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In re GFI Commercial Mortgage LLP

United States District Court, Ninth Circuit

August 29, 2013



SUSAN ILLSTON, District Judge.

Now before the Court is an appeal by the Class B Limited Partner Committee from three orders entered by the Hon. Thomas E. Carlson of the Bankruptcy Court for the Northern District of California: (1) Order Granting Motion for Orders Approving Distribution of Assets, Approving Actions of Liquidators, Approving Payments of Fees and Expenses, and Closing the Case; (2) Order Approving First and Final Application of Meyers Law Group, P.C. for Allowance of Compensation and Expenses as Former Counsel for Liquidator and Class B Limited Partner Committee; and (3) Order Denying Committee's Motion to Disallow Fees and to Require Disgorgement by Meyers Law Group, P.C. This Court has jurisdiction under 28 U.S.C. ยง 158(a). Upon careful consideration of the parties' papers, the Court AFFIRMS the bankruptcy court's orders for the reasons discussed below.


GFI Commercial Mortgage, L.P. ("GFI") was a partnership that owned commercial mortgages and issued bonds based on those mortgages. Appellant's Excerpts of Record on Appeal ("R.") at 128:21-27. GFI filed for chapter 11 bankruptcy on September 30, 1996. Two years later, the bankruptcy court issued an order confirming the debtor's second amended plan of reorganization ("Plan").

The Class B Limited Partners are "the remaining stakeholders in the Reorganized Debtor and the only interested parties in the distribution of assets of the Reorganized Debtor's Estate" after its debt had been paid in full. R. at 347:5-7. According the to Plan, the Class B Limited Partner Committee ("Committee") was formed to represent the common interests of the Class B Limited Partners and consisted of three members who would initially serve three-year terms. R. at 121:17-27.

The Plan contains several provisions relevant to the parties' dispute in this appeal. First, it provides that John F. Sampson was to serve as the Liquidator. R. at 42:23-26. The Plan also empowers both the Committee and the Liquidator to employ certain professionals, such as attorneys, to assist with fulfilling their obligations under the Plan. See Plan, Section VII(L)(f), R. at 124:1-7; see also Section V(F)(5)(b), R. at 100-101. The Plan required that compensation for those professionals be reasonable and subject to a cap, which could be modified by the bankruptcy court. R. at 124:8-16. The Plan further provided a system whereby the Liquidator and the Committee could submit invoices for professional services to each other. R. at 100:11-101:22; 124:17-125:25.

As provided for by the Plan, the Committee retained the law firm of Goldberg, Stinnett, Meyers & Davis ("Goldberg Firm") in July 1998. Mr. Merle C. Meyers was a member of the Goldberg Firm and served as primary counsel for the Committee. To save costs, Mr. Meyers and the Goldberg Firm were simultaneously engaged to represent the Liquidator. In October 1998, the Committee filed a motion in the bankruptcy court to modify the Plan's cap on professional fees. In their moving papers, the parties disclosed that the Goldberg Firm "provid[ed] legal representation to the Committee and assist[ed] the Committee with respect to its obligations and rights under the terms of the Plan." R. at 293:24-294:6. With respect to his simultaneous representation of the Liquidator, Meyers testified:

The Goldberg Firm has also been called upon to represent the Liquidator in certain discrete matters, where the Committee and the Liquidator concluded that it would be most cost-effective for such firm to render necessary services. For example, to the extent that the Liquidator has needed legal advice as to the pending chapter 11 case of Henry Grausz, a judgment debtor of the Debtor, the Goldberg Firm has provided that advice. In addition, because the Debtor's general counsel has asked to withdraw from remaining matters in which it has previously represented the Liquidator, it is anticipated that the Goldberg Firm may assist the Liquidator with respect to one or more of those matters as well.

R. at 296:13-23. The bankruptcy court granted the motion to modify the cap in an order dated October 26, 1998. R. at 299-301.

The Goldberg Firm's representation of the Committee and the Liquidator was terminated in July 2007, when Mr. Meyers left the Goldberg Firm and formed Meyers Law Group, P.C. ("MLG"). MLG subsequently was engaged to represent the Committee and the Liquidator, doing so simultaneously until 2010, when a disagreement as to the best disposition of a judgment against judgment debtor Henry Grausz arose. At that point, MLG informed both clients of the conflict and thereafter ceased to represent either client. The Liquidator and the Committee subsequently retained separate counsel. After the Committee's new counsel, Mr. John Warner, reviewed various documents turned over to him by MLG, Mr. Warner informed MLG that it was his opinion that there had been a conflict of interest all along and that all fees paid to the Goldberg Firm and MLG were unauthorized by the Plan. See R. at 313-318. The parties exchanged correspondence on the issue and could not come to a resolution. See R. at 306-330.

On December 21, 2011, the Committee filed a motion in the bankruptcy court to disallow fees paid to attorney Merle C. Meyers and to require disgorgement of all fees previously paid to him. On December 29, 2011, MLG filed its application for allowance of compensation and expenses as former counsel for the Liquidator and the Committee in the bankruptcy court. That application sought compensation for three invoices that the Committee had refused to pay. R. at 243:6-18. In addition, MLG sought compensation for fees incurred in defending its fees and preparing its fee application. R. at 243:25-244:8. MLG provided a detailed description of its services and billing rates in the application. R. at 245:24-248:19. In response to the Committee's conflict of interest allegation, MLG argued that the Committee had impliedly consented to and waived any alleged conflict of interest arising from the dual representation. R. at 249:16-251:3. In addition, MLG argued that the lack of a written waiver is not a basis for disgorgement. R. at 251:5-20.

On January 27, 2012, the bankruptcy court heard the motion to disallow compensation for MLG The court held:

With respect to Mr. Meyers, quite apart from whether the Committee knew or not, this Court in entering an order in 1998, lifting the cap, expressly recognized that Mr. Meyers, at that time with the Goldberg Stinnett firm, was representing... both the liquidator and the Committee. There was no undisclosed conflict of interest at that point. A conflict, an actual conflict, did arise later, obviously over the distribution of this asset, and Mr. Meyers did the right thing and immediately stopped representing either side. And there's just nothing... wrong there. As I say, the order explicitly... recognizes his dual representational role.

R. at 591:15-592:2. The bankruptcy court entered orders approving MLG's fee application and denying the Committee's motion to disallow fees and require disgorgement on July ...

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