In re Jackson

• Decision Date: 05 December 2012
• Docket Number: No. 06–36268.,06–36268.
• Citation: 484 B.R. 141
• Parties: In re Vincent C. JACKSON, Debtor.
• Court: U.S. Bankruptcy Court — Southern District of Texas

484 B.R. 141

In re Vincent C. JACKSON, Debtor.

No. 06–36268.

United States Bankruptcy Court,

S.D. Texas,

Houston Division.

Dec. 5, 2012.

Christopher Wallace Lawyer, San Antonio, TX, Jo Esta Hartwick, Stutzman Bromberg et al., Dallas, TX, John Ernest Smith, John E. Smith & Associates, Linsy M. Joseph Goodson, Mirand Response Systems, Houston, TX, John G. Werner, Reaud Morgan et al., Beaumont, TX, for Debtor.

MEMORANDUM OPINION REGARDING DENIAL OF THE TRUSTEE'S SECOND APPLICATION FOR NUNC PRO TUNC EMPLOYMENT OF MUNSCH HART KOPF & HARR, P.C. AS ATTORNEYS FOR THE TRUSTEE

JEFF BOHM, Chief Judge.

I. Introduction

Routinely, this Court receives requests from Chapter 7 trustees seeking to retain the trustee's own firm as counsel. This Court has noticed that all too often these applications for employment are accompanied by claims that the trustee's firm is “uniquely qualified” to perform the proposed duty. Such broad assertions are inadequate; as a fiduciary to the estate, a trustee has a duty to act in the estate's best interests. When the trustee seeks to employ a professional, such as an attorney, on the estate's behalf, the trustee therefore must seek and propose the best counsel. Competent professionals may not necessarily “satisfy [the] high standard of conduct” that trustees must meet. In re Consolidated Bancshares, Inc., 785 F.2d 1249, 1256 n. 6 (5th Cir.1986); In re Interamericas, Ltd., 321 B.R. at 836;see also In re Evangeline Refining Co., 890 F.2d 1312, 1323 (5th Cir.1989). Accordingly, and as this Court made clear in In re Bechuck, statements such as “uniquely qualified” do not “include sufficient detail regarding the proposed attorneys' qualifications.” 472 B.R. 371, 375 (2012). They are, in essence, empty declarations.

The Court therefore issues this Memorandum Opinion to reiterate that applications for employment must meet several factors for approval. The proposed counsel must first satisfy the general standard set forth in 11 U.S.C. § 327(a), as well as the more specific factors under Federal Bankruptcy Rule 2014¹ that this Court outlined in Bechuck. These factors, this Court now makes clear, apply equally to requests to employ the trustee's own firm. Furthermore, an application for employment of the trustee's firm must satisfy the additional “best interest of the estate” requirement set forth in 11 U.S.C. § 327(d), and as detailed in In re Interamericas, Ltd., 321 B.R. 830, 833 (Bankr.S.D.Tex.2005) and In re Various Applications of Eric C. Kurtzman, 220 B.R. 801 (Bankr.S.D.N.Y.1998)aff'd sub nom. In re Kurtzman, 220 B.R. 538 (S.D.N.Y.1998) (the Kurtzman/Interamericas cases).

In the case at bar, Ben B. Floyd, the Chapter 7 Trustee (the Trustee), seeks approval for his own law firm, Munsch Hart Kopf & Harr, P.C. (MHKH), to represent the Chapter 7 estate of Vincent C. Jackson (the Debtor). In particular, the Trustee requests that the Court approve Timothy Million (Million) as the attorney-in-charge, and approve Jon Hyland (Hyland) as the attorney who will advise the Trustee in connection with intellectual property matters, including intellectual property litigation and the possible sale of intellectual property rights. The Debtor opposes the Trustee's request.

Based upon the entire record, the Court now makes the following written Findings of Fact and Conclusions of Law in this contested matter pursuant to Federal Bankruptcy Rules 9014(c) and 7052.² As set forth below, this Court concludes that the Trustee's Second Application for Nunc Pro Tunc Employment of Munsch Hart Kopf & Harr, P.C. as Attorneys for the Trustee (the Second Application) should be denied in part without prejudice and denied in part with prejudice. Specifically, the Trustee may file another application seeking to retain MHKH so long as he addresses all of the factors discussed in this Memorandum Opinion. The Trustee may not, however, once again seek nunc pro tunc approval for MHKH to represent the estate effective March 1, 2012, as the Trustee has failed to satisfy the requirements imposed by Bankruptcy Local Rule 2014–1(b).

II. Findings of Fact

1. In 1996, the Debtor filed a patent application for “the storage and transfer of games and music over a cellular network to be played on portable devices.” [Doc. No. 102 at 3].

2. In 2001, the Debtor received a patent, U.S. Patent No. 6,516,466 (the Patent), for this product from the United States Patent and Trademark office. [Id.].

3. In 2003, the Debtor hired a law firm to represent him on legal matters related to the Patent. [Id.].

4. In December of 2003, the Debtor entered into a Patent Marketing Agreement (PMA). According to the PMA, the Debtor would be entitled to 55% of all revenue from the Patent. [Id. at 5]. The law firm represented both the Debtor and the other party to the PMA during the negotiations leading up to the execution of the PMA.

5. Disputes erupted between the Debtor and the law firm, as well as between the Debtor and the entity with whom the Debtor had entered into the PMA. ³

6. On November 8, 2006 (the Petition Date), the Debtor filed a voluntary petition for relief under Chapter 7 (the Chapter 7 case). The Debtor also filed his Schedules and Statement of Financial Affairs (SOFA), but in his Schedule B, the Debtor failed to disclose any interest in the Patent, any causes of action, or any right to receive future funds from the Patent or the PMA. [Doc. No. 1].

7. On February 16, 2007, an order granting the Debtor a discharge was entered. [Doc. No. 15].

8. In November of 2007, the Chapter 7 case was closed as a no-asset case. [Doc. No. 18].

9. On June 7, 2011, the Debtor filed suit in the District Court of Harris County, Texas, alleging breach of contract, breach of fiduciary duty, breach of partnership duty and malpractice (the State Court Claims). Most of the events that formed the basis for the State Court Claims occurred before the Debtor filed the Chapter 7 case, and are directly related to the Debtor's ownership interest in the Patent and his rights in any future income generated by the Patent and the PMA. [Doc. No. 102 at 29].

10. On August 18, 2011, the defendants against whom the Debtor brought the State Court Claims (the Defendants) filed their answer, alleging, inter alia, that the Debtor lacked standing to sue and that the State Court Claims were barred by judicial estoppel and other limitations. [Doc. No. 27]. On August 31, 2011, the Defendants filed a motion to dismiss the State Court Claims for lack of standing and subject matter jurisdiction. [Doc. No. 102].

11. On October 4, 2011, the Debtor moved to reopen the Chapter 7 case. [Doc. No. 21]. With his motion to reopen, he filed a supplemental Schedule B, which listed previously undisclosed assets of the estate, including: (1) the State Court Claims; and (2) the Patent and the right to future profits pursuant to the PMA. [Doc. No. 22]. The Debtor scheduled the value of these particular assets as “Unknown.” The supplemental Schedule B reflected that the Debtor owned no other assets. [ Id.].

12. On October 5, 2011, this Court granted the Debtor's motion to reopen his Chapter 7 case. [Doc. No. 23]. On this same day, the Trustee was appointed as trustee for the Debtor's estate. [Doc. No. 117 at 2].

13. On November 1, 2011, the Defendants filed a motion to strike the Debtor's supplemental Schedule B. [Doc. No. 27]. Several hearings were held on this motion. On April 19, 2012, this Court took the matter under advisement.

14. On May 3, 2012, the Trustee filed the Application for Nunc Pro Tunc Employment of Munsch Hardt Kopf & Harr, P.C. as Attorneys for the Trustee (the First Application). [Doc. No. 98]. On June 8, 2012, the Trustee filed a motion to withdraw the First Application without prejudice. [Doc. No. 99]. On June 11, 2012, the Court approved this motion to withdraw. [Doc. No. 100].

15. On July 27, 2012, the Court issued a memorandum opinion (the Motion to Strike Memorandum Opinion) and an accompanying order, entitled: Order Regarding (1) Goins, Underkofler, Crawford & Langdon, LLP and John J. Sheedy's Motion to Strike Debtor's Supplemental Schedule B; and (2) Debtor's Reciprocal Motion to Strike (the Order). The Order set forth that the Debtor is judicially estopped from benefiting from administration of the assets which the Debtor initially failed to disclose in the Chapter 7 case (i.e., the State Court Claims, the Patent, and any right to future profits under the PMA). The Trustee is, however, allowed to administer these assets for the benefit of the Debtor's creditors, and therefore has the right to pursue and liquidate the State Court Claims, any other claims that the estate may have, and any interest or rights in the Patent and the PMA. [Doc. Nos. 102 & 103].

16. On August 8, 2012, the Debtor filed a Notice of Appeal of the Order. [Doc. No. 108].

17. On August 10, 2012, the Debtor, pursuant to the Order, amended his supplemental Schedule B. [Doc. No. 111]. The Debtor finally disclosed the PMA, and set forth that its value is $150,000.00. The value of the State Court Claims and the Patent, however, were not updated and continued to be shown as having a value as “Unknown.” The Debtor did not list any additional assets. [ Id.]. Excluding the PMA, the State Court Claims and the Patent, the value of the Debtor's total personal property assets continued to be scheduled at $0.00. [ Id.].

18. On September 12, 2012, the Trustee filed the Second Application, in which he requests approval to employ MHKH, including two attorneys of his firm, Million and Hyland. [Doc. No. 117]. He requests legal assistance in two areas: bankruptcy and intellectual property, and in particular the Trustee requests counsel on (a) the pending appeal of the Order; (b) any negotiations with the co-owners of the Patent; and (c) the future liquidation and marketing of the Patent. [Doc. No. 117 at 5, ¶ 17]. In the Second Application, the Trustee also notes that he is a partner and shareholder in MHKH, and has over...