In re Raymond Professional Group, Inc.
| Decision Date | 25 November 2009 |
| Docket Number | Bankruptcy No. 06 B 16748.,Adversary No. 07 A 00639. |
| Citation | 420 B.R. 448 |
| Parties | In re RAYMOND PROFESSIONAL GROUP, INC., et al., Debtor. Raymond Professional Group, Inc., et. al., Plaintiff, Raymond Management Services, Inc. n/k/a Raymond Professional Group-Design/Build, Inc., Co-Plaintiff to Count VI v. William A. Pope Company, Defendant. William A. Pope Company, Counter-Plaintiff to Count VI v. Raymond Professional Group, Inc. and Raymond Management Services, Inc. n/k/a Raymond Professional Group-Design/Build, Inc., Counter-Defendants. National Fire Insurance Company of Hartford, a Connecticut Corporation, Intervening Plaintiff v. Raymond Professional Group, Inc., Raymond Professional Group-Design/Build, Inc. and William A. Pope Company, Defendants. |
| Court | U.S. Bankruptcy Court — Northern District of Illinois |
Patricia J. Fokuo, Jason M. Torf, Schiff Hardin LLP, Chicago, IL, for Plaintiff/Counter-Defendants/Defendants.
Susan N. Gummow, John F. O'Brien, Clausen Miller P.C., Chicago, IL, for Defendant/Counter-Plaintiff.
Stephanie M. Keddy, Harold E. McKee, Riordan McKee & Piper, LLC, Chicago, IL, for Intervening Plaintiff.
On Debtors' Amended Motion for Sanctions and the Motion of William A. Pope Company to Compel Debtors to pay the deposition fees charged by two of Pope's witnesses deposed by debtors' counsel, the following will stand as Findings of Fact and Conclusions of Law:
INTRODUCTION
On December 18, 2006, Debtor, Raymond Professional Group, Inc. ("RPG") filed its voluntary petition for relief under chapter 11 of the Bankruptcy Code. RPG is asserted to be the 100% shareholder of a related debtor, Raymond Management Services, Inc. n/k/a Raymond Professional Group—Design/Build, Inc. ("RMS"). RPG provided shared corporate services to each of its subsidiaries, including RMS. RMS provided engineering, architectural, design/build and other technical services to private and government clients, primarily in the power, industrial and process market sectors, and it also filed for voluntary chapter 11 relief in Case No. 06-bk-16753. An Order providing for joint administration of their bankruptcy cases was entered. The same law firm represents both RMS and RPG.
The Debtors RMS and RPG sought in Count VI of this Adversary proceeding a determination of their asserted interests against a subcontractor William A. Pope Company ("Pope"). Pope was retained by RMS through a subcontract to assume responsibility for completion of a construction project for the property owner AES Medina Valley Cogen, LLC ("AES"). RMS had entered into the general contract with AES. RPG was not a party to the Pope Subcontract, nor was RPG a party to the RMS general contract. The parties disputed ownership rights over a certain bank account (now over $3.5 million), established from a large deposit of funds paid by AES (the "Account") as its final payment under the contract with RMS. Though monies now in the Account were paid by RMS to both AES and Pope, RPG scheduled the Account as its asset.
Soon after this Adversary was filed, Pope filed a Motion to Disqualify (the "Original Motion to Disqualify") the Raymond attorneys Schiff Hardin LLP ("Schiff") who appeared as Counsel for both Debtors, (Bankr.Docket No. 223), arguing that Schiff failed to disclose its pre-petition representation of certain Debtor entities, and that Schiff was otherwise in breach of its fiduciary duty and duty of loyalty to the bankruptcy estates (the "Multi-Debtor Conflict"). Pope argued that by taking a position that RPG owned the Account, Schiff seeks to reduce the assets available for distribution to creditors of RMS and, therefore, breached its fiduciary duty to the RMS bankruptcy estate and its creditors and Pope among the RMS creditors. It relied on Rule 2014 Fed. R. Bankr.P. That Motion was motivated by claims of Pope against the RMS bankruptcy estate based on its asserted rights against the fund deposited by AES which was subject to the claims of Pope and RMS as contractual parties. Pope thereby sought to block counsel for RMS and RPG (being the same attorneys for each) from agreeing that the disputed fund would go to the RPG estate against which Pope has no claim.
In early 2008, the parties agreed that rather than proceeding to decide the possible ownership of the Account as between RPG and RMS (which would require a decision as to whether Schiff was in conflict and whether disqualification of the firm and its attorneys was required), it was more practical to decide first whether Pope owned the entire Account in issue as it claimed against the joint claims of RPG and RMS that Pope did not own it.
RPG and RMS therefore filed an Amended Complaint adding Count VI seeking declaration that Pope does not own the Account; that the Account is not an escrow account; and that the funds in the Account are not held in trust pursuant to the Illinois Mechanics Lien Act. Pope counterclaimed claiming ownership of the Account, based on several legal theories.
The parties originally agreed that Pope's Original Motion to Disqualify was not to be dealt with until after Count VI was decided. However, on July 2, 2008, Pope filed a Motion for Leave to file a Supplemental Brief in support of its earlier Motion to Disqualify, adding a new issue (Bankr.Docket No. 305). In that Supplemental Brief, it was represented that during pretrial discovery Pope learned that Schiff had received a check drawn on the Account and containing the dual signatures of Douglas Chidley and Paul Troyke (officers of RPG and Pope) to be used for the payment of attorneys fees then due to Schiff as lawyers for the Raymond parties. Pope's new argument was that payment of those attorneys fees created an attorney-client relationship between Schiff and Pope, and that Schiff's representation of the RPG and RMS interests as attorneys for the Raymond parties was adverse to Pope and created a direct conflict of interest (the "Schiff Check issue") that had to be decided prior to trial on Count VI.
On November 7, 2008, Pope filed a formal request to renew its Motion to Disqualify Schiff ("Renewed Motion to Disqualify") based on the new ground (Docket No. 232). On November 13, 2008, it was granted leave to file the Supplemental Brief and Renewed Motion to Disqualify, and Debtors were ordered to respond (Bankr.Docket No. 358). On November 14, 2008, Debtors' Counsel sent a letter to Pope's Counsel pursuant to Rule 9011 Fed. R. Bankr.P. ("Rule 9011 Letter") demanding that Pope withdraw: (1) the then pending motion to renew Pope's Motion to Disqualify; (2) Pope's Motion for Leave to file a supplemental brief in support of its earlier Motion to Disqualify; (3) the Supplemental Brief that was attached as an exhibit to the Motion for Leave; and (4) Pope's Motion to Disqualify. The Rule 9011 Letter stated that the Debtors would seek sanctions if Pope failed to comply. (Id.) This warning followed the so-called "safe harbor" procedure under Rule 9011 whereby a party can withdraw a pleading thereby avoiding any issue as to whether the pleading would otherwise be sanctionable. FED. R. BANKR.P. 9011(c)(1)(A). However, the Pope pleadings were not withdrawn.
Issues in the Renewed Motion to Disqualify were fully briefed by the parties, and an evidentiary hearing was held. The issues decided at the evidentiary hearing were whether there was ever an attorney-client relationship between Schiff and Pope that created a conflict for Schiff in representing RMS and RPG, and, if so, whether any such conflict was waived. The arguments raised in Pope's original Motion to Disqualify were not at issue at the hearing and have not yet been decided; that Motion is still pending.
Following hearing on the Renewed Motion to Disqualify, it was announced from the bench that it would be denied pursuant to an opinion to be filed. Thereafter, the trial on Count VI went forward and has since concluded. The Findings of Fact and Conclusions of Law after trial on Count VI were set forth in a Memorandum Opinion entered on July 21, 2009, In re Raymond, 408 B.R. 711 (Bankr.N.D.Ill. 2009), and amplified by an Amended Findings of Facts and Conclusions of Law, In re Raymond, 410 B.R. 813 (Bankr.N.D.Ill. 2009), on August 14, 2009. Pursuant thereto judgment was entered in favor of Pope, adjudging that it owns the entire Account in disputed.
On February 10, 2009, a Memorandum Opinion was entered (Docket No. 340) along with an Order denying Pope's Renewed Motion to Disqualify on the recently asserted grounds of direct conflict of interest under the Schiff-Check issue (Docket No. 342). In re Raymond, 400 B.R. 624 (Bankr.N.D.Ill.2009). That Opinion made and entered Findings of Fact and Conclusions of Law that are incorporated here by this reference.
The resulting rulings may be summarized as follows:
(1) Under Illinois law, no attorney-client relationship existed between the law firm for the Raymond parties and subcontractor Pope. That firm was employed by RPG and RMS to assume responsibility over legal issues for completion of project. It was not representing the subcontractor Pope while it negotiating with the property owner AES to obtain release of contract retainage claimed to be due.
(2) Pope was not "an intended third-party beneficiary" of the attorney-client relationship existing between general contractor RMS and the law firm that represented RMS in negotiating with the property owner for release of monies claimed.
(3) Even assuming arguendo that there had been a prior attorney-client relationship between Pope and the law firm that might arguably require...
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