Fellheimer, Bichen & Braverman, P.C. v. Charter Technologies, Inc.

57 F.3d 1215
CourtCourt of Appeals for the Third Circuit
DecidedJune 22, 1995
Docket94-3461
StatusUnknown
Cited by1 cases

This text of 57 F.3d 1215 (Fellheimer, Bichen & Braverman, P.C. v. Charter Technologies, Inc.) is published on Counsel Stack Legal Research, covering Court of Appeals for the Third Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Fellheimer, Bichen & Braverman, P.C. v. Charter Technologies, Inc., 57 F.3d 1215 (3d Cir. 1995).

Opinions

OPINION OF THE COURT

HARLINGTON WOOD, Jr., Circuit Judge.

Fellheimer, Eichen & Braverman, P.C. (“FE & B”) appeals the denial of its entire fees application. The bankruptcy court found that during the course of FE & B’s representation of Charter Technologies, Incorporated, d.b.a. Elgin Electronics (“the Debtor”), in the context of the Debtor’s Chapter 11 proceedings, that FE & B had wrongfully represented the interests of the Debtor’s president and principal shareholder, Joseph Burke. The bankruptcy court found that FE & B had sought to further Mr. Burke’s interests over the interests of the Debtor by, among other things, filing a patently false $4,250,000 lawsuit against the counsel to the Official Committee of Unsecured Creditors, and by making repeated and knowing misrepresentations to the bankruptcy court. The bankruptcy court further found that FE & B was motivated throughout its representation of the Debtor by subjective bad faith. Consequently, the bankruptcy court sanctioned FE & B by denying its fees application in its entirety. On appeal, the district court upheld the denial of FE & B’s fees application. The district court did, however, substitute its own justifications for the bankruptcy court’s action. Because we feel that the bankruptcy court’s factual findings are not clearly erroneous, and because we find the district court’s justifications for the sanctions to be acceptable, we affirm the denial of FE & B’s entire fees application.

I. BACKGROUND

On January 20, 1993, the Debtor filed a voluntary petition under Chapter 11 of the Bankruptcy Code. The Debtor also filed a motion at this time to employ FE & B as its counsel. On February 17, 1993, the bankruptcy court conducted a hearing regarding the employment of FE & B. Based, in part, on the testimony of Alan Fellheimer that FE & B would seek to file a reorganization plan for the Debtor between March 15 and March 30, 1993, and that FE & B had “already arranged ... a significant equity infusion into the company, seven figure infusion, a million dollars,” the bankruptcy court approved the employment of FE & B.

Despite these confident assertions, neither a reorganization plan nor a large equity infusion was forthcoming by the end of March 1993, and a meeting was subsequently arranged to discuss the future of the Debtor. This meeting, which took place on May 20, 1993, was attended by Mr. Fellheimer; Mr. Burke; Guy Fustine of Knox, McLaughlin, Gornall & Sennett, P.C. (“the Knox Firm”), counsel to the Official Committee of Unsecured Creditors (“the Committee”); and certain representatives of the Committee. The representatives of the Committee indicated that the Committee was willing to work with the Debtor to solve its financial woes, to wit, [1219]*1219the Committee would be willing to accept a plan in which the unsecured creditors as a whole exchanged debt for equity, or a plan in which two members of the Committee— REM Electronics and Advacom, Incorporated — would extend credit to the Debtor or invest cash in the Debtor.

The representatives of the Committee also made it clear that they lacked confidence in the managerial skills of Mr. Burke: If the Debtor’s reorganization plan was hinged upon the long-term viability of the Debtor, the Committee pledged to withhold its support unless the Debtor’s top-level management was replaced — particularly Mr. Burke. At this point, Mr. Burke and Mr. Fellheimer left the meeting to confer privately. Upon their return, Mr. Fellheimer presented the representatives of the Committee with Mr. Burke’s demands. According to Mr. Fell-heimer, Mr. Burke would agree to leave the management of the Debtor only if the reorganization plan provided him with: (1) a written employment contract with the Debt- or; (2) an equity position in the Debtor; and (3) a release from the personal guarantees Mr. Burke had previously executed which secured certain obligations of the Debtor.

Following this meeting, in a letter dated June 4, 1993, Mr. Fustine reiterated the Committee’s views regarding Mr. Burke’s long-term future in the Debtor’s management.1 In response, in letters dated June 8 and June 14, 1993, Mr. Fellheimer charged Mr. Fustine with representing individual members of the Committee and demanded that the Knox Firm withdraw as counsel to the Committee and, moreover, that certain members of the Committee also withdraw from the Committee. Mr. Fellheimer furthermore threatened to file a motion with the bankruptcy court seeking the dismissal of the Knox Firm if the Knox Finn did not voluntarily withdraw. Mr. Fustine and the Knox Firm responded by again restating the position of the Committee in a letter to FE & B dated June 16, 1993. That same day, Mr. Fustine and the Knox Firm also filed a motion on behalf of the Committee to ratify the appointment of Mr. Fustine and the Knox Firm as the Committee’s counsel.

FE & B filed the Debtor’s response to the Committee’s motion to ratify its counsel on June 28, 1993. FE & B also filed a seven-count complaint on behalf of the Debtor against Mr. Fustine and the Knox Firm seeking $4,260,000 in damages and a preliminary injunction to prevent Mr. Fustine and the Knox Firm from representing the Committee (“the complaint”). The complaint made the following allegations: Count One charged Mr. Fustine and the Knox Firm with breaching their fiduciary duty to the Committee by representing individual members of the Committee; Counts Two and Three charged Mr. Fustine and the Knox Firm with breaching a contract that they had allegedly entered into with the Debtor which required them to refrain from communicating with potential investors in the Debtor; Counts Four and Five charged Mr. Fustine and the Knox Firm with libeling and slandering the Debtor in their letters of June 4 and June 16, 1993; Count Six charged Mr. Fustine and the Knox Firm with intentionally and negligently interfering with the Debtor’s existing and prospective contractual relations; and Count Seven charged Mr. Fustine and the Knox Firm with unfairly competing with the Debtor by representing individual members of the Committee. The complaint was signed by Jeffrey Eiehen of FE & B.

Viewing the complaint as an insurmountable barrier to a successful reorganization effort, the bankruptcy court quickly scheduled a hearing for July 8, 1993. Mr. Fellheimer telephoned the court on July 6, 1993, however, and requested that the hearing be rescheduled as Mr. Burke — whose testimony Mr. Fellheimer characterized as essential to the complaint — was out of the country and would not return before the hearing. The bankruptcy court consequently rescheduled [1220]*1220the hearing for August 3, 1993. In fact, Mr. Burke was not out of the country and Mr. Fellheimer was aware of Mr. Burke’s actual whereabouts on the same day — July 6, 1993 — that he telephoned the bankruptcy court. On July 19, 1993, FE & B again sought to delay the hearing by filing a motion to postpone the hearing. In this motion, FE & B asserted that Vito Casoni, another allegedly essential witness, would be unavailable on the new date of the hearing. The bankruptcy court, however, refused to further reschedule the hearing.

On July 20, 1993, the Knox Firm, Mr. Fustine, and the Committee filed a Motion for Sanctions Pursuant to Bankruptcy Rule 9011 and Rule 11 of the

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Bluebook (online)
57 F.3d 1215, Counsel Stack Legal Research, https://law.counselstack.com/opinion/fellheimer-bichen-braverman-pc-v-charter-technologies-inc-ca3-1995.