MCK Millennium Centre Parking, LLC

Filing 13

MEMORANDUM Opinion and Order Entered by the Honorable John Robert Blakey on 4/29/2015. Mailed notice (tlm)

UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
In re MCK Millennium Centre
Parking, LLC,

Chapter 7
Case No. 12 B 24676

Debtor.

Hon. Jacqueline P. Cox

MCK Millennium Centre Retail, LLC,
Appellant,

Case No. 15 C 1163

v.

Judge John Robert Blakey

Gina B. Krol, as Chapter 7 Trustee
of the Bankruptcy Estate of MCK
Millennium Centre Parking, LLC,
Appellee.

MEMORANDUM OPINION AND ORDER
Appellant MCK Millennium Centre Retail, LLC (“MCK Retail”) filed a motion
for leave to appeal [2] an interlocutory order entered by the Bankruptcy Court that
granted the Chapter 7 Trustee’s Renewed Application to employ as special counsel
Shelly DeRousse and her law firm Freeborn & Peters LLP [B. Dkt. 193]. For the
reasons stated below, that motion is denied.
I.

Background
On June 19, 2012, the Debtor, MCK Millennium Centre Parking, LLC (“MCK

Parking”), filed a voluntary petition for relief under Chapter 11 of the United States
Code.

[B. Dkt. 1].

MCK Parking operated a parking garage located at 33 W.

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Ontario St., Chicago, Illinois. [B. Dkt. 8]. MCK Retail, the appellant here, ran
retail operations at that same location.
On July 17, 2012, Shelly DeRousse (“DeRousse”) filed her appearance in the
underlying bankruptcy on behalf of United Central Bank k/n/a Hamni Bank – the
sole secured creditor. Id. At the time, DeRousse worked with the law firm Stahl
Cowen Crowley Addis LLC (“SCCA”).

On September 24, 2012, the Bankruptcy

Court appointed Gina Krol (“Krol”) as the Chapter 11 Trustee for the Debtor. [B.
Dkt. 49].

The Bankruptcy Court subsequently granted Krol leave to appoint

DeRousse as special counsel to the Trustee for the limited purpose of pursuing
certain claims to recover preferential and/or fraudulent transfers. [B. Dkt. 69-70].
In July 2013, DeRousse – on behalf of Krol – filed an adversary proceeding
against MCK Retail. See Gina B. Krol, as Chapter 11 Trustee v. MCK Millennium
Centre Retail, LLC, Adversary Case No. 13-00961 (USBC N.D. Ill.).

In August

2013, DeRousse – on behalf of Hamni Bank – filed a claim in the MCK Parking
bankruptcy case. [B. Dkt. 117]. DeRousse also has represented Hamni Bank in
Illinois state court proceedings against the principals of the Debtor to collect on
guarantees those individuals purportedly made on Hamni’s loan to the Debtor. [B.
Dkt. 186]. The dates of that representation are unclear from the record but, based
on counsel’s comments at the April 14, 2015 hearing, it appears to be ongoing.
On September 10, 2013, the Bankruptcy was converted to Chapter 7. Nine
days later the Bankruptcy Court again approved DeRousse’s employment as special
counsel to the Trustee – with full disclosure of DeRousse’s representation of Hamni

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Bank. [B. Dkt. 128-1, 129]. DeRousse left SCCA and joined Freeborn & Peters LLP
(“Freeborn”) on April 9, 2014.

[B. Dkt. 186 at 4].

DeRousse brought her

engagements with Hamni Bank and the Trustee to Freeborn, and the firm ran a
check to assure that there were no conflicts of interest. [B. Dkt. 186-1 at 3]. It
found none. Id. On December 30, 2014, Krol filed a renewed application to employ
DeRousse as special counsel to the Trustee. [B. Dkt. 186]. That application was
filed to reflect DeRousse’s change of firms, not because evidence of a conflict had
surfaced. [B. Dkt. 191 at 1-2].
While MCK Retail did not object to the first two applications to employ
DeRousse, it filed an objection to the third application on January 12, 2015. [B.
Dkt. 190]. MCK Retail argued that DeRousse and Freeborn could not represent
Hamni Bank and serve as special counsel to the Trustee without a conflict of
interest under 11 U.S.C. § 327(c). [B. Dkt. 190 at 4-5]. MCK claimed that “by
representing both the Trustee and the largest creditor, and the only secured
creditor of the debtor’s estate, there is an unavoidable risk of divided loyalty
between Freeborn & Peters’ major client, the Hanmi Bank, and the Trustee in this
case who has a fiduciary duty to all creditors not just Hanmi Bank.” Id. at 4. The
Trustee responded that DeRousse’s engagements did not create a conflict of interest
and that DeRousse and Freeborn were best suited to represent the Trustee given
their experience in the bankruptcy. [B. Dkt. 191]. The Trustee did not address
MCK Retail’s standing to challenge the application. The Bankruptcy Court agreed
with the Trustee, and granted the renewed application to employ DeRousse and

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Freeborn as special counsel. [B. Dkt. 193]. MCK Retail now seeks leave to appeal
that decision. [2].
Specifically, MCK Retail advances two questions for appeal: (1) “whether the
Bankruptcy Court erred by failing to find the existence of a conflict of interest
warranting the denial of the Trustee’s request to appoint DeRousse and Freeborn as
counsel for the Trustee when they were simultaneously representing the largest
creditor in an action by that creditor against purported co-obligors of the debtor,”
and (2) “whether the Bankruptcy Court erred by failing to apply the holding in In re
Penney, 334 B.R. 517 (Bankr. D. Mass. 2005) to the Application.” [2] at 2.
II.

Standing
Before considering the substantive issues before it, the Court must briefly

address the standing arguments raised by the Trustee. The Trustee claims that
Appellant does not have prudential standing to appeal under 11 U.S.C. § 327(c)
because it is not a creditor. However, the Trustee waived this argument by failing
to raise it before the Bankruptcy Court. National Therapeutic Assocs. v. Concept
Rehab, Inc., 2000 WL 1468314, at *1 (N.D. Ill. Sep. 29, 2000); In re Bero, 110 F.3d
462, 466 (7th Cir.1997). The Court therefore will not consider it.
III.

Legal Standard
Interlocutory orders from the Bankruptcy Court may be reviewed with leave

of the district court sitting in its appellate jurisdiction. 28 U.S.C. § 158(a)(3). While
this Court has broad discretion in determining whether to exercise that jurisdiction,
Tr. of Jartran, Inc. v. Winston & Strawn, 208 B.R. 898, 900 (N.D. Ill. 1997), “leave

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to appeal an interlocutory order will not be granted absent exceptional
circumstances.” In re Pullman Constr. Indus., Inc., 143 B.R. 497, 498 (N.D. Ill.
1992). 1
In determining whether to allow an interlocutory appeal from the
Bankruptcy Court under § 158(a), courts apply the general interlocutory appeal
standard from 28 U.S.C. § 1292(b). See Metrou v. M.A. Mortenson Co., 781 F.3d
357, 359 (7th Cir. 2015). The appellant must satisfy four criteria in order to merit
leave to appeal under section 1292(b): (1) there must be a question of law, (2) it
must be controlling, (3) it must be contestable, and (4) its resolution must promise
to speed up the litigation. Ahrenholz v. Bd. of Trustees of Univ. of Illinois, 219 F.3d
674, 675 (7th Cir. 2000). The party seeking leave to appeal bears the burden of
demonstrating that all four factors are satisfied. In re Auto. Professionals, Inc., 379
B.R. 746, 751 (N.D. Ill. 2007). MCK Retail’s motion is denied because it has failed
to do so.
IV.

Suitability for Appeal
a.

Question of Law

MCK Retail has not shown that the decision it seeks to appeal presents a
pure questions of law.

“Question of law” as used in section 1292(b) means “a

question of the meaning of a statutory or constitutional provision, regulation, or
common law doctrine.” Ahrenholz, 219 F.3d at 676. The appeal must present a

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See also In re OF Fin., Ltd., 180 B.R. 510, 512 (N.D. Ill. 1995) (interlocutory appeals “should be the exception
rather than the rule”) (citation omitted); In re Bowers–Siemon, 123 B.R. 821, 825 (N.D. Ill. 1991) (“[i]nterlocutory
appeals should be granted sparingly”).

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“pure” or “abstract” question of law, “something the [district court] could decide
quickly and cleanly without having to study the record.” Id. at 676-77.
Appellant’s first proposed question for appeal is whether the Bankruptcy
Court erred by failing to find a conflict of interest in DeRousse’s representation of
both Hamni and the Trustee. This issue is governed by 11 U.S.C. § 327(c), which
provides: “In a case under chapter 7, 12, or 11 of this title, a person is not
disqualified for employment under this section solely because of such person's
employment by or representation of a creditor, unless there is objection by another
creditor or the United States trustee, in which case the court shall disapprove such
employment if there is an actual conflict of interest.”
Both the Supreme Court and the Seventh Circuit have found that whether
“multiple representations in a particular case [give] rise to a conflict of interest” is
“a mixed question of law and fact.” Strickland v. Washington, 466 U.S. 668, 697
(1984); United States v. Holman, 314 F.3d 837, 845 (7th Cir. 2002). This Court sees
no justification for departing from those findings here. Appellant does not ask that
the Court address a “pure” or “abstract” issue of law, such as explaining the
“meaning of a . . . statutory provision” (i.e., 11 U.S.C. § 327(c)).

Instead, the

Appellant’s proposed appeal would require that the Court apply the “conflict of
interest” provision from 11 U.S.C. § 327(c) to the body of facts relating to the
bankruptcy and DeRousse’s representations.

In doing so, the Court would be

required to determine whether DeRousse “serves two competing and adverse
interests,” or if “competing interests [may] become active if certain contingencies

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arise.” In re Mundo Custom Homes, Inc., 214 B.R. 356, 362 (Bankr. N.D. Ill. 1997).
That inquiry, into the interests of the Trustee, Hamni Bank as a creditor, and
Hamni Bank as a litigant in Illinois state court, would be highly fact intensive.
Appellant’s second proposed question on appeal is “whether the Bankruptcy
Court erred by failing to apply the holding of In re Penney, 334 B.R. 517 (Bankr. D.
Mass. 2005).” [2 at 2]. If the Appellant means to question whether the Bankruptcy
Court was legally required to apply a non-precedential holding, this Court thinks
the answer is self-evident and declines to exercise its discretionary review.

If

Appellant means to question whether the non-precedential holding issued by the
court in In re Penney should have been applied by the Bankruptcy Court, this Court
finds that the question is not a “pure” or “abstract” question of law. First, In re
Penney concerns a conflict of interest analysis. The application of that analysis to
the facts here would – as outlined above – be a mixed question of law and fact.
Second, the analysis of whether the Bankruptcy Court should have applied another
court’s holding to the facts here would require that this Court: (1) analyze the other
court’s legal holding, (2) analyze the facts before the other court, (3) analyze the
facts in this matter, (4) analogize or distinguish the two sets of facts, and (5) reach a
decision regarding whether the holding from In re Penney applies to the facts here.
Such an endeavor would be very fact based, and is not the type of inquiry over
which this Court has appellate jurisdiction.

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b.

Controlling

MCK Retail has not met its burden of showing that its proposed questions for
appeal are “controlling” as required by section 1292(b).

A question of law is

controlling “if its resolution is quite likely to affect the outcome or the further course
of litigation, even if it is not certain to do so.” Trustee of Jartran, Inc., v. Winston &
Strawn, 208 B.R. 898, 900 (N.D. Ill. 1997). For instance, courts in this Circuit have
found “controlling” questions in the following circumstances:
Sufficiency of Complaint: The Seventh Circuit found that the
following question was controlling: “whether the second amended
complaint states a claim under the standard for pleading set forth in
Twombley.” In re Text Messaging Antitrust Litig., 630 F.3d 622, 624
(7th Cir. 2010). The court reached that decision because there was “at
least a decent chance . . . that were a court to rule the second amended
complaint deficient, the case would be over. Id. at 624.
Sovereign Immunity: In Sokogon Gaming Enter. Corp. v. TushieMontgomery Associates, Inc., 86 F.3d 656 (7th Cir. 1996), the court
found the following question controlling: whether the Plaintiff tribe
had waived its sovereign immunity. The court explained that, if the
defendant were to succeed on the appeal regarding sovereign
immunity, the case would then be decided on the basis of an already
entered arbitration award.
Federal Preemption: In City of Joliet v. Mid-City Nat. Bank, No. 05
C 6746, 2008 WL 4889038, at *2 (N.D. Ill. June 13, 2008), the court
found the following question controlling: whether various clauses of the
Constitution, or the doctrine of intergovernmental immunity,
preempted or prohibited a municipality from exercising its powers of
eminent domain. The court based its decision on the fact that, if the
Seventh Circuit were to find that the Plaintiff’s eminent domain
actions were preempted or prohibited, the district court would likely be
required to dismiss the case.
In each of these cases, controlling questions existed because the decision had the
real potential to result in the dismissal of the case, or at least a significant change

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in the substantive rights at issue between the parties bearing directly on the case’s
ultimate resolution. That is not true here.
As an initial matter, MCK Retail has entirely failed to explain how the
questions at issue here are “controlling.” This alone is sufficient to deny the motion
for leave to appeal, as Appellant has failed to meet its burden. Even in the absence
of any argument from the Appellant, the Court – on its own analysis – finds that
the proposed questions are not controlling. Barring DeRousse and Freeborn from
representing the Trustee is not likely to affect the course or outcome of this matter.
If they were to be replaced, it seems most likely that new counsel for the Trustee
would continue prosecuting this matter as directed by the Trustee. Specifically,
new counsel would continue pursuing certain claims to recover preferential and/or
fraudulent transfers to bring money into the Debtor’s estate. The Appellant has
provided no evidence to the contrary, and the Court has found none in the record.
The sole effect of this appeal, then, would be to require the Trustee to expend time
securing new representation, and that representation taking time to learn the case.
This falls far short of the controlling questions set out in In re Text Messaging,
Sokogon Gaming, and City of Joliet.
c.

Substantial Grounds for Contestability

Appellant’s proposed questions do not present substantial grounds for
contestability. To prevail on this point, the Appellant is required to demonstrate
that a “substantial likelihood exists that the interlocutory order will be reversed on
appeal.”

Tr. of Jartran, 208 B.R. at 901.

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This is more likely if there are

“substantial conflicting decisions regarding the claimed controlling issue of law.” In
re Kmart Corp., No. 04 C 4978, 2004 WL 2222265, at *2 (N.D. Ill. October 1, 2004).
That is not the case here.
The issue Appellant seeks to resolve is whether it is a conflict of interest for
DeRousse and Freeborn to serve as special counsel to the Trustee in a fairly limited
capacity while at the same time representing a creditor – both in the bankruptcy
and in a related state court matter.

Courts have repeatedly found that such

representation is not problematic. In re Fondiller, 15 B.R. 890 (Bankr. 9th Cir.
1981); In re Renninger Mason Contractors, Inc., 58 B.R. 516 (Bankr. E.D. Tenn.
1985).
The court in In re Sarao addressed an analogous situation, and found that
counsel’s various engagements did not create a conflict of interest. 444 B.R. 496
(Bankr. D. Mass. 2011). In In re Sarao, the bankruptcy trustee sought to employ
the firm Fitzhugh and Mariani LLP (“F & M”) as special counsel in prosecuting an
adversary proceeding against the debtor’s father.

Id. at 497.

That proceeding

sought to recover certain prepetition transfers by the debtor and to disallow the
father’s claim to the estate. Id. At that same time, F & M also represented Merrill
Lynch Commercial Financial Corp. (“ML”) in: (1) the Sarao bankruptcy – as the only
creditor listed in the schedules of liabilities; (2) an active state court nondischargeability action against the debtor; and (3) an ongoing state court dispute
with the debtor’s father. Id. at 498-99. Despite those engagements, the Trustee
sought to employ F & M as special counsel and ML proposed to pay F & M’s fees for

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that work.

Id.

The Court found that this arrangement was not a conflict of

interest, noting that – with regard to the special counsel’s goal of maximizing the
size of the bankruptcy estate – ML and the trustee’s interests were in total
alignment. Id. at 500.
The same reasoning applies here. The interest of the creditor Hamni Bank in
pursuing the recovery of preferential or fraudulent transfers to MKE Retail, and
thereby increasing the size of the bankruptcy estate, aligns with the estate’s
interest. As with In re Sarao, the fact that the creditor Hamni Bank is involved in
related state court litigation does not affect this determination. In fact, Hamni
Bank’s pursuit of funds from the obligors has the potential of increasing the size of
the estate in that – to the extent Hamni is made whole by the obligors – it will not
need to be compensated out of the estate. In this way, Hamni may be doing the
estate a favor by pursuing another avenue for relief which will lessen its reliance on
funds from the estate. In light of the court’s reasoning and holding in In re Sarao,
which involved much greater potential for a conflict of interest, this Court cannot
find that there is a “substantial likelihood” that the Bankruptcy Court’s decision
would be overturned on appeal.
This finding is not affected by Appellant’s principal case, In re Penney, 334
B.R 517 (Bankr. D. Mass. 2005), as that case is distinguishable from the present
matter. In In re Penney, the chapter 7 trustee sought to retain an attorney who also
represented a creditor in the bankruptcy and in outside litigation against the
guarantors of the debtor’s obligations. The trustee sought to retain that attorney as

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his general counsel, to represent him: (1) in the administration of the debtor’s
bankruptcy; (2) in “any investigation of the acts, conduct, assets, liabilities and
financial condition of the debtor;” (3) with respect to “the prosecution or defense of
any action brought by or against the estate;” (4) with respect to “the allowance or
disallowance of any claims filed against the Debtor's estate;” (5) with respect to “the
preparation of opposing collection and liquidation of the Debtor's assets and any
other matters relevant to this proceeding;” and (6) “in connection with any other
matters that may be necessary and appropriate in the administration of the case.”
Id. at 518.
The court found that serving as general counsel with such wide ranging
responsibilities would create a conflict of interest. It noted that the trustee had a
duty to ensure that the creditor’s obligation is “first satisfied from assets other than
those which might be available to satisfy the claims of the Debtor’s remaining
creditors.” Id. at 520. Though the court’s explanation is somewhat abbreviated, it
seems to imply that allowing the creditor to serve as general counsel in charge of
the allowance of claims against the estate would discourage the creditor from
pursuing its own reimbursement through other channels (i.e., the loan’s co-obligors)
and encourage the creditor to grant its own claims against the debtor’s estate –
thereby harming the other creditors. This is drastically different from the proposed
arrangement here. DeRousse and Freeborn will be employed as special counsel in
charge of one discrete task. They will have no input or control over the distribution
of claims or any other aspect the Trustee’s responsibilities.

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d.

Resolution will Speed up Litigation

The resolution of Appellant’s proposed questions will not hasten the
termination of the underlying dispute. Both possible outcomes on appeal promise
only delay. In re IFC Credit, 2010 WL 1337142, at *3 (N.D. Ill. March 31, 2010). If
MCK Retail loses the appeal, the bankruptcy case would likely be delayed during
the pendency of the appeal without any corresponding benefit. If MCK Retail were
to win, the trustee would be forced to find new counsel who would need to spend a
significant amount of time reviewing case material related to the underlying causes
of action, facts, and law of the case.

Also, a decision on Appellant’s proposed

questions would not resolve substantive issues or problems currently before the
Bankruptcy Court in a way that would help it reach a resolution more quickly – i.e.,
whether certain claims should be dismissed. Allowing an appeal here would result
only in delay, a result that this Court will not entertain.
Appellant relies on In re Johns-Manville Corp., 45 B.R. 833 (S.D.N.Y. 1984),
to argue that its appeal should be heard. It claims that, because the court there
granted leave to appeal an order appointing counsel, this Court should too. In re
Johns-Manville, however, is not binding precedent and is distinguishable from this
case. There, the court allowed an appeal from the lower court’s decision to appoint
counsel to represent an indeterminate group of future claimants against the debtor
in an asbestos related bankruptcy. Id. at 834. That case involved a pure question
of law (whether future claimants are entitled to representation), and the answer to
the question of law was contestable (two other district courts had reached the

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opposite conclusion). Id. at 836. Give these differences, In re Johns-Manville is not
persuasive.
V.

Conclusion
For the reasons stated above, and on the record in open court, Appellant’s

motion for leave to appeal [2] is denied. Civil case terminated.

IT IS SO ORDERED

Dated: April 29, 2015

___________________________________
Judge John Robert Blakey
United States District Court

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