Maiman v. Spizz (In Re Ampal-American Israel Corp.)

16-2855-bk
In re Ampal-Am. Israel Corp.
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
SUMMARY ORDER
RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A
SUMMARY ORDER FILED ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED BY
FEDERAL RULE OF APPELLATE PROCEDURE 32.1 AND THIS COURT’S LOCAL RULE 32.1.1.
WHEN CITING A SUMMARY ORDER IN A DOCUMENT FILED WITH THIS COURT, A PARTY MUST
CITE EITHER THE FEDERAL APPENDIX OR AN ELECTRONIC DATABASE (WITH THE NOTATION
“SUMMARY ORDER”). A PARTY CITING A SUMMARY ORDER MUST SERVE A COPY OF IT ON
ANY PARTY NOT REPRESENTED BY COUNSEL.
At a stated term of the United States Court of Appeals for the Second Circuit, held at
the Thurgood Marshall United States Courthouse, 40 Foley Square, in the City of New
York, on the 24th day of May, two thousand seventeen.
PRESENT: BARRINGTON D. PARKER,
RICHARD C. WESLEY,
CHRISTOPHER F. DRONEY,
Circuit Judges.
----------------------------------------------------------------------
IN RE: AMPAL-AMERICAN ISRAEL CORPORATION,
Debtor.
----------------------------------------------------------------------
YOSEF A. MAIMAN, MERHAV (M.N.F.) LIMITED,
Appellants,
v. No. 16-2855-bk
ALEX SPIZZ, Chapter 7 Trustee,
Appellee.
----------------------------------------------------------------------
FOR APPELLANTS: Daniel A. Fliman (Michele L. Angell, on
the brief), Kasowitz, Benson, Torres &
Friedman LLP, New York, NY.
FOR APPELLEE: Arthur Goldstein (Alex Spizz, Jill
Makower, on the brief), Tarter, Krinsky
& Drogin LLP, New York, NY.
1
Appeal from a July 19, 2016 judgment of the United States District Court for the
Southern District of New York (Failla, J.).
UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED,
AND DECREED that the judgment of the district court is AFFIRMED.
This appeal arises from the litigious bankruptcy of Debtor Ampal-American Israel
Corporation (“Ampal”) encompassing a series of disputes between Ampal’s creditors and
its controlling shareholders. More specifically, this particular appeal involves a dispute
between Appellee Alex Spizz, Ampal’s Chapter 7 Trustee, and the aforementioned
controlling shareholders, led by Appellants Yosef A. Maiman (Ampal’s former chief
executive officer, chairman, and president) and an entity under his control, Merhav
(M.N.F.) Limited (collectively, “Maiman”).
In 2012, Ampal filed a Chapter 11 petition in the Southern District of New York,
and after the bankruptcy court converted the proceeding to Chapter 7, Ampal’s creditors
elected Spizz as Trustee in 2013. Consequently, the Trustee retained his law firm (“Spizz
Cohen”) as general bankruptcy counsel. Over the next two years, various disputes arose
between Maiman and Ampal’s creditors. One such creditor, Mishmeret-Trusts Company
Ltd. (“Mishmeret”),1 and Mishmeret’s long-time counsel Ofer Shapira, retained the law
firm Tarter, Krinsky & Drogin LLP (“TKD”) to represent them in at least some of those
disputes against Maiman.
In April 2015, Spizz Cohen dissolved, and Spizz joined TKD as a partner. The
Trustee (Spizz) subsequently filed an application under 11 U.S.C. § 327(a) to retain TKD
as substitute general bankruptcy counsel, disclosing that TKD had previously represented
Mishmeret and Shapira but asserting that the firm no longer represented either party.
Citing TKD’s representation of Mishmeret and Shapira, Maiman objected to the Trustee’s
application and cross-moved to remove the Trustee for “cause” pursuant to 11 U.S.C.
§ 324(a). Upon further briefing and an evidentiary hearing, the bankruptcy court issued
its findings of fact and conclusions of law (1) granting the Trustee’s application to retain
TKD, and (2) denying Maiman’s cross-motion to remove the Trustee for “cause.” See In re
Ampal-Am. Israel Corp., 534 B.R. 569 (Bankr. S.D.N.Y. 2015). After Maiman appealed,
the district court affirmed the bankruptcy court’s order and entered judgment. See In re
Ampal-Am. Israel Corp., 554 B.R. 604 (S.D.N.Y. 2016).
Maiman appeals from the district court’s final judgment, arguing that the
bankruptcy court erroneously granted the Trustee’s application to retain TKD because the
1
Specifically, Mishmeret is an indenture trustee for Ampal’s Series C debentures. For the sake of
simplicity, we refer to Mishmeret and Ampal’s other indenture trustees as creditors.
2
firm (1) “represent[s] . . . interest[s] adverse to the estate” under 11 U.S.C. § 327(a), and
(2) has an “actual conflict of interest” under 11 U.S.C. § 327(c). Furthermore, Maiman
contends that the bankruptcy court abused its discretion in denying the motion to remove
Spizz as Trustee for “cause” pursuant to 11 U.S.C. § 324(a).
Generally, a “district court’s order in a bankruptcy case is subject to plenary
review,” In re Cacioli, 463 F.3d 229, 234 (2d Cir. 2006), meaning that “we review the
bankruptcy court decision independently, accepting its factual findings unless clearly
erroneous but reviewing its conclusions of law de novo.” In re AroChem Corp., 176 F.3d
610, 620 (2d Cir. 1999). In so doing, we assume the parties’ familiarity with the
underlying facts, the procedural history of the case, and the issues on appeal, which we
reference only as necessary to explain our decision to affirm.
1. The Trustee’s Application to Retain TKD
We agree with the district court’s conclusion that the bankruptcy court committed
no clear factual error nor any legal error in granting the Trustee’s application to retain TKD
under sections 327(a) and 327(c) of the Bankruptcy Code.
a. Adverse Interest under Section 327(a)
Maiman’s factual argument that TKD presently represents interests adverse to the
Ampal estate (namely, Mishmeret and Shapira) is belied by the record.2 The co-chair of
TKD’s bankruptcy group testified that the firm’s representation of Mishmeret and Shapira
ceased no later than July 2014 (approximately nine months before the Trustee applied to
retain TKD), and its engagement letters and billing records corroborate his testimony.
Maiman, although not disputing that evidence, contends that TKD still represents
Mishmeret and Shapira, even absent an active attorney-client relationship, based on other
factors, such as the firm’s ongoing “duties and loyalties” to past clients and possession of
privileged materials. We conclude that his arguments are unpersuasive for the reasons set
forth in the district court’s decision. See Ampal, 554 B.R. at 621–22. Accordingly, the
bankruptcy court’s amply supported finding that TKD no longer represents interests
adverse to the estate is not clearly erroneous.
Furthermore, Maiman’s legal challenge to the bankruptcy court’s application of our
decision in AroChem is “unavailing,” as the district court concluded, even subject to de
novo review. See id. at 620. As we held in AroChem, “counsel will be disqualified under
2
Maiman does not argue on appeal that TKD itself “hold[s]” interests adverse to the estate or that the firm
is not a “disinterested person[].” See 11 U.S.C. § 327(a); see also 11 U.S.C. § 101(14) (defining
“disinterested person”).
3
section 327(a) only if it presently holds or represents an interest to the estate,
notwithstanding any interests it may have held or represented in the past.” AroChem, 176
F.3d at 623 (emphasis added) (alterations and internal quotation marks omitted). Maiman
argues that AroChem is “inapposite” and “distinguishable,” but he is incorrect. Section
327(a)’s clear present-tense language (e.g., “hold,” “represent,” and “are disinterested
persons”) and its juxtaposition with “related portions of the Bankruptcy Code, which draw
explicit distinctions between current and past relationships,” apply to the situation here.
See id.Finally, Maiman conflates two distinct parts of section § 327(a) by arguing that
because “‘whether an adverse interests exists is best determined on a case-by-case
basis’ . . . . AroChem does not support a blanket rule that an adverse interest will not be
found whenever another representation in the bankruptcy is ostensibly over.” Appellants’
Br. 28 (quoting AroChem, 176 F.3d at 623) (alteration omitted). Whether an adverse
interest “exists,” however, is a separate issue from whether TKD represents that adverse
interest. See AroChem, 176 F.3d at 624 (“Because [the attorney] no longer ‘represents’ [the
creditor], [the attorney] does not represent any of [the creditor’s] interests, whether or not
any of those interests might be adverse to the estate.” (emphasis added)). Therefore, we
conclude, upon de novo review, that the bankruptcy court properly construed and applied
our decision in AroChem.
b. Actual Conflict of Interest under Section 327(c)
Generally, we defer to a bankruptcy court’s “findings on conflict of interest
questions . . . because a bankruptcy judge is on the front line, in the best position to gauge
the ongoing interplay of factors and to make the delicate judgment calls which such a
decision entails.” Id. at 628 (internal quotation marks omitted). Although Maiman
contends that TKD has a conflict of interest due to its prior representation of Mishmeret
and Shapira, he concedes that section 327(c) requires disqualification of professionals
possessing only “actual” conflicts, as opposed to potential conflicts. See 11 U.S.C.
§ 327(c). He also concedes that an actual conflict “involves the representation of two
presently competing and adverse interests.” Appellants’ Br. 36 (emphasis added) (internal
quotation marks omitted). Those concessions are fatal to Maiman’s challenge, as we have
already concluded that the bankruptcy court did not commit clear error in finding that TKD
no longer represents adverse interests.
We also credit the bankruptcy court’s well-supported findings that “there is no
failure to disclose [its prior representations] on [TKD’s] part, [it] has no ongoing
relationship with Shapira or Mishmeret, and it is unlikely that the subject matter of its prior
representations will become the subject matter of a dispute between the estate and the
former clients.” Ampal, 534 B.R. at 585. Finally, Maiman’s other arguments as to TKD’s
4
alleged conflicts––including its purported inability to act adversely to Mishmeret and
Shapira, the bankruptcy court’s discovery order, and the litigation financing agreement––
are unpersuasive, principally for the reasons explained by the district court. See Ampal, 554
B.R. at 622–23. Accordingly, we decline to disturb the bankruptcy court’s finding that
TKD does not have an actual conflict of interest requiring disqualification under section
327(c).
2. Maiman’s Cross-Motion to Remove the Trustee
Although we generally review a bankruptcy court’s factual findings for clear error
and its legal conclusions de novo, see AroChem, 176 F.3d at 620, we review a bankruptcy
court’s denial of a motion to remove the Trustee for abuse of discretion. See In re Eloise
Curtis, Inc., 326 F.2d 698, 701 (2d Cir. 1964); accord In re Fletcher Int’l, Ltd., 661 F.
App’x 124, 125–26 (2d Cir. 2016) (summary order). A bankruptcy court abuses its
discretion when its ruling “(1) rests on an error of law . . . or a clearly erroneous factual
finding, or (2) cannot be located within the range of permissible decisions.” In re Smith,
507 F.3d 64, 73 (2d Cir. 2007) (alterations and internal quotation marks omitted).
The bankruptcy court did not abuse its discretion in denying Maiman’s motion to
remove the Trustee for “cause” pursuant to 11 U.S.C. § 324(a). “Grounds for disapproval
or removal of a trustee in bankruptcy are not to be found in his formal relationships,” and,
in assessing whether “cause” for removal exists under § 324(a), “[w]e have traditionally
stressed the elements of fraud and actual injury to the debtor interests.” In re Freeport
Italian Bakery, Inc., 340 F.2d 50, 54 (2d Cir. 1965) (internal quotation marks omitted);
accord In re Soundview Elite Ltd., 646 F. App’x 1, 1–2 (2d Cir. 2016) (summary order).
As both the bankruptcy court and district court noted, Maiman does not allege that
the Trustee engaged in fraud or caused any actual injury to the estate. See Ampal, 534 B.R.
at 586; see also Ampal, 554 B.R. at 624. Furthermore, Maiman’s argument that the
Trustee’s joining TKD necessitates his removal is unpersuasive in light of our agreement
with the bankruptcy court’s findings concerning disqualification of TKD under sections
327(a) and 327(c). In sum, the bankruptcy court did not abuse its discretion in denying
Maiman’s motion to remove the Trustee.
3. Conclusion
We have considered the Appellants’ remaining arguments and conclude that they
are without merit. Accordingly, we AFFIRM the judgment of the district court.
FOR THE COURT:
Catherine O’Hagan Wolfe, Clerk of Court
5