In re Belmonte

524 B.R. 17, 2015 Bankr. LEXIS 253, 2015 WL 349280
CourtUnited States Bankruptcy Court, E.D. New York
DecidedJanuary 28, 2015
DocketCase No. 12-76045-AST
StatusPublished
Cited by16 cases

This text of 524 B.R. 17 (In re Belmonte) is published on Counsel Stack Legal Research, covering United States Bankruptcy Court, E.D. New York primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
In re Belmonte, 524 B.R. 17, 2015 Bankr. LEXIS 253, 2015 WL 349280 (N.Y. 2015).

Opinion

[20]*20 DECISION AND ORDER DENYING MOTION TO REMOVE THE TRUSTEE AND TO DISQUALIFY THE TRUSTEE’S SPECIAL COUNSEL, AND IMPOSING SANCTIONS

Alan S. Trust, United States Bankruptcy Judge

Pending before the Court is the motion filed on behalf of the incarcerated Debtor, Alice Phillips Belmonte, a disbarred attorney (“Debtor”), seeking to remove the chapter 7 trustee (the “Trustee”), and to disqualify the Trustee’s court approved special counsel (the “Removal Motion”).1 Also pending is the motion filed by the Trustee seeking sanctions against Debtor and her counsel for filing the Removal Motion, and to enjoin Debtor and her counsel from filing any further pleadings in this case without prior leave of court (the “Sanctions Motion”, and collectively, the “Motions”). For the reasons stated below, the Court finds and concludes that Debtor’s Removal Motion is frivolous and should be denied, and that sanctions should be imposed.

Jurisdiction

This Court has jurisdiction over this core proceeding pursuant to 28 U.S.C. §§ 157(b)(2)(A) and 1334(b), and the Standing Orders of Reference in effect in the Eastern District of New York dated August 28, 1986, and as amended on De[21]*21cember 5, 2012, but made effective nunc pro tunc as of June 23, 2011.

The following constitute this Court’s findings of fact and conclusions of law to the extent Bankruptcy Rule 7052 so requires. Fed. R. BankR. P. 7052. These findings and conclusions are based on the uncontested allegations in the parties’ pleadings and exhibits, matters of which this Court may take judicial notice2, and the hearing held on the Motions.

Background and Procedural History

The Court will recite relevant aspects of this litigious chapter 7 ease. On October 5, 2012, various petitioning creditors3 filed an involuntary chapter 7 petition against Debtor4 pursuant to 11 U.S.C. § 303(b)5. The Petitioning Creditors were represented by the law firm of Rich Michaelson Magaliff Moser, LLP (the “RMMM”). On October 26, 2012, Ms. Belmonte filed an ■ answer seeking dismissal of the case; at that time, she was represented by attorney Craig A. Brand from Miami, Florida (“Mr. Brand”), [dkt item 12]

The proceedings during the involuntary phase were marred by numerous disputes between Mr. Brand and RMMM. Their interactions deteriorated to the point that on December 19, 2012, this Court issued an Order Prohibiting Unauthorized Contact With Chambers And Requiring Compliance With This Court’s Civility Rules (the “Civility Order”).6 [dkt item 41]

On February 12, 2013, Mr. Brand filed a motion to withdraw as Debtor’s counsel, citing “[i]rreconcilable differences and material conflicts of interest ...” [dkt item 52]

On February 25, 2013, following a hearing on his motion, the Court authorized Mr. Brand- to withdraw as Debtor’s attorney of record, [dkt item 58]

On April 5, 2013, Thomas A. Sadaka (“Mr.Sadaka”) of the law firm of NeJame, LaFay, Jancha, Ahmed, Barker, Joshi & Moreno, PA, of Orlando, Florida entered an appearance on Debtor’s behalf, [dkt item 84]

On April 8, 2013, the trial on the involuntary petition was called as scheduled. At that time, Ms. Belmonte was subject to an order prohibiting her from testifying at the trial in her case in chief as a discovery sanction for, inter alia, failing to appear at her own deposition, [dkt item 65] Following the close of the trial record, and for the reasons stated on the record following the trial, on April 25, 2013, the Court entered an order for relief under chapter 7. [dkt item 88] Debtor did not appeal from the order for relief.

[22]*22Shortly thereafter an interim trustee was appointed. On June 12, 2013, the Office of the United States Trustee filed a report certifying the results of an election of a trustee conducted pursuant to § 702. [dkt item 104] Harold D. Jones was elected and subsequently appointed as the chapter 7 trustee of Debtor’s bankruptcy estate (the “Trustee”). Debtor did not object to the Trustee’s appointment.

On June 18, 2013, the Trustee filed an application and a declaration in support of retaining RMMM as his general counsel pursuant to § 327(a) (collectively, the “Retention Application”), [dkt item 110, 111] The Retention Application affirmatively states that RMMM “no longer represents the Petitioning Creditors in connection with this (or any other) case.” The Retention Application further provides that in the event of a conflict, the Trustee would seek to retain conflicts’ counsel for any matters directly adverse to any of the Petitioning Creditors.

On June 26, 2013, and July 1, 2013, Debtor filed objections to the Retention Application; these objections were signed by Mr. Sadaka. [dkt items 115, 118] Debtor essentially argued that RMMM’s prior and allegedly current representation of the Petitioning Creditors would violate § 327, because RMMM is not “disinterested” and “hold[s] or represents] an interest adverse to the estate”. See 11 U.S.C. §§ 101(14), 327(a).

On July 1, 2013, the Court held a hearing on the Retention Application. For the reasons more fully set forth on the record and based on this Court’s concern about potential conflicts of interest and the possible appearance of conflicts, the Court determined that it would not authorize RMMM to be retained as the Trustee’s general counsel. However, the Court stated that given the substantial knowledge concerning Debtor and her operations that RMMM had developed, a limited scope retention of RMMM appeared to be appropriate; any representation by RMMM would have to exclude matters related to the investigation and potential prosecution of claims against the Petitioning Creditors. The Court further stated that it would consider such an application if and when filed.

On July 9, 2013, the Trustee filed applications to retain Jones & Schwartz, P.C. as his general counsel pursuant to § 327(a) [dkt items 120] and RMMM as his special counsel pursuant to § 327(e) (the “Special Counsel Application”), [dkt item 122] The Special Counsel Application sought to retain RMMM for the limited purposes of, inter alia, assisting the Trustee with his investigation into Debtor’s prepetition law practice and business operations, undertaking Bankruptcy Rule 2004 examinations of any persons other than the Petitioning Creditors in connection with that investigation, and prosecuting adversary proceedings for avoidance actions, except as against the Petitioning Creditors. The Special Counsel Application reiterated that RMMM no longer represented the Petitioning Creditors. Neither Debtor, nor the United States Trustee objected to either retention.

On July 10 the Court entered an order approving the retention of Jones & Schwartz, P.C. as general counsel, and on August 1, 2013, entered an order approving limited scope retention of RMMM. (collectively, the “Retention Orders”).7 [23]*23[dkt items 123, 129].

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Cite This Page — Counsel Stack

Bluebook (online)
524 B.R. 17, 2015 Bankr. LEXIS 253, 2015 WL 349280, Counsel Stack Legal Research, https://law.counselstack.com/opinion/in-re-belmonte-nyeb-2015.