In re Blinder, Robinson & Co., Inc., Bankruptcy No. 90-12654-SBB

• Decision Date: 15 February 1991
• Docket Number: Adv. No. 90-1170-SBB (SIPA).,Bankruptcy No. 90-12654-SBB
• Parties: In re BLINDER, ROBINSON & COMPANY, INC., Debtor. SECURITIES INVESTOR PROTECTION CORP., Plaintiff, v. BLINDER, ROBINSON & COMPANY, INC., Defendant.
• Court: United States Bankruptcy Courts. Tenth Circuit. U.S. Bankruptcy Court — District of Colorado

123 B.R. 900 (1991)

In re BLINDER, ROBINSON & COMPANY, INC., Debtor.

SECURITIES INVESTOR PROTECTION CORP., Plaintiff, v. BLINDER, ROBINSON & COMPANY, INC., Defendant.

Bankruptcy No. 90-12654-SBB, Adv. No. 90-1170-SBB (SIPA).

United States Bankruptcy Court, D. Colorado.

February 15, 1991.

Glenn W. Merrick, William A. Bianco, Denver, Colo., for SIPA Trustee.

Kalmon Glovin, Nathan Davidovich, John Winston, Thomas Orrell, Intercontinental Enterprises, Inc., Englewood, Colo., pro se.

MEMORANDUM OPINION AND ORDER

SIDNEY B. BROOKS, Bankruptcy Judge.

THIS MATTER comes before the Court on the Trustee's Motion to Disqualify Former Blinder Robinson Attorneys, Kalmon Glovin, Nathan Davidovich, John Winston, Thomas Orrell, and Greg Gerganoff (collectively the "Attorneys") filed November 1, 1990. The Trustee seeks to disqualify the Attorneys from representing Intercontinental Enterprises, Inc. ("IEI"), a current and substantial creditor of the Debtor estate and an affiliated company of the Debtor, Blinder, Robinson & Co., Inc. ("Debtor" or "Blinder, Robinson"). The Trustee alleges that the Attorneys should be disqualified from representing IEI, in this case and related proceedings, on the grounds that such representation creates a conflict of interest, violates the rights of confidentiality of the Debtor, impedes the Trustee's ability to effectively advance the estate's interests, and violates the Code of Professional Responsibility. The Trustee further requests that the Attorneys, and their paralegals and staff, be enjoined from revealing confidences, secrets, and work product acquired or created while employed by Blinder, Robinson.

For the reasons set forth hereinbelow, the Court concurs with the Trustee, disqualifies the Attorneys from continued representation of IEI in this bankruptcy case and related proceedings, and enjoins the Attorneys and staff from disclosing confidential information and work product acquired while employed by Blinder, Robinson.

I. FACTUAL BACKGROUND.

Blinder, Robinson filed a Voluntary Petition for reorganization pursuant to Chapter 11 of the Bankruptcy Code on July 30, 1990. On August 1, 1990, Judge Zita Weinshienk of the United States District Court for the District of Colorado entered an Order which, inter alia: (a) decreed that the customers of the Debtor were in need of the protection afforded by the Securities Investor Protection Act, 15 U.S.C. § 78aaa et seq. ("SIPA"); (b) appointed Glen E. Keller, Jr. ("Keller" or "Trustee") as SIPA Trustee for the liquidation of the business of the Debtor; (c) appointed Davis, Graham & Stubbs ("DG & S") as counsel for the Trustee; and (d) removed the proceedings to this Bankruptcy Court.

The Debtor is a wholly-owned subsidiary of IEI. IEI "derives an `overwhelming' percentage of its revenues from Blinder, Robinson, . . . although IEI holds at least eighty different affiliates or subsidiaries. Meyer Blinder and his wife Lillian together own about 52% of IEI, the remainder of which is held by some 9,000 public shareholders." Hoxworth v. Blinder, Robinson & Co., Inc., 903 F.2d 186, 190 (3rd Cir. 1990). IEI is also one of the Debtor's largest creditors, asserting claims in excess of $2,500,000.00

Prior to the filing of the bankruptcy Petition, Attorneys were employed by the Debtor as full-time, in-house counsel for the Debtor. The attorneys and their support staff operated out of the north wing of the ninth floor of the Blinder Building ("9-North").¹ In 9-North, the Attorneys' offices were near or adjacent to one another and had access to a library and a Westlaw terminal.

On or about July 21, 1990, Harold M. Sterling ("Sterling") was retained by the Debtor and/or Meyer Blinder to represent the Debtor in a prospective bankruptcy proceeding. On Sunday, July 22, 1990, Sterling met with Meyer and Lillian Blinder, Lisa Snyder, the Chief Financial Officer of the Debtor, and the Attorneys. Discussed were the following topics:

1. The threat that the Walford and Wilson judgments would push the Debtor into bankruptcy;

2. The effect that bankruptcy would have on the supersedeas bond that was filed with the court in Walford and the garnishment proceeding in Wilson;

3. The differences between a Chapter 7 bankruptcy and a Chapter 11 bankruptcy;

4. The possibility of SIPC involvement in the proceedings;

5. The difficulties faced by the Debtor, a "broker/dealer" in filing a Chapter 11 petition; and

6. The termination of the operation of the Debtor as a "broker/dealer."

Subsequently, Sterling, Kalmon Glovin, and Nathan Davidovich met with opposing counsel in the Walford case in an attempt to settle the outstanding judgment and avoid bankruptcy.

On July 24, 1990, Sterling met with certain of the Attorneys regarding the filing of a Chapter 11 petition and probable SIPC involvement. They discussed the fact that Thompson McKinnon, a New York broker/dealer, successfully filed a Chapter 11 petition without SIPC involvement. The Attorneys and/or Meyer Blinder expressed concern about the length of time and the complexity of a SIPA liquidation and decided to oppose the appointment of a SIPA Trustee and avoid SIPC involvement by removing the Debtor from broker/dealer status.

The following day, July 25, 1990, Sterling met with some of the Attorneys to discuss how certain subordinated capital loans from and a tax allocation agreement between IEI to the Debtor would be treated in a Chapter 7 bankruptcy.

On July 26, 1990, an associate of Sterling, James H. Hahn, discussed with Greg Gerganoff the possible bulk transfer of furniture and other fixtures to other entities in order to increase capital and avoid bankruptcy. Apparently, the Attorneys and Meyer Blinder disagreed as to the necessity of having a formal appraisal. The possible assignment of two accounts receivable was also discussed. The Attorneys were acutely aware that each of these transfers faced possible challenges under the Bankruptcy Code and state law as fraudulent conveyances, preferential transfers, and transfers for less than adequate consideration.

Prior to the August 1, 1990 hearing before Judge Weinshienk, Sterling discussed with certain of the Attorneys negotiations with SIPC officials to avoid SIPC involvement. SIPC had agreed to allow a Chapter 11 bankruptcy to proceed, provided a receiver would be appointed. Meyer Blinder declined the SIPC offer and instructed Sterling and the Attorneys to oppose SIPC involvement altogether.

At the hearing on August 1, 1990 in which Judge Weinshienk appointed the liquidation Trustee, Nathan Glovin argued that the court should consider the testimony of Meyer Blinder, reconsider the decision, and stay the proceedings. All of these arguments were rejected. The Attorneys researched some of the issues considered at the hearing. Following the hearing, Sterling and the Attorneys discussed the possible appeal of the SIPA liquidation and the appointment of the Trustee. Since the ruling, the Attorneys have continued to work closely with Sterling's firm, discussing the merits of the appeal, drafting pleadings, and suggesting possible arguments. The appropriateness of the SIPA liquidation is currently on appeal to the Tenth Circuit.

On August 1, 1990, following his appointment, the Trustee terminated the employment of all Blinder, Robinson employees, including the Attorneys. On the same day, IEI hired the ousted Attorneys and their support staff to serve as IEI's new in-house counsel.² At IEI and/or Meyer Blinder's request, the Trustee permitted the Attorneys to remain in their offices in 9-North. Since August 1, 1990, the Attorneys have been representing the interests of IEI and other related entities from those offices.

Since the Trustee's appointment, one or more of the Attorneys have attended all Trustee meetings with Meyer Blinder or former Blinder, Robinson employees. All correspondence has been through the Attorneys. With respect to the Trustee and IEI, all issues, settlements, and the sale of certain assets have been negotiated through the Attorneys. IEI has played a vigorous, often adversarial role throughout the proceedings thus far.

In late August, 1990, the Trustee advised his counsel to investigate the issue of whether there was a conflict of interest caused by the Attorneys' subsequent representation of IEI. The Trustee raised the issue with the Attorneys in telephone conversations and hearings. By way of a letter dated September 25, 1990, counsel for the Trustee demanded that the Attorneys "cease any representation of IEI or any other party adverse to the estate of Blinder, Robinson & Co., Inc., whether or not any court appearance is involved." On September 26, 1990, the Trustee received a letter from a Florida attorney who had represented a client against Blinder, Robinson, who was then represented by Glovin. The Florida attorney stated that he thought "that it is inappropriate for Mr. Glovin to now represent the Blinders in litigation against Blinder, Robinson & Company, which he served as general counsel."

In September, 1990, the Trustee filed an adversary proceeding to compel the surrender of documents that had been created or retained by the legal department. Judge Matheson ordered the surrender of such documents over the objection of IEI. Most of the documents were turned over to the Trustee after a lengthy review with the Attorneys.

Sterling requested that the Debtor produce a representative with working knowledge of the company at the Section 341 creditors' meeting. Nathan Davidovich appeared at the meeting as counsel for Lisa Snyder, the former Blinder, Robinson Chief Financial Officer. The proceedings were temporarily suspended when Davidovich withdrew from representation of Snyder because of a perceived conflict presented by his former representation of the Debtor and his present representation of IEI.

The Trustee filed the instant Motion to Disqualify the Attorneys and Brief in Support on November 1, 1990. SIPC filed a Memorandum in...