In re Palumbo Family Ltd. Partnership
| Citation | 182 BR 447 |
| Decision Date | 03 April 1995 |
| Docket Number | Bankruptcy No. 91-11364-AB,92-15214-AB. |
| Parties | In re PALUMBO FAMILY LIMITED PARTNERSHIP, Debtor, and P.M. Palumbo, Jr., Debtor. |
| Court | Bankr. V.I. |
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Benjamin C. Ackerly, Hunton & Williams, Richmond, VA, for Akin Gump.
Stanley J. Samorajczyk, Linda S. Broyhill, Akin, Gump, Strauss, Hauer & Feld, L.L.P.
William Daniel Sullivan, Collier, Shannon, Rill & Scott, Washington, DC, Thomas P. Gorman, Tyler, Bartl, Burke & Albert, Alexandria, VA, for the Partnership.
Denise A.G. Erickson, Office of U.S. Trustee, Alexandria, VA, for U.S. Trustee.
MARTIN V.B. BOSTETTER, Jr., Chief Judge.
Palumbo Family Limited Partnership (the "Partnership"), a debtor in this consolidated bankruptcy case, alleges wrongdoing on the part of its former attorney, Stanley J. Samorajczyk, and his law firm, Akin, Gump, Strauss, Hauer, and Feld, L.L.P. ("Akin Gump"). The dispute arose when Akin Gump filed an application to recover fees and expenses from the estate, and then withdrew as counsel from the Partnership's case. The Partnership objected to the fee application, arguing, among other things, that Akin Gump violated an order of this Court when it drew on a retainer and other funds contained in a client-trust account without first obtaining court approval. Subsequently, the Partnership moved to impose sanctions against Akin Gump. After several hearings on Akin Gump's fee application, we decided to award fees and expenses, but directed Akin Gump to deposit the award into the registry of this Court pending the outcome of the Partnership's motion for sanctions. Akin Gump made the deposit, and then moved to dismiss the sanctions motion. After hearing argument on the motion to dismiss, because of the somewhat complex issues involved, we took the matter under advisement.
Based on the evidence adduced at three hearings and on the authorities cited by the Partnership, we conclude that the Partnership's position falls short in several respects for the reasons stated below. We therefore find that the additional discovery and hearings requested by the Partnership are unnecessary, and that the sanctions sought by the Partnership are unwarranted. Although we grant Akin Gump's motion to dismiss, and accordingly dismiss the Partnership's motion for sanctions, we admonish Akin Gump not to permit this type of situation to occur again, and we will require the filing of a report specifying the corrective measures Akin Gump has taken to prevent similar occurrences. Pursuant thereto, we make the following findings and conclusions.
P.M. Palumbo, Jr.,1 the Partnership's general partner, is a physician specializing in orthopedic surgery, and he practices medicine in both Florida and Virginia. In addition to his medical practice, Palumbo has accumulated numerous interests in real estate. At one point in time, he held two undeveloped parcels of land located in Fairfax County, Virginia, each designated respectively as the "Germain-Wong" property and the "Buck-Mar" property.
Palumbo's journey toward bankruptcy began with bitter litigation involving himself and Sovran Bank, N.A. (the "Bank").2 Starting in 1988, the Bank made two loans to Palumbo and took back two deeds of trust, one encumbering the Germain-Wong property, the other the Buck-Mar property. For reasons not relevant here, the business relationship between the Bank and Palumbo soured. In October 1990, the Bank determined that Palumbo had defaulted on both loans, and it eventually issued a notice of foreclosure, scheduling a sale of the Germain-Wong property for April 8, 1991.
Between October 1990 and April 1991, the Bank and Palumbo entered into a series of lengthy, albeit unsuccessful, negotiations in an effort to settle their dispute. On Friday, April 5, 1991, the Bank informed Palumbo that it had rejected all settlement offers and that it intended to proceed to foreclosure on Monday, April 8, 1991. The Bank also informed Palumbo that, at the foreclosure sale, it would bid in less than half of the loan balance. To avoid foreclosure and the possibility of a multi-million dollar deficiency claim, Palumbo's attorneys prepared, over the course of a single weekend, documents that created the Partnership and conveyed Germain-Wong and Buck-Mar to the Partnership. Assisted by cellular phones, Palumbo's attorneys recorded the documents within an hour on Monday morning, April 8th, and the newly-created Partnership immediately petitioned for Chapter 11 relief, thereby invoking the automatic stay. See 11 U.S.C. § 362(a).
With respect to the Partnership itself, Palumbo is both a general and limited partner, owning a 97% partnership interest. Palumbo's wife is a limited partner who owns the remaining 3% interest. As of the petition date, the Partnership had no employees or unsecured creditors. The only assets it held were the Germain-Wong and Buck-Mar properties. The Bank was a "creditor" insofar as it held the liens encumbering these two tracts of land. It is important to note that it was Palumbo himself who executed the notes, and remained personally liable to the Bank. The Partnership never assumed those obligations.
On the same day the Partnership filed for bankruptcy, Palumbo instituted a lender-liability suit against the Bank in the Circuit Court of Fairfax County, Virginia. After Palumbo amended his complaint in January 1992, the Bank filed a cross-bill against Palumbo to recover $20 million on the notes, and then moved for summary judgment on the cross-bill. Although Samorajczyk was not representing the Partnership at this point, he did testify at the fee-application hearings that there was a "significant risk" that the state court would have granted summary judgment to the Bank. In January 1992, this Court lifted the automatic stay with respect to the Germain-Wong parcel, which enabled the Bank to foreclose upon it. (Earlier, the Bank withdrew its lift-stay motion with respect to Buck-Mar, apparently conceding that the Partnership had equity in the property). The Bank did foreclose on the Germain-Wong property and then asserted a deficiency claim. At this juncture, Palumbo brought Akin Gump into the case.
Palumbo met with Samorajczyk in early April 1992 to explore the possibility of retaining Akin Gump. This was not the first time Palumbo had sought to retain Samorajczyk as counsel. Six months earlier, Samorajczyk was a partner with the firm of Hazel & Thomas, and Palumbo approached him to see whether he would help him in the legal battle against the Bank. Samorajczyk declined because Hazel & Thomas had represented the Bank in other matters, and accordingly wanted to avoid the potential conflict of interest. When Samorajczyk moved to Akin Gump, Palumbo contacted him again.
At the April 1992 meeting, Palumbo expressed that he was not pleased with the progress of the Partnership's bankruptcy, and that he wanted to hire Samorajczyk in an effort to settle the dispute with the Bank. Samorajczyk reviewed the situation with Palumbo, and asked whether anyone had advised Palumbo to propose a "Sandy Ridge" reorganization plan. Samorajczyk was referring to Sandy Ridge Development Corp. v. Louisiana National Bank (In re Sandy Ridge Development Corp.), 881 F.2d 1346 (5th Cir.1989) in which the Court of Appeals for the Fifth Circuit held that a plan was fair and equitable when it proposed to give the mortgaged premises to the lender in full satisfaction of the lender's secured claim. At the fee-application hearings, Samorajczyk testified that he raised the Sandy Ridge plan only as a possible course of action, and that he cautioned Palumbo that such a plan was "not a sure thing" because the circumstances in Palumbo's case were not identical to the facts in Sandy Ridge and because the prospect of implementing such a plan depended on the value of Buck-Mar. In contrast to Samorajczyk's testimony, Palumbo testified that, at the April meeting, Samorajczyk suggested that implementing a Sandy Ridge plan was the answer to the Partnership's problems. According to Palumbo's administrative assistant, who was present at the meeting, Samorajczyk explained that a Sandy Ridge plan would force the Bank to "eat dirt" and "write Palumbo a check," while enabling Samorajczyk to "make new law" in the process.3
Although Samorajczyk agreed to represent the Partnership, there is conflicting testimony concerning the role Samorajczyk was to assume in Palumbo's individual bankruptcy case. Palumbo testified that, at the April meeting, he informed Samorajczyk that he intended to file his own personal bankruptcy petition in Florida and that he had decided to retain Chad Pugatch, a sole practitioner there, to handle his individual case. Palumbo thus wanted Samorajczyk to handle the Partnership's case and to negotiate a settlement with the Bank. In contrast, Samorajczyk asserts that Palumbo asked him to quarterback both Palumbo's case and the Partnership's case. Samorajczyk testified further that he and Palumbo had a "candid discussion" on how Palumbo's problems and the Partnership's problems were really one and the same, given that Palumbo was personally liable to the Bank. Samorajczyk said that he saw no reason for entering an appearance in the Florida case because, in his view, Pugatch was competent in bankruptcy matters and Palumbo had asked him to coordinate with Pugatch. Palumbo flatly denies that he ever asked Samorajczyk to quarterback the two cases. Based on the testimony and the demeanor of the witnesses, we find that Palumbo did, in fact, ask Samorajczyk to quarterback these cases.
On April 15, 1992, Palumbo's accountant wire-transferred a $75,000 retainer to an escrow account held by Akin Gump. Immediately thereafter, Palumbo filed his Chapter 11 petition in the United States Bankruptcy...
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