In re Raymond Professional Group, Inc.
| Decision Date | 17 December 2009 |
| Docket Number | Adversary No. 07 A. 00639.,Bankruptcy No. 06 B 16748. |
| Citation | 421 B.R. 891 |
| Parties | In re RAYMOND PROFESSIONAL GROUP, INC., et al., Debtors. Raymond Professional Group, Inc., 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 as 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, Intervening Defendants. |
| Court | U.S. Bankruptcy Court — Northern District of Illinois |
Jason M. Torf, Esq., Eugene J. Geekie, Jr., Esq., David A. Howard, Esq., Schiff Hardin LLP, Chicago, IL, for Debtors/Plaintiff.
Sven T. Nylen, Sarah H. Bryan, K & L Gates LLP, Chicago, IL, Official Committee of Unsecured Creditors.
Harold E. McKee, Esq., Stephanie M. Keddy, Riordan, McKee & Piper LLC, Chicago, IL, for National Fire Ins. Co. of Hartford.
Susan K. Gummow, Esq., John F. O'Brien, Esq., Clausen Miller, P.C., Chicago, IL, for William A. Pope Company.
Gretchen Silver, Esq., Office of the U.S. Trustee, Chicago, IL.
This Opinion addresses three motions that are legally and factually related: (1) William A. Pope Company's Motion to Disqualify Schiff Hardin LLP ("Schiff) as Counsel for Debtors, for Denial of Fees, and for Appointment of a Trustee [Bankr.Docket No. 223]; (2) Raymond Professional Group, Inc.'s Motion to Voluntarily Dismiss Adversary Count I Without Prejudice [Adversary Docket No. 528]; and (3) the Debtors' Motion for Substantive Consolidation of Their Estates [Bankr.Docket No. 248]. These motions relate to a long-running and hotly contested dispute between William A. Pope Company ("Pope") and two of the debtors in this jointly administered bankruptcy case, Raymond Professional Group, Inc. ("RPG") and Raymond Management Services, Inc. n/k/a Raymond Professional Group-Design/Build, Inc. ("RMS"), over ownership of certain funds.
Subject matter jurisdiction lies under 28 U.S.C. § 1334, pursuant to 28 U.S.C. § 157. It is referred here by District Court Operating Procedure 15(a) of the United States District Court for the Northern District of Illinois. Venue lies under 28 U.S.C. §§ 1408 and 1409. These matters constitute core proceedings under 28 U.S.C. § 157(b)(2)(A).
The dispute between Pope and two of the Debtors1 originated on September 12, 2000, when RMS entered into a contract with AES Medina Valley Cogen, LLC ("AES") to provide engineering, procurement, construction, and start-up for a cogeneration power facility (the "Project"). In re Raymond Prof'l Group, Inc., 408 B.R. 711, 722 (Bankr.N.D.Ill.2009). (Findings of Fact and Conclusions of Law After Trial on Count VI). In January 2001, RMS subcontracted part of the Project to Pope. Id. at 723. RPG was not a party to the original contract nor the subcontract. Id. As part of their agreement, RMS and Pope set up an account (the "Account") to facilitate the payment of Project funds. Id.
A number of disputes arose between RMS and Pope, and the relationship between them deteriorated as the Project progressed. Id. at 724-26. On February 4, 2003, AES, the owner of the Project, caused a final payment of $2.5 million to be deposited directly into the Account in return for lien releases from RMS and Pope. Id. at 726. As of that date, the Account was subject under the Pope/RMS contract to arbitration of disputes between RMS and Pope and to determination of their claims and trust rights under the Illinois Mechanics Lien Act. In re Raymond Prof'l Group, Inc., 410 B.R. 813, 815 (Bankr. N.D.Ill.2009) (). Pope and RMS proceeded to arbitrate their disputes, and Schiff represented RMS in proceedings before the arbitration panel. In re Raymond Prof'l Group, 408 B.R. at 726, 750. RPG was not a party to the arbitration proceeding. On November 30, 2006, the arbitration panel rejected RMS's claims and awarded Pope $3,634,714.00, to be paid out of the Account to the extent it was large enough to cover the award (the "Arbitration Award" or the "Award"). Id. at 726. However, the Award did not determine ownership of the Account itself. In re Raymond Prof'l Group, Inc., 397 B.R. 414 (Bankr.N.D.Ill.2008), supplemented by In re Raymond Prof'l Group, Inc., 400 B.R. 621 (Bankr.N.D.Ill.2008).
On December 18, 2006, RPG, RMS, and the other related debtors filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code. The Debtors scheduled their assets and liabilities as follows:
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Debtor Assets Liabilities
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Raymond Professional Group, Inc. (RPG) $3,303,010.96 $1,214,489.54
Raymond Professional Group — Design/Build, Inc. (RMS) $0.00 $3,656,329.10
Raymond Professional Group — A/E, Inc. $6,816.00 $269.97
Raymond Professional Group — Government, Inc. $248,832.00 $3,798.00
Raymond International, Inc. $20,000.00 $0.00
Raymond Professional Group — Puerto Rico Engineering PSC $124,881.00 $57,733.94
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Prior to the bankruptcy filings, Pope and RMS had agreed to joint control of the Account by requiring approval from a representative of each before any withdrawal was permitted. Despite that agreement, and although RPG had no contractual relationship with AES or Pope, RPG scheduled the Account in its bankruptcy case as its asset. That Account, then amounting to $3,125,892.91, was largest single asset of any of the Debtors. Pope was scheduled as a creditor of RMS, holding the largest single claim against any of the Debtors. RMS's creditor schedules also listed unliquidated claims of unknown value for "intercompany charges" by other debtors, including RPG, as well as three other creditors with claims totaling $21,614.70. RPG listed 154 unsecured priority creditors and 177 unsecured nonpriority creditors. RPG attributed an unliquidated claim of unknown value for "intercompany charges" to each of the other debtors, including RMS.
Counsel for the Debtors thereby treated Pope as having a claim only against RMS which had no assets, and treated the Account as belonging to RPG which had no contractual claim to that fund. Although the Account was subject prebankruptcy to joint control by representatives of RMS and Pope, the Debtors somehow had the Account transferred by the depositary bank into a Debtor-in-Possession Account of RPG without any approval by Pope. That unauthorized transfer has since been reversed by court order, and the money was transferred into an account under court supervision at a new depositary bank.
On December 18, 2006, the Debtors moved to employ Schiff as bankruptcy counsel for all the related debtors [Bankr.Docket No. 5]. In its Rule 2014 Affidavit, which was attached to the Motion to Employ, Schiff did not disclose its prior representation of RMS in the arbitration proceeding. At the time, however, there was no objection and Schiff was approved as bankruptcy counsel for all the Debtors on January 3, 2007 [Bankr.Docket No. 24].
On February 27, 2007, RMS filed an Adversary Complaint (Adversary no. 07-137) against Pope seeking to vacate the Arbitration Award. In that Adversary, Pope sought to confirm the Award and moved for summary judgment. Pope's motion was granted and the Award in favor of Pope was confirmed on December 23, 2008. No appeal was taken from that decision.
On July 17, 2007, RPG filed an Adversary Complaint (Adversary no. 07-639) against Pope contending that RPG owned the Account. RMS was not a party to the Complaint, which originally contained five counts seeking: a declaration determining that RPG owned the Account (Count I); pursuant to 11 U.S.C. § 544(a), to avoid any trust found to have been imposed on the Account by the Award (Count II); to avoid the Award as a preference under 11 U.S.C. § 547(b) (Count III); to avoid the Award as a fraudulent transfer under 11 U.S.C. § 548(a)(1)(B) (Count IV); and to disallow Pope's claim for the amount of the Award under 11 U.S.C. § 502(d) (Count V). In its Amended Answer to the Complaint [Adversary Docket No. 22], filed on August 10, 2007, Pope asserted a counterclaim seeking, among other things, a declaration that funds in the Account were held in trust for its benefit pursuant to the Illinois Mechanics Lien Act.
On December 21, 2007, just over one year after the bankruptcy cases were filed, Pope filed a Motion to Disqualify the Schiff firm [Bankr.Docket No. 223]. Pope primarily complained that Schiff had asserted RPG's claim of ownership to the Account in the Adversary Complaint, despite RMS's...
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