Filed: Apr. 11, 2013
Latest Update: Mar. 28, 2017
Summary: UNPUBLISHED UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT No. 12-1244 In Re: BON-AIR PARTNERSHIP, Debtor.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
Summary: UNPUBLISHED UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT No. 12-1244 In Re: BON-AIR PARTNERSHIP, Debtor.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 J..
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UNPUBLISHED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Affirmed by unpublished per curiam opinion.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Unpublished opinions are not binding precedent in this circuit.
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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
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$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
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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
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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.
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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
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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
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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
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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.
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