Smith v. Robbins (In Re IFS Financial Corp.)

803 F.3d 195, 2015 WL 5672114
CourtCourt of Appeals for the Fifth Circuit
DecidedSeptember 25, 2015
Docket14-20588
StatusPublished
Cited by15 cases

This text of 803 F.3d 195 (Smith v. Robbins (In Re IFS Financial Corp.)) is published on Counsel Stack Legal Research, covering Court of Appeals for the Fifth Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Smith v. Robbins (In Re IFS Financial Corp.), 803 F.3d 195, 2015 WL 5672114 (5th Cir. 2015).

Opinion

PATRICK E. HIGGINBOTHAM, Circuit Judge:

W. Steve Smith, trustee of a complex Chapter 7 estate, engaged his firm to work for the estate with court approval. Smith, his lead appellate attorney and wife Blanche Smith, and their two children traveled to New Orleans for an oral argument. They arrived three days early and stayed the night afterwards. Smith later submitted a large, unitemized bill for his firm’s work that included a request to distribute $3,486.37 in estate funds to his firm for trip expenses. The bankruptcy court disallowed much of the requested amount and ordered Smith to show why he should not be removed as trustee under § 324(a) of the bankruptcy code. After a hearing, the court removed Smith, in part because his prior conduct convinced it that his conduct in this case was intentional. Under § 324(b), Smith was also removed *198 in all of his other pending cases. He appealed the removals. The district court affirmed, and we now affirm the district court.

I

IFS Financial Corporation (“IFS”) was the operating entity for the “Interameri-cas” group of corporations. It generated income primarily from an insurance and a mortgage subsidiary, and served a complicated web of corporate entities. In 1997 or 1998 Interamericas merged with a group of investors known as “Blitz.” The companies separated soon thereafter, and under the accompanying deal, IFS issued Blitz a note for over $70 million.

In 2002, GMAC Mortgage Corporation filed an involuntary petition against IFS in the Bankruptcy Court for the Southern District of Texas. W. Steve Smith was appointed the Chapter 7 Trustee in the resulting bankruptcy. With court approval, in 2003 Smith hired his own law firm to represent him as trustee, with Blanche Smith, his wife, as lead counsel. In 2005, Judge Isgur ordered that the case be jointly administered with multiple related cases. Smith initiated over 100 adversary proceedings to recover assets assertedly of the bankruptcy estates.

1.Interamericas or “the 2005 Matter

In March 2005, Judge Isgur denied Smith’s request to retain his firm as counsel for debtors related to IFS. Judge Isgur noted at the time that Smith was “considering facts that are inconsistent with his well-established duties to the estate” in his offered reason for hiring his firm:

Trustee relies on his own firm to handle unprofitable cases. Thus, the Trustee reasons that in order to allow his firm to afford to prosecute the unprofitable cases, he must also hire his firm to handle profitable cases-such as the present case.

The order also noted it had “no question about the integrity or quality of work of Trustee Smith,” but denied the application without prejudice. In May 2006, representing that he had sought to retain several other firms without success, Smith renewed his request for leave to hire his own firm on a contingency basis in the same matter. The court approved the request as part of a settlement between Smith and Blitz, the major creditor of IFS.

2. “The 2009 Matter”

In February 2009, Blitz filed a motion to convert the case to Chapter 11, which would have involved removing Smith as trustee. In May, Judge Isgur denied the motion and made verbal findings, including that Smith’s firm was expected to advance certain litigation expenses, such that the estate did not “bear the risk of those expenses.” He also found that Smith had engaged in retaliatory litigation against Blitz. Judge Isgur declined to remove Smith as trustee, but noted that it was a “relatively close call” and that “the retaliation cause is a bigger reason for me” in favor of removal than those initially raised by Blitz.

Smith, as trustee, submitted a Motion for New Trial or to Alter or Amend a Certain Finding, arguing the court had erred in holding his firm rather than the estate responsible for advancing the expenses. The bankruptcy court denied the motion, and Smith, as trustee, appealed. In December 2009, the bankruptcy court approved a settlement disposing of the disputed expenses.

3. “The CNCMatter”

In November 2012, in an unrelated bankruptcy proceeding, Smith sought to hire his own firm. Judge Isgur required *199 supplemental briefing either demonstrating that Smith had contacted other firms or explaining why he had not. Smith responded in part by hurriedly contacting firms by letter, providing 'the court with a copy. The court was concerned that, among other factors, the letter’s content and timing showed that Smith was trying to dissuade other firms so that his own could take the case.

The court issued an Order to Show Cause Why Trustee Should Not Be Removed, but ultimately determined that Smith should not be removed. In ruling, the court referenced the 2005/ Interamericas matter and also stated that, rather than crediting Smith’s explanation that the letter was simply inartful, it “believe[d] that the Trustee was attempting to benefit his own firm, to the detriment of the Estate.” At the same time, testimony from one of the contacted firms indicated that Smith’s firm had cooperated fully when it expressed interest in the litigation. It persuaded the court that the evidence that the letter was intended to dissuade was not clear and convincing.

II

In one of the many adversary proceedings connected to the IFS bankruptcy, Smith won a large judgment for the estate. The judgment was appealed to the Fifth Circuit, which held oral argument on Tuesday, November 8, 2011. Both W. Steve and Blanche Smith were to argue.

The Smiths and their two six-year-olds traveled to New Orleans on the Saturday prior to oral argument. Neither W. Steve nor Blanche spent time preparing for oral argument on Saturday. On Sunday the 6th, Blanche spent 7.3 hours preparing and W. Steve spent 3 hours. On Monday the 7th, Blanche spent 4.10 hours and W. Steve spent 3 hours. Both Smiths attended oral argument on Tuesday the 8th, and did no further work on the case during the trip.' They flew out of New Orleans on Wednesday the 9th.

While in New Orleans, the Smiths stayed at The Roosevelt for $359 a night. They ordered significant amounts of room service and ate at various restaurants. While their parents were preparing for oral argument, the children did homework, watched movies, and played video games in the same room. When he was not preparing for argument, Smith attended to the children, “set[] up the podium for [] oral argument,” and tried “to walk off a bad back.”

Smith requested reimbursement from his law firm for $3486.37 for the trip. This amount covered airport parking, taxis, $220 for meals, $900 for roundtrip airfare between Houston and New Orleans, a hotel bill of $1676.08, and $445.29 in “hotel charge.” Smith did not ask for reimbursement for the children’s food, movies, and airfare or for a significant proportion of the food he and his wife ordered. He also requested reimbursement for his and Ms. Smith’s air tickets only for the coach price, rather than for the First Class-tickets they actually used.

Ill

Smith later filed an “application for distribution authority” in the bankruptcy court asking that his firm be reimbursed from estate funds for $29,027.30.

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Cite This Page — Counsel Stack

Bluebook (online)
803 F.3d 195, 2015 WL 5672114, Counsel Stack Legal Research, https://law.counselstack.com/opinion/smith-v-robbins-in-re-ifs-financial-corp-ca5-2015.