Bon-Air Partnership v. Robert Trumble , 521 F. App'x 131 ( 2013 )


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  •                               UNPUBLISHED
    UNITED STATES COURT OF APPEALS
    FOR THE FOURTH CIRCUIT
    No. 12-1244
    In Re:    BON-AIR PARTNERSHIP,
    Debtor.
    ----------------------------
    ALEX RAHMI,
    Plaintiff – Appellant,
    v.
    ROBERT W. TRUMBLE, Trustee,
    Trustee – Appellee,
    and
    UNITED STATES TRUSTEE,
    Trustee.
    Appeal from the United States District Court for the Northern
    District of West Virginia, at Martinsburg. John Preston Bailey,
    Chief District Judge. (3:11-cv-00061-JPB; 3:09-bk-02621)
    Argued:    March 21, 2013                   Decided:   April 11, 2013
    Before MOTZ and DUNCAN, Circuit Judges, and Robert E. PAYNE,
    Senior United States District Judge for the Eastern District of
    Virginia, sitting by designation.
    Affirmed by unpublished per curiam opinion.
    ARGUED: John B. Simpson, MARTINWREN, PC, Charlottesville,
    Virginia, for Appellant.    Mary Binns-Davis, MCNEER, HIGHLAND,
    MCMUNN & VARNER, LC, Martinsburg, West Virginia, for Appellee.
    ON BRIEF: Robert W. Trumble, Suzanne Williams-McAuliffe, MCNEER,
    HIGHLAND, MCMUNN & VARNER, LC, Martinsburg, West Virginia, for
    Appellee.
    Unpublished opinions are not binding precedent in this circuit.
    2
    PER CURIAM:
    This appeal arises from the bankruptcy proceedings of Bon-
    Air     Partnership        (“Bon-Air”),          a     single-asset      real     estate
    business.      The sole issue on appeal is whether a conflict of
    interest arose from the trustee’s appointment of a law firm that
    represented another party in a separate debt collection action
    against one of Bon-Air’s general partners, Alex Rahmi (“Rahmi”
    or “Appellant”).       Many months later, after the trustee’s sale of
    the   partnership’s         sole    asset     had     already   occurred       and   been
    approved by the court, Rahmi asserted this conflict of interest
    as a reason to invalidate the sale.                    The bankruptcy court found
    no conflict of interest, and declined to remove the trustee or
    invalidate the sale.               For the following reasons, we conclude
    that the district court correctly affirmed the judgment of the
    bankruptcy court.
    I.
    A.
    Bon-Air    filed      for     Chapter      7    Bankruptcy   on    November    11,
    2009, and Appellant signed the Petition as a general partner.
    The partnership’s primary asset consisted of approximately 130
    acres    of   land    in    Charles     Town,        West   Virginia    (the    “subject
    property”),     and        was     valued   in       the    operative    Petition     at
    $750,000.       The        total     debt   of       the    bankruptcy    estate     was
    3
    $793,162.42,       consisting        almost       entirely    of     debt    held    by    two
    creditors secured by the subject property.                              Appellee Robert
    Trumble was appointed as trustee of the estate (“Trustee”) a few
    days later.
    On April 27, 2010, the first priority creditor, Jefferson
    Security Bank, moved to lift the automatic bankruptcy stay so
    that it could enforce its deed of trust and initiate foreclosure
    proceedings to sell the property.                   Seeking to avoid foreclosure,
    and believing he could secure a higher value for the estate
    through      a    private        sale,    Trustee     filed      a    Motion    to      Sell,
    attaching        thereto     a    March    10,     2010    offer       to    purchase      the
    property for $1.2 million.                Rahmi objected, asking the court to
    delay the sale “in order for the Trustee to continue to market
    the property in an effort to raise the selling price.”                                    J.A.
    112.    Trustee thereafter filed a notice to allow an upset bid
    private auction to be held immediately after the hearing on its
    motion.      The day before the hearing was to occur, the court
    continued it, stating that it would grant Trustee a period of up
    to six months to market the property before allowing the bank to
    seek a foreclosure sale.
    The   next     day,       Rahmi    sought     to    dismiss       the   bankruptcy
    proceedings.        Both Trustee and the creditors objected, and the
    court    denied      the     motion,      reasoning       that       Rahmi   had     already
    repeatedly attempted to delay the sale of the subject property
    4
    in   a   deliberate       effort    to   avoid    satisfaction      of      Bon-Air’s
    creditors--by filing successive bankruptcy petitions and using
    other delay tactics in those cases--and because Rahmi proffered
    no alternatives to Trustee’s concrete offers to purchase.                           The
    bankruptcy court concluded that, “while [Rahmi’s] conduct does
    not conclusively show a lack of good faith, [his] last-ditch
    effort to dismiss the case in the face of an impending sale
    rings hollow.”      J.A. 156.
    On July 6, 2010, the Bankruptcy court approved Trustee’s
    application to employ his law firm, McNeer, Highland, McMunn and
    Varner (the “law firm”) as special counsel.                  Meanwhile, the law
    firm had been representing Wells Fargo Bank (“Wells Fargo”) in
    an   unrelated    action     to    collect    from   Rahmi   on   an       outstanding
    $208,000 personal loan.            Notably, Rahmi did not object to the
    law firm’s appointment as special counsel.
    At the upset bid auction on September 2, 2010, the winning
    bid of $3 million was submitted, and approved by the bankruptcy
    court.    Neither the debtor nor Rahmi objected to the sale at
    that time.       The court noted that Trustee’s sale of the subject
    property at private auction was an arms-length transaction, free
    of fraud or collusion, and made in good faith in accordance with
    the relevant bankruptcy code, 
    11 U.S.C. § 363
    (m).
    Following     the    sale,     Trustee     reported    that      a    total   of
    $945,411.19 had been paid to creditors to satisfy liens on the
    5
    property.       Additional deductions of $180,000 in commissions and
    $4,151.37 in expenses left a total of $1,870,437.44 available
    for distribution to Bon-Air’s partners, including Rahmi. *                  Those
    funds were deposited into an interest-bearing account opened by
    Trustee on behalf of the bankruptcy estate, where they remain
    still.
    On       January      25,   2011,   the    law   firm   discontinued      its
    representation        of    Wells   Fargo      in   the   separate   proceedings
    against Rahmi.          Nonetheless, on April 1, 2011, Rahmi filed a
    Motion to Remove Trustee for Conflict of Interest based on the
    law firm’s involvement in both actions, which the bankruptcy
    court       denied.     Rahmi    initially     appealed    that   order   to   the
    district court, but then voluntarily dismissed it.
    B.
    On May 16, 2011, Rahmi filed a Motion to Amend Judgment and
    to Invalidate Foreclosure Sale (“Motion to Amend”), arguing that
    Trustee was not disinterested, and had violated his fiduciary
    duty by selling the subject property at a grossly inadequate
    price.       Rahmi based this assertion on real property assessments
    for surrounding properties that he presented for the first time,
    *
    Rahmi claims to be one of four partners in Bon-Air,
    holding a 50% interest, although the extent of his ownership
    interest is apparently disputed. J.A. 32, 52; Appellee’s Br. at
    2 n.1.
    6
    and which      he     contended        valued       the    subject     property       at   $16.2
    million.        The     bankruptcy        court       denied       the    motion.          Rahmi
    appealed, and the district court issued a memorandum opinion
    affirming the order of the bankruptcy court, Rahmi v. Trumble,
    
    464 B.R. 710
         (N.D.W.     Va.    2011)       (“Memorandum         Opinion”).            The
    district court rejected Rahmi's conflict of interest arguments
    in an order denying interlocutory appeal, issued on the same day
    as its Memorandum Opinion.                See Rahmi v. Trumble, No. 11-CV-61,
    
    2011 WL 6887728
           (N.D.W.      Va.    Dec.        29,    2011)       (“Conflict       of
    Interest Order”).           Rahmi timely appealed from both orders.
    II.
    At oral argument, counsel for Rahmi clarified that he did
    not seek to have the Trustee’s sale set aside by this court.
    Thus, Rahmi contests only the bankruptcy court’s finding of fact
    that    no    actual    conflict        of     interest         existed,       asking      us    to
    overturn      that    finding      and    remand          for     “whatever      consequences
    might flow from that.”                 Because we see no actual conflict of
    interest,      and     no    basis      for     concluding         that    the     bankruptcy
    court’s factual findings were clearly erroneous, we affirm.
    The    Bankruptcy         Act    allows        trustees,        with     the     court’s
    approval, to employ attorneys “that do not hold or represent an
    interest      adverse       to   the    estate,           and   that     are    disinterested
    persons, to represent or assist the trustee in carrying out the
    7
    trustee’s duties.”            
    11 U.S.C. § 327
    (a); see also In re Harold &
    Williams Dev. Co., 
    977 F.2d 906
    , 909 (4th Cir. 1992) (describing
    the    bankruptcy        court’s        “broad         discretion”         to    approve        such
    requests).       The Act defines a “disinterested person” as a person
    who    “does    not    have        an    interest         materially        adverse       to     the
    interest of the estate or of any class of creditors or equity
    security       holders,       by        reason       of     any     direct        or      indirect
    relationship to, or connection with, or interest in, the debtor,
    or for any other reason.”                 
    11 U.S.C. § 101
    (14)(C).                  Courts have
    interpreted these provisions to mean that trustees “may employ a
    creditor’s       attorney           under        §     327(c)        provided          the      dual
    representation presents no actual conflict of interest.”                                        Byrd
    v.    Johnson,     
    467 B.R. 832
    ,     849      (S.D.    Md.      2012)        (citation
    omitted).
    Although       Rahmi     confusingly               presents       several         different
    arguments      regarding       the       impact        of    the     law        firm’s    alleged
    conflict of interest, we need not parse them because they all
    necessarily fail at the first step: there was no actual conflict
    of    interest.        At     the       most    basic       level,       the     separate       debt
    collection proceeding was against Rahmi as an individual, while
    the    bankruptcy      proceedings             dealt      with     the     property       of     the
    partnership--an          unrelated         matter.           As      the       district      court
    observed, under West Virginia law, “‘[p]roperty acquired by a
    partnership      is    property          of    the     partnership         and     not     of    the
    8
    partners      individually.’”         Conflict      of     Interest         Order,        
    2011 WL 6887728
    , at *3 (quoting W.Va. Code § 47B-2-3).
    Thus, the fact that the law firm represented Wells Fargo in
    an     action      against      Rahmi     personally            is        not       an   interest
    “materially adverse” to the partnership’s bankruptcy estate, and
    Rahmi’s arguments to the contrary are far too attenuated to gain
    traction.       Any interest Wells Fargo might have had in obtaining
    a judicial sale of the subject property so that surplus could be
    paid out to Bon-Air’s partners, including Rahmi, in order for
    Rahmi to be able to satisfy his personal debt to Wells Fargo, is
    at best a questionable basis for a conflict of interest.                                   Taking
    the    additional      step,     as     Rahmi      presses,          of    considering           the
    motivation      of    Wells     Fargo’s      counsel,          further          strains    logic.
    Rahmi’s speculative chain of inferences could just as easily
    lead us to conclude that Wells Fargo (and its counsel) would
    have    had   an     interest    in   obtaining          the    highest          possible    sale
    price for the subject property, to ensure that Rahmi possessed
    sufficient funds to fully satisfy his personal debt to Wells
    Fargo.        Accordingly,      we    find    no        grounds      for        a   conflict      of
    interest here.
    Furthermore,      assuming       for       the    sake     of       argument       that     a
    conflict did exist, Rahmi was aware of such conflict from the
    outset but failed to raise the issue until after the (apparently
    disfavorable) sale was affirmed.                        Even if equitable estoppel
    9
    does not bar Rahmi’s belatedly asserted conflict of interest
    challenge, it certainly calls the propriety of his motives, and
    any potential for harm to him, into question.    Rahmi has been
    unable to articulate any way in which Trustee’s disqualification
    at this stage of the proceedings would impact the bankruptcy
    court’s disposition of the estate.
    III.
    For the foregoing reasons, the judgment of the district
    court is
    AFFIRMED.
    10
    

Document Info

Docket Number: 12-1244

Citation Numbers: 521 F. App'x 131

Judges: Motz, Duncan, Payne, Eastern, Virginia

Filed Date: 4/11/2013

Precedential Status: Non-Precedential

Modified Date: 10/19/2024