In re Cabe & Cato, Inc.

524 B.R. 870, 2014 WL 7779663
CourtUnited States Bankruptcy Court, N.D. Georgia
DecidedOctober 31, 2014
DocketCASE NO. 13-62455-CRM
StatusPublished
Cited by8 cases

This text of 524 B.R. 870 (In re Cabe & Cato, Inc.) is published on Counsel Stack Legal Research, covering United States Bankruptcy Court, N.D. Georgia primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
In re Cabe & Cato, Inc., 524 B.R. 870, 2014 WL 7779663 (Ga. 2014).

Opinion

ORDER

C. Ray Mullins, U.S. Bankruptcy Court Judge

THIS MATTER is before the Court on the Chapter 7 Trustee’s Motion to Disqualify Counsel (the “Motion”) (ECF No. 115), The Court held an evidentiary hearing on the Motion, after which the Court took the matter under advisement. For the reasons stated below, the Court grants the Motion.

I. FACTS

The Debtor, Cabe & Cato, Inc., sold, leased, serviced, and maintained automated teller machines. Jim Cabe and Warren Cato are the sole owners and principals of the Debtor.

In 2007, the Debtor and two co-investors filed a lawsuit against Andante Development, LLC (“Andante”) in Walton County, Florida (the “State Court Action”). Andante counterclaimed. Following a three-day jury trial on dueling breach of contract claims, the Florida court entered a judgment jointly and severally against the Debtor and two other judgment debtors in favor of Andante Development, LLC for $1,394,899.59.1

At approximately the same time, Burr & Forman (“B & F”) started providing legal services to the Debtor. B & F and the Debtor discussed forming a new company, and on July 30, 2010, days after judgment was entered in the State Court Action, B & F filed articles of incorporation and was granted a certificate of organization for a new Georgia limited liability company: Turnkey ATM Solutions, LLC (“Turnkey”). A B & F attorney, Edward H. Brown, was listed as the registered agent. Like the Debtor, Turnkey sells, leases, services, and maintains ATMs. Trunkey has the same principal mailing address as the Debtor, and Mr. Cabe and Mr. Cato are Turnkey’s only members.

B & F represented the Debtor, Turnkey, Mr. Cabe, and Mr. Cato in a sale transaction in which Debtor transferred all, or nearly all, of its ATM machines and the cash then in those machines to Turnkey (the “Sale Transaction”). B & F drafted a bill of sale conveying the Debt- or’s equipment to Turnkey; the agreement was executed on September 24, 2010.

Andante challenged the Sale Transaction by filing a lawsuit against Debtor, Turnkey, Mr. Cabe and Mr. Cato in the District Court for the Northern District of Florida in November 2012. Andante alleged that the Sale Transaction was a fraudulent conveyance and asserted claims under Florida’s fraudulent transfer act (the “District Court Action”). On June 3, 2013, Andante filed a motion to appoint a receiver in the District Court Action. The [875]*875District Court Judge ordered the defendants to that action to file a response by June 7, 2013.

While the District Court Action was pending, the Debtor agreed to indemnify Mr. Cabo and Mr. Cato for legal fees they incurred in litigation related to Andante’s collection efforts. In February 2013, Mr. Cabe and Mr. Cato, as officers of the Debtor, also assigned a $100,000 note receivable then owed to Debtor to B & F to cover their attorney’s fees.

On June 5, 2013, Debtor filed bankruptcy. The United States Trastee appointed Barbara Stalzer, Jr. as the interim trustee, and she became the permanent trustee (the “Trustee”) at the chapter 7 meeting of creditors on July 1, 2013.

On July 29, 2013, the Court entered an order authorizing mediation. ECF No. 46. The parties appeared to reach an agreement, and the Trustee filed a motion to approve compromise on September 17, 2013. ECF No. 48. In the motion, the Trustee expressly reserved her claims against B & F. The motion stated that, “While the Trustee (and Andante) are settling claims against the Defendants, the Trustee is not settling and specifically reserves any and all claims which the estate may possess against B & F, ... while Trustee and Andante have specifically agreed to release the Defendants as set forth herein, Trustee does not agree that the settlement with Defendants shall have any legal effect regarding Plaintiffs claims against B & F.” ECF No. 48 at 4. Mr. Cabe, Mr. Cato, Turnkey, and B & F filed objections to the motion. As a result, the Trustee withdrew the motion to approve compromise.

The Trustee then filed motions seeking documents and compelling attendance at Rule 2004 examinations directed to the Debtor, Mr. Cabe, Mr. Cato, Turnkey, and three B & F attorneys: Edward H. Brown, Jeffrey U. Beaverstock, and Jon Kane. The Court granted the motions, and the Trustee served subpoenas for the Rule 2004 examinations. Mr. Cabe, Mr. Cato, Turnkey, and B & F responded by filing motions to quash. The Court held a hearing on the motions to quash, during which it directed the respondents to produce all non-privileged documents and a privilege log. The Court further ordered the parties to have a meaningful discussion after the documents were produced about remaining discovery issues.

On August 20, 2014, the Trustee filed the Motion.2 The Trustee seeks to disqualify B & F from representing Mr. Cabe, Mr. Cato, and Turnkey in this case. B & F filed a response to the Motion, and the Court held- an evidentiary hearing on the Motion on Monday, September 15, 2014.

At the hearing, counsel for the Trustee began by stating that he was concerned with how B & F had handled the production of documents. He noted that production had been piecemeal, and that he had received an about 600 additional pages of documents on Thursday and approximately 200 additional pages on Friday before the Monday hearing. Mr. Patterson stated that the Trustee intended to file a lawsuit against Mr. Cabe, Mr. Cato, Turnkey, B & F, and several B & F attorneys.

Mr. Kane stated that B & F had complied with the Trustee’s requests for documents and had produced thousands of pages of documents. Mr. Kane said that the Trustee was aware of B & F’s involvement since it first filed a notice of appear-[876]*876anee just two weeks after the Debtor filed bankruptcy and that, given the time that had passed between when B & F first entered an appearance and when the Trustee filed the Motion, the Trustee waived her right to claim disqualification. While Mr. Kane acknowledged that the Trustee had previously raised claims against B & F, he argued that the Trustee waived her right to claim disqualification. Mr. Kane stated that the Trustee was trying to use disqualification as a litigation tool and that his clients would be harmed if B & F was disqualified. He noted that they had already spent over $200,000 in connection with the case. Mr. Kane succinctly stated B & F’s involvement in the case did not pose an ethical problem — that B & F was permitted to represent the Debtor, Mr. Cabe, Mr. Cato, and Turnkey in the Sale Transaction, and that it should be permitted to continuing representing Mr. Cabe, Mr. Cato, and Turnkey against the Trustee. Mr. Kane concluded that if a B & F attorney is called to testify as a witness, disqualification should not be imputed to the firm.

The Trustee testified that she had been a chapter 7 trustee for twenty-four years; in all those years, she had only filed a motion to disqualify counsel two times. She stated that she tried to mediate the matter “as quickly as possible,” and, when mediation failed, she sought discovery from B & F. The Trustee stated that she was concerned that the production was slow, piecemeal, and possibly incomplete; she did not know whether B & F had produced all non-privileged documents in its possession.

Free access — add to your briefcase to read the full text and ask questions with AI

Related

Cite This Page — Counsel Stack

Bluebook (online)
524 B.R. 870, 2014 WL 7779663, Counsel Stack Legal Research, https://law.counselstack.com/opinion/in-re-cabe-cato-inc-ganb-2014.