Petition for Writ of Certiorari — LeBlanc v. Salem, 121 S. Ct. 385 (2000) (No. 00-371)

Supreme Court of the GQnited States

GARY R. LEBLANC,

Petitioner,

v.

RICHARD P. SALEM,

Respondent.

ON PETITION FOR A WRIT OF CERTIORARI TO

THE UNITED STATES COURT OF APPEALS

FOR THE FIRST CIRCUIT.

PETITION FOR A WRIT OF CERTIORARI.

GARY R. LEBLANC

Counsel of Record

20 Cross Street

Gardner, Massachusetts 01440

(978) 630-3300

Pro Se Petitioner

Dated: September 5, 2000

BATEMAN & SLADE, INC. BOSTON, MASSACHUSETTS

QUESTION PRESENTED

I. Whether U.S. Bankruptcy Court’s, Queenan,

J., allowance of Trustee’s Motion to Abandon Right

of Revocation of Contingent Settlement was an

abuse of discretion, when creditor raised issue of

fraud in the settlement and trustee conducted no

investigation into creditor’s allegations and pre-

sented no evidence of a fair and reasonable settle-

ment, and the Court placed burden of proving fraud

on creditor, in direct conflict with other federal ju-

risdictions.

li

PARTIES

The parties to the proceedings below were the pe-

titioner, Gary R. LeBlanc, acting pro se, and the re-

spondent Richard P. Salem, acting pro se.

ili

TABLE OF CONTENTS

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PENN TEIED Anvaasdscasbensionsccececunsvsabsoccccniactessece 1

STATEMENT OF THE CASE ................sececseeseees 2

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iv

TABLE OF AUTHORITIES

CASES:

In re Chicago Art Glass, Inc.,

155 B.R. 180 (Bkrtcy. N.D.I11.1993) .

In re Melenyzer,

140 B.R. 143 (Bkrtcy.W.D.Tex. 1992)

In re Morse Tool, Inc.,

140 B.R. 143 (Bkrtcy.D.Mass. 1992)

In re Worcester Quality Foods, Inc.,

152 B.R. 494 Bkrtcy.D.Mass.1993) .

Kowal v. Malkemus,

965 F.2d 1136 (1st Cir.1992) ..........

STATUTES AND RULES:

United States Code

1 UO OOM oe

28 U.S.C. §§ 158(d) & 1334 wc...

Federal Rules of Bankruptcy Procedure

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PETITION FOR WRIT OF CERTIORARI

The petitioner, Gary R. LeBlanc, respectfully

prays that a writ of certiorari issue to review the

judgment and opinion of the United States Court of

Appeals for the First Circuit, entered in the above-

entitled proceeding on June 5, 2000.

OPINIONS BELOW

The opinion of the Court of the Appeals for the

First Circuit is published at and re-

printed in the Appendix hereto (“App. A”) at page

App. la. By order entered June 5, 2000, The First

Circuit denied LeBlanc’s petition for rehearing. A

copy of the order denying rehearing is reprinted in

the Appendix at page App. 14a. The Memorandum

decision of the United States District Court for the

District of Massachusetts, dismissing the appeal is

reprinted in the Appendix hereto at page App. 16a.

JURISDICTION

Invoking federal jurisdiction under 28 U.S.C.

§ 1334, and 28 U.S.C. § 158(d), the petitioner

brought this suit in the United States District Court

for the District of Massachusetts. On June 25,

1999, after remand, the United States District

Court entered judgment granting summary judg-

ment to the Respondent.

On May 16, 2000, the United States Court of Ap-

peals for the First Circuit affirmed the decision of

the United States District Court entering judgment

in favor of the respondent.

2

On June 5, 2000, the United States Court of Ap-

peals for the First Circuit denied Petitioner’s Peti-

tion for Panel Rehearing.

STATEMENT OF CASE

In October 1990, the Petitioner, Attorney Gary R.

LeBlanc won a judgment in the Supreme Judicial

Court of Massachusetts against Alfred Lizotte in ex-

cess of $450,000.00, on behalf of his client, Mail-

man Steam Carpet Cleaning, Corp. The judgment

was secured by a real estate attachment on a parcel

of land and buildings owned by Lizotte and upon

which he controlled a small corporation entitled Al’s

Service Station, Inc. Said corporation was severely

in debt to creditors. All of the debt was accumu-

lated after the judgment secured by LeBlanc in

1990.

An appeal ensued and in 1993, the judgment was

affirmed by the Supreme Judicial Court of Massa-

chusetts. Pending the appeal, LeBlanc’s client,

Mailman, slid into bankruptcy and the Lizotte

judgment became the principle asset of the bank-

ruptcy estate.

On September 18, 1995, the trustee appointed in

Bankruptcy notified the Court and creditors of his .

intention to compromise the Lizotte judgment, now

in excess of $500,000.00, down to $100,000.00. -

LeBlanc, as a creditor, objected.

On October 19, 1995, the Bankruptcy Court

conducted a hearing on the proposed settlement in

which the trustee introduced an appraisal, which

valued the business and real estate to have a total

3

fair market value of $350,000.00. LeBlanc argued

the appraisal included assets of the corporation

that were partially and or fully leveraged, yet, the

trustee assigned a $75,000.00 value to them. Also,

the sale of the business was added to the appraisal

and was valued at $75,000.00. Subsequently, the

corporation, which was severely in debt, went bank-

rupt and was sold, therefore, excluding these al-

leged assets. All that remained, as assets of the

corporation, was “garage machinery” with an ap-

praised auction value of only $22,000.00. The real

estate had an assigned value of $175,000.00.

LeBlanc asserted the property and buildings and

pumps thereon had a fair market value far in ex-

cess of $500,000.00. However, LeBlanc was unable

to present a written appraisal as Lizotte refused to

allow LeBlanc’s appraiser or. the property.

At the conclusion of the hearing, the Court or-

dered the approved compromised settlement, sub-

ject to the following condition:

If the gas station is sold within

two years the trustee may move for

revocation of this approval. Depending

on the facts of the sale the Court will

then either confirm or revoke its ap-

proval.

Approximately seven months later, Lizotte sold

the real estate and alleged business assets for

$560,000.00. Lizotte maintained the increase of

over $350,000.00, above the value of the real estate

4

was all business assets, but provided no disclosure

of these alleged assets.

LeBlanc immediately alleged the sale of unidenti-

fied business assets was a sham and that Lizotte

was fraudulently diverting these assets from

Lizotte’s creditors, specifically the contingent set-

tlement.

LeBlanc demanded trustee provide a complete

accounting of the assets of the sale and full disclo-

sure to rule out fraud. When the trustee refused to

investigate LeBlanc’s allegations, LeBlanc moved to

compel the trustee to seek revocation of the contin-

gent settlement. Said motion was continued gener-

ally and the Court approved very limited discovery

by LeBlanc. LeBlanc’s request to conduct a Rule

2004 examination of the buyer, Peterborough Oil,

was denied over LeBlanc’s objection. “

The Court severely limited LeBlanc’s discovery of

the alleged fraud to Alfred Lizotte and Gulf Oil, a

creditor of Lizotte. The 2004 examinations were

further limited to the terms of the sale. Lizotte

postponed the discovery for alleged medical rea-

sons, then upon examination, claimed amnesia and

could not recall any assets allegedly sold to the

buyer, Peterborough Oil.

No examination was ever conducted of Gulf Oil,

as they were not a party to the sale and could add

no information regarding the “terms of the sale”.

Therefore, without an accounting of the assets al-

legedly sold, by Lizotte, LeBlanc turned to the trus-

tee to perform his duty to investigate the sale. The

trustee refused to investigate the sale and instead

moved the Court to abandon his right to seek revo-

5

cation of the settlement. LeBlanc objected to the

abandonment.

On April 15, 1998, the Court held a hearing on

the abandonment in which LeBlanc presented the

results of his severely restricted discovery as fol-

lows:

(1) The Purchase and Sales Agree-

ment explicitly stated that the

buyer, Peterborough Oil, was

purchasing the “real estate

only”.

(2) The Purchase and Sales Agree-

ment also stated “all other as-

sets remain with seller’.

(3) The Purchase and Sales Agree-

ment listed a sales price for the

real estate of $200,000.00,

which was in line with the trus-

tee appraisal of $175,000.00.

Yet, the actual deed listed the

sales price of the real estate at

$300,000.00.

(4) Both Lizotte and his attorney

failed and/or refused to inform

the Court or the trustee of the

$100,000.00 gain in the sale of

the real estate, either prior to or,

subsequent to the sale, despite

the language of the prior contin-

gent settlement order.

(S)

(6)

(7)

(8)

6

Lizotte applied the additional

$100,000.00 of real estate

funds, not to the settlement, but

to the debts of the corporation,

which debts were acquired over

three years subsequent to the

real estate attachment and judg-

ment.

Lizotte claimed the Purchase and

Sales Agreement required him to

pay his corporate debt with the

proceeds of the sale including

the sale of the real estate, de-

spite the clearly superior judg-

ment and attachment.

The Purchase and Sales Agree-

ment required Lizotte to pay the

corporate debt from the sale

proceeds, yet, the corporation

was never sold to the buyer,

Peterborough Oil. Therefore, the

buyer had no legitimate interest

in the debts of the corporation,

as none of the debts were appur-

tenant to the land and the cor-

poration remained with the

seller, Lizotte.

In the Purchase and Sales

Agreement, Lizotte was allegedly

selling over $350,000.00 worth

of business/corporate assets to

the buyer, Peterborough Oil.

Yet, neither one single asset is

7

listed in the Purchase and Sales

Agreement, nor have these al-

leged assets ever been accounted

for, or even described in any

document.

(9) Upon examination of the seller,

Lizotte, by LeBlanc, Lizotte could

not recall one single asset sold

to Peterborough Oil. Lizotte al-

leged that he was on oxygen,

which caused complete amnesia

as to the facts of the sale.

(10) LeBlanc moved the Court to al-

low an examination of the buyer,

Peterborough Oil, as to the as-

sets allegedly sold by Lizotte.

Said motion was denied over

LeBlanc’s objection.

(11) Subsequent to the sale, Lizotte

reopened his business, with his

business assets, less than three

miles from his original location.

(12) Subsequent to the sale, Peter-

borough Oil completely remod-

eled the real estate with none of

Lizotte’s corporate assets, but

rather their own “Mr. Mikes”

franchise.

(13) Over a year prior to the sale,

Peterborough Oil orally repre-

sented to LeBlanc’s private in-

vestigator that the real estate

8

alone had a value of between

$500,000.00 to $700,000.00

(without any of Lizotte’s corpo-

rate assets. The final purchase

price was $560,000.00

(14) Subsequent io the sale, Peter-

borough Oil represented orally to

LeBlanc that the contract for the

sale was set up by Lizotte and

his attorney, because “That’s the

way they wanted it. We don’t

care, so long as we got the land”.

(15) According to the Purchase and

Sales Agreement, sixty thousand

dollars of the sales proceeds

were paid directly to Alfred

Lizotte, personally, and were

therefore subject to the contin-

gent settlement. Yet, trustee

never tried to recoup even these

assets for the estate.

These are just some of the arguments raised by

LeBlanc at the April 15, 1998 hearing. Despite this

overwhelming evidence, the Court approved the

abandonment and LeBlanc appealed the ruling;

first to the United States District Court and then to

the First Circuit Court of Appeals, who both upheld

the ruling from the First Circuit’s denial of

LeBlanc’s Petition for rehearing. He now applies for

Writ of Certiorari.

9

ARGUMENT

In the case at hand, the First Circuit held, in

part, quoting Kowal v. Malkemus (In re Thompson),

965 F.2d 1136, 1145 (1st Cir. 1992), “that a Chap-

ter 7 Trustee is required to reach an informed judg-

ment, after diligent investigation, as to whether it

would be prudent to eliminate the inherent risks,

delays and expenses of prolonged litigation in an

uncertain cause. Balancing the trustce’s obligation

to obtain...the maximum return for the creditors(on

whose behalf he toils).” Jd. at page 6, line 4. The

court goes on to state “LeBlanc mounts a claim of

fraud — a claim that, after earnest investigation, he

cannot substantiate. In order to probe the claim

more thoroughly, the trustee would have to deplete

the estate’s (already slim) assets in exploring what

might well prove to be a dry hole...” (Id. at page 6,

lines 15-20).

These statements could not be further from the

truth. They are totally erroneous factual findings

and a misapplication of a properly stated rule of

law.

To the contrary, LeBlanc presented overwhelming

indicia of fraud. Although LeBlanc is an attorney,

in this case he was acting solely as a creditor, rais-

ing an issue of Lizotte’s fraudulent real estate

transaction.

The Court erroneously puts the burden on

LeBlanc, a creditor, to investigate and substantiate

the fraud. Clearly this duty lies with the trustee

who did absolutely nothing to investigate LeBlanc’s

allegations. Therefore, how could he possibly have

10

reached an “informed judgment after diligent inves-

tigation.

On page 7 of the First Circuit’s opinion, the

Court states in relevant part, “Nor was Salem’s

(trustee) position rubber stamped. The Bankruptcy

Court conducted no fewer than four hearings to

scrutinize the Appellant’s claims...” This is also a

gross misstatement of the facts. Although the

Court conducted hearings, not once did the Bank-

ruptcy Court, or any other Court order the trustee

to investigate LeBlanc’s allegations of fraud. Not

once did any of these Court’s question what assets

were allegedly sold to Peterborough Oil. Not once

did the Court order full and complete disclosure.

The First Circuit quotes Judge Harrington of the

United States District Court that appellant had,

“neither introduced any contrary expert testimony

nor proffered any hard evidence, that Lizotte ma-

nipulated the valuation of the real estate (page 8).

To the contrary, Lizotte’s own expert appraisal of

the real estate valued the property at -$20,000.00.

the Purchase and Sales Agreement stated

$200,000.00 and the actual deed and secret sale

was for $300,000.00.

The circumstantial evidence of fraud presented

by LeBlanc is so overwhelming, it is a slap in the

face of justice to determine the trustee need not in-

vestigate further.

The First Circuit’s ruling is in direct conflict with

other jurisdictions, such as In re Chicago Art Glass,

Inc., 155 B.R. 180 (Bkrtcy N.D.Ill. 1993), which held

that although a trustee does not “have an obligation

to investigate every matter brought to his/her at-

tention, the trustee is statutorily required to look

11

into [allegations] of the concealment of assets,

fraudulent conduct, or any other wrong doing, by

the debtors or other third parties. Id. at 188. See

also In re Melenyzer, 140 BR. 143, 155

(Bkrtcy.W.d.Tex. 1992).

Further, in the case of In re Morse Tool, Inc., 148

B.R. 97 (Bkrtcy.D.Mass. 1992), citing the Uniform

Fraudulent Conveyance Act, 11 U.S.C. § 548, and

its counterpart, the Massachusetts Uniform

Fraudulent Conveyance Act, Massachusetts Gen-

eral Laws, Chapter 109A, Section 13, there must be

at least a reasonable equivalence, between the pur-

chase price and the value of the property received,

for there to be fair consideration for the transfer of

assets. Therefore, the “...focus is on ascertaining

whether the price paid was fair and reasonable or,

on the other hand, was so high as to have been, a

gift or give away; it also asks whether in fairness

and good faith to creditors, consideration paid can

be deemed reasonable’. Supra. See also In re

Worcester Quality Foods, 152 B.R. 494 (Bkrtcy.

D.Mass. 1993).

CONCLUSION

In failing to present any accounting of the assets

sold of the sale, the trustee breached his statutory

duty, as herein stated, to investigate the conceal-

ment of assets, fraudulent conduct or any other

wrongdoing by Lizotte. To blindly recommend

abandonment was wanton negligence by the Trus-

tee. For the Court to accept his uninformed opinion

without any investigation, in violation of its own

12

contingent settlement, is not diligent investigation

and is clearly an abuse of discretion. How little ef-

fort would have been required to shake a potentially

fruitful bush.

Instead, the Court accepted the trustee’s recom-

mendation in a vacuum, with no facts to support its

conclusion. The Court erroneously put the burden

on creditor LeBlanc to produce concrete evidence of

fraud beyond a reasonable doubt, rather than com-

pel the trustee to investigate and produce an ac-

counting to determine if the sale was “fair and rea-

sonable”.

For the compelling reasons set forth above, the

Petition for Writ of Certiorari should be allowed.

WHEREFORE, based upon the foregoing, the Pe-

titioner, Gary R. LeBlanc, respectfully moves this

Honorable Court to allow his Writ of Certiorari and

reverse the decision of the U.S. Court of Appeals for

the First Circuit and rule accordingly.

Respectfully submitted,

Gary R. LeBlanc,

Pro Se Counsel of Record,

Gary R. LeBlanc

20 Cross Street

Gardner, Massachusetts 01440

(978) 630-3300

BBO #543081

APPENDIX TABLE OF CONTENTS

APPENDIX A

Opinion of the Court of Appeals for the

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APPENDIX B

The First Circuit Denial of the Petition for

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APPENDIX C

The Memorandum decision of the United

States District Court for the District

of Massachusetts, dismissing the

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iia

[This page is intentionally left blank. ]

APPENDIX A

United States Court of Appeals

For the First Circuit

No. 99-1865

IN RE MAILMAN STEAM CARPET

CLEANING CORP.,

Debtor.

GARY R. LEBLANC,

Appellant,

v.

RICHARD P. SALEM, TRUSTEE, ETC.,

Appellee.

APPEAL FROM THE

UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MASSACHUSETTS

[Hon. Edward F. Harrington,

U.S. District Judge]

2a

Before

Selya, Circuit Judge,

Bownes, Senior Circuit Judge,

and Boudin, Circuit Judge.

Gary R. LeBlanc, pro se ipso, for appellant.

Richard P. Salem, pro se ipso, for appellee.

May 16, 2000

SELYA, Circuit Judge. This appeal requires us

to revisit the final resting place of Mailman Steam

Carpet Cleaning Corp. (the debtor). An earlier opin-

ion of this court adumbrates the relevant back-

ground, see LeBlanc v. Salem (In re Mailman Steam

Carpet Cleaning Corp.), 196 F.3d 1, 2-4 (1st Cir.

1999) (Mailman I), and an abbreviated version, bor-

rowing heavily from the original, suffices here.!

In October 1990, the debtor, represented by At-

torney Gary R. LeBlanc, won a verdict in excess of

$450,000 against Alfred C. Lizotte in an environ-

mental suit. An appeal ensued. Betimes, the debtor

attached a parcel of commercial real estate (upon

which Al’s Service Station, a corporation controlled

1 We previously warned that the record in this case “lacks

crucial documents” and requires us to use approximate num-

bers throughout. Mailman I, 196 F.3d at 2. That warning still

applies.

iti ci

3a

by Lizotte, operated a Gulf station) in an effort to

secure the judgment.

Before collecting any sums from Lizotte, the

debtor slid into bankruptcy. See 11 U.S.C. §§ 701-

766 (1994 & Supp. 1999). The Lizotte judgment

thus became a principal asset of the bankruptcy es-

September 18, 1995, the trustee in bankruptcy,

Richard P, Salem, notified the court and creditors of

his intention to compromise the judgment for

$100,000. LeBlanc, qua creditor, objected.

The bankruptcy court held a hearing during

which Salem introduced an appraisal that esti-

mated the fair market value of the property, includ-

ing the fixtures and equipment associated with Al’s

Service Station (the Corporation), at $390,000, and

then assigned $175,000 of this total to the “[ljand,

buildings and installations” owned personally by

Lizotte (and, thus, subject to the attachment). The

appraiser also pointed out that the real estate was

encumbered by a prior first mortgage that secured

nearly $100,000 in debt. LeBlanc asserted that the

real estate was worth much more than the estimate

but offered no concrete evidentiary support for a

different valuation. No other creditor objected to the

anticipated settlement.

In the end, the bankruptcy court approved the

Proposal, subject to the following condition:

If the gas station is sold within two

years from [October 19, 1995], the

4a

trustee may move for revocation of this

approval. Depending on the facts of the

sale, the court will then either confirm

or revoke its approval.

The court denied LeBlanc’s subsequent motion to

alter or amend and ordered Salem to deliver an exe-

cuted discharge of the lien, to be held in escrow

pending payment of $100,000 to the bankruptcy

estate.

Approximately seven months later, Lizotte and

the Corporation sold the real property and the

business assets of the Corporation for an aggregate

price of $560,000. Lizotte maintained that the

business assets represented most of the value;

thus, he proposed to satisfy the first mortgage, re-

mit $100,000 to Salem to complete the settlement,

and pay the remaining net proceeds to the Corpora-

tion’s creditors (the largest of which apparently was

Gulf Oil or its distributor, New England Petroleum).

Contending that this allocation was a sham and

would fraudulently divert $360,000 from Lizotte’s

creditors (including the debtor), LeBlanc moved to

compel Salem to seek revocation of the order condi-

tionally approving the settlement. The bankruptcy

court granted LeBlanc permission under Fed. R.

Bankr. P. 2004 to examine Lizotte, Gulf, and the

Corporation, limited, however, to information con-

cerning the terms of the sale and to whom the pro-

ceeds had gone.?

2 The court subsequently denied LeBlanc permission to ex-

amine the buyer, Peterborough Oil Co. LeBlanc gripes about

5a

The permitted discovery moved at a snail’s pace.

Finally, the depositions concluded and Salem

sought leave to abandon the reserved right to seek

revocation of the settlement. LeBlanc -- and

LeBlanc alone -- opposed abandonment. At a hear-

ing held on April 15, 1998, LeBlanc recounted his

version of the pertinent facts and the conclusions

that he had drawn from his investigation. See

Mailman I, 196 F.3d at 3-4 (describing LeBlanc’s

contentions). Apparently unimpressed, the bank-

ruptcy court overruled his objection and authorized

Salem to surrender the right to seek revocation.

LeBlanc appealed both this order and a collateral

order dealing with the allowance of his claim.3 After

some skirmishing -- including a remand for further

findings -- the district court upheld both determina-

tions. See In re Mailman Steam Carpet Cleaning,

Civ. No. 99-40083-EFH (D. Mass. June 25, 1999)

(Mailman II). LeBlanc then prosecuted this appeal.

In it, he presses two assignments of error.

this ruling in passing, but has neither assigned error to it nor

made any suitably developed argumentation in regard to it.

3 Striking on a different front, LeBlanc simultaneously filed

an adversary proceeding against Salem, in which he alleged

negligence and breach of fiduciary duty stemming from Sa-

lem’s failure to seek revocation of the settlement. The bank-

ruptcy court rejected this initiative, granting summary judg-

ment in Salem’s favor. The district court affirmed, and so did

we. See Mailman I, 196 F.3d at 4-9. \

6a

The Abandonment Order

The appellant first solicits our intervention in re-

spect to the order approving abandonment of the

right to seek revocation of the settlement. As the

appellant acknowledges, the standard of review is

abuse of discretion. See Prebor v. Collins (In_re I

Don’t Trust), 143 F.3d 1, 3 (lst Cir. 1998). The

abuse of discretion rubric is not hard and fast. See

1 Steven Alan Childress & Martha S. Davis, Federal

Standards of Review § 4.21, at 4-131 to -139 (3d ed.

1999). Here, we apply it against the background

understanding that “[c]lompromises are favored in

bankruptcy.” Hicks, Muse & Co. v. Brandt (In_re

Healthco Int'l, Inc.), 136 F.3d 45, 50 n.5 (1st Cir.

1998) (quoting 9 Collier on Bankruptcy J 9019.01,

at 9019-2 (15th ed. 1995)).

A chapter 7 trustee is entrusted to marshal an

estate’s assets and liabilities, and proceed in set-

tling its accounts on whatever grounds he, in his

informed discretion, believes will net the maximum

return for the creditors (on whose behalf he toils).

When augmentation of an asset involves protracted

investigation or potentially costly litigation, with no

guarantee as to the outcome, the trustee must

tread cautiously -- and an inquiring court must ac-

cord him wide latitude should he conclude that the

game is not worth the candle. See, e.g., id. at 50-52.

After all, “a chapter 7 trustee is required to reach

an informed judgment, after diligent investigation,

as to whether it would be prudent to eliminate the

inherent risks, delays and expense of prolonged liti-

gation in an uncertain cause.” Kowal v. Malkemus

| ere

7a

(In re Thompson), 965 F.2d 1136, 1145 (1st Cir.

1992).

These principles are dispositive here. LeBlanc

mounts a claim of fraud -- a claim that, after ear-

nest investigation, he cannot substantiate. In order

to probe the claim more thoroughly, the trustee

would have to deplete the estate’s (already slim) as-

sets in exploring what might well prove to be a dry

hole. Given the known facts, a decision to go no fur-

ther seems easily defensible.

Lizotte is now in bankruptcy, with no visible as-

Sets apart from the real estate which is at issue in

this proceeding. The sale to Peterborough Oil re-

portedly was contingent on the payment of roughly

$200,000 to Gulf Oil /New England Petroleum, and

a further payment of $60,000 for a covenant not to

compete. The mortgage -- a priority lien -- had a

balance of nearly $100,000. Backing these sums

out of the sales price left only $200,000 on the table

-- some of which obviously would have to be de-

voted to closing costs, taxes, attorneys’ fees, and

~ the like. Under those circumstances, accepting a

$100,000 settlement rather than either frustrating

the sale (by attempting to block the $200,000 pay-

ment) or prolonging the squabble about how to allo-

cate the sales price between real property and busi-

ness assets does not appear unreasonable. Trustees

must take care not to throw good money after bad,

and, on this somewhat Opaque record, Salem’s in-

clination to embrace the settlement is a choice

which appears deserving of some deference.

8a

Nor was Salem’s position rubber-stamped. The

bankruptcy court conducted no fewer than four

hearings to scrutinize the appellant’s claims. Upon

considering all the available evidence, the court

elected, as its discretion fully allowed, to accept the

trustee’s recommendation. The situation thus is

reminiscent of In re Thompson, in which we wrote:

[T]he baseline for appellants’ opposi-

tion to the proposed settlement rests in

their readiness to second-guess the in-

formed judgment of the chapter 7 trus-

tee, as well as the discretionary deter-

mination of the bankruptcy court, that

continued litigation would not result in

a net benefit to the chapter 7 estate.

... The important policy favoring effi-

cient bankruptcy administration nor-

mally will warrant judicial recognition

that the chapter 7 trustee, .. . rather

than ... an individual creditor, is the

more appropriate arbiter of the “best

interests” of the chapter 7 estate.

965 F.2d at 1145 (citations omitted).

The district court also reviewed the facts. In an

abundance of caution, it remanded for further find-

ings and ultimately affirmed the decision of the

bankruptcy court. See Mailman il, slip op. at 3. The

court stated that “the record simply does not reflect

that the land owned by Lizotte and secured by the

real estate attachment was valued at more than the

$200,000 [originally] estimated by the independent

real estate appraiser.” Id. It then noted that the ap-

9a

pellant had neither introduced any contrary expert

testimony nor proffered any hard evidence “that

Lizotte [had] manipulated the valuation of his real

estate.” Id. Consequently, the district court con-

cluded that the bankruptcy court had not abused

its discretion. See id.

We appreciate that, notwithstanding the district

court’s imprimatur, we must independently review

the bankruptcy court’s determination. See Palmacci

v. Umpierrez, 121 F.3d 781, 785 (1st Cir. 1997).

But that review should not occur in a vacuum. In

this instance, the decision whether to seek revoca-

tion of the settlement has been poked, prodded, and

probed at some length. For present purposes, the

acid test of the bankruptcy court’s decision is not

whether pressing onward might have produced

more funds for the estate but, rather, whether ac-

cepting the settlement (and thereby forgoing the

risks inherent in intransigence) fell within the uni-

verse of reasonable alternatives. The ascertained

facts, as revealed by the record, convince us that

the bankruptcy court did not exceed the wide

boundaries of its discretion in determining that a

bird in the hand was worth more than continued

shaking of a potentially barren bush.

The Claim Allowance

We turn next to LeBlanc’s second assignment of

error. The facts are these. The debtor Originally re-

tained LeBlanc to handle the environmental suit

pursuant to a written retainer agreement, dated

June 20, 1988, that specified a one-third contin-

10a

gent fee based on the “verdict, jury award or settle-

ment.” LeBlanc succeeded in obtaining a verdict

against Lizotte in mid-1990. With an appeal in

prospect, he prepared a neoteric fee agreement that

provided, in substance, that he would handle the

appeal and receive an aggregate fee equal to the

greater of 43% of any recovery or his overall time

charges (based on specifiea billing rates). The

debtor signed this agreement in November 1990.

When the debtor later filed for bankruptcy and

LeBlanc served a proof of claim based on the No-

vember 1990 fee agreement, the agreement proved

as much necrotic as neoteric; the bankruptcy court

struck it down as violative of Rule 3:05(5)(e) of the

Rules of the Supreme Judicial Court of Massachu-

setts (which at the time provided, in pertinent part,

. that a contingent fee shall not “exceed stated

maximum percentages of the amount collected”).*

The court did not disallow LeBlanc’s claim entirely,

however, but allowed it to the extent of one-third of

the amount of the litigation proceeds ultimately col-

lected. The district court affirmed these twin deter-

minations, holding (1) that the bankruptcy court

did not err in finding the November 1990 fee

agreement unenforceable, and (2) that the bank-

ruptcy court’s allowance of the claim in an amount

equal to one-third of the actual recovery was “rea-

* In the District of Massachusetts, both the federal district

court and the bankruptcy court have incorporated the Su-

preme Judicial Court's ethical standards into their own rules.

See D. Mass. R. 83.6(4)(B); Bankr. Mass. R. 9020-3. At the

times relevant hereto, that incorporation embraced former

S.J.C. R. 3:05 (since stricken).

er

lla

sonable and do[es] not constitute an abuse of dis-

cretion.” Mailman II, slip op. at 4.

Like the district court, we review de novo the

bankruptcy court’s rulings of law and test its find-

ings of fact for clear error. See BayBank-Middlesex

v. Raylar Distributors, Inc., 69 F.3d 1200, 1202 (1st

Cir. 1995). We think it is significant here that the

claim under review is essentially a claim for an at-

torney’s fee. The bankruptcy court’s role is preemi-

nent in determining the reasonableness of fees

claimed in bankruptcy proceedings, and the court’s

determinations in that wise are reviewed with great

deference. See In re I Don’t Trust, 143 F.3d at 3; In

re Martin, 817 F.2d 175, 182 (1st Cir. 1987); Rome

v. Braunstein (In re Chestnut Hill Mortgage Corp.),

158 B.R. 547, 549 (D. Mass. 1993), aff'd, 19 F.3d

54 (1st Cir. 1994). With these tenets in mind, we

consider the particulars of the appellant’s claim.

We most assuredly cannot fault the bankruptcy

court for refusing to honor the November 1990 fee

agreement. By leaving open the possibility of fees in

excess of the stated percentage, that agreement

plainly ran afoul of the then-applicable ethical

canon, S.J.C. R. 3:05(5)(e). The court therefore had

the right -- and, arguably, the duty -- to refuse to

enforce it. See Berman v. Linnane, 424 Mass. 867,

871-72 & n.7 (1997).

This brings us to the reasonableness of the al-

lowance. Since the November 1990 fee agreement

had purported to supplant, not merely supplement,

the original fee agreement, the bankruptcy court

determined that it would consider not only the

12a

original agreement, but also equitable doctrines. In

the end, it approved LeBlanc’s claim to the extent of

one-third of the amounts actually realized on the

judgment against Lizotte. We glean from the record

that the court thought this sum reasonable in rela-

tion to the services rendered and to the result

achieved and believed that such an award would

prevent unjust enrichment of the bankruptcy es-

tate. Indeed, the court expressly found that “one-

third of the recovery, plus expenses” constituted a

“typical compensation arrangement for matters

such as this” and was “[flair” in the circumstances

of this case.

In our view, the allowance of the claim passes the

test of reasonableness with flying colors. Because

we do not wish to belabor the obvious, we add only

a brief comment.

Having found that the November 1990 fee agree-

ment violated ethical precepts, the bankruptcy

court likely could have denied LeBlanc compensa-

tion altogether. See, e.g., Rome, 19 F.3d at 58; cf.

Culebras Enters. Corp. v. Rivera-Rios, 846 F.2d 94,

97 (lst Cir. 1988) (stating, in a non-bankruptcy

context, that “[djenial of attorneys’ fees may be a

proper sanction for violation of an ethical canon”).

The fact that the court elected to take less draco-

nian measures does not mean that it could attach

no significance to the violation -- and this is so even

though it seems to have regarded the ethical short-

fall as resulting from a good-faith blunder. In all

events, assessing the reasonableness of claims for

counsel fees is a matter “in which the court of first

instance enjoys particularly great leeway,” In re I

iceman

15 140 2

13a

Don’t Trust, 143 F.3d at 3, and there is no sign that

the bankruptcy court’s allowance of LeBlanc’s claim

in a sum less than he had hoped outstripped that

leeway.

The proof of the pudding is in the tasting. The es-

sence of LeBlanc’s engagement by the debtor cen-

tered around the notion that his compensation

would be commensurate to the monies realized by

the client. The bankruptcy court’s resolution of

LeBlanc’s claim was faithful to this central concept;

it found that LeBlanc’s work had produced a recov-

ery and that he was entitled to compensation pro-

portionate to the size of that recovery. So viewed,

LeBlanc’s complaint reduces to a quarrel over the

percentage that the court deemed appropriate. That

ends the matter. Whether or not a higher percent-

age might have been sustainable, it cannot seri-

ously be argued that the court’s decision to approve

~ the claim based on a conventional percentage (33%)

constituted an abuse of discretion.

We need go no further. At long last, the lower

courts appear to have laid this tangled and conten-

tious matter to rest. We discern no error in their

administration of these last rites.

Affirmed.

l4a

APPENDIX B

United States Court of Appeals

For the First Circuit

No. 99-1865

IN RE MAILMAN STEAM CARPET

CLEANING CORP.,

Debtor

GARY R. LEBLANC,

Appellant,

V.

RICHARD P. SALEM, TRUSTEE, ETC..,

Appellee.

BEFORE

SELYA, CIRCUIT JUDGE,

BOWNES, SENIOR CIRCUIT JUDGE

AND BOUDIN, CIRCUIT JUDGE.

ORDER OF COURT

Entered: June 5, 2000

Upon consideration of petition for panel re-

hearing from judgment of May 16, 2000,

ammenities

15a

It is ordered that said petition be, and the same

hereby is, denied.

By the Court

Phoebe D. Morse, Clerk

By: JANICE M. O’NEIL

Chief Deputy Clerk

[cc: Messrs. LeBlanc and Salem]

16a

APPENDIX C

UNITED STATES DISTRICT COURT

DISTRICT OF MASSACHUSETTS

No. 99-40083-EFH

IN RE: MAILMAN STEAM CARPET CLEANING,

Debtor

MEMORANDUM AND ORDER

June 25, 1999

HARRINGTON, D.J.

This matter is before the Court on appeal from

the United States Bankruptcy Court. The Appellant

Attorney Gary LeBlanc, here representing himself,

represented Mailman Steam Carpet Cleaning, Inc.,

In a lawsuit against Alfred Lizotte In which Mailman

obtained a judgment against Lizotte In excess of

$400,000, secured by a real estate attachment of

certain commercial property owned by Lizotte.

Later, Mailman went into bankruptcy; the sole sig-

nificant asset in the bankruptcy estate was the

judgment against Lizotte.

Basec on an appraisal valuing the land securing

the judgment at approximately $200,000 and per-

ceived problems In the collectability of the judg-

ment, the Trustee In the bankruptcy proceeding,

Appellee Richard Salem, recommended that the

claim against Lizotte be settled for $100,000. The

Bankruptcy Court allowed the settlement, over Ap-

17a

pellant LeBlanc’s objections, but provided that, if

the property was sold within two years, the Trustee

could move to revoke the settlement. At the hearing

on LeBlanc’s motion to revoke, the Bankruptcy

Court clarified that it would allow a revocation if

there was evidence that established that “the set-

tlement agreement had been negotiated by Mr.

Lizotte fraudulently; that is, Mr. Lizotte did not dis-

close...that he had a buyer willing to purchase the

real estate...for significantly more than the

$100,000 settlement.”

When, in six months, a third party paid

$560,000 for the property, the business assets of

the gas station on the property, and a covenant by

Lizotte not to compete, LeBlanc alleged fraud on the

part of Lizotte and requested that the Court revoke

the’ settlement. The Bankruptcy Court held a hear-

ing on the motion but, finding insufficient evidence

to sustain LeBlanc’s allegations, refused, in its dis-

cretion, to revoke the settlement and instead al-

lowed the Trustee’s motion to \abandon the claim.

LeBlanc has appealed that decision and, accord-

ingly, the first issue before this Court is whether

the Bankruptcy Court’s refusal to revoke the set-

tlement, in light of LeBlanc’s allegations of fraud,

constituted an abuse of discretion.

The second issue before this Court concerns the

Bankruptcy Court’s award of attorney’s fees to

LeBlanc. In the underlying suit against Lizotte,

LeBlanc and Mailman had a one-third contingency

fee agreement. When LeBlanc later agreed to de-

fend the judgment on appeal, LeBlanc and Mailman

executed a subsequent contingency fee agreement,

18a

providing that LeBlanc would be entitled to the

greater of 43 percent of the amount ultimately col-

lected or compensation based on his hourly rate.

The Bankruptcy Court struck down this subse-

quent agreement as violative of then-applicable

Rule 3:05(5) of the Supreme Judicial Court. The

Court allowed LeBlanc, however, a claim for attor-

ney’s fees In the amount of one-third the amount

ultimately collected, pursuant to the original

agreement between the parties, plus some ex-

penses. LeBlanc appealed this decision as well and,

accordingly, the second issue before this Court is

whether the Bankruptcy Court award of attorney’s

fees to LeBlanc constituted an abuse of discretion.

After hearing oral argument and reviewing the

record before it, including the Bankruptcy Court’s

decisions with respect to each of these two issue,

the Court finds no abuse of discretion by the Bank-

ruptcy Court with respect to either matter.

With respect to the first issue, the record simply

does not reflect that the land owned by Lizotte and

secured by the real estate attachment was valued at

more than the $200,000 estimated by the inde-

pendent real estate appraiser. LeBlanc did not in-

troduce any expert testimony regarding the real es-

tate’s valuation either at the original proceeding

before the Bankruptcy Court nor later after remand

to it from this Court. Moreover, there is no evi-

dence that Lizotte manipulated the valuation of his

real estate nor any evidence that he had any poten-

tial buyer at the time he entered into his settlement

with Mailman’s Estate. Accordingly, this Court

cannot say that the Bankruptcy Court’s refusal to

19a

revoke that settlement constituted an abuse of dis-

cretion.

Similarly, with respect to the second issue, the

Court holds that the Bankruptcy Court did not err

in refusing to enforce the subsequent contingency

fee agreement. Moreover, the Court finds that the

attorney’s fees and expenses awarded by the Bank-

ruptcy Court, amounting to $44,950.61 of the

$147,000 ultimately collected for Mailman, are rea-

sonable and do not constitute an abuse of discre- -

tion by the Bankruptcy Court.

Accordingly, this appeal is dismissed.

SO ORDERED.

/s/EDWARD F. HARRINGTON

United States District Judge