In re Horvath
| Decision Date | 10 March 2017 |
| Docket Number | Case No. 13-34137 |
| Parties | In Re: Robin L. Horvath, Debtor. |
| Court | U.S. Bankruptcy Court — Northern District of Ohio |
The court incorporates by reference in this paragraph and adopts as the findings and analysis of this court the document set forth below. This document has been entered electronically in the record of the United States Bankruptcy Court for the Northern District of Ohio.
MEMORANDUM OF DECISION REGARDING FIRST AND FINAL APPLICATION OF ROETZEL & ANDRESS FOR COMPENSATION AND REIMBURSEMENT OF EXPENSES
This case came before the court for hearing on the First and Final Application of Roetzel & Andress for Compensation and Reimbursement of Expenses ("Fee Application") [Doc. # 257] with respect to the firm's representation of the Chapter 7 Trustee and the objection to the Fee Application filed by Creditors Thomas A. Matuszak LLC, Ballenger & Moore Co. LPA, and Matuszak & Koder Ltd ("Objecting Creditors") [Doc. #261]. Counsel for Objecting Creditors and attorney Patricia Fugee ("Fugee") appeared at the hearing in person.1 Counsel for the United States Trustee ("UST"), for Fifth Third Bank ("Fifth Third") and for Roetzel & Andress ("Roetzel") all appeared by telephone.
The district court has jurisdiction over this Chapter 7 case pursuant to 28 U.S.C. § 1334(a) as a caseunder Title 11. It has been referred to this court by the district court under its general order of reference. 28 U.S.C. § 157(a); General Order 2012-7 of the United States District Court for the Northern District of Ohio. Proceedings involving fee applications of counsel for a trustee are core proceedings at the heart of administration of the bankruptcy estate that the court may hear and determine under 28 U.S.C. § 157(b)(1) and (b)(2)(A).
At the hearing, the parties agreed that an evidentiary hearing was not necessary for the court to address the objection and rule on the Fee Application given the extensive proceedings in this case and related adversary proceedings as well as the record submitted in support of the parties' respective positions, of which the court may take judicial notice, and given the court's close involvement in those proceedings over approximately the past three years.
The court took the Fee Application under advisement subject to the court's determination of the admissibility of a document proffered at the hearing by Objecting Creditors that Debtor had received from the United States Department of Justice after his request pursuant to the federal Freedom of Information Act and to which the UST objected. According to Objecting Creditors, the proffered document would support their argument that the Fee Application should be denied due to Applicant's conflict of interest and, specifically, that it would show that creditor Fifth Third received preferential treatment by Fugee while employed by the Chapter 7 Trustee ("Trustee"). The court granted any party in interest desiring to do so leave to file a memorandum in support of their position regarding the admissibility and relevance of the proffered documents. The UST, Roetzel and Fugee each timely filed a memorandum, arguing that the document containing certain email communications is not relevant to the issue before the court. No memorandum was filed by Objecting Creditors.
The proffered document contains email communications primarily between the Trustee and counsel for the UST. It contains only one email communication between Fugee and counsel for the UST and one email from Fugee to the Trustee. The court has reviewed the email communications and agrees that none of the emails have any relevance to the issue for which they were proffered with the exception of the April 21, 2016, email from the Trustee to Fugee containing a discussion of an opinion regarding conflict of interest. Only that email will be admitted as evidence in this matter. None of the other emails, only one of which even mentions Fifth Third, make Objecting Creditors' allegation that Fifth Third received preferential treatment by Fugee more or less probable than it would be without the evidence and are thus inadmissible. See Fed. R. Evid. 401; Fed. R. Bankr. P. 9017.
Having reviewed the entire record of proceedings in this case and the adversary proceedings filedby the UST and by the Chapter 7 Trustee, as well as the record submitted in support of the parties' respective positions, the following constitutes the court's findings of fact and conclusions of law pursuant to Federal Rule of Bankruptcy Procedure 7052 and Federal Rule of Civil Procedure 52 with respect to the Fee Application and the objection. For the reasons that follow, the court will approve the Fee Application as modified in this memorandum of decision.
On October 7, 2013, Objecting Creditors commenced this case by filing an involuntary Chapter 7 petition against their client Debtor Robin Horvath ("Horvath") trying to collect professional fees he owes to them. For years before the case was commenced, Horvath had been, and still is, a party to state court litigation involving a number of cases and claims against a number of parties, all stemming from his fifty percent ownership of Tony Packo's Inc., Tony Packo Food Company, LLC, Packo Properties, LLC, and Magyar Holdings, LLC ("the Packo Companies"), disagreements amongst the owners of the Packo Companies, and his partial personal guaranty of the companies' debts owed to Fifth Third. The Packo Companies are now the subject of a receivership proceeding in the Lucas County, Ohio, Common Pleas Court ("State Court").
In previous opinions entered in this case and in the adversary proceeding commenced against Horvath and others by the Chapter 7 Trustee, the court has set forth in detail the various proceedings in state courts and issues raised in those proceedings. The court summarizes those proceedings below, all of which have created issues in proceedings in this case.
In 2002, Horvath and his mother, Nancy Packo Horvath ("NPH"), who at that time together owned fifty percent of the shares of Tony Packo's Inc. ("TPI"), commenced an action in State Court against TPI and Anthony Packo, Jr. ("Packo, Jr.") and Anthony Packo III ("Packo III"), who together owned the remaining shares of TPI. The case was brought as both a shareholder derivative action seeking compensatory damages caused by an alleged breach of duty by those defendants and as a direct action seeking compensatory damages allegedly sustained by Horvath and NPH individually.
The complaint avers, among other things, that TPI was incorporated in 1968 as the successor-in-interest to Tony Packo's Café, a proprietorship started in 1932 by NPH's parents, Anthony Packo, Sr. ("Packo, Sr.") and Rose Packo. It also avers that, in 1962, Packo, Sr. "gave all of his food recipes for the sausage, pickles and peppers, and the sauce to Nancy Packo Horvath with instructions that she was to be the sole keeper of the recipes for the family business" and that Packo, Sr. died in 1963. Prior to the verifiedcomplaint being filed, NPH executed an affidavit on June 10, 2002, ("NPH Affidavit"), stating that in July 1962 her father NPH had possession of the spiral bound notebook ("Recipe Notebook"); however, Horvath has had possession of it since removing it from NPH's home shortly before her death in April 2003.
The 2002 Litigation was dismissed on November 5, 2002, pursuant to a settlement. The parties entered into a Term Sheet that set forth the settlement and that addressed, among other things, NPH's claim of ownership of recipes and intellectual property used in the operation of the business. Pursuant to the Term Sheet, on October 31, 2002, TPI, as licensee, and NPH, as licensor, entered into a License Agreement, which was signed by NPH, individually, and by Packo, Jr. and Horvath, as officers of TPI. [Adv. Case No. 15-3058, Doc. # 1, ¶ 21 and attached Ex. D and ¶ 21 of Doc. ## 42, 43, 45, & 76]. The License Agreement states that NPH "claims ownership" of certain intellectual property and recipes used by TPI. [Id., Doc. # 1, Ex. D, Recitals & ¶ 3.1.4]. It defines "Recipes" to mean "the recipes to the chili soup and hot dog sauce used by [TPI] in its restaurant, catering, and wholesale foods businesses" and grants to TPI an "irrevocable, perpetual, exclusive, royalty-free, right and license, with unrestricted rights to sub-license, to use the Recipes and all Improvements or derivations therefrom in the [entire world]." [Id. at ¶¶ 1.8, 1.9, & 2].
On August 18, 2010, Fifth Third obtained a cognovit judgment in the State Court in the total amount of approximately $2,676,296, plus interest, costs and attorney fees, against the Packo Companies and a cognovit judgment in the amount of approximately $669,000, plus costs and attorney fees, against Horvath and Packo, Jr. based on their respective partial personal guaranties of the corporate debt. Thereafter, the State Court appointed a receiver for all of the real and personal property of the Packo Companies ("Receivership Entities"). The Receiver was authorized to negotiate and effect an orderly sale or transfer of all or any portion of the assets.
On October 7, 2011, the State Court issued an order directing the receiver to accept the offer submitted by TP Foods nka Tony Packo's Toledo, LLC, to purchase assets of the Receivership Entities. Horvath appealed that order but did not seek a stay of the receivership proceedings. The appeal was dismissed on January 5, 2012, for lack of a final appealable order.
Notwithstanding Horvath's appeal of the October 7 order, the receivership proceedings continued. On December...
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