In re Intelogic Trace, Inc.
| Decision Date | 13 October 1998 |
| Docket Number | Civ. No. SA-98-CA-596-EP,Bankruptcy No. 95-50753C. |
| Court | U.S. District Court — Western District of Texas |
| Parties | In re INTELOGIC TRACE, INC., Debtor. Randolph N. OSHEROW, Chapter 7 Trustee for the Estate of Intelogic Trace, Inc., Appellant, v. BUCCINO & ASSOCIATES, INC., and Ernst & Young LLP, Appellees. |
Pat Maloney, Jr., Law Offices of Pat Maloney, San Antonio, TX, for Randolph N. Osherow, Trustee.
Leslie J. Strieber, III, Davis, Adami and Cedillo, San Antonio, TX, for Buccino & Associates, Inc.
Patrick F. McManemin, McManemin & Smith, P.C., Dallas, TX, for Ernst & Young, LLP.
On this date the Court examined the appeal of Appellant Randolph N. Osherow to the Bankruptcy Court's May 22, 1998, order granting summary judgment in favor of the defendants. After careful consideration of all the papers and pleadings on file, this Court is of the opinion that the order of the Bankruptcy Court should be affirmed.
The Court has jurisdiction over this case pursuant to 28 U.S.C. § 158(a). Venue is appropriate in this Court because this is an appeal from the Bankruptcy Court for the Western District of Texas.
The Court reviews the Bankruptcy Court's findings of fact for clear error. Conclusions of law, conversely, are reviewed de novo. New Orleans Public Service, Inc. v. First Federal Savings and Loan Ass'n of Warner Robins, 924 F.2d 74, 76 (5th Cir. 1991).
Intelogic Trace, Inc. ("Intelogic"), was a software and technical services provider in the computer industry. It fell into cash flow difficulties and sought Chapter 11 protection in August 1994. In September 1994 the bankruptcy court approved the employment of Ernst & Young, L.L.P. ("Ernst & Young"), to assist Intelogic with certain accounting matters in the bankruptcy. It also approved the employment of Buccino & Associates, Inc. ("Buccino"), as Management Consultant for Intelogic. Intelogic pursued a fast-track reorganization and emerged from Chapter 11 via a confirmed plan in December of that year. In January 1995, Ernst & Young and Buccino filed a fee application with the bankruptcy court for services provided in connection with the bankruptcy. On January 24, 1995, the bankruptcy court entered an order approving the payment of Buccino's fees, and on January 25, 1995, the court entered an order approving Ernst & Young's fee application. No appeal was taken from the orders, and they became final.
Intelogic was unable to reverse its cash flow crisis, and on March 16, 1995, it filed a second Chapter 11 bankruptcy petition. Thereafter, the case was converted to a Chapter 7 liquidation, and the trustee was appointed. On November 7, 1996, the trustee sued Ernst & Young and Buccino, alleging negligence and malpractice.1 The services at issue were those services covered by the fee application, subsequent hearings, and the court's approval of the fee requests. Buccino and Ernst & Young moved for summary judgment on the ground that these claims were barred by res judicata because they should and could have been raised during the fee hearing. The bankruptcy judge granted the defendants' motions, and the trustee appealed.
The trustee argues that the bankruptcy court erred in holding that its claims are barred by res judicata and that there is not an issue of triable fact remaining with regard to whether res judicata bars the trustee's claims.
The trustee begins by arguing that its claims are not barred by res judicata because: (1) its claims against Buccino and Ernst & Young were not compulsory counterclaims in the hearing upon application for fees in January 1995; (2) the application of the same cause of action rules for res judicata depends upon the scope of the compulsory counterclaim rule; and (3) the failure to interpose a noncompulsory counterclaim does not, as a matter of res judicata, bar its subsequent assertion as an independent claim for relief.
The trustee is basically arguing that if a counterclaim is not compulsory, it need not be asserted in the first proceeding, and because the compulsory counterclaim rules do not apply to contested matters, contested matters should not have a res judicata effect.2 However, the trustee's emphasis on compulsory counterclaims is misplaced. The focal point is not on whether a counterclaim is compulsory; nor is it on whether a fee application is a contested matter, as opposed to an adversary proceeding. Rather, the focal point is on whether the claims in question could or should have been effectively litigated in the context of that contested matter, as the bankruptcy judge correctly noted. In this case, they clearly could and should have been.
The trustee argues that the claims in question could not have been effectively litigated in conjunction with the fee application proceeding. He states that these claims concern negligence and malpractice, which, under Federal Rule of Bankruptcy 7001, must be heard in an adversary proceeding. Although it is true that these claims must be heard in an adversary proceeding, the trustee misses the bankruptcy judge's point. With regard to whether the fee application hearing afforded an adequate opportunity to litigate any objections the debtor may have had based on the alleged malpractice of the defendants-appellees, had such objections been voiced, the bankruptcy court would have continued the fee application hearing and would have called for the commencement of an adversary proceeding to resolve any such allegations pursuant to Federal Rule of Bankruptcy 3007. That rule permits a court to apply the adversary rules to any contested claims proceeding, especially those proceedings in which a counterclaim is urged by the estate. See Fed.R.Bankr.P. 3007. Procedurally, therefore, the fee application hearing afforded the parties sufficient opportunity to litigate the sorts of claims now raised in this complaint.
Furthermore, allowing negligence and malpractice claims now to be brought against Buccino and Ernst & Young would be completely inconsistent with the bankruptcy judge's prior award of fees, as the bankruptcy judge correctly noted. See Southmark Properties v. Charles House Corp., 742 F.2d 862, 869 (5th Cir.1984); Hendrick v. Avent, 891 F.2d 583, 587 (5th Cir.), cert. denied, 498 U.S. 819, 111 S.Ct. 64, 112 L.Ed.2d 39 (1990). The central issue in a fee application is the reasonableness of the fees sought. In re Temple Retirement Community, Inc., 97 B.R. 333, 336 (Bankr.W.D.Tex.1989). The allowance of professional compensation by a bankruptcy court effects a finding as to the reasonableness of that compensation and the value of the services rendered to the estate. In re W.J. Services, Inc., 139 B.R. 824, 828 (Bankr.S.D.Tex.1992). Any question as to the quality of the professional services rendered goes directly to the value of those services...
To continue reading
Request your trial