Matter of Chronopoulos

• Citation: 36 BR 364
• Decision Date: 17 January 1984
• Docket Number: Adv. No. 82 A 3424.
• Parties: In the Matter of Tassos CHRONOPOULOS and Tassos Chronopoulos d/b/a T.C.I. Limited, and Georgine Chronopoulos, Debtors. Tassos CHRONOPOULOS and Tassos Chronopoulos d/b/a T.C.I. Limited, and Georgine Chronopoulos, Plaintiffs, v. MARATHON OIL COMPANY, Chicago Title and Trust Co., as Trustee under Lane Trust No. 1011800, and Constantine Drugas, as Agent for Certain Unknown Owners, and First National Bank of Evergreen Park, Defendants.
• Court: United States Bankruptcy Courts. Seventh Circuit. U.S. Bankruptcy Court — Northern District of Illinois

36 B.R. 364 (1984)

In the Matter of Tassos CHRONOPOULOS and Tassos Chronopoulos d/b/a T.C.I. Limited, and Georgine Chronopoulos, Debtors.

Tassos CHRONOPOULOS and Tassos Chronopoulos d/b/a T.C.I. Limited, and Georgine Chronopoulos, Plaintiffs, v. MARATHON OIL COMPANY, Chicago Title and Trust Co., as Trustee under Lane Trust No. 1011800, and Constantine Drugas, as Agent for Certain Unknown Owners, and First National Bank of Evergreen Park, Defendants.

Adv. No. 82 A 3424.

United States Bankruptcy Court, N.D. Illinois, E.D.

January 17, 1984.

William L. Needler, William L. Needler & Associates, Chicago, Ill., for William L. Needler & Associates.

Sherwin J. Malkin, Chicago, Ill., for Marathon Oil Co.

Robert C. Samko, Samko & Berger, Chicago, Ill., for Chicago Title and Trust Co. and Constantine Drugas.

OPINION AND ORDER

ROBERT D. MARTIN, Bankruptcy Judge.

This case is on remand from the district court for further proceedings consistent with its opinion of June 24, 1983. The remand was specifically for the purpose of having a court familiar with the claims made in this and similar bankruptcy cases review the manner in which the firm of William L. Needler & Associates, Ltd. conducted its representation of the plaintiff, T.C.I. Limited. The case was briefed by counsel and ably argued to this court by Sherman Malkin attorney for Marathon Oil Company, Robert Samko, attorney for Chicago Title and Trust Company and Constantine Drugas, and William L. Needler, attorney for William L. Needler & Associates on November 16, 1983. From an exhaustive review of all of the papers filed in this proceeding and relevant portions of the files in the plaintiffs' chapter 11 case it appears that the situation which gave rise to the claims made by plaintiffs and the nature of those claims, while not common to large numbers of bankruptcy cases, are by no means novel or unique. The facts simply stated are as follows:

In September, 1977, T.C.I. Limited ("T.C.I.") and Marathon Oil Company ("Marathon") entered a lease agreement for real property in Palos Heights, Illinois. T.C.I. renovated the building on the property into the "Chef's Garden Restaurant." In 1980, T.C.I. defaulted on several monthly rent payments, and Marathon terminated the lease. An action to dispossess T.C.I. was filed, and a court order authorized the sheriff to restore possession to Marathon. Before the sheriff could evict T.C.I., the proceedings were stayed by T.C.I.'s filing a chapter 11 bankruptcy petition on November 12, 1980.

In February, 1981, Marathon sought relief from the automatic stay and requested to be placed in possession of the premises. A hearing in September, 1981, resulted in an Agreed Order stipulated to by William Needler on behalf of T.C.I. providing: release of the stay for Marathon to enforce its security interests; abandonment of the bankruptcy trustee's right, title, and interest in the premises; and authorization for the trustee to turn over possession to Marathon. During this hearing and prior to entry of the Agreed Order, Marathon's attorney declared his lack of authority to speak about Marathon's intentions regarding the premises. The attorney specifically refrained from making any representations as to Marathon's future conduct in connection with the premises except a commitment to meet with Evergreen Bank and discuss the disposition of the property.

Shortly thereafter, the property was turned over to Marathon pursuant to the Agreed Order. In July, 1982, Chicago Title & Trust ("C.T. & T.") and Constantine Drugas ("Drugas") purchased the property for $150,000.00. T.C.I. now claims there were buyers ready to pay $400,000.00 for the property. However, in September, 1982, T.C.I. stipulated to entry of an Agreed Order allowing Marathon's bankruptcy claim for a $56,108.35 deficiency on the sale.

Shortly after agreeing to the order allowing Marathon's deficiency claim, T.C.I. filed an adversary proceeding seeking to be relieved from its prior consent to Marathon's claim and requesting an accounting for personal property left on the premises. T.C.I. premised its right to relief on harm caused by Marathon's failure to sell the property "in good faith." C.T. & T. and Drugas were joined as necessary parties to prevent further transfer of the property. The defendants filed motions to dismiss and the first of its motions to assess costs pursuant to 28 U.S.C. § 1927 (1980), which are the subject of this decision. After a scheduled hearing the motions to dismiss were granted because the complaint failed to state a cause of action on which relief could be granted. T.C.I. promptly filed an amended complaint.

T.C.I.'s amended complaint differed from the original complaint only in that it added claims that the restaurant building constituted a trade fixture and that Drugas was not a bona fide purchaser for value. This complaint was again subjected to motions to dismiss.

During the hearing on the motions scheduled in January, 1983, Judge Hertz indicated the second complaint did not state a claim. However, representations of counsel during the hearing suggested some possibility of a fraud claim, and T.C.I.'s attorney agreed that fraud was the major contention he sought to address by his pleadings. The amended complaint was withdrawn and leave was granted to submit a second amended complaint if a cause of action could be stated. T.C.I.'s attorney was warned about the risk of being taxed with costs upon a subsequent dismissal.

T.C.I.'s second amended complaint pleaded the same facts as the previous complaints, adding only the claims that Marathon had converted the trade fixtures and that Marathon breached a contract alleged to have been made in connection with or arising from the first Agreed Order. No fraud claim was stated despite Judge Hertz's prior admonitions. Defendants again moved to dismiss.

At a February, 1983, dismissal hearing on the second amended complaint, the court found no claim stated. When asked about the fraud claim, T.C.I.'s attorney admitted: "I didn't attempt to allege fraud in this complaint." The motions to dismiss were granted, but the motions to assess costs under 28 U.S.C. § 1927 were denied. All parties appealed to the district court, T.C.I. appealing the portion of the judgment dismissing the complaint, and defendants appealing the portion denying costs.

T.C.I.'s appeal was dismissed voluntarily and, thereafter, in June, 1983, the district court by Judge Plunkett issued an opinion on the denial to assess costs. The court found the test for a 28 U.S.C. § 1927 claim was stated in Overnite Transportation Co. v. Chicago Industrial Tire Co., 697 F.2d 789 (7th Cir.1983), and remanded the case for a determination of whether T.C.I.'s attorney multiplied the proceedings in a vexatious and unreasonable fashion.

28 U.S.C. § 1927 (1980) provides:

Any attorney or other person admitted to conduct cases in any court of the United States or any Territory thereof who so multiplies the proceedings in any case unreasonably and vexatiously may be required by the court to satisfy personally the excess costs, expenses, and attorneys\' fees reasonably incurred because of such conduct.

As the district court opinion in this case stated: "there is little doubt that the debtor's attorney multiplied the proceedings." The question then becomes whether the proceedings were multiplied in a vexatious and unreasonable fashion. The district court found vexatious to mean "lacking jurisdiction and intended to harass." The court applied the definition to the elements of a § 1927 claim in Overnite Transportation Co. and found the test to be "not malice but rather whether the attorney in the exercise of good judgment should have known that the charges in his pleadings were frivolous."¹

Should T.C.I.'s attorney, William Needler, in the exercise of good judgment, have known that the charges in his pleadings were frivolous? In his argument Mr. Needler stated that during his absence from the office the matter had been referred to a new associate, Jeffrey White, who responded to the urgings of the debtor's principal to stop or undo the sale by whatever means possible. The matter was viewed as urgent and the pressure from the client was no doubt intense. Situations of this sort arise frequently for debtor's counsel in chapter 11 proceedings. Desperate problems are said to call for desperate measures. However, the measures available to debtor's counsel are not unlimited. Where, as in this case, relief from stay has already been granted to a secured creditor by consent, the broad equitable powers of the court can be invoked to reinstitute the stay only on proper pleading of a sufficient change of circumstances. However, there are various remedies under statute which may be available to any debtor, in bankruptcy or otherwise, in the event that collateral or property subject to liens...