Skeen, Goldman LLP

IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF MARYLAND
In re: 	*
SKEEN, GOLDMAN LLP, 	* 	Case No. 07-10535-JS
F/K/A GOLDMAN & SKEEN, P.A.,
F/K/A GOLDMAN, SKEEN & 	*
WADLER, PA,
* 	Chapter 11
Debtor in Possession
*
* 	* 	* 	* 	* 	* 	* 	* 	* 	* 	* 	* 	*
MEMORANDUM OPINION GRANTING MOTION TO DISMISS CASE
This matter came before the Court upon the motion of Cooper & Tuerk, LLP
and Levy, Phillips & Konigsberg, LLP to dismiss the instant Chapter 11case. For the
reasons stated, the motion will be granted.
FINDINGS OF FACT
1. 	On January 18, 2007, Skeen, Goldman LLP (“Skeen Goldman” or “the
debtor”) filed the instant Chapter 11 bankruptcy case.
Date signed December 20, 2007
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2. The debtor is a two-partner law firm that specializes in representing victims
of asbestosis.
3. 	During the 1980s, Skeen Goldman entered into certain fee-sharing
agreements with the law firms of Cooper & Tuerk, LLP (“Cooper”) and Levy, Philips,
and Konigsberg, LLP (“Levy”).
4. In 1995, a dispute arose as to whether Skeen Goldman was liable under the
agreement for payments Cooper and Levy, whereupon Cooper and Levy sued Skeen
Goldman in the Circuit Court for Baltimore City (Cooper, Beckman & Tuerk, LLP,
et al. v. Goldman, Skeen & Wadler, P.A., Case No. 95-237040/CL201261).
5. 	After a two-week trial, a jury upheld the validity of the agreements but
awarded Cooper and Levy damages of only $1. 	Subsequently, the trial judge
increased the damages to approximately $5.7 million.
6. 	Skeen Goldman appealed and alleged that the trial judge had denied its
constitutional right to a jury trial.
7. 	Because Skeen Goldman was unable to afford the cost of a supersedeas
bond, it filed the first of two Chapter 11 bankruptcy cases in this Court (Case No. 97-
57647-SD).
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8. 	The Maryland Court of Special Appeals reinstated the judgment against
Skeen Goldman in the original amount of $1, but upheld the validity of the fee-sharing
agreements with Copper and levy.
9. Meanwhile, in the bankruptcy case, this Court (Derby, J.) entered an order
that froze the debtor’s funds in the approximate amount of $250,000 as cash collateral
of Cooper and Levy.
10. 	Accordingly, on October 20, 2000, Skeen Goldman entered into a
settlement agreement in the bankruptcy court with Cooper and Levy that provided as
follows: (1) Cooper and Levy would be entitled to 8.5% of gross recoveries in existing
asbestos-related cases until $800,000 had been paid to both Cooper and Levy; (2)
Skeen Goldman agreed to give Cooper (but not Levy) a security interest in its
accounts receivable; and (3) The parties agreed to the dismissal of the bankruptcy
case.
11. 	On November 8, 2000, the parties filed a joint motion to dismiss the
bankruptcy case (C & L exhibit no. 7). The motion was approved by order of this
Court (Derby, J.) on February 12, 2001 (C & L exhibit no. 8).
12. 	After the bankruptcy case was dismissed, Skeen Goldman tendered
payments under the settlement agreement until January 17, 2002, by which time it had
paid approximately $150,000 to Cooper and Levy. 	When Skeen Goldman ceased
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making payments under the settlement agreement, Cooper demanded payment in a
letter it sent to Skeen Goldman in 2004, Skeen Goldman replied that neither Cooper
nor Levy had worked on any of the cases for which it demanded payment and
therefore, their claims for payment were invalid under Maryland state law.
13. 	Cooper and Levy then filed another suit against Skeen Goldman in the
Circuit Court for Baltimore City (Cooper and Tuerk, LLP, et al. v. Goldman, Skeen
& Wadler, P.A., et al., Case No. 24-C-05-007743).
14. On December 5, 2006, the Circuit Court awarded Cooper and Levy each
a judgment in the amount of $647,811.42, plus prejudgment interest of $53,346.48.
15. 	Skeen Goldman appealed and argued that the $800,000 due under the
settlement agreement approved by the bankruptcy court represented unenforceable
liquidated damages, and that the settlement agreement violated rules of professional
ethics. For the second time, unable to post a supersedeas bond, Skeen Goldman filed
another Chapter 11 bankruptcy case, namely the instant case, which it filed in this
Court on January 18, 2007.
16. The Chapter 11 schedules identified Cooper as the only secured creditor,
and Levy as the largest unsecured creditor. 	The only other major unsecured non-
insider creditors are Murphy and Shaffer, LLC, Skeen Goldman’s attorneys in the
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state court action, with an unsecured claim of approximately $130,000. 	Citicorp
Vendor Finance was listed as holding an unsecured claim of approximately $12,000.
Skeen Goldman also claims to owe over $100,000 to both Robert Skeen and Harry
Goldman, Jr., the two partners of the law firm.
17. On October 11, 2007, Cooper and Levy filed the instant motion to dismiss.
After a consent motion to continue, the matter was heard on December 7, 2007.
18. Cooper and Levy argued that this case must be dismissed because it was
filed in bad faith and because there is substantial or continuing loss to or diminution
of the estate and the absence of a reasonable likelihood of rehabilitation.
FINDINGS OF LAW
1. 	Section 1112(b) of the U.S. Bankruptcy Code, which governs creditors’
motions to dismiss Chapter 11 proceedings, provides as follows:
(b)(1) Except as provided in paragraph (2) of this subsection,
subsection (c) of this section, and section 1104(a)(3), on request of a
party in interest, and after notice and a hearing, absent unusual
circumstances specifically identified by the court that establish that the
requested conversion or dismissal is not in the best interests of creditors
and the estate, the court shall convert a case under this chapter to a case
under chapter 7 or dismiss a case under this chapter, whichever is in the
best interests of creditors and the estate, if the movant establishes cause.
(2) The relief provided in paragraph (1) shall not be granted absent
unusual circumstances specifically identified by the court that establish
that such relief is not in the best interests of creditors and the estate, if
the debtor or another party in interest objects and establishes that–
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(A) there is a reasonable likelihood that a plan will be confirmed
within the timeframes established in sections 1121(e) and 1129(e) of this
title, or if such sections do not apply, within a reasonable period of time;
and
(B) the grounds for granting such relief include an act or omission
of the debtor other than under paragraph (4)(A)--
(I) for which there exists a reasonable justification for the act or
omission; and
(ii) that will be cured within a reasonable period of time fixed by
the court.
(3) The court shall commence the hearing on a motion under this
subsection not later than 30 days after filing of the motion, and shall
decide the motion not later than 15 days after commencement of such
hearing, unless the movant expressly consents to a continuance for a
specific period of time or compelling circumstances prevent the court
from meeting the time limits established by this paragraph.
(4) For purposes of this subsection, the term ‘cause’ includes–
(A) substantial or continuing loss to or diminution of the estate
and the absence of a reasonable likelihood of rehabilitation;
(B) gross mismanagement of the estate;
(C) failure to maintain appropriate insurance that poses a risk to
the estate or to the public;
(D) unauthorized use of cash collateral substantially harmful to 1
or more creditors;
(E) failure to comply with an order of the court;
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(F) unexcused failure to satisfy timely any filing or reporting
requirement established by this title or by any rule applicable to a case
under this chapter;
(G) failure to attend the meeting of creditors convened under
section 341(a) or an examination ordered under rule 2004 of the Federal
Rules of Bankruptcy Procedure without good cause shown by the debtor;
(H) failure timely to provide information or attend meetings
reasonably requested by the United States trustee (or the bankruptcy
administrator, if any);
(I) failure timely to pay taxes owed after the date of the order for
relief or to file tax returns due after the date of the order for relief;
(J) failure to file a disclosure statement, or to file or confirm a
plan, within the time fixed by this title or by order of the court;
(K) failure to pay any fees or charges required under chapter 123
of title 28;
(L) revocation of an order of confirmation under section 1144;
(M) 	inability 	to 	effectuate 	substantial 	consummation 	of 	a
confirmed plan;
(N) material default by the debtor with respect to a confirmed
plan;
(O) termination of a confirmed plan by reason of the occurrence
of a condition specified in the plan; and
(P) failure of the debtor to pay any domestic support obligation
that first becomes payable after the date of the filing of the petition.
11 U.S.C. § 1112 (b).
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2. 	Thus, absent special circumstances, if a creditor establishes cause, it is
mandatory that the Court dismiss the case, convert it to Chapter 7, or appoint a trustee
or examiner. In re 3RAM, Inc., 343 B.R. 113, 118 n.14 (Bankr. E.D. Pa. 2006); See
In re TCR of Denver, LLC, 338 B.R. 494, 498 (Bankr. D. Colo. 2006); In re Gateway
Access Solutions, Inc., 374 B.R. 556, 560 (Bankr. M.D. Pa. Sep. 24, 2007); In re
Veltmann, 2007 WL 4191736 (Bankr. D. N.M. Nov. 21, 2007).
3. As indicated, Section 1112(b)(4) provides a list of 16 examples of “cause.”
Because the list is not exclusive, a Chapter 11 case may also be dismissed for having
been filed in bad faith. In re Americert, 360 B.R. 398, 401 (Bankr. D. N.H. Jan. 31,
2007).
4. This Court finds that the instant case was filed in bad faith.
5. In order to dismiss a Chapter 11 case on the basis of bad faith, a party in
interest must show both subjective bad faith and objective futility. See Carolin Corp.
v. Miller, 886 F.2d 693, 700-01 (4th Cir. 1989); see also In re Premier Automotive
Servs., Inc., 492 F.3d 274, 279-80 (4th Cir. June 15, 2007) (reaffirming the Carolin
test). However, in the case of a serial filer, this Court has held that it may dismiss a
Chapter 11 case solely on the basis of subjective bad faith. See In Delray Assoc. Ltd.
P’Ship, 212 B.R. 511, 515 (Bankr. D. Md. 1997) (finding that objective futility is not
necessary to dismiss serial filing for bad faith).
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6. A repeat Chapter 11 filing is not per se in bad faith. 	Delray, 212 B.R. at
515. There may be legitimate purposes for which a second Chapter 11 case may be
filed. See In re Elmwood Dev. Co., 964 F.2d 508, 511-12 (5th Cir. 1992) (when post
confirmation events could not be reasonably anticipated at the time of confirmation,
a new Chapter 11 proceeding is not in bad faith); In re Jartran, 886 F.2d 859, 868-69
(an orderly liquidation of a debtor which failed to reorganize under a confirmed plan
is a proper use of Chapter 11). Indeed, several courts have stated that there is good
faith when a change in circumstances “justif[ies] the debtor’s default under the first
plan” while making “reorganization under a second plan likely.” See In re Roxy Real
Estate Co., 170 B.R. 571, 576 (Bankr. E.D. Pa. 1993); see also In re Northtown Realty
Co., 215 B.R. 906 (Bankr. E.D. N.Y. 1998); Lincoln Nat’l Life Ins. Co. v. Bouy, Hall
& Howard & Assocs. (In re Bouy, Hall & Howard & Assocs.), 208 B.R. 737, 744
(Bankr. S.D. Ga. 1995).
7. However, when the purpose of a second Chapter 11 filing is to thwart the
confirmed plan of the first Chapter 11 filing, it has been universally held that the
second filing was in bad faith. See, e.g., Delray, 212 B.R. at 515-16; see also In re
Tillotson, 266 B.R. 565, 569-70; In re Savannah, Ltd., 162 B.R. 912 (Bankr. S.D. Ga.
1993).
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8. It is acknowledged that the cited opinions concerned earlier Chapter 11 cases
that ended in a confirmed plan, while this debtor’s first Chapter 11 case was resolved
by a settlement agreement that resulted in the case being dismissed. However, for
purposes of the instant motion to dismiss, the difference is illusory. Here, both
bankruptcy cases were essentially a two-party dispute. The settlement agreement in
the first case, which this Court approved after notice and a hearing, provided for
payments to these creditors over time and therefore possessed the characteristics of
a confirmed plan of reorganization. 	It is without dispute that the purpose of the
settlement agreement was meant to resolve the debtor’s first Chapter 11 case and to
permit the debtor to continue to operate.
9. 	In the seven years that have elapsed since the dismissal of the first case,
Cooper and Levy have been unable to collect the full amount of the agreed payments
this Court approved in the settlement agreement. It took Cooper and Levy four years
to get a judgment on the breach of the settlement agreement. Cooper and Levy have
been seeking to collect their debts from Skeen Goldman since at least 1995. 	The
debtor has used the bankruptcy process in an effort to hinder and delay these creditors.
10. In the present proceeding, Skeen Goldman is not seeking to reorganize its
affairs or to have an orderly liquidation. In addition, there are no significant changed
circumstances that have occurred since the dismissal of the first Chapter 11. The only
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change is that Skeen Goldman has come up with a new legal argument to renege on
the court-approved settlement agreement. 	That argument is that the settlement
agreement into which it freely entered in order to end its first Chapter 11 violates
Maryland rules on ethics and liquidated damages. This represents a blatant attempt
to thwart the agreed upon termination of the earlier Chapter 11 proceeding.
11. Furthermore, even if Cooper and Levy were required to prove the Carolin
Corp. test of objective futility, the Court finds that that requirement has been met.
Carolin's inquiry into objective futility “s designed to insure that there is embodied
in the petition some relation to the statutory objective of resuscitating a financially
troubled [debtor].” Carolin Corp., 886 F.2d at 701-02. This case is essentially a two-
party dispute with Cooper and Levy acting concertedly on one side and the debtor on
the other. Additionally, the plan submitted by the debtor appears to be unconfirmable.
In light of Cooper and Levy’s pending objections to the debtor’s disclosure statement,
and the low probability of a confirmed plan, and it would be objectively futile to
pursue this case. See Wharton v. I.R.S., 213 B.R. 464, 467 (E.D. Va. 1997) (holding
that there is objective futility when a bankruptcy case is based on a two-party dispute
and the creditor would have legitimate objections to any filed plan); see also In re
William Steiner, Inc., 139 B.R. 356, 358 (Bankr. D. Md. 1992) (holding that the
bankruptcy court is an improper forum for resolution of a two-party dispute). Because
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this case was filed with subjective bad faith and it is objectively futile for the debtor
to pursue reorganization under Chapter 11, this case will be dismissed.
WHEREFORE, the motion of Cooper & Tuerk, LLP and Levy, Phillips &
Konigsberg, LLP to dismiss the instant Chapter 11 case will be GRANTED.
ORDER ACCORDINGLY.
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cc: 	Skeen Goldman LLP
11 E. Lexington St.
4th Floor
Baltimore, Maryland 21202
Josef E. Rosenblatt, Esquire
Kenneth J. Breitbart, P.A.
10 N Calvert Street
Suite 100
Baltimore, Maryland 21202
Irving E. Walker, Esquire
Gary Leibowitz, Esquire
Saul Ewing LLP
Lockwood Place
500 East Pratt Street, 8th Floor
Baltimore, Maryland 21202
Office of the United States Trustee
U.S. Courthouse, Suite 2625
101 West Lombard Street
Baltimore, Maryland 21201
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