In re Allboro Waterproofing Corp.

• Citation: 224 BR 286
• Decision Date: 17 August 1998
• Docket Number: Bankruptcy No. 195-17372-353,Adversary No. 197-1615-353 to 197-1625-353.
• Parties: In re ALLBORO WATERPROOFING CORP., Debtor. John S. PEREIRA, Chapter 7 Trustee of Allboro Waterproofing Corp., Plaintiff, v. ALLBORO BUILDING MAINTENANCE, INC., Defendant. John S. PEREIRA, Chapter 7 Trustee of Allboro Waterproofing Corp., Plaintiff, v. Dionysios VLACHOS, Defendant. John S. PEREIRA, Chapter 7 Trustee of Allboro Waterproofing Corp., Plaintiff, v. Marianthi VLACHOS, Defendant. John S. PEREIRA, Chapter 7 Trustee of Allboro Waterproofing Corp., Plaintiff, v. Jerry VLACHOS, Defendant. John S. PEREIRA, Chapter 7 Trustee of Allboro Waterproofing Corp., Plaintiff, v. Evy MELACKRINOS, Defendant. John S. PEREIRA, Chapter 7 Trustee of Allboro Waterproofing Corp., Plaintiff, v. Nikitas VLACHOS, Defendant. John S. PEREIRA, Chapter 7 Trustee of Allboro Waterproofing Corp., Plaintiff, v. Constantine VLACHOS, Defendant. John S. PEREIRA, Chapter 7 Trustee of Allboro Waterproofing Corp., Plaintiff, v. ALLCITY CONSTRUCTION, Defendant. John S. PEREIRA, Chapter 7 Trustee of Allboro Waterproofing Corp., Plaintiff, v. ENOS INTRCONTINENTAL, Defendant. John S. PEREIRA, Chapter 7 Trustee of Allboro Waterproofing Corp., Plaintiff, v. Dionysios VLACHOS and Marianthi Vlachos, as Trustee of D. Vlachos Annuity Trust, Defendant. Dionysios VLACHOS and Marianthi Vlachos, as Trustee of D. Vlachos Annuity Trust, Defendant.
• Court: United States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — Eastern District of New York

224 B.R. 286 (1998)

In re ALLBORO WATERPROOFING CORP., Debtor.

John S. PEREIRA, Chapter 7 Trustee of Allboro Waterproofing Corp., Plaintiff, v. ALLBORO BUILDING MAINTENANCE, INC., Defendant.

John S. PEREIRA, Chapter 7 Trustee of Allboro Waterproofing Corp., Plaintiff, v. Dionysios VLACHOS, Defendant.

John S. PEREIRA, Chapter 7 Trustee of Allboro Waterproofing Corp., Plaintiff, v. Marianthi VLACHOS, Defendant.

John S. PEREIRA, Chapter 7 Trustee of Allboro Waterproofing Corp., Plaintiff, v. Jerry VLACHOS, Defendant.

John S. PEREIRA, Chapter 7 Trustee of Allboro Waterproofing Corp., Plaintiff, v. Evy MELACKRINOS, Defendant.

John S. PEREIRA, Chapter 7 Trustee of Allboro Waterproofing Corp., Plaintiff, v. Nikitas VLACHOS, Defendant.

John S. PEREIRA, Chapter 7 Trustee of Allboro Waterproofing Corp., Plaintiff, v. Constantine VLACHOS, Defendant.

John S. PEREIRA, Chapter 7 Trustee of Allboro Waterproofing Corp., Plaintiff, v. ALLCITY CONSTRUCTION, Defendant.

John S. PEREIRA, Chapter 7 Trustee of Allboro Waterproofing Corp., Plaintiff, v. ENOS INTRCONTINENTAL, Defendant.

John S. PEREIRA, Chapter 7 Trustee of Allboro Waterproofing Corp., Plaintiff, v. Dionysios VLACHOS and Marianthi Vlachos, as Trustee of D. Vlachos Annuity Trust, Defendant.

Dionysios VLACHOS and Marianthi Vlachos, as Trustee of D. Vlachos Annuity Trust, Defendant.

Bankruptcy No. 195-17372-353, Adversary Nos. 197-1615-353 to 197-1625-353.

United States Bankruptcy Court, E.D. New York.

August 17, 1998.

COPYRIGHT MATERIAL OMITTED

Gersten, Savage, Kaplowitz, Fredericks, & Curtin, L.L.P. by Harold D. Jones, New York City, for Chapter 7 Trustee.

John S. Pereira, New York City, Chapter 7 Trustee.

Pryor & Mandelup, L.L.P. by Eric J. Snyder, Westbury, NY, for debtor and defendants.

DECISION ON MOTIONS TO DISQUALIFY COUNSEL

JEROME FELLER, Bankruptcy Judge.

I. INTRODUCTION

Before the Court are eleven identical motions brought by the Chapter 7 trustee ("Trustee") of Allboro Waterproofing Corp. ("Debtor") to disqualify the law firm of Pryor & Mandelup, LLP ("P & M"), as counsel for the defendants in eleven interrelated adversary proceedings instituted by the Trustee.

Dionysios Vlachos, sole shareholder of the Debtor, is a defendant in one of those lawsuits, an avoidance action that forwards preference, fraudulent conveyance, piercing the corporate veil, and breach of fiduciary duty theories of recovery. The other ten adversary proceedings advance similar claims. Five complaints name members of Dionysios's immediate family as defendants: his wife, Marianthi Vlachos; their children, Jerry Vlachos, Evy Melackrinos, and Constantine Vlachos; and Dionysios's brother, Nikitas Vlachos. Three more are filed against Vlachos family run businesses: Jerry owns Allboro Building Maintenance Inc.; Constantine is president of Enos Intercontinental; and Nikitas is president of Allcity Construction. The two remaining adversary proceedings are brought against Dionysios and Marianthi, in their capacity as trustees of two annuity trusts that designate each individual as beneficiary. The Vlachos family members and related entities, sued by the Trustee in these adversary proceedings, are hereinafter collectively referred to as "Defendants;" individual family members, as indicated, are referred to by first name.

In addition to representing the Defendants in the adversary proceedings, P & M acts as counsel for the Debtor in this bankruptcy case. According to the Trustee, the simultaneous representation of the Debtor and the Defendants creates a conflict of interest which warrants the disqualification of P & M as counsel for the Defendants. Although arguing that there is no actual conflict, P & M has voiced a willingness to withdraw from representing the Debtor if this Court determines that an impermissible conflict exists, thereby enabling P & M to continue as counsel for the Defendants. We approach this matter mindful of the important competing interests at stake. It is incumbent upon a judicial tribunal to preserve, to the greatest extent possible, both the right to be represented by the counsel of one's choice and the public interest in maintaining the highest standard of professional conduct and the scrupulous administration of justice.

This Court agrees with the Trustee in part. The interests of the Debtor and the Defendants do differ, and there is an actual conflict that merits cessation of the multiple representation. However, rather than adopt the Trustee's solution, we hold that the appropriate remedy in this case is to allow P & M to voluntarily withdraw from representing the Debtor and continue as counsel for the Defendants. Accordingly, for all of the reasons hereinafter set forth, the Trustee's motions are denied. P & M is permitted to remain as counsel for the Defendants, provided that the firm withdraws as counsel for the Debtor.

This opinion constitutes the Court's findings of fact and conclusions of law in accordance with Fed.R.Bankr.P. 7052, made applicable to this contested matter by Fed. R.Bankr.P. 9014.

II. FACTS

The facts in this matter are largely undisputed. On September 1, 1995, an involuntary petition was filed against the Debtor. No responsive pleading was filed contesting the petition, and an order for relief followed soon after. The Debtor failed to file a list of creditors within fifteen days of the order for relief, as required by Fed.R.Bankr.P. 1007(a)(2), nor did anyone appear on behalf of the Debtor on November 27, 1995, the date set for the first scheduled meeting of creditors, conducted pursuant to 11 U.S.C. § 341(a).

The petitioning creditor, Turner Towers Tenant Corp. ("Turner Towers"), believed that the Debtor's assets had been improperly transferred to prevent collection of an arbitration award decided in favor of Turner Towers. Pursuant to Fed.R.Bankr.P.2004, Turner Towers moved for an examination of the Debtor, Dionysios, Marianthi, Jerry, and Allboro Building Maintenance ("ABM"), a corporation allegedly formed by Jerry, sometime in September 1994, to siphon assets from the Debtor. On December 8, 1995, this Court signed an order granting Turner Towers the requested relief, provided that no party would be required to appear or produce any documents absent a subpoena duly issued and served in accordance with Fed. R.Bankr.P. 9016.

In early 1996, prior to an examination scheduled for January 11, Turner Towers was contacted by P & M, and informed that the firm represented ABM and Jerry, but not the Debtor. In a flurry of letters and telephone conversations with P & M during that month, Turner Towers urged the scheduling of depositions and turnover of requested documents. Those attempts were unsuccessful, however, and Turner Towers moved, on February 1, 1996, for an order directing Jerry and ABM to comply with the Court's order of December 8, 1995 and adjudging them in civil contempt. The motion also sought relief in the form of compelling Dionysios, on behalf of the Debtor, to file required lists, schedules, and statements, and attend a § 341 meeting.

P & M continued to remain active in the bankruptcy case, as the civil contempt battle ensued during the next several months. It filed papers in opposition to the contempt motion on behalf of Jerry and ABM, and appeared at the hearing which was held on the matter. Eventually, the February motion was withdrawn, only to have Turner Towers file a nearly identical contempt motion on April 22, 1996. Ultimately, an order granting the civil contempt motion was signed in late May. Among other provisions, the order required that the Debtor, through Dionysios, comply with the prior Rule 2004 requests made by Turner Towers. However, because of Dionysios's unavailability (he had retired to Florida with Marianthi), Jerry was designated as the Debtor's "responsible person." The May order was therefore amended, on June 17, 1996, to reflect Jerry's newly appointed duties to provide for the production of the Debtor's corporate records, file the necessary schedules and statements, and appear for the Debtor at the § 341 meeting. Jerry's counsel, P & M, was also retained as counsel for the Debtor at this time, and aided turn over of the required documents and attended the subsequently scheduled § 341 meeting.

The skirmishes fueled by Turner Tower's contempt motions apparently delayed normal progression of the bankruptcy case, and by October 1997 the Trustee's deadline to bring avoidance actions loomed. The Trustee obtained stipulations to extend the time to file complaints, and eventually initiated eleven adversary proceedings against the Defendants on December 30, 1997. At the first scheduled pre-trial hearing, held February 24, 1998, P & M stated that it would thereafter represent all of the Defendants. Less than one month later, on March 17, 1998, P & M filed motions to dismiss the eleven adversary proceedings.

In the instant motions to disqualify, filed May 18, 1998, the Trustee requests that P & M be disqualified from representing the Defendants, arguing that P & M is hopelessly entangled in an obvious conflict of interest through the simultaneous representation of the Debtor and the Defendants. Moreover, P & M must be disqualified in any event, according to the Trustee, due to a likelihood that the Defendants' lead counsel, Eric J. Snyder, Esq. ("Snyder"), will be called by the Trustee as a witness.¹

P & M, on the other hand, claims that there is no actual conflict because the litigations are in their infancy; the adversary proceedings are still in the early pre-trial stage as responsive pleadings have not as yet been filed, thus rendering any conflict a mere potentiality. Furthermore, according to P & M, the Trustee has not met the heavy burden required to show a disqualifying conflict and thereby separate clients from their chosen attorney. If, however, the Court determines that an actual conflict exists, P & M offers to withdraw from representing the Debtor and continue in these adversary...