Crawford v. Riley Law Grp. LLP (In re Wolverine, Proctor & Schwartz, LLC)
| Decision Date | 26 March 2015 |
| Docket Number | No. 12–11983–DPW.,12–11983–DPW. |
| Citation | 527 B.R. 809 |
| Parties | In re WOLVERINE, PROCTOR & SCHWARTZ, LLC, Debtor. Peter A. Crawford, Appellant, Cross–Appellee, Riley Law Group LLP, Janet E. Bostwick, P.C., and Verdolino & Lowey, P.C., Appellees, Cross–Appellants. |
| Court | U.S. District Court — District of Massachusetts |
Peter A. Crawford, Rye, NH, pro se.
Annapoorni R. Sankaran, Greenberg Traurig, LLP, Houston, TX, for Debtor.
David Koha, Lynne F. Riley, Casner & Edwards LLP, Boston, MA, David B. Madoff, Madoff & Khoury LLP, Foxboro, MA, for Appellees, Cross–Appellants.
Before me are cross appeals from an order of the bankruptcy court regarding fees requested by the Trustee, her counsel, and her professionals. Two aspects of the bankruptcy court's order on Applications for Compensation are at issue. In one, an unsuccessful claimant challenges the award of fees and costs incurred by the Trustee in the defense against his claim. In the other, the Trustee challenges the reduction in compensation for unsuccessfully opposing the claim of the primary debt holder; the unsuccessful claimant, who was not directly involved in that matter, supports reduction.
Appellant Peter Crawford lost his substantive claim for violation of an employment contract he brought against the bankrupt company at every relevant outpost of the federal court system—in the Bankruptcy Court, in this court, before the United States Court of Appeals for the First Circuit, and—through denial of his application for certiorari and denial of his application for rehearing on the denial of certiorari—in the Supreme Court of the United States. Using the foothold provided by a de minimis claim in the bankrupt estate he acquired after losing his own claim with finality, Mr. Crawford now brings this appeal seeking to deprive the Trustee, her counsel, and her experts of professional fees incurred in the defense of the extended litigation initiative he pursued.
The Trustee and her professionals, for their part, appeal the bankruptcy court order reducing their fees in connection with litigation—unrelated to the Crawford matter—against Tencara, LLC, which acquired secured debt as the result of a recapitalization transaction. The Trustee pursued the Tencara litigation on the basis that the lender could properly be characterized as an insider and knew the debtor was undercapitalized. Mr. Crawford supports the reduction the bankruptcy court ordered in the Trustee's compensation for the Tencara litigation.
The Debtor, Wolverine, Proctor & Schwartz (“WPS”), LLC, designed and manufactured custom industrial equipment, such as ovens and drying equipment, for the food and other industries. Mr. Crawford served as the Chief Operating Officer of the Debtor's predecessor, WPS, Inc., from 1999 until 2002. On January 12, 2005, Mr. Crawford filed a complaint against WPS, Inc. in this court alleging breach of contract for failure to pay a bonus set out in the employment agreement between Mr. Crawford and WPS, Inc. Crawford v. Wolverine, Proctor & Schwartz, Inc., Civ. Action No. 05–10078–DPW (D.Mass.) (Compl., Jan. 12, 2005, Dkt. No. 1). While that action was pending, WPS, LLC—which acquired substantially all of the operating assets and liabilities from WPS, Inc.—filed for Chapter 7 bankruptcy on April 1, 2006. In re Wolverine, Proctor & Schwartz, LLC, No. 06–10815–JNF (Bankr.D.Mass.) (Voluntary Petition, Apr. 1, 2006, Dkt. No. 1).
I dismissed all active motion practice in the breach of contract litigation before me without prejudice pending the outcome of the bankruptcy proceeding. Crawford v. Wolverine, Proctor & Schwartz, Inc., Civ. Action No. 05–10078–DPW, 2006 WL 2121747, at *1 (D.Mass. July 21, 2006). Mr. Crawford thereafter filed his claims in the bankruptcy court and pursued them unsuccessfully through bankruptcy proceedings.1 Meanwhile, the Trustee unsuccessfully pursued litigation on behalf of the bankruptcy estate against Tencara. Ultimately, on September 10, 2012, the bankruptcy court confirmed the Trustee's Final Report and ruled on fee applications from the Trustee, her counsel, and her professionals, as described below. See In re Wolverine, No. 06–10815–JNF, 2012 WL 3930360, at *1–2 (Bankr.D.Mass. Sept. 10, 2012).
The cross appeals before me regarding the compensation rulings of the bankruptcy court involve a complex factual and procedural history involving a number of different but related litigation matters and a variety of claims and objections in the bankruptcy proceeding. This history falls broadly into two categories, each of which I briefly summarize below.
In 2001—while Mr. Crawford was acting as Chief Operating Officer—WPS, Inc. recapitalized. In that transaction, three related private equity funds invested $14 million in a new entity called WPS, LLC, which would later acquire the operating assets and liabilities of its predecessor, WPS, Inc. Citizens Bank of Massachusetts accepted $11.5 million of this investment in satisfaction of approximately $21.5 million of debt. As a result, WPS, Inc. saw an approximately $10 million gain that formed the basis of Mr. Crawford's breach of contract action.
According to Mr. Crawford's employment agreement, he was entitled to a yearly bonus equal to five percent of the profitability of WPS, Inc. The formula set out in the agreement to measure profitability includes, as one of its variables, “EBITDA,” meaning E arnings B efore I nterest, T axes, D epreciation, or A mortization. The dispute in Mr. Crawford's breach of contract action and subsequent claims centered on the meaning of “Earnings” as used in “EBITDA.” Under the definition that WPS advanced, earnings means operating income. Under the definition that Mr. Crawford advanced, earnings means net income. This distinction was vital because under the WPS definition, Mr. Crawford would be entitled to no bonus, whereas under Mr. Crawford's definition, his bonus would be substantial. Indeed, in his bankruptcy claim, Mr. Crawford sought $885,582.37 and treble damages.
In preparation for the 2008 trial in the matter, which I conducted upon the withdrawal of the reference to the bankruptcy court, the Trustee engaged Keith Lowey of Verdolino & Lowey, P.C. (“V & L”) as an expert witness. Mr. Lowey prepared an expert report asserting that “[f]or purposes of computing EBITDA ... Earnings ... is comprised of operating income....” Mr. Lowey also testified consistent with this report at the 2008 trial as an expert on behalf of the Trustee. However, before submitting the case to the jury, I was forced to declare a mistrial when two jurors conducted independent internet research into the meaning of EBITDA.
Just before the 2008 trial, Mr. Crawford had sought to amend his complaint to add a new theory of recovery: quantum meruit. When I denied his motion, Mr. Crawford filed a separate complaint in this court based on the same operative facts, but asserting a quantum meruit theory. See Crawford v. Wolverine, Proctor & Schwartz, Inc., Civ. Action No. 08–10048–DPW (D.Mass.) (Compl., Jan. 14, 2008, Dkt. No. 1). After the 2008 trial ended in a mistrial, I consolidated the actions, and the parties sought discovery on the new quantum meruit theory of recovery which Mr. Crawford asserted. See id. (Order re: Consolidation, Sept. 2, 2008, Dkt. No. 44); id. (Scheduling Order, Sept. 2, 2008, Dkt. No. 43). The quantum meruit theory was a belated response to the Trustee's strategy of pursuing an alternative defense that there was no meeting of the minds sufficient to make the employment agreement binding. The additional discovery closed on December 20, 2008. Two weeks before the second trial, in 2009, both parties dropped these competing positions as to quantum meruit.
The second trial took place from June 15 to June 22, 2009 and resulted in a jury verdict in favor of the Trustee. Mr. Lowey did not testify during the trial. After the verdict, the Trustee moved for costs, including $417.95 for the March 27, 2007 deposition transcript of Mr. Crawford's designated expert, Mr. Georgiou, and $278.20 for the April 30, 2007 deposition transcript of Mr. Lowey. Mr. Crawford opposed the Trustee's motion for costs with respect to these two deposition transcripts on the ground that neither expert testified during the 2009 trial. At a hearing on December 3, 2009, I agreed. I accordingly ordered the award of costs requested by the Trustee less these two transcript costs. See Crawford, Civ. Action No. 08–10048–DPW (D.Mass.) (Memo & Order, Sept. 14, 2010, Dkt. No. 150).2
For his part, Mr. Crawford moved after trial for judgment as a matter of law and for a new trial. I denied both motions. See Crawford v. Wolverine, Proctor & Schwartz, Inc., Civ. Action No. 07–10279–DPW (D.Mass.) (Memo. & Order, Sept. 14, 2010, Dkt. No. 182). On appeal, the First Circuit affirmed. See Crawford, Nos. 10–1068, 10–1334, 10–2230 (Judgment, 1st Cir. Apr. 20, 2011). Mr. Crawford then appealed to the U.S. Supreme Court, which denied certiorari. See Crawford v. Wolverine, Proctor & Schwartz, Inc., –––U.S. ––––, 132 S.Ct. 578, 181 L.Ed.2d 422 (2011). Undaunted, Mr. Crawford petitioned the Supreme Court for rehearing on his petition, but to no avail. See Crawford v. Wolverine, Proctor & Schwartz, Inc., ––– U.S. ––––, 132 S.Ct. 1079, 181 L.Ed.2d 797 (2012).
With his multi-million dollar claim as thoroughly extinguished as it conceivably could be, Mr. Crawford no longer had money at stake or standing to assert himself in any continued WPS bankruptcy proceedings. Yet, demonstrating the fervent resilience evident throughout his litigation, Mr. Crawford purchased another's claim in the bankruptcy for $60.52, which the bankruptcy court concluded gave him standing to challenge the approval of the Trustee's final fee applications. See In re Wolverine, 2012 WL 3930360, at *1 & n. 1.
In 2005,...
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