In re Main, Inc.
| Decision Date | 17 September 1999 |
| Docket Number | Bankruptcy No. 96-19098DAS. |
| Citation | 239 BR 59 |
| Parties | In re MAIN, INC., Debtor. |
| Court | U.S. Bankruptcy Court — Eastern District of Pennsylvania |
COPYRIGHT MATERIAL OMITTED
Paul B. Maschmeyer, Ciardi, Maschmeyer & Karalis, PC, for Main, Inc.
Mitchell W. Miller, Philadelphia, PA, trustee for Main, Inc.
Eric L. Frank, Philadelphia, PA, General Counsel for trustee Miller.
Steven M. Coren, Philadelphia, PA, Special Counsel for trustee Miller.
Edward J. DiDonato, DiDonato & Winterhalter, P.C., Philadelphia, PA, for Eric J. Blatstein,
Michael H. Kaliner, Fairless Hills, PA, trustee in Blatstein case.
B. Christopher Lee, Philadelphia, PA, for Jacoby Donner and Corporate Entities.
Kevin J. Carey, Mesirov, Gelman, Jaffe, Cramer & Jamieson, Philadelphia, PA, for Lori J. Blatstein.
Mr. Morris Lift, Wyncote, PA, pro se.
Frederic Baker, Philadelphia, PA, Ass't U.S. Trustee.
We herein address an issue remanded to this court in one of two separate recent decisions of the District Court ("the Court") in the above-captioned case of MAIN, INC. ("Main") and the related case of Main's principal, Eric J. Blatstein ("Eric"). The Court's Opinion relevant hereto, reported at 1999 WL 330239 ("the Opinion"), reversed a portion of our unreported Order dated December 10, 1997 ("the 12/10 Order"), allowing Columbusco, Inc. ("CCO"), another entity controlled by Eric, to pay its counsel, Jacoby Donner, P.C. ("JD"), compensation of not more than $1000 weekly for services performed for it by JD subsequent to the date of the 12/10 Order.
It should not be, but nevertheless is in light of much of JD's arguments on remand, necessary to emphasize that this court must adhere to the Court's mandates regarding the issues at hand, particularly its holding that JD received its compensation imposed with a constructive trust in favor of the Debtor. Following this and the subsequent request of the Court that we address mootness-related issues, we hold that JD has no legislative or equitable insulation in the nature of mootness from being ordered to remedy the reversal of the 12/10 Order by repaying the amounts improperly received. We therefore conclude that JD must repay the Main estate $58,834 of $77,000 received by it pursuant to the 12/10 Order for services which we find did not benefit that estate's interests.
We will not attempt in any sense to reiterate all of the facts and procedural history of the underlying bankruptcy cases of Main, filed as a Chapter 11 case on September 20, 1996, and converted to Chapter 7 on December 18, 1996, leading to the appointment of Mitchell Miller, Esq. ("Trustee Miller"), as Trustee; and of Eric, filed under Chapter 7 on December 19, 1996, in which Plaintiff Michael Kaliner ("Trustee Kaliner") was appointed as trustee. Rather, we will merely try to relate the most significant decisions which arose out of these cases in the context of what is now before us and refer any interested reader to the Opinions themselves for a more complete picture.
The most significant decision in these cases was In re Main, Inc., 213 B.R. 67 ("Main II"), modified in part, 1997 WL 626544 (Bankr.E.D.Pa. Oct. 7, 1997) ("Main III"), aff'd in part & rev'd & remanded in part sub nom., In re Blatstein, 226 B.R. 140 (E.D.Pa.1998) ("Blatstein II"), reinstated as to issues remanded, 1998 WL 778017 (Bankr.E.D.Pa. Nov. 4, 1998) ("Main IV"), aff'd as to issues , In re Blatstein, 1999 WL 689715 (E.D.Pa. Sept. 3, 1999) ("Blatstein III"), Blatstein II, aff'd in part and rev'd in part as to issues not remanded, 192 F.3d 88 (3d Cir.1999) ("Blatstein IV"). Main II was preceded by the first reported decision arising out of these cases, In re Main, Inc., 207 B.R. 832 (Bankr.E.D.Pa. 1997) ("Main I"), aff'd in part & rev'd in part sub nom., In re Blatstein, 1997 WL 560119 (E.D.Pa. Aug. 26, 1997) ("Blatstein I"), revised on remand, Main III, at *9-*11, aff'd, Blatstein II, 226 B.R. at 160-61. On remand of Main I in Main III we fixed the claim of 718 ARCH STREET ASSOCIATES, LTD. ("Arch"), a creditor whose counsel has been appointed as Trustee Miller's special counsel, against Main at $582,443.65, applying 11 U.S.C. § 502(b)(6).
Our decisions in Main II and Main III decided two proceedings commenced by Arch and Trustee Miller in Main's case, and by Arch and Trustee Kaliner in Eric's case, on January 3, 1997, and January 7, 1997, respectively. We concluded therein that Eric (1) had fraudulently transferred his successful bar and restaurant, the Philly Rock Bar & Grill ("Philly Rock"), from Main to CCO to avoid paying Main's creditors, specifically Arch, and was therefore obliged to reconvey Philly Rock to Trustee Miller, 213 B.R. at 78-84; (2) must be denied a discharge under 11 U.S.C. §§ 727(a)(2), (a)(7) on the basis of his primary role in the fraudulent transfer of Philly Rock, id. at 83-87; but (3) was not subject to an alter ego claim which would have collapsed his many non-debtor entities into one entity in this court, id. at 87-93; and (4) was not, with his nondebtor wife, Lori J. Blatstein ("Lori," with Eric, "the Blatsteins"), chargeable with any fraudulent transfers between them. Id. at 93-95.
On November 3, 1997, in considering a motion to stay the transfer of Philly Rock from the Blatstein to Trustee Miller pending a number of appeals from the various issues decided in Main II and Main III, the Court entered an order staying the transfer but directing Eric, CCO, and several other entities controlled to by Eric to remain as constructive trustees and fiduciaries of Philly Rock until further Court order ("the Stay Order").
While these appeals were pending, a proceeding which we described as "a kind of band-aid placed upon a variety of issues either created by, or left unresolved by" the Main II proceedings, In re Main, Inc. 223 B.R. 457, 461 ("Main V"), supplemented & reconsideration denied, 1998 WL 601249 (Bankr.E.D.Pa. Sept. 4, 1998) ("Main VI"), aff'd in part & rev'd in part, 1999 WL 424296 (E.D.Pa. June 23, 1999) ("Main VII"), was filed on February 9, 1998. The ultimate decision in this proceeding, which, inter alia, awarded Main approximately $800,000 from various Blatstein-controlled entities for unpaid loans but denied relief against the Blatsteins individually, was embodied in Main V and Main VI. The other recent decision remanding certain matters to us, which will be addressed in a separate Opinion of this court, was Main VII, which most notably reversed the decisions regarding the denial of relief against the Blatsteins.
On September 23, 1998, the appeals from Main II and Main III were considered in Blatstein II. That decision remanded the aspect of Main II and Main III holding that Eric had fraudulently transferred Philly Rock to CCO and denied him a discharge, but affirmed the dismissal of the alter ego claims and of the claims of fraudulent transfers among the Blatsteins.
In Main IV, we reiterated the decisions, vacated by the Court in Blatstein II, that the transfer of Philly Rock was a fraudulent transfer from Main to CCO and that Eric's discharge must be denied for that reason. The Stay Order was deemed by the Court to remain in effect after Blatstein II was decided and was intact until the Court's decision in Blatstein III, which remanded the proceedings to us only to "implement" the transfer of Philly Rock to Trustee Miller.
The core holdings of Main II and Main III have therefore been ultimately sustained by the Blatstein III and Blatstein IV decisions, respectively, both coincidentally decided on September 3, 1999. The avoidance of the transfer of Philly Rock from Main to CCO has been sustained, at least by the Court. The Plaintiffs' alter ego claims have failed, per the Court of Appeals in Blatstein IV. We do note that the Court of Appeals did hold, in Blatstein IV, contrary to our decisions in Main II and Main III, reiterated in Main V and Main VI, that Eric's transfers of his income to Lori were avoidable fraudulent conveyances. The practical effect of this decision is, however, uncertain, as it would appear to support only a "paper" decision in favor of Trustee Kaliner against Lori, who has no apparent assets of her own.
We will now focus on the procedural and factual history surrounding the 12/10 Order, and proceed through a legal discussion which shall decide that issue. On December 4, 1997, Trustee Miller filed a rambling, motion/legal memorandum aimed at preventing certain distributions of Philly Rock funds held in trust by CCO and to compel production of certain documents which CCO had allegedly refused to provide to him ("the December Motion").
The December Motion represented, for the most part, an attempt to enforce the Stay Order. Trustee Miller suspected that, during the period that the Stay Order prevailed, Eric would attempt to utilize the assets of Philly Rock, which he was in danger of losing, to fund his defense of the Trustee's litigation against him and his various entities. By means of the December Motion, Trustee Miller hoped to prevent Eric and CCO from violating their alleged duties as fiduciaries of a construction trust in Trustee Miller's favor through diversion of funds generated by Philly Rock to fund litigation adverse to him. The December Motion averred that the injunction entered in Main III to enforce our orders in Main II and the Stay Order protected Trustee Miller from such actions, but that Eric and JD were violating the spirit and letter of these orders by funding, with Philly Rock's proceeds, JD's representation of CCO in defending against Trustee Miller's actions. In addition, Trustee Miller specifically contended that Eric and CCO had delayed and obstructed his investigation of Philly Rock's finances by failing to provide him with full access to Philly Rock's financial records despite repeated requests. Trustee...
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