In re Brooks, Case No.: 13-70840-las
| Decision Date | 05 November 2014 |
| Docket Number | Case No.: 13-70840-las |
| Parties | In re: Bob Brooks aka Boris Burakovsky and Alexandra Brooks aka Alexandra Burakovsky, Debtors. |
| Court | U.S. Bankruptcy Court — Eastern District of New York |
Appearances:
Fridlin & Associates, PC
and Yelena Korsunskaya
By: Elaine Fridlin, Esq.
1517 Voorhies Avenue, 4th Floor
Brooklyn, New York 11235
Cuevas & Greenwald, P.C.
By: Wayne M. Greenwald, Esq.
475 Park Avenue South - 26th Floor
New York, New York 10016
Office of the United States Trustee
By: Alfred M. Dimino, Esq.
560 Federal Plaza, Room 560
Central Islip, New York 11722
Before the Court is the motion dated November 4, 2013 by creditor, Igor Korsunsky ("Korsunsky"), pursuant to Rule 60(b) of the Federal Rules of Civil Procedure ("Fed. R. Civ. P.") as made applicable by Rule 9024 of the Federal Rules of Bankruptcy Procedure (the "Bankruptcy Rules") seeking to (1) rescind an order dated May 20, 2013 authorizing the retention of Cuevas & Greenwald, P.C. ("C&G"), as counsel to the Debtors, Bob and Alexandra Brooks (the "Debtors" or "Brookses"), and (2) disqualify C&G from representing the Debtors in this bankruptcy case (the "Motion for Reconsideration") [dkt no. 70]. C&G filed opposition dated November 12, 2013 to the Motion to Disqualify (the "C&G Objection") [dkt no. 71]. The issues before the Court are (a) whether Korsunsky waived his right to challenge the retention of C&G, and (b) whether the May 20, 2013 retention order should be rescinded pursuant to Fed. R. Civ. P. 60(b). For the reasons set forth below, the Motion for Reconsideration is denied. The following constitutes the Court's findings of fact and conclusions of law pursuant to Bankruptcy Rule 7052.
The Court has jurisdiction over this matter under 28 U.S.C. § 1334(b) and the Standing Order of Reference entered by the United States District Court for the Eastern District of New York pursuant to 28 U.S.C. § 157(a), dated August 28, 1986, as amended by Order dated December 5, 2012, effective nunc pro tunc as of June 23, 2011.
Korsunsky and his wife, Yelena Korsunskaya (together, the "Korsunskys") are fifty percent owners of Aqua Shield, Inc. ("Aqua Shield"), which produces pool enclosures and similar structures. The Debtors own the other fifty percent of Aqua Shield. The Korsunskys andthe Debtors are all directors and officers of Aqua Shield.
In November of 2008, the Korsunskys and Aqua Shield commenced an arbitration proceeding against the Debtors (the "Arbitration Proceeding"). On or about February 1, 2013, the arbitrator rendered a decision in favor of the Korsunskys and Aqua Shield against the Debtors (the "Arbitration Award").
Bob Brooks initially approached Alla Kachan, Esq. ("Kachan") of the Law Office of Alla Kachan, P.C. under an alias, Boris Brooks, about a potential bankruptcy filing. After an initial consultation with Kachan, the Brookses then approached Wayne M. Greenwald, Esq. ("Greenwald") regarding their desire to file for bankruptcy. On February 11, 2013, ten days after the Arbitration Award was rendered, the Debtors paid Greenwald an initial retainer of $5,000 in connection with their bankruptcy filing.
The Debtors filed for chapter 11 relief under the Bankruptcy Code on February 21, 2013 (the "Petition Date") and the case was assigned to former Bankruptcy Judge Dorothy Eisenberg. A notice dated February 22, 2013 (the "Bankruptcy Notice") [dkt. 9] of the Debtors' bankruptcy filing, the meeting of creditors pursuant to 11 U.S.C. § 341, and statutory deadlines was sent by the Bankruptcy Noticing Center to the Debtors' creditors, including Aqua Shield at its offices in West Babylon, New York, and the Korsunskys in care of Howard Levine, Esq. of Rappaport Hertz Cherson & Rosenthal, P.C. The Bankruptcy Notice also lists Greenwald of Wayne Greenwald, P.C. as counsel for the Debtors.
The next day, the Debtors filed an ex parte application seeking an order approving the retention of Greenwald's firm, C&G,2 as their chapter 11 counsel (the "Retention Application")[dkt no. 8]. In his declaration dated February 22, 2013 (the "February 22 Declaration") in support of the Retention Application, Greenwald disclosed, pursuant to 11 U.S.C. §§ 329 and 504 and Bankruptcy Rule 2014, that (1) he has known Igor Krol, Esq.,3 counsel for Aqua Shield, on a collegial basis for more than two decades, (2) he once represented Compudye, Inc. and Compudye Fab Corp. (together, "Compudye") in their chapter 11 filings in this district, and (3) Korsunsky held an equity interest in, and was once an officer of, Compudye. Compudye, Inc. was engaged in the business of dying and washing fabrics for the garment industry and Compudye Fab Corp. was a sublessor of Compudye Inc.'s business premises. Korsunsky was a 33% equity owner of Compudye with two other unrelated individuals. Compudye filed for bankruptcy relief on May 13, 2007 and the chapter 11 cases were converted to cases under chapter 7 on April 18, 2008. Compudye Fab's case was closed on August 13, 2010 and Compudye Inc.'s bankruptcy case was closed on January 5, 2012.
On March 19, 2013, Kachan filed a notice of appearance stating that she was representing the Korsunskys and requesting that she be served with all notices and papers filed in this bankruptcy case. Judge Eisenberg held the initial Chapter 11 case conference on April 4, 2013 at which Greenwald appeared on behalf of the Debtors, Kachan appeared on behalf of the Korsunskys, and Alfred M. Dimino, Esq. appeared on behalf of the Office of the United States Trustee (the "U.S. Trustee").
On April 10, 2013, at the request of the U.S. Trustee, the Debtors refiled the Retention Application with the same February 22 Declaration by Greenwald attached, and noticed theRetention Application for a hearing before the Court on May 16, 2013 [dkt no. 25]. Kachan and other creditors who filed a notice of appearance were served with a copy of the Retention Application and the notice of the scheduled hearing.
Two days later on April 12, 2013, the Debtors filed an application for an order to show cause as to why Kachan should not be disqualified from representing the Korsunskys in this bankruptcy case ("Kachan Disqualification Motion") [dkt no. 26] because Bob Brooks had initially consulted with Kachan about filing for bankruptcy. Judge Eisenberg entered an order to show cause on the same day scheduling a hearing on the Kachan Disqualification Motion for April 18, 2013 (the "April 18, 2013 Hearing"). On April 17, 2013, Kachan, on behalf of the Korsunskys, filed opposition to the Kachan Disqualification Motion (the "Objection and Cross Motion") [dkt no. 32], which also contained an objection to the Retention Application and a cross motion seeking to remove Greenwald and C&G as the Debtors' bankruptcy counsel, which was supported by a declaration from Korsunsky (the "Korsunsky April 2013 Declaration").
Korsunsky asserted in the Objection and Cross Motion that a "[t]rue conflict of interest in [Greenwald's] representation of the Brookses exists for Mr. Greenwald, which arose when he previously represented Mr. Korsunsky as principal in the bankruptcy filings of [Compudye]." Objection and Cross Motion, ¶6. Although there was no retention agreement between Korsunsky personally and Greenwald, Korsunsky contended that during Greenwald's representation of Compudye, Korsunsky (1) consulted with Greenwald regarding his dispute with the Debtors, (2) advised Greenwald that he was considering commencing an arbitration proceeding against his business partner, and (3) imparted privileged, confidential information regarding his interest in Aqua Shield, the financial state of Aqua Shield, and the nature of the ongoing dispute to Greenwald in the course of these consultations. Korsunsky also asserted thatGreenwald received confidential information with regard to Korsunsky's personal and business finances, including the issues that arose with respect to Aqua Shield. Korsunsky April 2013 Declaration, ¶ 5. Korsunsky argued that Greenwald's February 22 Declaration in support of the Retention Application did not disclose the consultations he provided to Korsunsky with respect to (i) Aqua Shield, including what would happen to any monetary award received by Korsunsky if the Brookses filed for bankruptcy or (ii) the receipt of confidential information regarding his personal and business finances which he allegedly provided to Greenwald. Accordingly, by the Objection and Cross Motion, Korsunsky moved for Greenwald's disqualification pursuant to Rules 1.9 and 1.18 of the New York Rules of Professional Conduct ("N.Y. Rules of Prof. Conduct").
Rule 1.18(c) of N.Y. Rules of Prof. Conduct states:
A lawyer subject to paragraph (b) shall not represent a client with interests materially adverse to those of a prospective client in the same or a substantially related matter if the lawyer received information from the prospective client that could be significantly harmful to that person in the matter . . . .
N.Y. Rules of Prof. Conduct 1.18(c). In this regard, Korsunsky specifically alleged that Greenwald received vital information about Aqua Shield's corporate structure and finances, the nature of the dispute between the parties, and the acts that precipitated that dispute, and that Greenwald provided advice to Korsunsky as to his prospective rights should the Debtors seek bankruptcy protection and that any monetary award received by Korsunsky may be discharged.4
Rule 1.9(a) of N.Y. Rules of Prof. Conduct states:
A lawyer who has formerly represented a client in a matter shallnot thereafter represent another person in the same or a substantially related matter in which that person's interests are materially adverse to the interests of the former client unless the former...
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