In re: Radnor Holdings Corporation, et al.
MEMORANDUM OPINION - Signed by Judge Sue L. Robinson on 8/13/14. (rwc)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE
RADNOR HOLDINGS CORPORATION, et aI., )
Bankr. No. 06-10894-PJW
MICHAEL T. KENNEDY,
Civ. No. 13-1398-SLR
SKADDEN, ARPS, SLATE, MEAGHER &
Michael T. Kennedy, Bearsville, New York. Pro se Appellant.
Mark S. Chehi and Jason M. Liberi, Esquires, Skadden, Arps, Slate, Meagher & Flom,
Wilmington, Delaware. Counsel for Appellee.
Dated: August 1'!J ,2014
Appellant Michael T. Kennedy ("appellant") filed this bankruptcy appeal on
August 7,2013. (D.1. 1) At the time, he was represented by counsel, but now appears
pro se. The appeal arises from an order entered by the bankruptcy court on June 20,
2013, that overruled an objection by appellant to Skadden, Arps, Slate, Meagher &
Flom, LLP's ("Skadden") final fee application and that granted appellee's final fee
application. The court has jurisdiction to hear an appeal from the bankruptcy court
pursuant to 28 U.S.C. § 158(a).
On August 21,2006, Radnor Holdings Corporation ("Radnor") and numerous
related subsidiaries ("debtors") filed voluntary petitions for relief under Chapter 11 of the
Bankruptcy Code, 11 U.S.C. §§ 101 et seq. On August 25,2006, debtors, as
debtors-in-possession, applied to the bankruptcy court (the "Skadden retention
application") for an order authorizing debtors to retain Skadden as their bankruptcy
counsel, effective as of the petition date, pursuant to an engagement agreement dated
July 5,2006. (Bankr. No. 06-10894-PJW, D.1. 96). The retention application was
opposed, pre-retention disclosures were provided to the bankruptcy court, and a
contested hearing was held on September 20,2006. (Id. at D.I. 169,223,298) On
September 21,2006, the bankruptcy court authorized the employment of Skadden as
counsel to debtors and debtors-in-possession. (Id. at D.1. 246)
On November 18, 2012, Skadden filed its final fee application for compensation
for services rendered and reimbursement of expenses as counsel to debtors for the
period from August 21,2006 through and including September 28,2012. (Id. at 0.1.
1989) On December 26, 2012 appellant filed an objection to the fee application. 1 (ld.
at 0.1. 1993) An evidentiary hearing was held on May 1 and 2, 2013, followed by posthearing briefing by the parties. (Id. at 2053, 2063, 2068, 2073) On June 20, 2013, the
bankruptcy court entered a memorandum opinion and order granting the final fee
application. (ld. at 0.1. 2076) The memorandum opinion and order is the subject of this
III. STANDARD OF REVIEW
In undertaking a review of the issues on appeal, the court applies a clearly
erroneous standard to the bankruptcy court's findings of fact and a plenary standard to
that court's legal conclusions. See American Flint Glass Workers Union v. Anchor
Resolution Corp., 197 F.3d 76, 80 (3d Cir. 1999). A factual finding is clearly erroneous
when "the reviewing court on the entire evidence is left with the definite and firm
conviction that a mistake has been committed." In re Cel/net Data Sys., Inc., 327 F.3d
242,244 (3d Cir. 2003) (citing United States v. United States Gypsum Co., 333 U.S.
364, 395 (1948)). "Findings of fact, whether based on oral or documentary evidence,
shall not be set aside unless clearly erroneous, and due regard shall be given to the
opportunity of the bankruptcy court to judge the credibility of the witness." Fed. R.
Bankr. P. 8013.
With mixed questions of law and fact, the court must accept the bankruptcy
court's "finding of historical or narrative facts unless clearly erroneous, but exercise[s]
1The objection was combined with a motion to set aside the November 1, 2006
sale order and sought other relief. (Id.)
'plenary review of the [bankruptcy] court's choice and interpretation of legal precepts
and its application of those precepts to the historical facts.'" Mellon Bank, N.A. v. Metro
Commc'ns, Inc., 945 F.2d 635, 642 (3d Cir. 1991) (citing Universal Minerals, Inc.
Hughes & Co., 669 F.2d 98,101-02 (3d Cir. 1981)). The district court's appellate
responsibilities are further informed by the directive of the United States Court of
Appeals for the Third Circuit, which effectively reviews on a de novo basis bankruptcy
court opinions. See In re Hechinger Inv. Co. of Delaware, 298 F.3d 219, 224 (3d Cir.
2002); In re Telegroup, Inc., 281 F.3d 133, 136 (3d Cir. 2002).
IV. ISSUES RAISED ON APPEAL
Appellant raises the following issues for review (D.1. 2):
(1) whether the bankruptcy court committed error in granting Skadden's
final fee application despite Skadden's failure as counsel to debtors to
accurately and fully disclose direct investments by Skadden partners in
the senior secured creditors to debtor, Tennenbaum funds, controlled
affiliates of Tennenbaum Capital Partners, LLC;
(2) whether the bankruptcy court committed error in granting Skadden's
final fee application despite Skadden's failure to fully disclose its ongoing
representation of Tennenbaum funds;
(3) whether the bankruptcy court committed error in granting Skadden's
final fee application despite refusing to require Skadden to disclose the
dollar amount of attorney's fees paid by Tennenbaum to Skadden as well
as the amounts and character of the equity investments by Skadden
partners in Tennenbaum funds; and
(4) whether the bankruptcy court committed error in adopting findings of
fact and conclusions of law, prior to discovery being conducted, affecting
the related adversary case, Radnor Holdings Corp. v. Skadden, Arps,
Slate, Meagher & Flom LLP, Adv. No. 12-51308-PJW (8ankr. D. Del.).
"A debtor in possession ... may, with bankruptcy court approval, employ one or
more attorneys to represent it and to assist it in fulfilling its duties." In re Pillowtex, Inc.,
304 F.3d 246, 250 (3d Cir. 2002) (citing 11 U.S.C. § 327). "[TJhe power of a debtor in
possession to employ ... professionals is the same as that of a trustee. The extent of
this power is specified by Section 327(a) ...." U.S. Trustee v. Price Waterhouse, 19
F.3d 138,141 (3d Cir. 1994) (citations omitted). Section 327(a) provides that a court
may approve the employment of attorneys only if they "do not hold or represent an
interest adverse to the estate" and they are "disinterested persons." 11 U.S.C.
§ 327(a). These two prohibitions on employment set forth two separate standards for
disqualification. Pillowtex, 304 F.3d at 252 n.4. The first prohibits attorneys from
holding or representing any "interest adverse to the estate." Id. The second prohibits
attorneys who are not disinterested from providing representation. Id. As defined by
the Bankruptcy Code, attorneys are disinterested if they "do[ ] not have an interest
materially adverse to the interest of ... any class of creditors or equity holders ...." 11
U.S.C. § 101 (14)(C); see Pillowtex, 304 F.3d at 252 n.4. ''Thus, a professional may not
have any conflict with the estate, while a conflict with creditors must be 'material.' "
PiJ/owtex, 304 F.3d at 252 n.4.
The Court of Appeals for the Third Circuit has interpreted § 327(a) "to imposer ] a
per se disqualification ... of any attorney who has an actual conflict of interest;" to
permit a court to exercise "its discretion ... [to] disqualify an attorney who has a
potential conflict of interest;" and to forbid a court from "disqualify[ingJ an attorney on
the appearance of conflict alone." In re Marvel Entertainment Group, Inc., 140 F.3d
463,476 (3d Cir. 1998). While the term "actual conflict of interest" has not been
defined in the Code, the Third Circuit has explained that "a conflict is actual, and hence
per se disqualifying, if it is likely that a professional will be placed in a position
permitting it to favor one interest over an impermissibly conflicting interest." Pillowtex,
304 F.3d at 251. "Courts have been accorded considerable latitude in using their
judgment and discretion in determining whether an actual conflict exists in light of the
particular facts of each case." In re BH & P, Inc., 949 F.2d 1300, 1315 (3d Cir. 1991)
(internal quotation marks omitted). Although a court may initially authorize the
employment of counsel, it must disqualify counsel upon learning of an actual conflict,
and it may exercise its discretion to remove counsel if there is a potential conflict. See
id. at 1314-17.
Section 330(a) (1) of the Bankruptcy Code provides that a court may award to a
professional person reasonable compensation "[a]fter notice to the parties in interest
and the United States Trustee and a hearing." 11 U.S.C. § 330(a)(1). When a
bankruptcy court orders a hearing on a fee application, in addition to considering the
fee application itself, "the court should carefully consider relevant, competent evidence
submitted with the fee application, provided as a supplement to the fee application, or
presented at a hearing." In re Busy Beaver Bldg. Centers, 19 F.3d 833, 854 (3d Cir.
1994). "What evidence is 'relevant' and 'competent' will be determined by applying
ordinary evidentiary rules, because with limited supplementation in the Bankruptcy
Rules, '[t]he Federal Rules of Evidence ... apply in cases under the Code.' In re
Grasso, 2014 WL 3389119 (E.D. Pa. July 11 2014) (quoting Fed. R. Bankr. P. 9017).
"[T]he court may deny allowance of compensation for services and reimbursement of
expenses of a professional person employed under section 327 ... if, at any time
during such professional person's employment under section 327 ... , such professional
person is not a disinterested person, or represents or holds an interest adverse to the
interest of the estate with respect to the matter on which such professional person is
employed." 11 U.S.C. § 328(c).
Appellant contends that the bankruptcy court erred in granting Skadden's final
fee application because Skadden failed to accurately and fully disclose direct
investments by its partners in Tennenbaum funds, Skadden failed to fully disclosure its
ongoing representation of Tennenbaum funds, and the bankruptcy court refused to
require Skadden to disclose the dollar amount of its attorney fees paid by Tennenbaum.
Appe"ant argues that Skadden's disclosures were inadequate but, nonetheless, the
bankruptcy granted the final fee application because it felt constrained by a prior ruling
that granted Skadden's retention application? Appe"ant contends that the appropriate
2Towards the end of the final fee application hearing when discussing post
hearing briefing, the bankruptcy judge stated, "[i]n putting this matter into context, I note
that while the petition was filed on August 8th, the retention order was not entered until
September 20th, and there's a couple observations that I want to make regarding this,
even though I'm going to ask for post-trial briefing. In the U.S. Trustee's objection it
noted ... , a sale is anticipated to occur within 60 days of the filing, . . .. One of the
reasons I note it in ruling on the motion was that  throwing Skadden off the case two
months into the case, and with all the pre-petition work they did I think could have
resulted in chaos, and I note in the transcript, on page 44, I said, quote, I think it's going
to be more of a nightmare if they're kicked out of the case at this late date given the
activity that's gone on. And  so I did consider the fact that it would be highly
disruptive, if not a killer, to switch counsel in the middle of the case. I was influenced by
the timing of this matter. And I must observe at this point that given the reason why I
have authorized the retention I would be reluctant to deny Skadden's final request,
remedy was to deny allowance of compensation due to the inadequate disclosures.
In ruling on the final fee application, the bankruptcy court considered:
(1) Skadden's three disclosure declarations (August 29, 2006, September 18, 2006,
December 19, 2007); (2) that Skadden did not block or hinder the Trustee from
investigating and objecting to debtors' retention of Skadden as their bankruptcy
counsel; (3) disclosures made by then Skadden partner Gregg M. Galardi ("Galardi") at
a September 20,2006 hearing; (4) testimony elicited from Galardi and appellant during
the May 1 and 2, 2013 final fee hearing; (5) exhibits submitted during the May 2013
hearing, including a full waiver from Tennenbaum of any conflicts posed by Skadden's
representation of debtors; (5) evidence of the percentage of billable hours, percentage
of revenue and nature of legal work Skadden had performed for Tennenbaum;3 and
(6) exhibits submitted by appellant in opposition to the final fee application.
The bankruptcy court gave no weight to certain testimony provided by appellant,
found appellant lacked credibility with regard to other testimony, and found that
given the fact that they were in the case because of my authorization .... I'm not
going to comment further on the evidence, but I do find that  at this late date this is an
unusual request. But I think -- I'll stop observing on the evidence and just simply say I
want post-trial briefs, and we'll open with the Kennedy post-trial brief as to why the
retention order should be rescinded, and then we'll have a response by Tennenbaum
and Skadden, and a reply by Kennedy, and I'm open to suggestions as to when they
should be filed .... I mis-stated. It's a motion to disallow final fee authorization. But I
think that the opening briefs should come from Mr. Kennedy." (Bankr. No. 06-10894
PJW, 0.1. 2063 at 59-60)
3During the September 20, 2006 Skadden retention application hearing, the
bankruptcy court discussed a disclosure method he adopted with regard to fees and
large firms that appear frequently and who represent the debtor as well as creditors,
stating, "[a]nd that's why many years ago I adopted the policy of trying to find out the
significance of those creditors to that law firm's clientele, and thus developed the idea
of counsel representing to the court the percentage of their business derived from
particular creditors of the debtor." (Bankr. No. 06-10894-PJW, 0.1. 298 at 55)
appellant made numerous assertions devoid of specific facts to support his position.
The bankruptcy court reaffirmed that the percentage of Skadden's revenues attributed
to Tennenbaum and its affiliates was not a material percentage. It concluded that
Tennenbaum was not a significant client of Skadden, that Skadden's revenue derived
from Tennenbaum was not significant, that the Skadden-Tennenbaum relationships
presented no improprieties, and that it was not concerned that Skadden may be
influenced in any fashion not to engage in the best representation of the debtor.
Finally, the bankruptcy court concluded that Skadden's pre-retention disclosures and
other disclosures made in connection with Skadden's retention as bankruptcy counsel,
including Skadden's disclosures with respect to Tennenbaum, were adequate and
The court finds no error was committed by the bankruptcy court in granting
Skadden's final fee application. A fair reading of the record and the thorough and
reasoned memorandum opinion and order demonstrates that the bankruptcy court
properly considered and exercised its discretion to weigh the evidence. The challenged
findings hinged, in part, on a credibility determination regarding the evidence presented
to the bankruptcy court. As the trier of fact, the bankruptcy court was in a better
position to evaluate the credibility of the witnesses than is this court. See In re Myers,
491 F .3d 120, 126 (3d Cir. 2007) ("The bankruptcy court is best positioned to assess
the facts, particularly those related to credibility ..."). Accordingly, the court defers to
the bankruptcy court's factual findings, which are not clearly erroneous and are
supported by the record. See DiFederico
Rolm, 201 F.3d 200,208 (3d Cir. 2000).
B. Adoption of Findings of Fact and Conclusions of Law
Appellant's last issue is whether the bankruptcy court committed error in
adopting 'findings of fact and conclusions of law, prior to discovery being conducted,
affecting a related adversary case, Radnor Holdings Corp. v. Skadden, Arps, Slate,
Meagher & Flom LLP. (See 0.1. 2 at 114) Appellant discusses the issue in his reply
brief (0.1. 16,11111), but failed to argue the issue in his opening brief. Because appellant
failed to clearly raise the foregoing issue in his opening brief, the court need not
consider the issue. See United States v. Pelullo, 399 F.3d 197, 222 (3d Cir. 2005) ("It
is well settled that an appellant's failure to identify or argue an issue in his opening brief
constitutes waiver of that issue on appeal."); accord United States v. Vas, 497 F. App'x
203 nA) (3d Cir. 2012) (unpublished) (appellate court stated that it need not consider
issue addressed in reply brief when appellant failed to raise it clearly in the opening
brief). Appellant waived this last issue by failing to address it in his opening brief, and it
is not considered by the court.
For the reasons discussed, the bankruptcy court's June 20, 2013 order will be
affirmed, and the appeal will be dismissed.
S DISTRICT JUDGE
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