, the law, and the facts of this case, the Court shall AFFIRM the decisions of the bankruptcy court. The Court shall deny Shaw Pittman's motion for a hearing,¹ shall deny as moot Shaw Pittman's motion for summary affirmance, and shall grant the motion to file excess pages.

CHG appeals three decisions of the bankruptcy court. It appeals a summary judgment decision of March 2, 2004,² a summary judgment decision of April 9, 2004, and an order awarding attorney's fees on April 20, 2004. In its appeal of these rulings, CHG brings four issues for consideration by this Court.

The four issues presented for appeal are 1) whether it was error to determine that Shaw Pittman did not breach its fiduciary duty to CHG; 2) whether it was error to determine that a reasonable jury could not conclude that an email offer from Shaw Pittman did not contain a no-contest provision and/or that a subsequent email offer did not reinstate a previous email offer from Shaw Pittman; 3) whether it was error to determine that the actions of CHG constituted acceptance by silence of the Shaw Pittman offer; 4) whether it was error to determine that a reasonable jury could not conclude that Shaw Pittman failed to object at CHG's confirmation hearing for reasons other than having negotiated a no-contest provision from CHG. Brief of CHG at 1-2.

BACKGROUND

The uncontested facts of the case are straightforward. CHG filed for bankruptcy in February 2002. Shaw Pittman served as bankruptcy counsel to CHG upon commencement of its Chapter 11 case. From the period of February 2002 to November 2003, Shaw Pittman billed CHG approximately $1.1 million in fees but did not receive any payments. In December 2003, CHG needed to secure an extension of the December 15, 2003 deadline set by the bankruptcy court in order to obtain financing needed to allow CHG to comply with its plan and emerge from Chapter 11. The record indicates that parties and the bankruptcy court believed that the December 15, 2003 hearing served as a confirmation hearing in that CHG had to meet all the requirements for confirmation in order to obtain the extension.

CHG's problem as it approached the confirmation hearing was that CHG's anticipated financing was insufficient to pay all of its creditors. One of the creditors entitled by statute to receive full compensation on confirmation of the plan was Shaw Pittman, CHG's bankruptcy counsel. CHG approached Shaw Pittman in early December 2003 and asked the firm to accept less than the full amount owed on the confirmation date with the balance to be paid at a later date. Shaw Pittman declined CHG's initial offer and the parties commenced negotiations.

A series of negotiations ensued culminating in an email exchange on the morning of December 15, 2003. According to CHG's appellate brief and the uncontested record of the bankruptcy court, on the morning of December 15, Mr. Donald Hartman, an attorney and employee of CHG, sent an email to Mr. Potter, an attorney for Shaw Pittman and primary attorney for CHG's bankruptcy case, with a copy to the owner of CHG, Mr. Shin, stating:

Dr. Shin is prepared to offer to pay Shaw Pittman $850,000 today from the Fremont proceeds and give SP [Shaw Pittman] a lien against the Accounts Receivable pending The HBCC closing which we anticipate will occur very soon.

Joint Appendix at 392 ("CHG Email 1"); Brief of Appellant CHG at 9.

Mr. Potter responded with an email sent to Mr. Hartman stating:

Donald: My Management Team accepts the fee proposal on two caveats. One the UCC liens will be signed today. And, of course, 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). Please confirm immediately.

Joint Appendix at 392 ("SP Email 2").

Mr. Hartman responded to Shaw Pittman's offer via email, this time with no copy being sent to Mr. Shin, stating "Patrick — It's a deal — this presupposes the (I believe) 5% discount you offered Dr. Shin previously. I hope your firm can prepare the liens." Joint Appendix at 394 ("CHG Email 3"). Mr. Potter responded to this email stating: "No it does not presuppose a 5% deal. I did not offer it. That is a mischaracterization. Please confirm all fees will be paid. I will consider a discount after my questions put to Dr. Shin on the issue have been answered." Joint Appendix at 400 ("SP Email 4"). The parties sent no further emails.

Shortly thereafter, Mr. Potter and Mr. Hartman attended the confirmation hearing before the bankruptcy judge. The two spoke briefly prior to the hearing. The record reflects that at the hearing, Mr. Potter, representing CHG as its bankruptcy counsel, did not inform the Court on behalf of CHG that CHG would be unable to pay Shaw Pittman their attorney's fees or that CHG could not meet that or any other requirement for confirmation found in 11 U.S.C. § 1129. Joint Appendix at 56. The bankruptcy court confirmed the plan, the post petition financing went through hours later and CHG wired $850,000 to Shaw Pittman the morning of December 16, 2003. Brief of Appellee Shaw Pittman at 17. On January 12, 2004 Shaw Pittman filed its Second Interim and Final Fee Application of Shaw Pittman LLP For Compensation and Reimbursement of Expenses as Counsel for the Debtor in which Shaw Pittman requested court approval for all fees still unapproved. On January 30, 2004, CHG filed a written objection to all fees billed by Shaw Pittman in the case. A series of rulings then followed from which CHG now appeals.

STANDARD OF REVIEW

As a general rule, in an appeal from a decision of the bankruptcy court, the burden of proof is on the party that seeks to reverse the Bankruptcy Court's holding. In re Johnson, 236 B.R. 510, 518 (D.D.C.1999) (citing Anderson v. Bessemer City, 470 U.S. 564, 573-574, 105 S.Ct. 1504, 84 L.Ed.2d 518 (1985)). The standard of review appropriate to the issues raised on appeal depends on the context of the decisions rendered and the nature of the decision. The Court reviews summary judgment decisions de novo. U.S. v. Spicer, 57 F.3d 1152, 1159 (D.C.Cir.1995) (citing In re Varrasso, 37 F.3d 760, 763 (1st Cir.1994) (finding a district court reviews bankruptcy court's grant of summary judgment de novo)). Bankruptcy Rule 7056, which incorporates the standard of Rule 56 of the Federal Rules of Civil Procedure, governs summary judgment in bankruptcy, i.e., summary judgment may be granted only if there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Varrasso, 37 F.3d at 762-63. Material facts are those "that might affect the outcome of the suit under the governing law," Anderson v. Liberty Lobby, 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986), and a genuine dispute about material facts exists "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party," id. Furthermore, on a motion for summary judgment, "all inferences to be drawn ... must be viewed in the light most favorable to the party opposing the motion." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). Even the bankruptcy court's purported factual findings are reviewed de novo, since they constitute conclusions as a matter of law that no genuine factual dispute exists to preclude summary judgment. Rosen v. Bezner, 996 F.2d 1527 (3rd Cir.1993).³

In contrast, CHG's appeal of the April 20, 2004 decision of the bankruptcy court awarding fees and expenses to Shaw Pittman is reviewed under the abuse of discretion standard. In re Kenneth Leventhal & Co., 19 F.3d 1174, 1177 (7th Cir.1994). To the extent the bankruptcy court made any factual findings to support its award these are reviewed under the clearly erroneous standard. Id.; Bankruptcy Rule 8013 (2004).

Lastly, the bankruptcy court's equitable determinations are also reviewed for abuse of discretion. In re Behlke, 358 F.3d 429, 433 (6th Cir.2004); In re I. Appel Corp., 300 B.R. 564 (S.D.N.Y.2003). The question of whether a bankruptcy court abused its discretion can only be answered in the affirmative if the bankruptcy court "based its ruling on an erroneous view of the law or a clearly erroneous assessment of the facts." In re Johnson, 236 B.R. 510, 518 (D.D.C.1999) (quoting Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 405, 110 S.Ct. 2447, 110 L.Ed.2d 359 (1990)). The burden of proof is on the party that seeks to reverse the Bankruptcy Court's holding. That party must show that the 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. Id.

FIRST ISSUE ON APPEAL

CHG's first argues that the "Bankruptcy Court improperly declined to consider CHG's arguments...