Cardwell v. Bankr. Estate of Spivey (In re Douglas Asphalt Co.)
| Decision Date | 20 November 2012 |
| Docket Number | Adversary Proceeding Number 11-05013,Case Number 09-51272 |
| Court | United States Bankruptcy Courts. Eleventh Circuit. U.S. Bankruptcy Court — Southern District of Georgia |
| Parties | In re: DOUGLAS ASPHALT COMPANY Debtor MARY JANE CARDWELL, TRUSTEE FOR THE BANKRUPTCY ESTATE OF DOUGLAS ASPHALT COMPANY Plaintiff v. BANKRUPTCY ESTATE OF JOEL SPIVEY, JOEL SPIVEY, KYLE SPIVEY, FLORIENCE SPIVEY, RONNIE SPIVEY, COFFEE COUNTY MACHINE & IRON WORKS, INC., KENNETH E. FUTCH, JR., KENNETH E. FUTCH, P.C., BRENT J. SAVAGE, SAVAGE, TURNER, PINSON & KARSMAN, FIDELITY AND DEPOSIT COMPANY OF MARYLAND AND ZURICH AMERICAN INSURANCE COMPANY, ARCH INSURANCE COMPANY, GEORGIA DEPARTMENT OF REVENUE, UNITED STATES TREASURY-INTERNAL REVENUE SERVICE, MARY JEAN SPIVEY, MARATHON PETROLEUM COMPANY, LLC N/K/A MARATHON PETROLEUM COMPANY, LP, DUVAL COUNTY/ CITY OF JACKSONVILLE, FLORIDA, GEORGIA DEPARTMENT OF NATURAL RESOURCES/ ENVIRONMENTAL PROTECTION DIVISION, FLORIDA DEPARTMENT OF REVENUE, TOOMBS COUNTY TAX COMMISSIONER, COFFEE COUNTY TAX COMMISSIONER, WARE COUNTY TAX COMMISSIONER, AFVA ENTERPRISE, INC., ALITHICON LUBRICANTS CO., INC., ASC CONTRUCTION EQUIPMENT USA, INC., ATLANTIC DRILLING SUPPLY, INC., BATEY & SANDERS, INC., CARMEUSE LIME AND SLATE, INC., CELLULAR DEPOT DOUGLAS, CDW CORPORATION, DAYS INN, FIBERAND, INC., FIVE N'S, INC., FLEETCOR TECHNOLOGIES OPERATING CO., LLC, GAYATRI CORPORATION, GEORGIA SURVEYORS EXCHANGE COMPANY, CAROLYN HAMMOCK, HANSON PIPE & PRECAST, INC., JOHN CARLO, INC., LAFARGE NORTH AMERICAN, INC., LUMBERMENS MUTUAL CASUALTY COMPANY, MCCORD TIE & TIMBER, INC., SUBROGATING LEGAL JUDGMENTS, LLC ASSIGNEE OF OSAN PETROLEUM CO., INC., P&C AUTO PARTS, INC., PIONEER FINANCIAL, LLC, SHREE SATYA SAI, LLC D/B/A QUALITY INN AT FORT STEWART, REGENCY INN, S.A.F.E. INVESTMENTS, LLC, SAVANNAH TIRE & RUBBER CO., SCOTT ICE SERVICE, LLC, SOUTHERN DAVIS BUSINESS, STRICKLAND OIL COMPANY, INC., T&M TRUCK CENTER, INC., SUWANEE AMERICAN CEMENT, LLC, TARMAC AMERICA, LLC Defendants KENNETH E. FUTCH AND SAVAGE & TURNER, P.C. Movants v. MARY JANE CARDWELL, TRUSTEE FOR THE ESTATE OF DOUGLAS ASPHALT COMPANY, ZURICH INSURANCE COMPANY OF AMERICA, FIDELITY & DEPOSIT COMPANY OF MARYLAND, ARCH INSURANCE COMPANY, AND LUMBERMENS MUTUTAL CASUALTY COMPANY Respondents |
This matter comes before me on the amended motion for summary judgment by Defendants Kenneth E. Futch and Savage & Turner, P.C.1 ("Attorneys")2 . The first issue raised is whetherAttorneys have an attorney's charging lien ("Charging Lien") against the proceeds of a settlement reached post-petition when Attorneys served as both pre-petition counsel to the Debtor and post-petition special counsel to the debtor's bankruptcy estate. Related to that issue is the question of how a pre-petition settlement offer impacts the amount and priority of fees that Attorneys receive. Based upon my determination that Attorneys' work as special counsel to the estate (as opposed to Attorneys' representation of the Debtor pre-petition) produced the post-petition settlement, I find that Attorneys have no Charging Lien against at least part of the post-petition settlement proceeds. Furthermore, I find that the pre-petition settlement offer entitles Attorneys to a pre-petition unsecured claim for a reasonable amount of fees. Since resolution requires significant factual determinations, Attorneys' motion for summary judgment is denied.
Douglas Asphalt Company, the Debtor, is a paving company incorporated in Georgia and its shareholders are Joel Spivey, Kyle Spivey and Florience Spivey. Before the Chapter 7 involuntary bankruptcy action was filed against the Debtor on December 2, 2009 (Case Dkt. No. 1), Debtor was a party to litigation that produced two separate settlements: one settlement produced prior to the filing of bankruptcy and a second settlement produced after the bankruptcy proceedings had begun (P.A.P. Dkt. No. 82 Ex. B; A.P. Dkt. No. 351 Ex. 2). On December 5, 2011, Mary Jane Cardwell, the Trustee for the current chapter 7 estate ("Trustee"), filed this adversary proceeding to determine which parties have valid pre-petition liens and/or claims against the combined settlement proceeds,3 and to determinethe extent and priority of those liens and other interests.4 (A.P. Dkt. No. 1 ¶ 1, 19.)
Savage & Turner, P.C. and Kenneth E. Futch, P.C. are law firms that represented the Debtor and certain principals of the Debtor both in the prior litigation and in several other legal matters prior to the bankruptcy. After the bankruptcy was filed, Brent J. Savage and Kenneth E. Futch, along with their respective firms, were appointed as special counsel for the Debtor-in-possession and then for the Debtor's estate. (Case Dkt. Nos. 106, 348, 349.) Zurich Insurance Company of America, Fidelity and Deposit Company of Maryland, Arch Insurance Company, and Lumbermens Mutual Casualty Company ("Insurance Companies") are surety creditors of the Debtor. (Case No. 09-51272, Cl. # 101, 124, 125; A.P. Dkt. No. 358.)
On July 11, 2012, Attorneys filed a motion for summary judgment ("Original Motion") in this adversary proceeding seeking a determination that they hold a Charging Lien against the proceeds of the post-petition settlement in the amount of $1,050,000. (A.P. Dkt. No. 351.) After the Trustee and the Insurance Companies responded (A.P. Dkt. Nos. 357, 358),Attorneys filed this amended motion for summary judgment ("Amended Motion") on September 10, 2012, and argued that the value of their lien should be increased to $2.04 million. (A.P. Dkt. No. 371.) The Insurance Companies and the Trustee (collectively "Respondents") filed responses on October 15, 2012, and September 25, 2012, respectively. (A.P. Dkt. No. 397; A.P. Dkt. No. 383.) Attorneys then replied on October 26, 2012 (A.P. Dkt. No. 400), Insurance Companies replied on November 8, 2012 (A.P. Dkt. No. 407), and Attorneys replied again on November 14, 2012 (A.P. Dkt. No. 409).
The parties have agreed that the following facts are undisputed.5 Prior to the institution of Debtor's involuntary bankruptcy, Debtor, Joel Spivey, and Kyle Spivey sued Applied Technical Services ("ATS") and several other defendants in United States District Court6 ("ATS Litigation.") (A.P. Dkt. No. 1 ¶ 4; A.P. Dkt. No. 371; A.P. Dkt. No. 397.) Pursuant to a contingency fee agreement ("Fee Agreement"), Attorneys represented Debtor andother plaintiffs in the suit. (P.A.P. Dkt. No. 82-2 ¶ 11; P.A.P. Dkt. No. 105-4 ¶ 11; Case Dkt. No. 117; A.P. Dkt. No. 383; A.P. Dkt. No. 397 ¶ 1.) Before a verdict was rendered, the parties settled for $2 million plus an assignment to plaintiffs of various other causes of action owned by ATS ("First Settlement.") (P.A.P. Dkt. No. 82-5; P.A.P. Dkt. No. 82-2 ¶ 8; A.P. Dkt. No. 1 ¶ 6; A.P. No. 371; A.P. Dkt. No. 397 ¶ 2.) Eventually, on October 1, 2009, the jury returned a verdict in favor of plaintiffs for $150 million. (A.P. Dkt. No. 351 Ex. 1; A.P. No. 1 ¶ 6; A.P. Dkt. No. 397 ¶ 2.)
While that verdict was on appeal ("ATS Appeal") to the United States Court of Appeals for the 11th Circuit ("11th Circuit"), on December 2, 2009, an involuntary bankruptcy proceeding was filed against the Debtor. (Case Dkt. No. 1; A.P. Dkt. No. 1 ¶ 6; A.P. Dkt. No. 371; A.P. Dkt. No. 397 ¶ 4.) After the case was voluntarily converted to a chapter 11,7 I appointed Attorneys as special counsel to the Debtor-in-possession on February 5, 2010 (Order Appointing Special Counsel, Feb. 8, 2010,Case Dkt. No. 106), and, after the case was re-converted to a chapter 7, on motion of the Trustee,8 I appointed Attorneys as special counsel to the Debtor's estate on June 17, 20109 (Order Appointing Special Counsel, June 18, 2010, Case Dkt. No. 348; Order Appointing Special Counsel, June 18, 2010, Case Dkt. No. 349).
Meanwhile, sometime before the 11th Circuit reached a decision on the ATS Appeal, Attorneys and opposing counsel in the ATS Litigation began negotiating another settlement. (A.P. Dkt. No. 371; A.P. Dkt. No. 383; A.P. Dkt. No. 397.) Those negotiations resulted in a post-petition agreement ("Second Settlement"), which was structured to produce a minimum of $3 million and a maximum of $12 million, and which partially set out the varying amounts Debtor would receive depending on the outcome of the ATS Appeal. (A.P. Dkt. No. 351 Ex. 2.) The Trustee moved to approve the final version of that agreement on September 29, 2011 (Case Dkt. No. 451), and I entered an order approving theSecond Settlement on December 1, 2011 (Order on Mot. to Compromise Controversy, Dec. 2, 2011, Case Dkt. No. 461). The 11th Circuit eventually overturned the jury verdict in the ATS Litigation, and as a result, the Second Settlement produced $3 million. (A.P. Dkt. No. 1 ¶ 6, 19; A.P. Dkt. No. 371; A.P. Dkt. No. 397 SI 17.)
Attorneys brought this Amended Motion seeking a determination that they have a valid Charging Lien against the Second Settlement proceeds and, if so, a determination of the value of that lien.10 (A.P. Dkt. No. 371.) In claiming a Charging Lien, Attorneys first state that their representation of the Debtor in the ATS litigation, rather than their representation of the Debtor's estate as special counsel in the underlying bankruptcy, produced the Second Settlement. (A.P. Dkt. No. 371.)With that premise in mind, they then turn to state law and argue that in Georgia, attorneys have charging liens on the judgments and settlements that their labors produce. (Id.) They contend that such liens arise when an attorney's employment begins, and are perfected either at that same time or when the first judgment in the litigation is rendered. (Id.)
Applying that theory to their case, Attorneys argue that their Charging Lien against the Second Settlement arose when they began representing the debtor in 2006 and was perfected either at that same time or when the jury awarded the $150 million dollar judgment. (Id.) They contend...
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