In re Raymond Professional Group, Inc.
| Decision Date | 10 February 2009 |
| Docket Number | No. 07 A 00639.,No. 06 B 16748.,06 B 16748.,07 A 00639. |
| Citation | 400 B.R. 624 |
| 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, Intervening Defendants. |
| Court | U.S. Bankruptcy Court — Northern District of Illinois |
Jason M. Torf, Eugene J. Geekie, Jr., David A. Howard, Schiff Hardin LLP, Chicago, IL, for Raymond Professional Group, Inc.
John F. O'Brien, Susan N. Gummow, Clausen Miller P.C., Chicago, IL, for William A. Pope Company.
Harold E. McKee, Stephanie M. Keddy, John R. O'Donnell, Riordan, Donnelly, Lipinski & McKee, Chicago, IL, for National Fire Insurance Company of Hartford.
Sarah H. Bryan, Sven T. Nylen, Harley J. Goldstein, Bell Boyd & Lloyd LLP, Chicago, IL, for Official Committee of Unsecured Creditors.
On December 18, 2006, Debtor, Raymond Professional Group, Inc. ("RPG") filed its voluntary petition for relief under chapter 11 of the Bankruptcy Code. Raymond Professional Group is the 100% shareholder of Raymond Management Services, Inc. n/k/a Raymond Professional Group-Design/Build, Inc. ("RMS").1 Raymond Professional Group provided shared corporate services to each of its subsidiaries, including RMS. The subsidiaries provided engineering, architectural, design/build and other technical services to private and government clients, primarily in the power, industrial and process market sectors. Raymond Management Services also filed for voluntary chapter 11 relief in case no. 06-bk-16753 on December 18, 2006.2 An Order providing for joint administration has been entered.
Prior to filing of the bankruptcy cases, RMS was involved in a three-year long arbitration with William A. Pope Company ("Pope" or "Defendant") based on a contract between those parties. During the year 2000, RMS entered into a contract with AES Medina Valley Cogen, LLC ("AES") to construct a cogeneration power plant facility in Mossville, Illinois. Raymond Management Services was to perform all engineering, procurement, and construction services necessary to satisfy certain specified performance criteria for the lump sum price of approximately $34 million (the "EPC Contract"). On September 12, 2000, RMS entered into a subcontract with William A. Pope Co. ("Pope" or "Defendant") whereby Pope became responsible for performing all construction services and certain other services in the EPC Contract (the "Subcontract"). Raymond Management Services and Pope each agreed to perform tasks within their respective scope of work, and thereafter equally share any resulting profits or losses on the project. The parties agreed to establish a bank account (the "Initial Account") into which RMS would deposit any amount collected from AES above the parties' expenses. Raymond Management Services funded the Initial Account with more than $2 million of project receipts from AES.
After the Initial Account was funded, certain disputes arose regarding expenses the parties claimed to have incurred, as well as performance-based claims concerning certain pipe welds constructed by Pope. The parties entered into an Interim Settlement Agreement dated September 26, 2001, pursuant to which RMS deposited additional funds into the Initial Account.
On March 12, 2003, the funds were transferred, with the permission of Pope, to a new account (the "Account") with JP Morgan Chase Bank, N.A. ("Chase"). The Account documents required the dual signatures of Douglas J. Chidley ("Chidley") Debtors' President, and Paul L. Troyke ("Troyke"), Pope's President, to withdraw funds. The Account was originally titled "Raymond Professional Group—Pope Joint Account."
The cost and performance-based disputes between the parties were arbitrated under American Arbitration Association procedures as required by the arbitration provision of the Subcontract. On November 30, 2006, the Arbitration Panel (the "Panel") entered an award requiring RMS to pay Pope $3,634,714 (the "Award"). The Award was based on "Audit Issues" only; Pope defeated all of RMS' performance-based claims. That award has since been confirmed and judgment entered in this court. Raymond Mgmt. Servs. v. William A. Pope Co., 397 B.R. 414 (Bankr. N.D.Ill.2008); (Adversary No. 07-00137, Docket No. 63).
Ownership of the Account was not an issue raised by the parties in the Arbitration, and it was not decided by the Panel. The Supplement to Opinion confirming the Arbitration Award so concluded. (Adversary No. 07-00137, Docket No. 62.)
On July 17, 2007, RPG filed this five count Adversary Complaint against Pope seeking (1) a declaration determining RPG's ownership of the Account; (2) to avoid any trust imposed on the Award under 11 U.S.C. § 544(a); (3) to avoid the Award as a preference under 11 U.S.C. § 547(b); (4) to avoid the Award as a fraudulent transfer under 11 U.S.C. § 548(a)(1)(B); and (5) to disallow Pope's claim for the amount of the Award under 11 U.S.C. § 502(d). In its Amended Answer to Complaint, Pope asserted a counterclaim seeking inter alia a declaration that the funds in the Account are held in trust for it pursuant to the Illinois Mechanics Lien Act. 770 ILCS 60/21.02. Pope has consistently argued that it owns or holds a beneficial interest in the funds in the Account.
On December 21, 2007, Pope filed a Motion to Disqualify Schiff Hardin LLP ("Schiff") as Counsel for Debtors, (Bankr.Docket No. 223), arguing that Schiff failed to disclose its pre-petition representation of certain Debtor entities, and that Schiff breached its fiduciary duty and duty of loyalty to the bankruptcy estates.
In its Motion, Pope also argued that by taking a position as to ownership of the Account, Schiff has reduced the assets available for distribution to creditors of RMS and, therefore, breached its fiduciary duty to the RMS bankruptcy estate. It relied on Rule 2014 Fed. R. Bankr.P.
In early 2008, the parties agreed that rather than proceeding to decide ownership of the Account as between RPG and RMS (which might bring Schiff into conflict and require disqualification of the firm and its attorneys), it was more practical to decide first whether Pope owns the Account. If Pope owns the Account or the funds are held in trust for the benefit of Pope, the Account would not be property of either bankruptcy estate, and Pope would likely not have standing or interest in pursuing its Motion to Disqualify.
Raymond Professional Group and RMS have since filed an Amended Complaint adding Count VI seeking a 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 has counterclaimed asserting ownership of the Account. The parties agreed that Pope's Motion to Disqualify is not to be dealt with until after Count VI is decided. Trial on Count VI was scheduled and evidence was taken, though no ruling will be made until after final arguments.
On July 2, 2008, Pope filed a Motion for Leave to file a supplemental brief in support of its earlier Motion to Disqualify. In its Supplemental Brief it is represented that during discovery Pope learned that Schiff had received a check drawn on the Account and containing the dual signatures of Douglas Chidley and Paul Troyke for the payment of attorneys fees then due to Schiff. Pope argued that payment of attorneys fees created an attorney-client relationship between Schiff and Pope, and that Schiff s representation of RPG and RMS's interests adverse to Pope created a direct conflict of interest that had to be decided prior to the trial on Count VI.
The issue was fully briefed by the parties, and an evidentiary hearing was held on December 4th and 5th, 2008. The issues to be decided at the evidentiary hearing were whether there was ever an attorney-client relationship between Schiff and Pope that creates a conflict for Schiff, and, if so, whether any such conflict was waived. The arguments raised in Pope's original Motion to Disqualify were not at issue at this hearing. Following the hearing, it was announced from the bench that the Renewed Motion would be denied. Therefore, the trial of Count VI went forward.
For the following reasons, it is found and held that there never was an attorney-client relationship between Schiff and Pope; even if there was, it was waived by Pope's failure to timely raise an objection to the purported conflict alleged in its Supplemental Brief. Therefore, Pope's Renewed Motion to Disqualify on the grounds of a direct conflict of interest as asserted in the Supplemental Brief will be denied.
The following facts are stipulated to by the parties:
1. Raymond Professional Group, Inc. is an Illinois corporation.
2. Raymond Management Services is an Illinois corporation.
3. Douglas Chidley is the President of RPG, RMS, Doyen, RPG Government, RPG International, and RPG Puerto Rico.
4. Jean Chidley is the Secretary and Treasurer of RPG, RMS, Doyen, RPG Government, RPG International, and RPG Puerto Rico.
5. Julia Hazekamp is referenced in correspondence as a Financial Analyst for Doyen.
6. Schiff represented RMS in the Arbitration (defined below).
7. David Howard, of Schiff, was counsel for RMS prior to this...
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