Nelson v. Bricker & Eckler LLP (In re D8 2010 Inc.), Case No. 09-35789
| Decision Date | 06 April 2017 |
| Docket Number | Case No. 09-35789,Adv. No. 14-3106 |
| Parties | In re: D8 2010 Inc. f/k/a DOMIN-8 ENTERPRISES SOLUTIONS, INC., Debtor RICHARD D. NELSON, Plaintiff v. BRICKER & ECKLER LLP ET AL., Defendants |
| Court | U.S. Bankruptcy Court — Southern District of Ohio |
This matter is before the court on the Defendants' Motion for Summary Judgment. The motion seeks summary judgment dismissing the trustee's claims against a lawyer and his law firm for malpractice and for recovery of attorney fees paid to them. For the reasons stated in this memorandum decision, the Motion is granted in part and denied in part.
On September 17, 2009 Domin-8 Enterprise Solutions, Inc. and its former affiliates (collectively "Domin-8") filed voluntary Chapter 11 bankruptcy petitions. This adversary proceeding arises out of Domin-8's jointly administered bankruptcy cases. Domin-8 sought and obtained the approval of this court to employ Bricker & Eckler LLP ("Bricker & Eckler") as counsel to them as debtors-in-possession (Est. docs. 112 & 187),1 with David M. Whittaker ("Whittaker") serving as "lead counsel" for Domin-8 (Est. doc. 112) (collectively, "Bricker").
Domin-8 sought to sell substantially all of its assets under § 363 of the Bankruptcy Code (Est. docs. 19 & 69). After a vigorously contested sale process, the court approved the sale of Domin-8's assets to RealPage, Inc. under an Asset Purchase Agreement ("APA") for a cash purchase price of $14 million (the "Sale Proceeds") (Est. doc. 351). Following the consummation of the sale, Domin-8 proposed and the court confirmed the Third Amended Plan of Liquidation (Est. doc. 550) (the "Plan"). Confirmation Order (Est. doc. 555). The Plan was drafted by Bricker and provided for the liquidation of Domin-8's assets and the distribution of the Sale Proceeds through a liquidating trust (the "Liquidating Trust") established through the Liquidating Trust Agreement. Confirmation Order, ¶ 28 (Est. doc. 555) and Plan, Article V. The "Plan Trustee" was to take possession of and distribute the Sale Proceeds under the Plan and Liquidating Trust Agreement. Plan, Article V. At all relevant times, Tim Hock ("Hock") served as the Responsible Person for Domin-8 under Local Bankruptcy Rule 1074-1 until the Effective Date of the Plan and then upon the Effective Date of the Plan, became the Plan Trustee. Confirmation Order, ¶¶ 30 & 38 (Est. doc. 555). The Plan and the Liquidating Trust Agreement limit the Plan Trustee's and his employed professionals' liability to "acts or omissions resulting from willful misconduct or grossnegligence." Plan, Article V § A. 2. e.; Liquidating Trust Agreement, Article IV § 4.4. The Confirmation Order approved the employment of Bricker & Eckler as the Plan Trustee's legal counsel. Confirmation Order at 15, ¶ H (Est. doc. 555).
Section 10.14 of the Liquidating Trust Agreement provided for the posting of a bond by the Plan Trustee. Specifically, that provision states:
10.14. Bond Required. The Plan Trustee (including any Successor Plan Trustee) shall be bonded in an amount at least equal to the value of the Assets of the Trust.
Est. doc. 555 at 71. The evidence establishes that this bond requirement was included in the Liquidating Trust Agreement at the request of the United States Trustee. Specifically, MaryAnne Wilsbacher, an Assistant United States Trustee, in the process of the drafting and circulation of the Plan documents, insisted that the bond requirement be included in the Liquidating Trust Agreement. See Transcript of Deposition of David Michael Whittaker ("Whittaker Dep."), Adv. doc. 57 (Exhibit A at 28-29). The emails between Wilsbacher and Whittaker were as follows:
[Wilsbacher:] As I understand the Plan, it calls for a liquidating trust to be set up with an operating account of $300,000 (Plan p. 18). Tim Hock is the proposed Liquidation Trustee and is to be compensated at the rate of $ 75/hour (DST page 40). The Trust is to be governed by the agreement attached to the Plan as Exhibit 2 (page 42 of the Plan). Three issues: (1) We believe the Trustee should be bonded as being in the "best interest" of the estate (Plan, page 52 - ¶ 10.14). If this case were in Ch. 7, the Ch. 7 Trustee would be bonded and the bank account(s) collateralized. What protections do the creditors have without it? [Whittaker, David] This is OK as long as the cost can be paid from the operating reserve account and the amount paid in to the Operating Reserve Account can be increased to cover this expense. [Wilsbacher:] I'm OK with increasing the Operating Reserve for this.
Defendants' Motion for Summary Judgment (the "Motion for Summary Judgment"), Adv. doc. 52 (Exhibit A-6 at 2, ¶ 5). In addition, the Plan provided for the Plan Trustee's "obtaining and paying the premiums for liability insurance and bond premium for the Plan Trustee." Plan, Article V § A. 2. d. (22). See also Article III § 3.1. w. of the Liquidating Trust Agreementproviding for the Plan Trustee's payment of "the premiums for liability insurance and bond premium for the Plan Trustee[.]" Est. doc. 555 at 64.
On December 8, 2010 Whittaker sent an email to Hock suggesting the name of a bonding company which Hock could pursue to obtain the required bond. Hock responded to that email with the following email reply: "Thanks, meaning to ask you about this." Motion for Summary Judgment, Adv. doc. 52 (Exhibit A, Decl. of David Whittaker ("Whittaker Declaration") at ¶14); Exhibit A-8; and Whittaker Dep. at 31:6-7. The Effective Date of the Plan, at which time the Liquidating Trust became effective, was December 22, 2010. See Est. doc. 570, ¶ 11 and Est. doc. 550 at 6, ¶ 41 and at 16, Art. V § A. 1. Whittaker did not communicate further with Hock about the bond until sometime in February 2011, at which time Hock sent Whittaker an email Whittaker Dep. at 31. This appears to have been the last communication between Whittaker and Hock concerning the acquisition of the bond. See also Motion for Summary Judgment at 5. It is undisputed that a bond was never obtained by Hock.
On December 15, 2010 the court entered an Order Concerning Post-Confirmation Procedures, which required Domin-8 to "file a report pursuant to Local Bankruptcy Rule 3020-2 . . . on June 10, 2011, and every six months thereafter until a final report and motion for final decree is filed." Est. doc. 560.
Domin-8 filed post-confirmation reports every six months (Est. docs. 601, 610, 625, & 626) until July 16, 2013 when Bricker filed a Motion for an Order (1) Removing Timothy Hock as the Trustee of D8 2010 Inc. Liquidating Trust; (2) Appointing a Successor Trustee; (3) Placing an Administrative Freeze on the Bank Account(s) of D8 2010 Inc. Liquidating Trust; and (4) Waiving Notice (Est. doc. 629). The Motion asked for the removal of Hock as the Plan Trustee because he disappeared and stopped communicating with Bricker prior to the final distributions having been made to the creditors under the Plan and Liquidating Trust. Onthat same date, the court entered an order approving that motion, which removed Hock as the Plan Trustee (Est. doc. 630). Subsequently, Hock pled guilty in the United States District Court for the Southern District of Ohio to embezzlement from the Domin-8 bankruptcy estate and income tax evasion.
After Hock's removal, Richard D. Nelson was appointed as the Successor Trustee under the Liquidating Trust Agreement (Est. doc. 635). Shortly after Nelson was appointed as the Successor Trustee, he moved to convert the Chapter 11 cases to Chapter 7, which the court granted (Est. docs. 662 & 668).2 Thus, Nelson serves both as the Successor Trustee of the Liquidating Trust and as the Chapter 7 trustee for the Domin-8 bankruptcy estates and shall collectively be referred to as the "Trustee." The Trustee hired his law firm, Cohen, Todd, Kite & Stanford, LLC, to represent him as the Chapter 7 Trustee (Est. docs. 673 & 683).
The Trustee filed this adversary proceeding against Bricker, asserting claims against Whittaker for malpractice, breach of fiduciary duty, and for recoupment and disgorgement of attorney fees and expenses paid to him and against Bricker & Eckler for vicarious liability on account of Whittaker acting as an agent and employee, or partner of Bricker & Eckler (Est. doc. 660). Bricker filed an answer and counterclaims seeking recovery of $31,821.67 which they claim is still owed to them for services provided to the Liquidating Trust and for declaratory judgment on the Trustee's claim seeking disgorgement of attorney fees. No party has made a jury demand. After discovery was conducted and experts retained, Bricker filed this Motion for Summary Judgment and a separate Motion to Strike the Expert Report of Robert Goering and to Exclude His Testimony (Adv. docs. 53). The Trustee has opposedboth of those motions. The court is addressing the Motion to Strike through a separate decision and order being contemporaneously entered with this decision.
The parties have not disputed this court's jurisdiction, nor its constitutional authority to enter a final order or judgment in this matter. They have asserted that this proceeding is a core proceeding and that "[a] non-core proceeding is not alleged." See Joint Preliminary Pretrial Statement of the Parties (Adv. doc. 21 at 2-3). Further, The Plan, Confirmation Order, and the Liquidating Trust Agreement...
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