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Lippl v. International Fid. Ins. Co.

United States District Court, W.D. Pennsylvania

July 25, 2014

JOHN R. LIPPL, Appellant,
v.
INTERNATIONAL FIDELITY INSURANCE COMPANY, Appellee

For JOHN E. LIPPI, Appellant: Daniel R. Schimizzi, LEAD ATTORNEY, Bernstein-Burkley, P.C., Pittsburgh, PA.

For INTERNATIONAL FIDELITY INSURANCE COMPANY, Appellee: Leonard F. Spagnolo, LEAD ATTORNEY, Bentz Law Firm, P.C., Pittsburgh, PA.

OPINION

Page 128

Memorandum Opinion

Arthur J. Schwab, United States District Judge.

I. Introduction

This case is before the Court on appeal from a final order of the United States Bankruptcy Court for the Western District of Pennsylvania, the Honorable Thomas P. Agresti. The question presented is whether the Bankruptcy Court erred in granting the Motion of International Fidelity Insurance Company (" IFIC" ) to Compel Abandonment of Certain Estate Property (" Motion to Compel" ), where the Bankruptcy Trustee represented on the record that he would not pursue the Construction Claims, IFIC said it would not pursue the Construction Claims, and John R. Lippl, an attorney who pursued the Construction Claims, who is no longer employed by the Bankruptcy Estate or the Bankruptcy Trustee, was the only party out of 300 creditors to file any response or objection. For the reasons that follow, the decision of the Bankruptcy Court will be affirmed.

II. Standard of Review

Federal district courts exercise appellate jurisdiction over final judgments, orders and decrees entered by bankruptcy courts. 28 U.S.C. § 158(a)(1). Federal Rule of Bankruptcy Procedure 8013 provides that a reviewing court " may affirm, modify, or reverse a bankruptcy judge's judgment, order, or decree or remand with instructions for further proceedings." Fed. R. Bankr. P. 8013. " [A] bankruptcy court's legal determinations are reviewed de novo , its factual findings for clear error and its exercise of discretion for abuse." Official Committee of Unsecured Creditors of J. Allen Steel Co. v. Nucor-Yamato Steel Co. , 336 B.R. 226, 229 (W.D.Pa. 2005). " Mixed questions of fact and law must be broken down and reviewed under the applicable standard." Titus v. Shearer , 498 B.R. 508, 514 (W.D.Pa. 2013). The District Court acts as an appellate tribunal and is governed by traditional standards of appellate review when reviewing a decision of the Bankruptcy Court. Accordingly, the Court reviews the Bankruptcy Court's findings of fact under a clearly erroneous standard, and its conclusions of law are reviewed de novo. In re Four Three Oh, Inc. , 256 F.3d 107, 112 (3d Cir. 2001); In re Trans World Airlines, Inc. , 145 F.3d 124, 131

Page 129

(3d Cir.1998); Fed.R.Bankr.P. 8013.[1]

III. Statement of the Case[2]

This appeal arises from the Order of Court dated April 24, 2014, by the United States Bankruptcy Court for the Western District of Pennsylvania wherein it granted IFIC's Motion to Compel Abandonment (doc. no. 1, citing doc. no. 646). In the Motion to Compel, IFIC sought an Order compelling the Chapter 7 Trustee for the Bankruptcy Estate of Flaherty Mechanical Contractors, LLC (" Trustee" ) to abandon its legal causes of action against the Board of Education of the School District of the City of Pittsburgh (" School District" ).

Flaherty Mechanical Contractors, LLC (" Debtor" ) had previously brought suit against the School District for alleged non-performance of certain contractual obligations under three (3) construction contracts between Debtor and the School District. These three (3) Construction Claim cases were filed in the Court of Common Pleas of Allegheny County. Prior to filing for bankruptcy, however, the Debtor employed attorney Appellant Lippl to litigate the Construction Claims against the School District.

The School District also sued the Debtor and IFIC on the two (2) construction projects that gave rise to the Construction Claims, also in state court. Therefore, a total of five (5) lawsuits were pending between the parties in State Court. The State Court litigation remained pending when IFIC filed the instant Motion to Compel Abandonment. IFIC requested the Bankruptcy Court to issue an Order compelling the Bankruptcy Trustee to abandon the Construction Claim to IFIC so that IFIC could potentially negotiate a " global settlement" of State Court Litigation (doc. no. 1-46/47). In connection therewith, IFIC served the Abandonment Motion on approximately 300 creditors and interested parties in the bankruptcy case, none of whom, with the sole of exception of Appellant Lippl, filed any response or objection thereto (doc. no. 1-51).

IV. Procedural History of Bankruptcy Court Proceedings

On September 24, 2010 (" Relief Date" ), the Debtor filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code. Because the State Court litigation had commenced prior to the Relief Date, the Debtor filed an application to employ attorney Lippl as Special Counsel to pursue the State Court Litigation (doc. no. 1-2). The Bankruptcy Court approved Lippl to continue to represent the Debtor in State Court (doc. no. 1-5 ). On September 4, 2012, the Bankruptcy Court converted the Chapter 11 filing to a Chapter 7 and appointed the Trustee to represent the estate in bankruptcy (doc. no. 1-59). Prior to conversion to Chapter 7, the Bankruptcy Court approved Lippl's first interim application for compensation and reimbursement of expenses in the total amount of $106,816,61 (doc. no. 1-12). After conversion and appointment of the Trustee, Lippl filed a Chapter 11 fee petition seeking approval of $8,624.50. After

Page 130

the Trustee objected (doc. no. 1-36), the Bankruptcy Court entered a modified order granting Lippl's Chapter 11 fee petition in a converted case in the amount of $8,624.50 (doc. no. 1-39).

After the State Court made a ruling against the Debtor during the liability phase of the Construction Claims, the Trustee then filed a Motion to Employ Special Counsel (David Donnelly, Esquire), as Special Counsel to the Trustee, to litigate the remainder of the Construction Claims. Lippl then filed a Response to the Application to Employ Donnelly (doc. no. 1-43/44) and by Order of Court dated February 7, 2013, the Bankruptcy Court granted the Trustee's Motion to Employ Donnelly as Special Counsel. (doc. no. 1-45).

While the damages portion of the Construction Claims and the School District Claims remained pending (for over a year) in the State Court litigation, on March 12, 2014, IFIC filed the Motion to Compel, seeking an Order by the Bankruptcy Court directing the Trustee to abandon the Construction Claims to IFIC so IFIC could negotiate a global settlement of the States Court Litigation (doc. no. 1-46/47/48).

On April 3, 2014, despite sending notice of 300 creditors, Appellant Lippl filed the sole response to the Motion to Compel and in it filed a Limited Response arguing that Movant failed to show by a preponderance that the claims are of inconsequential value and benefit to the estate, and that the claims are burdensome to the estate (doc. no. 1-51). Importantly, also on April 3, 2014, the Trustee filed a Response consenting to the relief requested in IFIC's Motion to Compel (doc. no. 1-49). On April 10, 2014, the Bankruptcy Court held a hearing on IFIC's Motion to Compel, and since the representations made on the record in that hearing form the basis of this opinion, the Court finds it prudent to include the transcript of that hearing:

MR. SPAGNOLO: Yes, Your Honor. As we set forth in the motion, this is a Motion to Compel the Trustee to abandon the Debtor's interest in certain underlying construction litigation. Essentially the underlying litigation were three lawsuits filed by the Debtor against the school district for the City of Pittsburgh, claiming wrongful termination on some construction projects. The Court of Common Pleas ruled that there was no wrongful termination, and the litigation is back down in the Court of Common Pleas. There's some related litigation filed by the school district against the Debtor and International Fidelity, also in the Court of Common Pleas, which we have referred to as the related lawsuits in my motion, and they are related in terms of preparation for trial only.
Your Honor, I spoke with the Trustee before we filed this motion and walked him through. Essentially what we're asking for is an abandonment of all the Debtor's rights and interests in this litigation so that my client, International Fidelity, and in particular Mrs. Bentz, can attempt to have a global resolution of everything, both sets of lawsuits. And so, as Your Honor knows, the test is whether these particular assets have any value to the estate and, as we set forth in our motion, there is no value to the estate in these, primarily because the Debtor is not abandoning affirmative claims, per se. Even if the Debtor were abandoning affirmative claims, the question would be whether, even if the ...

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