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In re Diloreto

November 22, 2010


The opinion of the court was delivered by: Goldberg, J.


This case involves cross appeals pursuant to28 U.S.C. § 158filed by Eric R. DiNallo, Superintendent of Insurance for the State of New York, who was acting as Liquidator of Nassau Insurance Company, and Jeanne S. Diloreto. The issues before us are whether the Bankruptcy Court committed an error of law, engaged in clear error in applying the facts or abused its discretion in awarding attorney's fees and costs to Diloreto.

The procedural history of this case is unending and involves litigation between the parties dating back to 1985. The gist of the underlying dispute pertains to efforts by the Liquidator to recover reinsurance funds from Diloreto. While numerous proceedings have occurred in state and federal trial and bankruptcy courts, the issues before us are narrow and involve claims for attorney's fees and costs against the Liquidator pursuant to 11 U.S.C. § 303(i)(1) and claims of bad faith under § 303(i)(2).

On June 19, 2008, after a two-day hearing, the Honorable Bruce I. Fox, United States Bankruptcy Judge for the Eastern District of Pennsylvania, issued an opinion and accompanying order, awarding attorney's fees in favor of Diloreto and against the Liquidator in an amount of $63,150.00. Judge Fox also awarded costs in the amount of $6,859.44. Diloreto's request for damages for bad faith under section 303(i)(2) was denied. In re Diloreto, 388 B.R. 637 (Bankr. E.D. Pa. 2008).

Thereafter, both parties filed motions alleging a variety of errors. On August 11, 2008, Judge Fox issued a "Statement of Reasons in Support of Order" wherein he adjusted the award of attorney's fees*fn1 and allowed Diloreto the opportunity to submit further evidence in support of her position that she be awarded more than $100,000 in fees and expenses solely for litigating the section 303(i) motion. On October 6, 2008, Judge Fox issued a " Second Amended Order" against the Liquidator for $82,150.00 in legal fees and $8,8770.30 in costs.

Apparently ignoring Judge Fox's continued admonition that "a request for attorney's fees should not result in a second major litigation," see, Hensley v. Eckerhart, 461 U.S. 424, 437 (1983), cross appeals were filed with this Court on September 15, 2008.*fn2

We have jurisdiction pursuant to 28 U.S.C. § 158(a)(1), which grants district courts jurisdiction over appeals from final judgments and orders of the bankruptcy court. We review the bankruptcy court's legal determinations de novo, its factual findings for clear error and its exercise of discretion for abuse thereof. In re United Healthcare Sys., 396 F.3d 247, 249 (3d Cir. 2005) (citations omitted). A bankruptcy court's "findings of fact are clearly erroneous when, after reviewing the record, the appellate court 'is left with the definite and firm conviction that a mistake has been committed.'" In re Piccoli, 2007 WL 2822001 * 3 (E.D.Pa. Sept. 27, 2007) (citing Anderson v. Bessemer City, 105 S.Ct. 1504, 1511 (1985)). Under this standard, "[i]t is the responsibility of an appellate court to accept the ultimate factual determinations of the fact-finder unless that determination is either (1) completely devoid of minimum evidentiary support displaying some hue of credibility or (2) bears no rational relationship to the supportive evidentiary data." Id. (citing DiFederico v. Rolm Co., 201 F.3d 200, 208 (3d Cir. 2000) (citations omitted)).

At the outset, we remind the parties that despite their decades of litigation, the issue before this Court is narrow, involves a great deal of deference to the Bankruptcy Court, and concerns only the application of§ 303(i), an attorney's fees statute. The plain language of this statute affords the Bankruptcy Court very broad discretion and states that the Court "maygrant judgment" for "reasonableattorney's fees" where there has been a dismissal of an involuntary Chapter 7 bankruptcy petition. § 303(i)(1) (emphasis added). As Judge Fox aptly noted, "the use of the word 'may' renders any award under section 303(i) discretionary." 388 B.R. at 644.

Against this statutory backdrop, we have throughly reviewed the following submissions: "Brief on Behalf of Cross-Appellant, Jeanne S. Diloreto" (68 pages); "Brief of Appellant, Eric R. Di Nallo, Superintendent of Insurance For the State of New York, In His Capacity As Liquidator of Nassau Insurance Company;" "Cross-Appellant's Citation of Additional authority" (Jan. 6, 2010); "Cross-Appellant's Second Citation of Additional Authority" (Sept. 2, 2010). We have also carefully considered Judge Fox's opinion, where he meticulously addressed each possible basis for recovery advanced by Diloreto, including bad faith, and the Liquidator's response in opposition. We have also reviewed Judge Fox's Statements of Reasons in Support of the Order and subsequent Amended Order.

After examination of the totality of the circumstances, and in particular noting that the Liquidator had a $20 million judgment claim against Diloreto, Judge Fox concluded that Diloreto was not entitled to relief for bad faith pursuant to § 303(i)(2). In re Diloreto, 388 B.R. at 649-51.

In awarding attorney's fees under § 303(i)(1), Judge Fox, again considering the totality of the circumstances, chose to exercise his discretion and award reasonable attorney's fees. This decision was primarily based upon the Liquidator's decision to not prosecute the involuntary petition, questionable compliance with § 303 (b) and (h), and "limited investigation." Id. at 652. Judge Fox arrived at the specific monetary award after:

- Review of Diloreto's bankruptcy counsel's billing rates and experience level;

- Exploration and consideration of requested attorney's fees for work undertaken by counsel that was both successful (e.g., dismissal of the petition for lack of proper service) and unsuccessful (e.g., motion for recusal); and - Considering and rejecting Diloreto's request for fees ...

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