In re Kujawa
| Decision Date | 21 December 2000 |
| Docket Number | 00-6100.,No. 00-6067,00-6067 |
| Citation | 256 BR 598 |
| Parties | In re James KUJAWA, individually and doing business as Restaurant Builders, Debtor. Richard E. Schwartz, Appellant, v. James Kujawa, Debtor-Appellee. |
| Court | U.S. Bankruptcy Appellate Panel, Eighth Circuit |
COPYRIGHT MATERIAL OMITTED
COPYRIGHT MATERIAL OMITTED
COPYRIGHT MATERIAL OMITTED
COPYRIGHT MATERIAL OMITTED
Bill T. Walker, Granite City, IL, for appellant.
David T. Butsch, St. Louis, MO, Martin M. Green and Allen P. Press, St. Louis, MO, were on brief, for appellee.
Before: KOGER, Chief Judge, KRESSEL and DREHER, Bankruptcy Judges.
Attorney Richard E. Schwartz appeals from two Orders of the bankruptcy court,1 entered June 2, 2000, and August 14, 2000, ordering him to pay certain attorney fees incurred in connection with the involuntary bankruptcy petition filed against James Kujawa and an additional sanction in the amount of $100,000. For the reasons that follow, we affirm the Orders of the bankruptcy court.
We have jurisdiction to hear this appeal pursuant to 28 U.S.C. § 158(c).
This case arises out of an involuntary Chapter 7 bankruptcy petition filed over ten years ago against James Kujawa d/b/a Restaurant Builders, a building contracting company. (hereafter "Kujawa" or "Debtor"). The factual background in this case has been recounted in two published decisions, reported at In re Kujawa, 112 B.R. 968 (Bankr.E.D.Mo.1990); and In re Kujawa, 224 B.R. 104 (E.D.Mo.1998), as well as several unpublished decisions contained in the record on appeal, and we recite only those facts pertinent to these appeals.
To summarize, in January 1989, Kujawa and Paul A. Ebeling, together with their jointly owned entity, Billboard Café at Lucas Plaza, Inc., entered into an agreement to build, co-own and operate the Billboard Café. Kujawa had also contracted to build offices for Tridon Corporation, in which he and Ebeling were also co-shareholders along with Richard E. Schwartz, Esq. Schwartz had incorporated both Billboard Café and Tridon Corporation and served as general counsel to both companies. In addition, Richard Schwartz & Associates Ltd. served as Kujawa's attorneys as early as 1988. Schwartz personally represented Kujawa in at least five lawsuits in 1988 and 1989 and advised him on various other matters, including advising against Kujawa's suggestion in August 1989 that he was considering filing a voluntary bankruptcy petition. Throughout their attorneyclient relationship, Schwartz had access to Kujawa's business and personal financial information and the two of them even shared offices and had adjoining desks. According to the Bankruptcy Court, the scope of the relationship between Schwartz and Kujawa could only be described as "pervasive." See In re Kujawa, 112 B.R. at 969-70.
Starting in May 1989, a dispute arose between Kujawa on the one hand and Ebeling and Schwartz on the other concerning the construction on both the Billboard Café and Tridon projects. These disputes culminated with the filing of an involuntary Chapter 7 petition against Kujawa in late 1989 and Kujawa's filing a mechanic's lien against Billboard and Tridon in January 1990. Essentially, Ebeling and Schwartz organized a group of Kujawa's trade creditors and encouraged them to file the involuntary petition. Schwartz referred the group to Sidney A. Gould, Esq., an attorney affiliated with Richard Schwartz & Associates, Ltd., who filed the involuntary petition on its behalf. In the face of Kujawa's request for sanctions based on the circumstances surrounding the filing of the involuntary petition, Gould withdrew from the case on January 12, 1990, and the petitioning creditors obtained other counsel.
Soon thereafter, two of the petitioning creditors filed a motion requesting the Bankruptcy Court to abstain under § 305(a)(1)2 or to permit them to withdraw as petitioning creditors, suggesting that, under the circumstances, it would be in the best interest of the creditors and of the Debtor to permit them to proceed with their claims against the Debtor outside of bankruptcy. Although the Court denied this motion, the Court ultimately approved a settlement agreement between them and the Debtor and permitted them to withdraw on April 4, 1990. Another creditor was granted permission to intervene and join in the involuntary petition on March 7, 1990.
On February 21, 1990, Richard Schwartz & Associates Ltd. filed its Entry of Appearance on behalf of Billboard Café and Tridon Corporation and sought to intervene on their behalf as creditors. Richard Schwartz & Associates also sought to intervene on its own behalf, asserting a claim in the amount of $11,163.75 for unpaid legal services furnished to Kujawa prepetition.
On April 4, 1990, the Bankruptcy Court entered an Order and Memorandum Opinion denying the motion by Billboard and Tridon to join or intervene in the involuntary case. See In re Kujawa, 112 B.R. at 970-72. The Court also granted Kujawa's motion to disqualify Richard Schwartz & Associates as counsel from this case. Id. at 972-73. Schwartz was, therefore, permitted to participate in the case only to the extent necessary to pursue his own claim for attorney fees. In addition, noting that Schwartz should have been apprised of the unethical nature of his attempt to intervene on behalf of the other creditors because he had been disqualified in two similar previous involuntary cases against his former clients, the Bankruptcy Court directed Kujawa to file a schedule of costs and attorneys' fees incurred in connection with, but solely limited to, his motion to disqualify counsel. Schwartz was given five days thereafter to object to the requested fees and was advised that if no such objection was filed by him, the Court would approve the fees. Id. at 973. Kujawa submitted his schedule of fees and Schwartz objected thereto. Schwartz also appealed the April 1990 Order to the District Court, who dismissed the appeals, without prejudice, as being premature on July 15, 1991.
Meanwhile, while that appeal to the District Court was pending, the Bankruptcy Court held final hearings on April 11, 12, and 13, 1990, on the involuntary petition and Kujawa's motion to dismiss, to require a bond, to award attorneys' fees and costs, for actual and punitive damages, and for sanctions. See In re Kujawa, 224 B.R. at 106. At these hearings, the Bankruptcy Court concluded that the petitioning creditors had met their burden under § 303 as to the appropriate number of petitioning creditors and the dollar amounts needed and further concluded that Kujawa was not generally paying his debts as they came due. Id. However, the Bankruptcy Court did not make a final determination on these issues because at that time, the appeal of the April 4 Order had not yet been decided by the District Court.
Subsequently, very little occurred in the case until 19973 when, at the behest of the state court judge who had stayed Kujawa's mechanic's lien proceedings against Billboard and Tridon until the bankruptcy proceedings could be resolved, the Bankruptcy Court entered a final Order dated October 13, 1997, abstaining and dismissing the involuntary petition pursuant to § 305(a)(1) and (c) and directing the parties to proceed with the mechanic's lien suit in state court. Id. at 106-07. In that Order, the Bankruptcy Court retained limited jurisdiction to resolve any request for the award of costs, attorneys' fees, actual and punitive damages and for sanctions. On appeal, the District Court affirmed the Bankruptcy Court's Order abstaining and dismissing the case, and specifically concluded that the Bankruptcy Court did not err in retaining limited jurisdiction to resolve the fees, damages, and sanction issues. Id. at 108. The District Court held:
Regardless of whether a dismissal pursuant to Section 305(a) strips the bankruptcy court of its authority to impose the remedies set forth in 11 U.S.C. § 303(i), . . . the bankruptcy court always has the inherent power to impose civil sanctions on the parties who appear before it. . . . . The bankruptcy court, therefore, is free to impose monetary sanctions in the form of costs, attorneys\' fees or actual or punitive damages for abuse of its procedures.
Id. (citations and footnote omitted) In addition, although the District Court declined the Debtor's request to impose sanctions itself,4 the District Court specifically remanded the matter back to the Bankruptcy Court for a determination as to an appropriate award of sanctions, notably commenting:
Following this directive by the District Court, the Bankruptcy Court issued an Order setting a hearing regarding the appropriate sanctions to be assessed against Schwartz. At that time, the Debtor sought an award of attorney fees and costs in the amount of $66,601.99 against Schwartz, the petitioning creditors, and James E. Parrot, Esq. (Schwartz's associate who represented Schwartz in attempting to intervene in the involuntary bankruptcy case); actual damages in the amount of $250,000 against Schwartz and Parrot; and $1 million in punitive damages against Schwartz and Parrot. Hearing on the issue of the damages was set for February 8, 2000. Meanwhile, the parties commenced discovery.
At a pre-trial hearing held on February 2, 2000, counsel for the Debtor advised the Court that Schwartz was refusing to provide him with a financial statement or answer any questions regarding his net worth in relation to the Debtor's punitive damage request and he requested that the Court compel Schwartz to...
To continue reading
Request your trial