Matter of Crivello
| Decision Date | 18 February 1997 |
| Docket Number | 92-27252-CNC-7.,No. 96-C-549,96-C-549 |
| Parties | In the Matter of Frank Pio CRIVELLO, Debtor. |
| Court | U.S. District Court — Eastern District of Wisconsin |
Thomas L. Shriner, Jr., Foley & Lardner, Milwaukee, WI, for Appellant.
David W. Asbach, Milwaukee, WI, for United States Trustee.
DECISION AND ORDER
The appellant, Kravit, Gass & Weber, S.C. "KGW", appeals from the March 25, 1996, final order entered by then United States bankruptcy judge Charles N. Clevert denying KGW's final fee application for compensation and reimbursement of expenses for its services as counsel to Frank P. Crivello, the chapter 11 debtor-in-possession, the "debtor" in his bankruptcy case.
The United States Trustee and KGW filed a comprehensive stipulation in the bankruptcy court in connection with KGW's fee application. For the most part, the following facts are based on that stipulation.
On November 20, 1992, the debtor filed a voluntary petition under chapter 11 of the Bankruptcy Code. On August 9, 1994, the debtor's case was converted from a reorganization proceeding under chapter 11 to a liquidation proceeding under chapter 7. The debtor, as the debtor-in-possession, sought to employ KGW as counsel in connection with his bankruptcy proceeding on December 8, 1992, pursuant to 11 U.S.C. § 1107(a) and § 327(a). The employment application was accompanied by an affidavit of disinterestedness pursuant to Bankruptcy Rule 2016(b) in which attorney Leonard G. Leverson stated that KGW did not hold any interest adverse to the debtor or to the chapter 11 estate. The bankruptcy court approved the application for employment of KGW on February 8, 1993, with retroactive effect to November 20, 1992.
Subsequently, it was learned that KGW had actually begun representing the debtor in certain civil matters unrelated to the bankruptcy proceeding in the first half of 1991. (Record No. 68 ¶ 2.) Between November 20, 1991, through June 1, 1992, National Management, Inc. "NMI" made a series of payments to KGW relating to KGW's pre-petition joint representation of the debtor and Joseph Crivello. (Record No. 68 ¶ 3.) Joseph Crivello is a cousin of the debtor and is an "insider" as that term is defined in the Bankruptcy Code. (Record No. 68 ¶ 17.) At all relevant times, Joseph Crivello was the sole stockholder in NMI. (Record No. 68 ¶ 5.)
The debtor was employed as the executive vice-president of NMI from January 1, 1993, through August 9, 1994. Prior to that time, the debtor was employed by NMI as a consultant. (Record No. 68 ¶ 15.)
Before November 20, 1992, KGW had also represented the debtor, Joseph Crivello, as well as two of the debtor's companies — CP Holdings II, Inc., and FPC Construction, Inc. — in matters in which these corporate entities were sued jointly with the debtor. (Record No. 68 ¶ 7.) As of the filing date of the voluntary petition under chapter 11, KGW was prepared to represent 122 companies owned in whole or in part by the debtor in connection with any criminal investigation of the debtor. (Record No. 68 ¶ 10.) These 122 companies are "insiders" as that term is defined under the Bankruptcy Code. (Record No. 68 ¶ 10.)
The debtor owed KGW approximately $42,500 for legal services for criminal and civil matters unrelated to the chapter 11 bankruptcy proceeding before he filed his voluntary petition under chapter 11. This fact was not disclosed by the debtor in his application of employment or by KGW in the affidavit of disinterestedness filed by attorney Leverson. (Record No. 5.) Of the amount owed to KGW, $5,670 was paid from a $10,000 retainer that KGW received from NMI on November 20, 1992 — the date that the debtor commenced his chapter 11 bankruptcy proceeding. (Record No. 68 ¶¶ 28D and 29; Record No. 4.) Thus, when the debtor sought to employ KGW as counsel on December 8, 1992, the debtor still owed $36,926.98 to KGW for pre-petition legal services ($18,823.40 fee for civil matters and $18,103.58 fee for criminal matters). (Record No. 68 ¶ 11.) KGW did not disclose this debt to the bankruptcy court or to the U.S. Trustee until March 13, 1995, when attorney Leverson filed a supplement to his amended affidavit of disinterestedness. (Record No. 56.) The supplement to the amended affidavit further disclosed that KGW waived its $18,103.58 claim against the debtor for pre-petition criminal legal services. (Record No. 56.) KGW did not file a claim against the estate in the debtor's chapter 11 case. (Record No. 68 ¶ 12.)
On April 30, 1993, despite its assertion that it had waived the debtor's $18,103.58 pre-petition debt for criminal services, that debt was paid when KGW applied a $50,000 flat fee retainer that it had received from Sierra Holding Corporation, an entity wholly owned by Joseph Crivello, to the waived pre-petition debt. (Record 68 ¶¶ 22, 23 and 24.) The $50,000 retainer was also applied to an outstanding fee for post-petition legal services rendered by KGW to the debtor. (Record No. 68 ¶¶ 22, 23 and 24.)
The following persons and entities were listed as creditors in the debtor's original chapter 11 bankruptcy schedules: NMI, Joseph Crivello, Fifth Corp., Cambridge Business Finance Co., Corporate Center Management, Inc., Corporate Computers, Inc. and FPC Construction, Inc. (Record No. 68 ¶ 13.) The following persons and entities filed claims against the debtor in his bankruptcy case: NMI, Fifth Corporation, Berkshire, I.C.T. II Corporation, Plaza Twenty Three, Inc., and Cambridge Business Finance Co., Inc. (Record No. 68 ¶ 18.)
At all relevant times, Joseph Crivello owned the stock, either directly or indirectly, in the following corporations: NMI, Fifth Corp., Sierra Holdings, Inc., Sierra Finance Co., Berkshire Factoring, Inc., "Berkshire" and I.C.T. II Corporation. (Record No. 68 ¶ 6.) Joseph Crivello did not personally file a claim in the debtor's bankruptcy case. (Record No. 68 ¶¶ 5 and 20.) As early as February 3, 1993, Berkshire became a creditor of the debtor when it purchased the claims of others. (Record No. 68 ¶ 26.) On September 3, 1993, Berkshire paid $45,542 to KGW for legal services provided to the debtor. (Record No. 68 ¶ 31.)
On February 22, 1994, Joseph Crivello retained KGW to provide advice regarding a potential gaming venture. (Record No. 68 ¶ 27.)
KGW first sought interim compensation in the chapter 11 case on October 25, 1993. Over the objection of the U.S. Trustee, the bankruptcy judge authorized an award to KGW in the amount of $80,000 by order of December 23, 1993. (Record No. 26.) On June 2, 1994, KGW filed an application for final compensation. The June 2, 1994 application was amended on September 19, 1994. On November 28, 1994, KGW filed a second application for interim compensation pending resolution of its request for final compensation. The U.S. Trustee filed objections to both of KGW's applications.
In the applications for final and interim compensation, KGW acknowledged that it had received funds from NMI for defending nondischargeability actions against the debtor in the chapter 11 proceeding. KGW filed supplemental attorney's statements in accordance with Bankruptcy Rule 2016(b) which disclosed that it received additional funds from NMI for other services provided to the debtor for nondischargeability defense work and for work performed for the debtor after the case was converted to a liquidation proceeding under chapter 7. (Record No. 68 ¶ 30.) The following payments were made to KGW by NMI for services rendered by KGW to the debtor:
Date Amount
A. 8/3/92 $ 7,258.09
B. 10/1/92 6,910.50
C. 11/2/92 13,765.21
D. 11/20/92 10,000.00
E. 3/4/93 20,000.00
F. 4/30/93 13,000.00
G. 7/15/93 30,000.00
H. 10/20/93 23,150.07
I. 10/21/93 2,179.73
J. 11/19/93 30,000.00
K. 2/15/94 11,171.37
L. 5/10/94 18,030.95
M. 7/20/94 22,478.78
N. 8/18/94 28,142.80
O. 9/6/94 15,000.00
P. 10/12/94 10,000.00
Q. 11/22/94 10,000.00
R. 12/27/94 70.82
S. 12/31/94 8,818.61
T. 3/20/95 1,391.20
(Record No. 68 ¶ 28.) The funds paid by NMI to KGW on behalf of the debtor were not wages or salary to the debtor. (Record No. 68 ¶ 32.) During the period between November 20, 1992, and the date that the proceeding was converted to a chapter 7 proceeding, NMI occasionally paid or advanced personal expenses of the debtor and his spouse which were either reimbursed or treated as gifts. (Record No. 68 ¶ 33.)
A number of hearings were held by the bankruptcy judge in connection with KGW's requests for compensation. The U.S. Trustee was permitted to conduct discovery regarding KGW's fee applications. By decision and order of March 25, 1996, the bankruptcy court denied KGW's application for compensation in its entirety on the ground that KGW was not a disinterested person and that KGW had "willfully failed to disclose critical facts and connections" with the debtor. (Memorandum Decision and Order of March 25, 1996, p. 14.)
On appeal, KGW challenges the bankruptcy judge's denial of its request for fees on two levels. KGW insists that the bankruptcy judge's conclusion that KGW was not a disinterested party is based on insufficient evidence. In addition, KGW argues that the bankruptcy judge's decision to deny its request for compensation rests on the erroneous legal premise that the bankruptcy court was not permitted to exercise its discretion to award KGW compensation and reimbursement of expenses after finding that...
To continue reading
Request your trial
-
In re Schmidt
... ... MEMORANDUM OPINION ... JOHN H. SQUIRES, Bankruptcy Judge ... This matter comes before the Court on the motion of the United States of America Internal Revenue Service (the "IRS") to partially dismiss the motion of Martha ... ...