KSB

15-10811 Dooley's Water & Energy Solutions, Inc (Doc. # 126)

In Re Dooley's Water & Energy Solutions, Inc, 15-10811 (Bankr. D. Kan. Apr. 27, 2016) Doc. # 126

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 SO ORDERED.
SIGNED this 27th day of April, 2016.

 

Designated for online use but not print publication
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF KANSAS


In re:
DOOLEY'S WATER AND ENERGY CASE NO. 15-10811
SOLUTIONS, INC., CHAPTER 11
DEBTOR.

MEMORANDUM OPINION AND JUDGMENT
GRANTING UNITED STATES TRUSTEE'S MOTION TO DISMISS


At the conclusion of trial held on April 5, 2016,1 four matters were taken under

advisement:2 (1) Motion to Convert or Dismiss for Failure to File Post-Petitions Tax

1 Debtor appeared by Mark J. Lazzo. The United States Trustee appeared by Richard A.
Wieland. The Internal Revenue Service appeared by Brian D. Sheern. Garden Plain State Bank
appeared by Creath Pollack.

2 The Court has jurisdiction pursuant to 28 U.S.C. § 157(a) and §§ 1334(a) and (b) and
the Amended Standing Order of Reference of the United States District Court for the District of
Kansas that exercised authority conferred by § 157(a) to refer to the District’s Bankruptcy judges

Case 15-10811 Doc# 126 Filed 04/27/16 Page 1 of 6


Returns and Pay Post-Petition Taxes, filed by the United States;3 (2) Debtor's Objection to
Claim No. 4 Filed by Internal Revenue Service;4 (3) Motion for Adequate Protection as to
Garden Plain State Bank;5 and (4) United States Trustee Samuel K. Crocker's Motion to
Convert or Dismiss.6

The Court finds that the United States Trustee's motion to dismiss for cause must
be granted. Cause exists because Debtor, a small business, did not file its Chapter 11 plan
before expiration of the 300 day time limit. Dismissal rather than conversion is in the
best interest of creditors and the estate. Therefore, the other matters taken under
advisement will not be addressed.
PROCEDURAL HISTORY.

Debtor Dooley's Water and Energy Solutions, Inc. filed a voluntary petition under
Chapter 11 on April 23, 2015, and has since acted as a debtor-in -possession. Debtor
checked the box on the petition stating that it is a small business as defined in 11 U.S.C.

all matters under the Bankruptcy Code and all proceedings arising under the Code or arising in or
related to a case under the Code, effective June 24, 2013. D. Kan. Standing Order No. 13-1,
printed in D. Kan. Rules of Practice and Procedure at 168 (March 2016). A motion for relief
from stay and objections to exemptions are core proceedings which this Court may hear and
determine as provided in 28 U.S.C.§ 157(b)(2)(G) and (B). There is no objection to venue or
jurisdiction over the parties.

3 Doc. 45.

4 Doc. 48.

5 Doc. 50.

6 Doc. 98.

2

Case 15-10811 Doc# 126 Filed 04/27/16 Page 2 of 6


§101(51D). The notes/decisions portion of the minute sheet for a video status conference
held on January 20, 2016, includes the following statement, "Plan will be filed before the
February 17, 2016 deadline."7 But Debtor did not file its Chapter 11 plan and disclosure
statement until March 29, 2016.

DISCUSSION.

The United States Trustee moved to dismiss or convert this case for cause under §
1112(b)(1). It provides in part: ". . . on request of a party in interest, and after notice and
a hearing, 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, for cause . . .." The Trustee cited three conditions of cause as defined in §
1112(b)(4):8 (1) Failure to comply with an order of the court, (2) failure to timely file a
disclosure statement or failure to timely file or confirm a plan, and (3) failure to pay any
fees or charges required under chapter 123 of title 28.

The Court finds that cause to dismiss or convert exists under § 1112(b)(4)(J),
which defines cause to include "failure to file a disclosure statement, or to file or confirm
a plan within the time fixed by his title or by order of the court." Subsection 1121(e)(2)
provides that in a small business case, "the plan and a disclosure statement (if any) shall
be filed not later than 300 days after the date of the order for relief." Subsection (e)(3)

7 Doc. 92.

8 11 U.S.C. §§ 1112(b)(4)(F), (J), and (K).

3

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establishes three requirements for extension of the 300 day limit for filing a plan, one of
which is that "the order extending time is signed before the existing deadline has
expired." No provision in the Code defines the consequences if the debtor (or a creditor)
fails to file a plan within the statutory time limits. A respected commentator states,
"Consequently, if no party files a plan within the prescribed or an otherwise allowed time,
'cause' would exist for conversion or dismissal of the case under section 1112(b)(4)(J) on
the ground of 'failure to propose a plan under section 1112 of this title within any time
fixed by the court."9

The 300 day deadline for filing a plan applies in this case.10 Debtor stated in its
petition filed on April 23, 2015, that it is a small business as defined by § 101 (51D), and
no one disputes that fact. February 17, 2016 (300 days after April 23, 2015) was the
deadline for the filing of a plan and disclosure statement or the entry of an order
extending the 300 days. Debtor did not seek an extension of the 300 day deadline11 and

9 7 Collier on Bankruptcy ¶ 1121.07[4] at 1121-14 (Alan N. Resnick & Henry J. Sommer
eds.-in-chief, 16th ed. 2015).

10 During trial, Debtor's counsel provided the Court with a copy of In re Riviera Drilling
& Exploration Co., 502 B.R. 863 (10th Cir. BAP 2013). That case holds that the 300 day limit
does not apply to a creditor who files plan in a small business case. It has no bearing on this
case.

11 Debtor also does not contend that anything it did or any event in the proceedings
constituted a motion to extend the 300 day limit or otherwise altered the limitation for filing a
plan.

4

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did not file his plan and disclosure statement until March 29, 2016. Therefore cause for
dismissal or conversions exists.12
Having found cause, the Court must next consider whether the case should be
converted to chapter 7 or dismissed. As recently stated in Neighbors,
“[A]s a result of the 2005 Amendments, Code § 1112(b)(1) is
no longer permissive, but instead mandates conversion or
dismissal if the movant establishes exclusive cause, and no
unusual circumstances establish that conversion or dismissal
is not in the best interests of creditors.”
“The Code does not define the phrase ‘best interests of
creditors and the estate.’” The standard “implies a balancing
test to be applied through case-by-case analysis. In the end
the determination is a matter for sound judicial discretion.”
The Court must consider the impact of each the options.13

In this case, the Court finds that dismissal is in the best interests of creditors and
the estate. Debtor has filed a disclosure statement and a reorganization plan which
contemplates rehabilitation of Debtor's business and the payment of unsecured claims.
Dismissal of the case will make possible the filing of a new Chapter 11 case in which
such a reorganization plan might be confirmed. A conversion would result in the
liquidation of Debtor's business before attempting to rehabilate. The liquidation analysis
attached to Debtor's proposed plan shows assets of approximately $78,000 and secured

12 In re Sanchez, 429 B.R. 393 (Bankr. D. P. R. 2010).
13 In re Neighbors, No. 11-21003, 2015 WL 9435189, at *9 (Bankr. D. Kan. Sept. 21,
2015) (citations omitted).
5

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claims of approximately $86,000. If the case were converted to Chapter 7, unsecured
creditors would receive no distribution.

CONCLUSION.

For the foregoing reasons, the Court grants the motion of the United States Trustee
to dismiss this case for cause because Debtor is a small business and it did not file a plan
and disclosure statement within the 300 day time limit established by the Code.
JUDGMENT.

Judgment is hereby entered dismissing this case for cause under §1112(b)(2) and
(b)(4)(J). The judgment based on this ruling will become effective when it is entered on
the docket for this case, as provided by Federal Rule of Bankruptcy Procedure 9021.

IT IS SO ORDERED.
###

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Case 15-10811 Doc# 126 Filed 04/27/16 Page 6 of 6



08-22786 Brooke Corporation (Doc. # 5681)

In Re Brooke Corporation, 08-22786 (Bankr. D. Kan. Apr. 19, 2016) Doc. # 5681

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 SO ORDERED.
SIGNED this 19th day of April, 2016.

 

Designated for online use, but not print publication
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF KANSAS


In re:
BROOKE CORPORATION, et al., CASE NO. 08-22786
(jointly administered)
DEBTOR. CHAPTER 7

MEMORANDUM OPINION AND JUDGMENT SUSTAINING
THE TRUSTEE’S OBJECTION TO CLAIM #924-1


The Chapter 7 Trustee, Christopher J. Redmond, objects to claim #924-1 in the
amount of $11,096,002.39 filed by Brooke Holdings, Inc. The claim has been transferred
to Robert D. Orr, who was the largest shareholder and President of Brooke Holdings,
Inc.1 The Trustee appears by Michael J. Fielding and John J. Cruciani of Husch Blackwell
LLP. Robert D. Orr (Orr) appears pro se.

1 Doc. 5627.
1


Case 08-22786 Doc# 5681 Filed 04/19/16 Page 1 of 12


BACKGROUND.

The Trustee’s objection is based upon 11 U.S.C. § 502(d) and the entry of a final
judgment under § 550 against Brooke Holdings which has not been paid. Subsection
502(d) provides that the court shall “disallow any claim of any entity from which property
is recoverable under section 542, 543, 550, or 553 . . ., unless such entity . . . has paid the
amount, or turned over any such property, for which such entity . . . is liable under . . .
section . . . 550 . . . of this title.” Colliers states:

[The section] requires disallowance of a claim of a transferee
of a voidable transfer in toto if the transferee has not paid the
amount or turned over the property received as required under
the sections under which the transferee's liability arises. The
Court of Appeals for the Fifth Circuit observed: "The
legislative history and policy behind section 502(d) illustrates
that the section is intended to have the coercive effect of
ensuring compliance with judicial orders." Once the liability
of the transferee has been determined, the claim interposed by
the transferee will be disallowed unless such transferee gives
effect to the judgment flowing from the exercise of the
powers described above.2

Colliers also states: “[T]he purpose of section 502(d) is to promote the pro-rata sharing of
the bankruptcy estate among all creditors as well as the coercion of the payment of
judgments obtained by the trustee. Creditors who have received voidable transfers to the
detriment of the pool should not be entitled to make additional demands on the assets of
the estate.” 3

2 4 Collier on Bankruptcy, ¶ 502.05[1] at 502-55(Alan N. Resnick & Henry J. Sommer
eds.-in-chief, 16th ed. 2015).

3

Id., ¶502.05[2][a] at 502-56 to 502-57.
2


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The Trustee has been granted summary judgment against Brooke Holdings under §
550, and the judgment has not been paid. The Trustee contends that such non-payment
causes disallowance of the claim as held by Orr. Since Orr is an insider of Brooke
Holdings and had knowledge of the Trustee’s litigation against Brooke Holdings, Orr is
not a good faith transferee of Brooke Holdings claim and § 502(d) applies to the claim as
held by him.4

To avoid the disallowance, Orr has attempted to the undermine the judgment
against Brooke Holdings and contends that claims he plans to bring will establish his
entitlement to payment.5 The question is whether the Trustee’s § 502(d) objection should
be granted on the pleadings, not withstanding Orr’s attempts to discredit the judgment and
urging that the matter should not be determined because Orr is planning litigation against
the Trustee’s counsel.
THE JUDGMENT AGAINST BROOKE HOLDINGS IS FINAL, AND THE TIME
TO APPEAL HAS EXPIRED.

The judgment against Brooke Holdings was obtained in Adversary 10-6225
(Adversary Proceeding), which was filed on October 26, 2010, against multiple

4 In re Enron, 379 B.R. 425 (D.S.D.N.Y. 2007); In re KB Toys, 470 B.R. 331 (Bankr. D.
Del. 2012).

5 After this matter was placed under advisement, Orr filed Claimholder’s Motion to
Vacate Default Judgment (Doc # 215) as document 285 in the Adversary Proceeding. The Court
declines to consider the merits of the motion because it was untimely filed. At the March 31,
2016 hearing, Orr had notice that the Court would review the pleadings and possibly take the
matter under advisement, but he failed to promptly supplement the record. Further, Orr lacks
standing to move under Rule 60(b) to set aside a judgment against Brooke Holdings.

3

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defendants. There were four counts against Brooke Holdings: Count I for preferential
transfer; Count II for constructive fraudulent conveyance; Count III for recovery of
avoided transfers under § 550; Count IV for disallowance of claim under § 502(d); and
Count V for subordination/ recharacterization of claim. Brooke Holdings answered,
generally denying the Trustee’s allegations but not asserting affirmative defenses. On
April 3, 2014, the Trustee filed a motion for summary judgment against Brooke Holdings
on Counts I, II, and III. Brooke Holdings did not respond. The motion for summary
judgment was granted on July 10, 2014, finding $5,100,800 in preferential transfers,
$13,143,980.77 in fraudulent transfers, and that such amounts are recoverable under §

550. But no separate judgment was filed under Federal Rule of Civil Procedure 54(b).
During a hearing/status conference on Orr’s motion to reopen the Adversary
Proceeding6 held on October 27, 2015, the Court discussed on the record the need for a
judgment under Rule 54(b), since there was no reason to delay entry of judgment against
Brooke Holdings on Counts I, II, and III. The Trustee responded by filing his motion to
dismiss Count V, to consolidate Count IV with the § 502(d) claim objection, and for entry
of final judgment on Counts I, II, and III. (Doc. 275). Orr objected. At a hearing on that
motion on December 18, 2015, the Court granted the Trustee’s motion and directed the
preparation of an order to be signed by counsel for the Trustee and by Orr. The parties

6 Case no. 10-6225, doc. 263.

4

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prepared such a document. It was entered on January 5, 2016, and is styled as an Agreed
Final Judgment. No appeal has been filed, and the time to appeal has expired.

ORR’S ATTEMPTS IN THE ADVERSARY CASE TO SET ASIDE THE
JUDGMENT AGAINST BROOKE HOLDINGS WERE UNSUCCESSFUL AND
THERE ARE NO PENDING MOTIONS.

Before the entry of the Agreed Final Judgment, Orr made repeated unsuccessful
attempts in the Adversary Proceeding to preclude, amend or set aside the judgment
against Brooke Holdings. He continues to bring these matters to the Court’s attention.

The Trustee’s motion for summary judgment against Brooke Holdings was filed on
April 3, 2014.7 On May 15, 2014, Orr, who at that time was the holder of Brooke
Holdings’ claim, filed a response to the Trustee’s motion for summary judgment.8 On
May 16, 2014, Orr filed a motion for leave to file a motion for summary judgment on the
Brooke Holdings counts denying claim disallowance, subordination and
recharacterization,9 a motion so moving,10 and a memorandum in support.11 On July 1,
the Trustee moved to strike Orr’s response to the Brooke Holdings summary judgment
motion and objected to Orr’s motion for leave to file his own summary judgment motion

7 Id., doc. 176.

8 Id., doc,. 186.

9 Id., doc. 190.

10 Id., doc. 191.

11 Id., doc. 192.

5

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relating to Broke Holdings.12 Orders sustaining the Trustee were filed. Orr filed a motion

for reconsideration on July 16, 2014.13 On July 24, 2014, Orr filed a motion for

reconsideration of the default judgment against Brooke Holdings.14 The Trustee objected

on the basis that Orr lacked standing and the motion was untimely.15 Orr subsequently

withdrew both motions for reconsideration, stating:

After informal discussions with defendant representative in
two of the Major Pending adversary actions (Doc. # 5293,
Case 22786), the Claimholder has concluded that the manifest
injustice to claimholders referenced in the Claimholder’s
motion to reconsider (Doc. #219, Doc #221) cannot be
remedied by changes in the Court’s orders (Doc #208, Doc
#209, Doc #215) because it is unlikely that bankruptcy estate
assets will be sufficient to provide any significant
distributions to claimholders. Accordingly, it is likely that
any remedies must result from litigation occurring after the
bankruptcy estate has been closed and the amount of
distributions to claimholders is known.16

On September 3, 2015, after settlement of the claims with all remaining

defendants, the adversary case was closed, not withstanding the open claims against

Brooke Holdings in Counts IV and V. On September 21, 2015, Orr moved to reopen the

case because of the outstanding Count IV to disallow Brooke Holdings’ claim.17 The

12 Id., docs. 203 and 204,
13 Id., doc. 219.
14 Id., doc. 221.
15 Id., doc. 224.
16 Id., doc. 226, at 2-3.
17 Id., doc. 263.


6

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Trustee opposed the motion18 but later filed his motion to dismiss Count V, to consolidate
Count IV with the claim objection, and to enter final judgment on Counts I, II, and III.19
Orr objected that it was premature to rule of the Trustee’s motion since his motion to
reopen the adversary proceeding was pending. The Trustee’s motion was set for separate
hearing on December 18, 2015. At that hearing, the Court granted the Trustee’s motion
and directed the parties to prepare the Agreed Judgment, which they did. As a result, a
final judgment was entered against Brooke Holdings on Counts I, II, and III of the
Adversary Proceeding, Count V was dismissed, and Count IV has been consolidated with
the claim objection. Although Orr’s motion to reopen the Adversary Proceeding was
never ruled upon, it was effectively granted when the Court granted the Trustee’s motion
for judgment, to dismiss Count V, and to consolidate and entered the stipulated judgment.

THE JUDGMENT AGAINST BROOKE HOLDINGS HAS NOT BEEN SET
ASIDE, AND ORR LACKS STANDING TO SO MOVE.

When defending the Trustee’s objection to claim #924-1, Orr suggests that the
judgment against Brooke Holdings is invalid or should be set aside under Federal Rule of
Civil Procedure 60(b), incorporated into bankruptcy procedure by Bankruptcy Rule 9024.
Orr purchased Brooke Holdings’ claim against the Debtors with notice of its impairments.
He therefore has the rights of an assignee, not a holder in due course and acquired rights
against the Brooke estates only to the extent that the Brooke estates are obligated to

18 Id., doc. 267.
19 Id., doc. 275.
7


Case 08-22786 Doc# 5681 Filed 04/19/16 Page 7 of 12


Brooke Holdings. If the claim of Brooke Holdings would have been unenforceable

against the Brooke estates if no assignment had been made, the right of Orr to enforce the

claim is subject to the same infirmity.20

The § 550 judgment against Brooke Holdings is final and a timely appeal has not

been filed. Brooke Holdings has not filed a motion to set aside the judgment. Federal

Rule 60(b) provides that “on motion and just terms, the court may relieve a party or its

legal representative from a final judgment.” The Tenth Circuit has held that persons

other than a party or its legal representative do not have standing to file a Rule 60(b)

motion. It stated:

This court has held that the term ‘legal representative’
embraces an heir at law who stood in the same position as the
deceased judgment debtor in respect to real property
transferred to the heir. The Fifth Circuit has similarly allowed
a trustee in bankruptcy standing as a ‘legal representative’
under rule 60(b) because of the trustee's power and status in
respect to assets of the estate under the Bankruptcy Act. The
analysis is clear: A ‘legal representative’ under the rule is one
who by operation of law is tantamount to a party in
relationship to the matter involved in the principal action. . . .
If the threshold bar were not restricted, rule 60(b) could be
opened to the broadest claims of ancillary jurisdiction and
thereby thwart the finality of principal judgments and
established procedures to correct fundamental legal errors.
More importantly, any relationship between the cause of
action in chief and that brought into the court's jurisdiction
through its ancillary jurisdiction would become irreparably
attenuated. We therefore hold that an attorney does not have
standing to move under rule 60(b) as a ‘legal representative.’21

20 Restatement (Second) of Contracts § 336(1) (1981).

21 W. Steel Erection Co. v. United States, 424 F.2d 737, 739 (10th Cir. 1970).

8

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Brooke Holdings, the entity with standing, has not filed a Rule 60 motion, and Orr has not
stated intent to retain counsel for Brooke Holdings to pursue the matter. Orr does not
have standing to file a motion under Rule 60(b). He is the successor of Brooke Holdings
only as holder of the claim, and not as a judgment obligor.22

ORR’S PLEADINGS FILED IN RESPONSE TO THE CLAIM OBJECTION DO
NOT RAISE ISSUES WHICH MUST BE LITIGATED.

When agreeing to the entry of judgment in the Adversary Proceeding, Orr
attempted to preserve his right to litigate all of his complaints concerning the objection to
the claim, including those against Husch Blackwell, the law firm representing the Trustee.
The Agreed Judgment which includes consolidation of Count IV of the adversary
complaint with objection to the proof of claim states:

Rob Orr and Brooke Holdings, Inc. have not opposed
consolidation of Count IV with the claim objection pending in
the main case proceeding provided that they are provided the
procedural safeguards afforded by Fed. R. Bankr. P. 7001, et
seq. and provided that the allegations of Count IV (including,
but not limited to, paragraph 95 of the Complaint) continue to
be incorporated and/or included with the claim objection.23

Paragraph 95 of the Complaint is the paragraph which incorporates paragraphs 1 through
94 of the Complaint into Count IV.

22 Assuming that Orr had standing in the Adversary Proceeding (a very doubtful
assumption) to pursue matters related to Brooke Holdings’ liability, both his motion to
reconsider dismissal of his attempt to file a motion for summary judgment (Doc. 219) and his
motion to reconsider the grant of default judgment against Brooke Holdings (Doc. 221) were
withdrawn by him.

23 Case no 10-6225, doc,. 279, at 4.

9

Case 08-22786 Doc# 5681 Filed 04/19/16 Page 9 of 12


Orr has filed three pleadings attempting to set forth his defense to the Trustee’s
objection to his claim. The first is Claimholder’s Reply to Trustee’s Claim Objection.24
In it, he first argues that the claim (Brooke Holdings’ claim against the estate, which has
been transferred to Orr) exists solely because of improper actions of Redmond’s partners
and employer prior to the bankruptcy. “Husch Blackwell’s pre-bankruptcy neglect made
Brooke Corporation insolvent and therefore incapable of repaying its promissory Note to
Brooke Holdings, which resulted in this Claim against Brooke Corporation’s bankruptcy
estate.”25 This is an argument why the claim held by Orr is not a valid claim against the
estates. It defeats, rather than supports, the payment of the claim. Second, Orr argues
that the default judgment against Brooke Holdings is tainted by conflicts of Husch
Blackwell. Very loosely construed, this could be a basis to set aside the judgment, but
Brooke Holdings has not moved to do so, and Orr lacks standing to file such a motion.

The second pleading is Claimholder’s Surreply.26 In his surreply, Orr argues that
the extraordinary circumstance identified in his reply and his withdrawal of his motion for
reconsideration of the default order, provide a basis for a Rule 60(b) motion. Assuming
this is correct, no such motion has been filed, and Orr lacks standing to do so.

24 Doc. 5526.
25 Id., 2.
26 Doc. 5528.

10

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The third pleading is supplement to claimholder’s reply, surreply, and claim.27 In
this pleading Orr alleges that manifest injustice exists. Although Orr does not expressly
so state, it appears that he is arguing the presence of manifest injustice as grounds to set
aside the judgment against Brooke Holdings. The arguments of manifest injustice are:
Husch Blackwell caused Brooke Corporation’s collapse (resulting in the claimholder’s
claim); the allegations of Count IV of the Adversary Proceeding relate to Husch
Blackwell’s misconduct; Count IV allegations were made to exonerate Husch Blackwell;
the preliminary default judgment against Brooke Holdings resulted from Husch
Blackwell’s efforts to financially starve Orr; and Brooke Holdings was an unrepresented
party to the agreed judgment because Orr was financially starved by Husch Blackwell.
These arguments do not cure the defects in the supplemented pleadings.

At the hearing on March 31, 2016, Orr provided the Court with four pages of a
proposed complaint to be filed in the United States District Court for the District of
Kansas, styled Robert D. Orr v. Husch Blackwell, LLC, Douglass J. Schmidt, and John J.
Cruciani.28 It appears to be the beginning of a proposed complaint alleging wide ranging
misconduct. During argument Orr requested that a ruling on the Trustee’s objection to his
claim be delayed until this action is filed (in two weeks or so) and it survives an
anticipated motion to dismiss. But there is no basis on which to conclude that the
allegations are relevant to the claim objection. Any judgment which Orr may obtain

27 Doc. 5529.

28 These pages have now been filed as an attachment to doc. 5670.

11

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against Husch Blackwell would be relevant only if it became a basis of a successful
motion to set aside the judgment against Brooke Holdings filed by Brooke Holdings. But
the proposed complaint, like the pleadings previously filed by Orr, would not constitute a
motion by Brooke Holdings to set aside the § 550 judgment against Brooke Holdings.
Nothing in the Code or the rules of civil procedure requires a Court to defer ruling on a
matter because of a vague possibility of a defense in the remote future. If it is established
in Orr’s litigation that wrongful actions of Husch Blackwell really were the basis for the
judgment against Brooke Holdings which caused disallowance of Orr’s claim, that loss
could be an element of the damages recovered by Orr in his litigation against Husch
Blackwell.

CONCLUSION.

For the foregoing reasons, the Court grants the Trustee’s objection to claim #924


1. The claim of Brooke Holdings is disallowed in full under § 506(d) because the Trustee
holds a judgment against Brooke Holdings under § 550 which has not been paid.
JUDGMENT.

Judgment is hereby entered in favor of the Trustee on his objection to Claim 94-1
and such claim is disallowed in full.

IT IS SO ORDERED.
###


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11-21003 Neighbors (Doc. # 531)

In Re Neighbors, 11-21003 (Bankr. D. Kan. Mar. 1, 2016) Doc. # 531

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 SO ORDERED.
SIGNED this 1st day of March, 2016.

 

Designated for online use but not print publication
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF KANSAS


In re:
MARK STEPHEN NEIGHBORS and CASE NO. 11-21003
SHELLY KAY NEIGHBORS, CHAPTER 7
DEBTORS.

MEMORANDUM OPINION AND JUDGMENT
DENYING DEBTORS’ MOTION FOR STAY PENDING APPEAL OF
JUDGMENT CONVERTING CASE TO CHAPTER 7


The matter before the Court is the Motion for Stay of Memorandum Opinion and
Judgment Converting Case to Chapter 7 Pending Appeal filed by Debtors Mark and
Shelly Neighbors (Motion).1

1 Doc. 476
1


Case 11-21003 Doc# 531 Filed 03/01/16 Page 1 of 9


PROCEDURAL BACKGROUND.

The Debtors filed a voluntary Chapter 11 bankruptcy petition on April 12, 2011.
After several extensions of the exclusivity period, Debtors filed a proposed plan of
reorganization and a disclosure statement on December 30, 2011. CitiMortgage, Inc.
(Citi) objected, and no confirmation hearing was held. An amended plan and disclosure
statement were filed on June 15, 2012.2 After objections were withdrawn, the amended
disclosure statement was approved on November 16, 2012,3 but a confirmation hearing
was never held.

On July 2, 2015, the Court held a telephonic status conference on the pending
amended plan and other matters. On August 4, 2015, Debtors filed their Motion to
Dismiss Chapter 11 Bankruptcy Case4 for cause under § 1112(b)(2), stating in part that
there is no reasonable likelihood of rehabilitation; Debtors believe that they will not be
able to confirm a plan within the time fixed due to disputes with Citi; and Debtors do not
have sufficient source of income to sustain a Chapter 11 Plan or to reorganize. Bank of
Versailles filed a limited objection.5 Citi objected to the motion.6

2 Docs. 166 & 167.
3 Doc. 218.
4 Doc. 402 (Doc. 402 was later withdrawn and Doc. 404 with minor changes was filed in


its place).

5 Doc. 405.

6 Doc. 407.

2

Case 11-21003 Doc# 531 Filed 03/01/16 Page 2 of 9


On August 31, 2015, Citi filed a motion to convert case to Chapter 7. Citi
contended that conversion, rather than dismissal, would be in the best interests of
creditors. On the eve of the scheduled hearing on Debtors’ motion to dismiss and Citi’s
motion to convert, Debtors moved to withdraw their motion to dismiss.7 When granting
Citi’s motion to dismiss, the Court found that “the withdrawal of the motion to dismiss
was an attempt by Debtors to manipulate the bankruptcy system and delay creditor
action,”8 but granted Debtors’ motion to withdraw.9

After an evidentiary hearing, the case was converted to Chapter 7 for cause, for the
reasons set forth in the Memorandum Opinion and Judgment Converting Case to Chapter
7 filed on December 21, 2015.10 The Court found cause for dismissal or conversion under
1112(b)(1) because (1) there has been substantial loss to the estate and there is an absence
of a reasonable likelihood of rehabilitation11 and (2) Debtors’ failure to obtain a
confirmed plan or even to seriously pursue confirmation, even though the Chapter 11 case
had been on file for over four and one half years.12 The Court further concluded that

7 Doc. 438.
8 Doc. 460, 19.
9 Doc. 440.
10 Doc. 460.
11 Id., 16-18.
12 Id., 18-21.

3

Case 11-21003 Doc# 531 Filed 03/01/16 Page 3 of 9


conversion would be in the best interests of creditors and the estate.13 Extensive findings
of fact support the Court’s analysis, but will not be repeated here.

Debtors filed a Notice of Appeal to the District Court on December 30, 2015, and
on January 13, 2016 filed their Motion for stay under Rule 8007. Citi and the Chapter 7
Trustee, Patricia E. Hamilton, have responded to the Motion, urging that it be denied.
DISCUSSION.

A. Applicable law.
The Court considers four factors when ruling on a motion for stay pending appeal:

(1) the likelihood of success on appeal; (2) the threat of irreparable harm to the appellant
if the stay is not granted; (3) the absence of harm to opposing parties if the stay is granted;
and (4) the risk of harm to the public interest.14 The Tenth Circuit applies a balancing
approach; where “the three ‘harm’ factors tip decidedly in” favor of the party seeking a
stay, “the ‘probability of success’ requirement is some what relaxed.”15 The Third
Circuit, after thorough analysis, found that the four factors are “interconnected,” adopted
a sliding scale approach similar to that of the Tenth Circuit, and held that a bankruptcy
court when ruling on a motion for stay pending appeal should conduct the following
analysis:
13 Id., 22-24.
14 Fed. Trade Comm’n v. Mainstream Mktg. Services, Inc., 345 F.3d 850, 852 (10th Cir.
2003); Sunflower Racing, Inc. v. Mid-Continent Racing & Gaming Co. (In re Sunflower Racing ,
Inc.), 221 B.R. 940, 942 (D. Kan. 1998).
15 Fed. Trade Comm’n, 345 F.3d at 852.
4

Case 11-21003 Doc# 531 Filed 03/01/16 Page 4 of 9


Did the applicant make a sufficient showing that (a) it can win
on the merits (significantly better than negligible but not
greater that 50%) and (b) will suffer irreparable harm absent a
stay? If it has, we “balance the relative harms considering all
four factors using a ‘sliding scale’ approach. However, if the
movant does not make the requisite showings on either of
these [first] two factors, the [ ] inquiry into the balance of
harms [and the public interest] is unnecessary, and the stay
should be denied without further analysis.”16

B. Debtors have not demonstrated a likelihood of prevailing on appeal.
The Court concludes that Debtors have not made a showing of more than a
negligible likelihood of success on appeal. When moving for a stay, Debtors argue that
they believe they will succeed on appeal of the finding of cause under §1112(b) because:

(1) the Court mistakenly relied on motions and statement previously withdrawn by the
Debtors; (2) Debtors have plans to revitalize their business and obtain sufficient sources
of income to sustain a Chapter 11 plan or reorganization; and (3) before conversion
Debtors were actively working with their bankruptcy counsel to prepare and file a
confirmable plan.17 The Court finds that the likelihood of reversal based on these grounds
is not significantly better than negligible.
The Court’s use of Debtors’ statements in their withdrawn motion to dismiss was
not error. When finding cause for conversion or dismissal, the Court quoted statements of
Debtors from their motion to dismiss that “their overall financial situation has drastically

16 In re Revel AC, Inc., 802 F.3d 558, 571 (3rd Cir. 2015)(quoting In re Forty-Eight
Insulations, Inc., 115 F.3d 1294, 1300-01 (7th Cir. 1997)).
17 Doc. 476, 3-4.
5

Case 11-21003 Doc# 531 Filed 03/01/16 Page 5 of 9


declined” and “due to the decrease in income and loss of real estate, Debtors believe they
do not have sufficient sources of income to sustain a Chapter 11 Plan or reorganization.”18
However, the Court then analyzed the trial testimony which it found “confirmed this
assessment.”19 Later in the opinion, the Court quoted Debtors’ statement, also included in
their motion to dismiss, that they “believe that they will not be able to confirm a plan
within the time fixed”20 because of unresolved issues with Citi. Based upon the evidence,
the Court considered but rejected Debtors’ contention that circumstances had changed
since the filing of their motion to dismiss.

The Court’s use of Debtors’ statements in their motion to dismiss are unlikely to
be a basis for reversal. “[I[f a pleading is amended, withdrawn, or superceded by a
substitute pleading, it ceases to be usable as a conclusive judicial admission, but is
admissible in evidence as an evidentiary admission. An evidentiary admission is not
conclusive, but rather is subject to contradiction or explanation.”21 Debtors’ statements
were relied upon as evidence, not conclusive admissions.

The additional grounds for reversal of the finding of cause enumerated in Debtors’
Motion were considered and rejected by the Court in its written opinion. They are

18 Doc. 460, 17.

19 Id.

20 Id. at 19.

21 In re Fordson Eng’g Corp., 25 B.R. 506, 509 (Bankr. E.D. Mich. 1982)(citations
omitted) (citing Raulie v. U.S., 400 F.2d 487, 526 (10th Cir. 1968) and Cooper v. Brown, 126
F.2d 874 (3rd Cir. 1942)).

6

Case 11-21003 Doc# 531 Filed 03/01/16 Page 6 of 9


unlikely bases for reversal, since there are primarily assertions of future plans
unsubstantiated by evidence of concrete actions taken before the trial on the motion for
conversion.

Next, Debtors assert that they will prevail on appeal of the Court’s order of
conversion because the order merely effected the wishes of Citi, rather than being in the
best interests of creditors and the estate. When, as in this case, cause exists, whether to
order conversion or dismissal is determined in the sound discretion of the Court based
upon the circumstances of the case. Here the Court found conversion preferable, because
of the benefits of administration by a Chapter 7 Trustee. Debtors do not show that this
finding was an abuse of discretion.

Finally, Debtors argue that it is likely that the conversion order will be reversed
because there are unusual circumstances within the meaning of § 1112(b)(2) and there is a
reasonable likelihood that a plan will be confirmed. Subsection (b)(2) of § 1112 provides
that even if cause exists, the court may not convert or dismiss a case “if the court finds
and specifically identifies unusual circumstances” and other conditions, including the
likelihood of a timely confirmed plan, are satisfied. The Court when ordering conversion
found that Debtors provided no evidence of unusual circumstances. When urging that
they will prevail on appeal based upon § 1112(b)(2), Debtors do not identify error in this
conclusion.

7


Case 11-21003 Doc# 531 Filed 03/01/16 Page 7 of 9


C. Debtors will not suffer irreparable harm if a stay is not ordered.
Debtors argue they will suffer irreparable harm if the order of conversion is not
stayed because the Chapter 7 Trustee will attempt to sell two non-exempt boats, will
attempt to liquidate Debtors’ business’ lake property (which they now allege is not
property of the estate), will take control of Debtors’ adversary proceeding against Citi,22
and will obtain the fruits of settlement of Debtors’ claims against a third party without
compensating Debtors for litigation expenses. The Trustee responds that any sale of
estate property would be done with notice to all creditors and the Debtors. Debtors’
adversary proceeding against Citi could not be litigated without Debtors’ involvement
and could not be settled without notice to Debtors. To the extent Debtors’ estate recovers
funds from the third party settlement, the Trustee will be obligated to administer the
recovery in accord with the Bankruptcy Code.

Debtors will not suffer irreparable harm if the Motion for stay is denied. There is
no need for an all encompassing stay; Chapter 7 procedures will adequately protect
Debtors’ interests.

D. The Motion for stay is denied.
Debtors have not shown other than a negligible probability of success on the
merits of the appeal. Debtors will not suffer irreparable harm if the Motion is denied.

22 Neighbors v. CitiMortgage, Inc., case no. 15-6106, Bankr D. Kan. filed October 15,
2015. Debtors’ motion to dismiss was pending when the adversary was filed.

8

Case 11-21003 Doc# 531 Filed 03/01/16 Page 8 of 9


Therefore the Court denies the Motion without consideration of the potential harm to
opposing parties and the public interest.23

CONCLUSION.

For the foregoing reasons, Debtors’ Motion for Stay of Memorandum Opinion and
Judgment Converting Case to Chapter 7 Pending Appeal is hereby denied.

IT IS SO ORDERED.

###

23 Debtors argue that the third and fourth factors, absence of harm to opposing parties and
to the public interest, also support the grant of a stay. The Court finds the third factor is
essentially neutral; the only harm to third parties would be further delay. The Court finds that the
public interest is not a factor. Therefore, these factors do not provide a reason to issue a stay and
their consideration would not change the result.

9

Case 11-21003 Doc# 531 Filed 03/01/16 Page 9 of 9



11-11425 Schupbach Investments, LLC (Doc. # 644)

In Re Schupbach Investments, LLC, 11-11425 (Bankr. D. Kan. Mar. 17, 2016) Doc. # 644

PDFClick here for the pdf document.


 SO ORDERED.
SIGNED this 17th day of March, 2016.

 

For on-line use but not print publication
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF KANSAS


In re:
SCHUPBACH INVESTMENTS, LLC, CASE NO. 11-11425
CHAPTER 11
DEBTOR.

MEMORANDUM OPINION AND ORDER GRANTING
THE MOTION OF ROSE HILL BANK TO DISBURSE FUNDS
FROM COURT REGISTRY TO MARK J. LAZZO, P.A., AND
CARL B. DAVIS, LIQUIDATING TRUSTEE


Following argument, the Court took under advisement the Motion of Rose Hill
Bank (Rose Hill) to Disburse Funds from Court Registry (Motion). The Motion seeks the
release of funds in the Court registry that were deposited as a bond securing a stay
pending appeal of this Court’s order awarding attorney fees and expenses to Debtor’s
counsel, Mark J. Lazzo, P.A. (Lazzo). Lazzo opposes the Motion. Having considered
relevant prior proceedings and the arguments and briefs of Rose Hill and Lazzo, the Court

Case 11-11425 Doc# 644 Filed 03/17/16 Page 1 of 8


is ready to rule. For the reasons stated below, the Court grants the Motion and orders that
$11,675.91 of the bond money, plus accrued interest less a pro-rata share of the Clerk’s
administrative fee, if any, be distributed to Lazzo, and the remaining balance of the bond
money, plus accrued interest less a pro-rata share of the Clerk’s administrative fee, if any,
be released to Carl B. Davis, the Liquidating Trustee (Trustee) pursuant to the Confirmed
Chapter 11 Plan in this case.

BACKGROUND.

A creditors’ Chapter 11 Plan of liquidation for Debtor was confirmed on
November 21, 2012. The order confirming the plan provided generally for the
establishment of a liquidating trust which, among other things, became responsible for the
payment of certain administrative expenses, including Debtor’s attorney fees.1 Lazzo
filed applications for the payment of pre- and post-confirmation Chapter 11 attorney fees.
On October 3, 2013, the Court ordered that Lazzo had an administrative claim for fees
and expenses of $103,654.04, the unpaid portion of which was $37,951.86.2 The Trustee
filed a motion to compel the seven creditor proponents of the plan to fund the liquidating
trust as needed to pay Lazzo’s fees and expenses, as well as other estate expenses.3 The
amount requested from Rose Hill was $40,854.70. Rose Hill responded that its share of

1 Doc. 355.

2 Doc. 497.

3 Doc. 514.

2

Case 11-11425 Doc# 644 Filed 03/17/16 Page 2 of 8


the funding request should be $17,192.81.4

Rose Hill and the Trustee appealed the award of Lazzo’s fees and expenses to the
Bankruptcy Appellate Panel for the Tenth Circuit (BAP), and Rose Hill moved for a stay
pending appeal on behalf of itself and the Trustee.5 A hearing on the motion to compel
funding of the trust, the motion for a stay pending appeal, and a motion Debtor had filed
seeking a judgment against the creditors for the award of fees and expenses was held on
October 31, 2013.6 The Court granted the motion for a stay and noted on the docket that
the Trustee had received payment from all the creditors except Rose Hill.7 The order for
the stay provided that a cash bond in the amount of $47,439.82 (the unpaid fees and
expenses of $37,951.86 plus 25%) would be provided, funded by a payment of $14,289.41
from the Trustee and $33,150.41 from Rose Hill.8 The order also provided that “None of
[the cash bond] will be disbursed without subsequent order of this court. Any such
disbursement will be determined only after all appeals are concluded and the final mandate
of any appeal issued.”9

On November 25, 2014, the BAP issued its opinion affirming in part and reversing

4 Doc. 534.
5 Doc. 532.
6 Doc. 555.
7 Id.
8 Doc. 561.
9 Id.


3

Case 11-11425 Doc# 644 Filed 03/17/16 Page 3 of 8


in part,10 agreeing with appellants that $26,275.95 of the requested fees and expenses
should have been disallowed.11 Lazzo appealed to the Tenth Circuit Court of Appeals, but
did not request a stay of the BAP’s judgment. By an opinion entered on the bankruptcy
court docket on November 3, 2015, the Circuit affirmed the BAP’s opinion.12 Notice of
the Tenth Circuit’s mandate was entered on the bankruptcy court docket on November 25,
2015. 13 Lazzo states that he intends to file a petition for a writ of certiorari in the
Supreme Court of the United States, but he has not moved for a stay in the Tenth Circuit.

Rose Hill’s Motion was filed on December 2, 2015.14 The bank seeks an order
disbursing the funds to Lazzo to the extent his administrative claim was not reversed, and
the remainder to “the Trustee and/or [Rose Hill] as may be designated between them.”15
Lazzo replies that the stay issued by this Court bars the distribution until the petition for a
writ of certiorari is ruled upon because the stay order provides that any disbursement “will
be determined only after all appeals are concluded.”16 Rose Hill responds that the stay

10 Doc. 605.
11 Id. at 19 (disallowing $14,960) and 29 (disallowing $11,315.95).
12 Doc. 622.
13 Doc. 625.
14 Doc. 626.
15 Id. at 2. Although the stay order directed that the bond money should be held in a non-interest


bearing account, Rose Hill advises that the funds have been earning interest, and that an administrative

fee of 10% of the earned interest is owed to the Clerk of the Court. The Motion proposes to award the

interest, less the administrative fee, pro-rata with the bond principal.

16 Doc. 628.

4

Case 11-11425 Doc# 644 Filed 03/17/16 Page 4 of 8


order does not bar the disbursement because this Court lacks the authority to stay the
Tenth Circuit’s mandate.17

DISCUSSION.

A. Distribution of the bond fund is not stayed.
Resolution of this dispute depends upon whether the stay order issued by this Court
in conjunction with the notice of appeal to the BAP that was filed by Rose Hill and the
Trustee remains effective after the issuance of the Tenth Circuit’s mandate affirming the
BAP. If the stay is not effective, there is no basis to hold the bond funds. The Court finds
that the order did not stay proceedings other than during the appeal to the BAP, and
therefore the bond funds should be disbursed even though Lazzo is seeking a writ of
certiorari.

There are generally three levels of appeal for a bankruptcy court order. The first is
to the BAP or the district court, the second is to the court of appeals, and the third is to the
United States Supreme Court. At each level, the procedure for obtaining a stay is similar.
A motion for a stay must initially be made to the court issuing the order which has been
appealed. If that court denies the motion, the reviewing court may grant a stay. But there
is no procedure for the bankruptcy court to stay the order of any appellate court, whether
that is the BAP, the district court, or the circuit court. The stay of a bankruptcy court

17 Doc. 639.

5

Case 11-11425 Doc# 644 Filed 03/17/16 Page 5 of 8


judgment pending appeal is governed by Rule 8007(a).18 It provides that a motion for a
stay of a judgment, order, or decree of the bankruptcy court pending appeal of that order to
the BAP, the district court, or directly to the court of appeals shall first be filed in the
bankruptcy court. If the bankruptcy court denies the stay, a motion for a stay may be filed
in the court in which the appeal is pending. A stay pending appeal from a judgment of the
BAP or the district court to the court of appeals is governed by Rule 8025. It provides that
the motion for a stay may be made in the court issuing the judgment which is the subject
of the appeal, but that the rule does not limit the power of a court of appeals or any of its
judges to stay a judgment pending appeal. Once the court of appeals has ruled, a motion to
stay that court’s mandate pending a petition for a writ of certiorari is governed by Federal
Rule of Appellate Procedure 41(d)(2). It provides for the filing of a motion in the court of
appeals. The authority of the court of appeals to issue the stay is codified in 28 U.S.C. §
2101(f), which provides that a stay of a final judgment which is subject to review by the
Supreme Court “may be granted by a judge of the court rendering the judgment or decree
or by a justice of the Supreme Court.” The statute has been construed to grant the power
to stay the mandate of a court of appeals pending review by the Supreme Court to the court
of appeals and a justice of the Supreme Court, to the exclusion of the district court.19

Based upon these authorities, the Court concludes that its stay order was effective

18 Fed. Rule of Bankr. P. 8007. Future references to the bankruptcy rules in the text shall be in
the form of “Rule ____.”
19 Brinkman v. Dep’t of Corrections, 857 F. Supp 775, 777 (D.Kan. 1994).
6


Case 11-11425 Doc# 644 Filed 03/17/16 Page 6 of 8


only until the BAP disposed of the appeal by Rose Hill and the Trustee. Since then, there
has been no stay. Lazzo did not request a stay pending his appeal from the BAP to the
Tenth Circuit or after the Tenth Circuit affirmed the BAP. Section “2101(f) contemplates
enforcement of the court of appeals’ judgment, even during the certiorari process, if no
stay is obtained.”20 The Tenth Circuit’s mandate has been received by this Court. There is
no stay of the enforcement of the judgment awarding fees and expenses to Lazzo, as
amended by the Tenth Circuit.

B. The bond funds shall be distributed, but not as requested in the Motion.
The Motion requests an order disbursing the bond funds as follows: $11,658.88
plus pro-rata interest (less pro-rata administrative fee) to Lazzo and the balance of
$35,780.94, plus pro-rata interest (less pro-rata administrative fee) to “the Trustee
and/or[Rose Hill] as may be designated between them.”21 The Court declines to grant this
precise relief.

First, the Court finds that the amount owed to Lazzo for unpaid fees and expenses is
$11,675.91 rather than $11,658.88. This is the difference between $37,951.86, the balance
found owing to Lazzo in this Court’s order allowing his administrative claim, and
$26,275.95, the amount which the appellate courts found was erroneously allowed. The
remaining balance of the bond funds is therefore $35,763.91, rather than the $35,780.94
stated by Rose Hill.

20 Id.

21 Doc. 626.

7

Case 11-11425 Doc# 644 Filed 03/17/16 Page 7 of 8


Second, Rose Hill provides no explanation supporting distribution of this balance
to it or as agreed between it and the Trustee. The balance is greater than the amount
deposited into the bond account by Rose Hill, apparently making the other six creditors
solely liable for Lazzo’s fees and expenses, even though it appears that they paid the
Trustee the funds he requested, perhaps enabling him to deposit $14,289.41 to the bond
account. Rather than granting the requested relief, the Court orders that the net funds in
the bond account, plus accrued interest, after paying Lazzo $11,675.91, plus interest (less a
pro-rata share of any administrative fee), and deducting a pro-rata share of any
administrative fee, be distributed to the Trustee for administration in accord with the
confirmed plan, giving due consideration to the source of the funds and the remaining
administrative expenses.22 An accounting shall be presented to the Court for approval
prior to any distributions being made.
CONCLUSION.

For the foregoing reasons, the Court grants the Motion to disburse $11,675.91 of
the bond funds, plus interest (less a pro-rata share of any administrative fee) to Lazzo, and
the remaining balance of the funds in the bond account to the Trustee.

IT IS SO ORDERED.
# # #


22 The amount of the bond fund owed to Lazzo was not an issue addressed by the parties’ briefs.
The Court’s determination of that amount is not intended as a final ruling. Any objection to that
determination should be addressed in the Trustee’s accounting or objection thereto.


8

Case 11-11425 Doc# 644 Filed 03/17/16 Page 8 of 8



08-22786 Brooke Corporation (Doc. # 5635)

In Re Brooke Corporation, 08-22786 (Bankr. D. Kan. Feb. 8, 2016) Doc. # 5635

PDFClick here for the pdf document.


 SO ORDERED.
SIGNED this 5th day of February, 2016.

 

For print publication
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF KANSAS


In re:
BROOKE CORPORATION, et al., CASE NO. 08-22786
(Jointly Administered)
DEBTORS. CHAPTER 7

MEMORANDUM OPINION AND JUDGMENT DENYING
ROBERT D. ORR’S SECOND AMENDED MOTION TO REPLACE TRUSTEE

Robert D. Orr, the founder, 32-percent owner and longtime CEO of Debtor Brooke
Corporation (Brooke Corp), moves to replace the Chapter 7 Trustee, Christopher J.
Redmond, alleging that he is not disinterested. Mr. Orr (Orr) appears pro se. Mr.
Redmond (Trustee or Redmond) appears by Bruce E. Strauss and Victor F. Weber of
Merrick, Baker & Strauss, P.C., special counsel for the Trustee. The Court has

Case 08-22786 Doc# 5635 Filed 02/05/16 Page 1 of 22


jurisdiction.1

When moving to replace the Trustee, Orr’s basic premise is that the bankruptcy
estates were financially devastated by wrongs committed prepetition by partners of
Husch Blackwell LLP (Husch Blackwell) and the postpetition actions of the Trustee, who
is a Husch Blackwell partner, in failing to pursue claims by the estates for such wrongs.
Orr alleges that the Trustee has acted for his own interests and the interests of his firm,
rather than the interests of the bankruptcy estates.
BACKGROUND FACTS.

After hearing oral argument on Orr’s Motion to Replace Trustee2 and the Trustee’s
objection,3 the Court directed Orr to file an amended motion including all of his
allegations.4 Orr therefore filed his Second Amended Motion to Replace Trustee,5 which
is the motion now before the Court. In accord with the Court’s order, the Trustee filed a
pleading in support of denial of the motion on grounds other than the ultimate question of

1 This Court has jurisdiction pursuant to 28 U.S.C. § 157(a) and § 1334(a) and (b) and the
Amended Standing Order of Reference of the United States District Court for the District of Kansas that
exercised authority conferred by § 157(a) to refer to the District’s bankruptcy judges all matters under the
Bankruptcy Code and all proceedings arising under the Code or arising in or related to a case under the
Code, effective June 24, 2013. D. Kan. Standing Order No. 13-1, printed in D. Kan. Rules of Practice
and Procedure at 168 (March 2014). A motion for removal of a trustee is a core proceeding which this
Court may hear and determine as provided in 28 U.S.C. § 157(b)(2)(A). There is no objection to venue or
jurisdiction over the parties.

2 Doc. 5476.

3 Doc. 5493.

4 Doc. 5535.

5 Doc. 5550.

2

Case 08-22786 Doc# 5635 Filed 02/05/16 Page 2 of 22


whether the Trustee should be removed because he is not disinterested.6 The Trustee’s
pleadings are styled as a motion for summary judgment and a memorandum in support,7
and include an extensive statement of facts. Orr contends many of these facts are
controverted, but the Court finds that there is no genuine dispute about the following
background facts which are relevant to the motion to replace the Trustee.

Orr was the president of Debtor Brooke Corporation (Brooke Corp) from 1986
through 1991, the CEO from 1986 through October 1, 2007, and the chairman of the
board from 1991 through September 17, 2008. Orr also was the CEO, president, and
chairman of the board of Debtor Brooke Capital Corporation (Brooke Capital) at various
times in 2007 and 2008.

Brooke Capital, a subsidiary of Brooke Corp, was an insurance agency and finance
company that distributed insurance services through a network of franchisee-owned and
company-owned locations. To facilitate the acquisition of existing agencies and the
formation of start-up agencies, Brooke Capital developed a lending program through
which Brooke-affiliated agencies obtained loans from Aleritas Capital Corp. (Aleritas), a

6 Doc. 5599.

7 Docs. 5598 and 5599. The Trustee’s motion for summary judgment filed in response to Orr’s
Second Amended Motion to Replace Trustee, rather than addressing grounds for dismissal of Orr’s
motion, addresses defenses to the claims alleged in Orr’s draft complaint, a copy of which was attached to
the amended motion. These defenses include laches, waiver, judicial estoppel because Orr’s personal
claims against Husch Blackwell were not revealed in Orr’s personal bankruptcy schedules, and collateral
estoppel based upon Orr’s lawsuit against the Trustee’s predecessor. The Court declines to address these
defenses. Although some of these theories may provide valid defenses to at least some of the claims that
Orr wants a new trustee to pursue against Husch Blackwell, the draft complaint has not been filed. The
matter before this Court is the Second Amended Motion to Remove Trustee, not the merits of the claims
which Orr hopes will be filed.

3

Case 08-22786 Doc# 5635 Filed 02/05/16 Page 3 of 22


non-debtor Brooke-related company. In 2003, Aleritas began securitizing the franchisee
loans for sale to investors. Bank of New York Mellon (BONY) acted as the trustee for
the benefit of the note-holders in some of the Brooke securitizations.

On September 11, 2008, BONY filed a complaint in the District Court against Orr
individually and a number of Brooke companies, including Brooke Corp, Brooke Capital,
and Aleritas, alleging that the Brooke Defendants had misappropriated millions of dollars
pledged to note-holders in the Brooke securitizations (District Court Action).8 It was also
alleged that Orr directed Aleritas and the Brooke Defendants to misappropriate funds, and
that at the direction of Orr, the misappropriations were intentionally concealed. With the
consent of the parties, including Orr, the Court appointed Albert Riederer as the Special
Master of the Special Master Estate, which was defined to be all monies of the Brooke
Defendants; all contract rights of the Brooke Defendants related to the securitized loans;
all records of the Brooke Defendants; and all other personal and real property of the
Brooke Defendants necessary to carry out the duties of the Special Master “to administer
and manage the Special Master Estate in a commercially reasonable manner” (the
Consent Order).9 Partners of Husch Blackwell were hired as counsel for the Special
Master.

 Brooke Corp and Brooke Capital filed voluntary Chapter 11 petitions on October
28, 2008, in this Court. Brooke Investments, Inc., filed a voluntary petition on November

8 Bank of New York Mellon v. Aleritas Capital Corp., Case No. 2:08-cv-02424- JWL.

9 District Court Action, doc. 23, ¶ 6.

4

Case 08-22786 Doc# 5635 Filed 02/05/16 Page 4 of 22


3, 2008. A notice of bankruptcy filing was filed in the District Court Action.10 On
October 29, 2008, the Court entered an order appointing Albert Riederer, the Special
Master, as the Chapter 11 Trustee of Brooke Corp and Brooke Capital. He was later also
appointed as the Chapter 11 Trustee of Brooke Investments. Orr did not object to these
appointments. The Court directed the cases to be jointly administered.

On October 31, 2008, an application for the employment of Husch Blackwell as
attorneys for the Trustee was filed. There were no objections. The application was
approved by the Court on November 26, 2008. It provided for compensation for services
to be based upon time spent and hourly rates for the firm’s attorneys and paralegals.

On December 11, 2008, Orr filed a proof of claim in the amount of $14,783.68. Of
this amount, Orr claimed $10,950 was entitled to the priority for wages, salaries, or
commissions earned within 180 days before the filing of the bankruptcy petition. Orr was
listed as a creditor of Brooke Capital on Schedule E, Creditors Holding Unsecured
Priority Claims.11 On August 26, 2009, Brooke Holdings, Inc., filed a proof of claim for
$11,096,002.39, which was later transferred to Orr.12

On June 29, 2009, the Court entered an order converting the Debtors’ bankruptcy
proceedings to Chapter 7 and noting the United States Trustee’s decision to appoint

10 The Consent Order was vacated effective as of the date the Debtors’ bankruptcy cases were
converted to Chapter 7. The District Court Action was administratively closed on May 19, 2011. District
Court Action, docs. 102 and 105.

11 Case 08-22789, doc. 36 at 23.

12 Claim no. 924.

5

Case 08-22786 Doc# 5635 Filed 02/05/16 Page 5 of 22


Riederer as the Chapter 7 Trustee of the Debtors upon conversion. On July 2, 2009, the
Chapter 7 Trustee filed his motion for the continued employment of Husch Blackwell as
counsel for the Trustee. The motion, as supplemented, was approved on August 22,
2009, without objection.

In the fall of 2011, Riederer found it necessary to resign as Trustee for health
reasons.13 Christopher J. Redmond, a partner at Husch Blackwell, was contacted by the
attorneys in the Office of the United States Trustee regarding his potential appointment as
the successor trustee. The United States Trustee’s office was aware that Husch Blackwell
was serving as counsel for Riederer and indicated that Redmond’s appointment would
facilitate an orderly transition and continued administration of the cases. On November
3, 2011, a notice of Riederer’s resignation and the appointment of Redmond was entered
on the docket. Prior to his appointment as the Trustee, Redmond did not perform any
services for the Debtors or for Riederer in his capacities as Special Master, Chapter 11
Trustee, or Chapter 7 Trustee.

On October 24, 2013, the Trustee filed an application to approve a revised
compensation structure, including a contingent-fee basis for specific adversary
proceedings, for Husch Blackwell, as the Trustee’s lead attorneys. On December 5, 2013,
the Court held an evidentiary hearing on a second revised compensation proposal. On
December 20, 2013, the Court approved the majority of the provisions in that proposal,

13 Riederer passed away some months later.
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and requested the filing of a third revised proposal to address those matters not approved.
On January 6, 2014, the Court entered its order approving the revised application. Orr did
not object.

Starting in December 2012, the Trustee filed monthly status reports, and starting in
December 2013, he filed monthly financial reports. At the request of the United States
Trustee, on April 19, 2013, the Court approved the submission of future status reports on
a quarterly basis. The most recent status report, for the period from July through
September 2015,14 includes the following information evidencing the complexity and
magnitude of the tasks undertaken by the Trustee and his counsel. Ninety-three adversary
complaints have been filed (mostly in October 2010) against 487 defendants. Eighty-one
of these cases have resulted in settlement (307 defendants), default (55 defendants), or
dismissal (113 defendants).15 There were 10 remaining cases involving 17 defendants.
The gross claims asserted against the defendants in these outstanding cases were
$182,683,513.62. Recoveries to date were $13,617,309.91. Since the filing of the report,
the Court has approved the settlement of the Trustee’s claim against Kutak Rock for
approximately $17.5 million.16 One major adversary proceeding is ready for trial. The

14 Doc. 5564.

15 The Court has discovered two minor math errors in the report: the number of cases resolved
actually totals 83, and the number of defendants involved in the resolved cases totals 470, not 475 (307 +
55 + 113 = 475). These errors have not affected the Court’s decision.

16 The gross claim against Kutak Rock was $173 million, approximately 95% of the outstanding
gross claims.

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total claims against the bankruptcy estates, after deducting disallowed claims, paid
claims, and withdrawn claims, are approximately $355 million for Brooke Corp, $113
million for Brooke Capital, and $1.5 million for Brooke Investments. Total professional
fees and expenses paid through December 31, 2013, were approximately $15 million.

Orr filed a voluntary petition under Chapter 11 on December 16, 2008. The case
was converted to Chapter 7 on December 7, 2009. The listing of possible claims in Orr’s
bankruptcy schedules included one against the Special Master (Riederer), but none
against Husch Blackwell.

In a letter dated June 9, 2010, addressed to the Office of the United States Trustee
in Wichita, Kansas, Orr in his capacity as the president of Brooke Holdings, Inc., advised
that he believed Riederer was obligated to Brooke Holdings, as a lender to Brooke
Corporation, as a result of Riederer’s allegedly improper acts as Special Master. Orr also
alleged that Riederer as Chapter 7 Trustee had acted in his own self-interest to avoid
claims by the bankruptcy estate against him for misconduct as Special Master.17

On August 11, 2010, Orr filed a complaint against Riederer in the District Court of
Phillips County, Kansas. The case was removed to the United States District Court for
the District of Kansas.18 Orr alleged that Riederer’s conduct when serving as Special
Master caused damage to Brooke Capital and the October 2008 collapse of the Brooke
companies. The Court dismissed Orr’s claims for gross negligence, intentional

17 Doc. 5476-3 at 2-3.

18 Orr v. Riederer, Case No. 6:10-cv-1303-CM (Riederer Suit).

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misconduct, breach of fiduciary duties, and unjust enrichment, holding that Orr lacked
standing because he alleged he suffered only an indirect injury. The Court held that Orr
could serve as a representative shareholder and amend his complaint to assert the
dismissed claims as derivative claims, subject to Orr engaging an attorney to represent
him. Orr did not hire an attorney and never amended his complaint to assert any
derivative claims. On July 3, 2012, the District Court granted summary judgment against
Orr on the remaining claims, and judgment was entered in Riederer’s favor.

On May 4, 2011, the Securities and Exchange Commission filed a Complaint
against Orr alleging that in SEC filings and public statements for the year-end of 2007
and the first and second quarters of 2008, Orr and others violated securities laws by
misrepresenting the health of Brooke Capital’s business, Aleritas’s loan portfolio, and the
increasingly dire liquidity and financial conditions of the Brooke companies. On July 13,
2011, Orr consented to a judgment against him. On November 14, 2012, a federal grand
jury indicted Orr for making false statements in Securities and Exchange Commission
filings. On June 27, 2013, Orr pled guilty to knowingly making false or misleading
statements regarding material facts in Brooke Corp’s 10-K for the year ending December
31, 2007.

On November 26, 2011, after Riederer’s resignation and the appointment of
Redmond as the successor Trustee, by a letter to Jay Befort, Assistant United States
Trustee, Orr, individually and as president of Brooke Holdings, Inc., stated his allegation
that Redmond as Chapter 7 Trustee had a conflict of interest. Orr alleged that Douglas

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Schmidt, a Husch Blackwell partner who was counsel for Riederer as Special Master,
held animosity toward Orr and “that the appointment of a Husch Blackwell partner as
bankruptcy trustee will result in reprisals against [Orr] from Husch Blackwell using
bankruptcy estate assets.”19 The record contains no response from the U.S. Trustee.

By a letter dated July 22, 2013, addressed to the United States Trustee in Wichita,
Orr again alleged that Redmond had a conflict of interest. Orr requested a “complete and
thorough investigation of any appearance of conflict” and that all documents submitted by
the parties in Orr’s lawsuit against Riederer be analyzed by the United States Trustee in
performing its analysis of trustee suitability.20 The allegations in the letter included the
assertion that the “refusal of the trustee [of the Brooke cases] to fund litigation against
himself for pre-filing actions is an example of conflict, especially when analyzed in
context of the hundreds of adversary actions filed by the trustee against others for their
pre-filing actions.”21 On September 10, 2013, in another letter to the office of the United
States Trustee in Wichita, Orr focused upon alleged conflicts of interest of Husch
Blackwell resulting from actions before and while Riederer was serving as Special
Master.22

Despite the concerns that Orr directed to the United States Trustee, he did not file

19 Doc. 5476-3 at 7.

20 Id. at 12-13.

21 Id. at 13.

22 Id. at 15.

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with the Court any objection to the original application of Chapter 11 Trustee Riederer to
employ Husch Blackwell, to the application for the continued employment of Husch
Blackwell as attorneys for Riederer as the Chapter 7 Trustee, to the appointment of
Redmond as the successor Chapter 7 Trustee, or to the amendment of the Husch
Blackwell compensation structure in 2013.

By August 3, 2015, Orr had drafted a proposed complaint asserting personal and
derivative claims against Husch Blackwell and two of its partners. It is Orr’s position that
“Husch Blackwell and its partners caused the substantial losses [to the Brooke
companies] when they governed Brooke Corporation during the 2008 financial crisis
prior to the bankruptcy filing.”23 The draft complaint includes 6 counts on behalf of Orr
individually and 6 counts as derivative claims on behalf of the shareholders of Brooke
Corp, Aleritas, and Brooke Agency Services Company. A copy of the draft was
forwarded to the potential defendants and to Redmond, together with a demand that
Redmond file the complaint on behalf of the Brooke Corp bankruptcy estate.24 Redmond
responded, stating that he had not had time to review the complaint but that if Orr were to
file the complaint, it would be a violation of the automatic stay. In an e-mail Orr sent on
August 10, 2015, to an individual at the United States Department of Justice and to
Redmond, Orr requested support from the Department of Justice “if Mr. Redmond does
not (in good faith) request approval for payment of legal expenses for the derivative

23 Doc. 5476-5 at 3.

24 Doc. 5476-4 at 2.

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allegations.”25

On August 18, 2015, Orr filed his Motion to Replace Trustee.26 Attached to the
motion is a copy of the draft complaint against Husch Blackwell, Douglas Schmidt, and
John J. Cruciani, who are Husch Blackwell partners. The motion characterizes the
correspondence between Orr and Redmond in August 2015 as regarding the payment of
legal fees required to prosecute derivative claims on behalf of Brooke Corp shareholders
against the potential defendants. After the Court heard arguments on Orr’s motion, Orr
sent an e-mail to counsel for the Trustee on September 23, 2015, with respect to Orr’s
allegations, in which he stated:

My end game is not to replace the trustee. . . . My end game is
for the district court to decide if Husch Blackwell is
culpable. . . .

I am willing to withdraw my motion to replace the trustee and
my objection to Veris compensation if the trustee obtains
court approval for a $1,000,000 fees retainer to be paid into
the trust account of the attorney I have selected to represent
shareholders. . . .

The payment of a $1,000,000 retainer would be paid by the
estate and not by Husch Blackwell. As such, the only reason
for the trustee to oppose this arrangement is to protect his
employer and partners.27

The Trustee, through special counsel, responded to the Motion to Replace Trustee,

25 Doc. 5476-5 at 2-3.
26 Doc. 5476.
27 Doc. 5550-7 at 2.


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contending there was no reason to replace the Trustee because there was no basis to find
that Redmond was not disinterested. According to the Trustee, the record in prior actions
by and against Orr precluded the allegations made against Husch Blackwell, which in any
event, were time-barred.28

The United States Trustee appeared at the argument on the Motion to Replace
Trustee because Orr had contacted his office “about these issues with Mr. Redmond.”29
The United States Trustee stated, “We have reviewed them. He requested that we remove
Mr. Redmond for the reasons he stated in his motion. We did not believe that there was
cause for us to take action, so we did not, which led to Mr. Orr taking his action [of filing
the Motion to Replace Trustee].”30

Orr’s Second Amended Motion to Replace Trustee was filed on November 10,
2015.31 A draft complaint identical to that attached to the first Motion to Replace Trustee
is attached. In the motion, Orr alleges Redmond should be replaced as trustee because he
is not “disinterested” as defined by 11 U.S.C. § 101(14)(C), saying:

a) due to potential causes of action against employer
Husch Blackwell, LLC, partner Douglas Schmidt and partner
John Cruciani (collectively “Husch Blackwell”) for their prebankruptcy
misconduct while counsel for the Brooke
Corporation special master estate,

28 Doc. 5493.
29 Doc. 5578, transcript of 10/27/2015 status conference at 4.
30 Id.


31 Doc. 5550.
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b) due to potential causes of action against Husch
Blackwell for promoting interests adverse to the Brooke
Corporation bankruptcy estate while counsel for the Brooke
Corporation bankruptcy estates [sic] in order to protect Husch
Blackwell from legal liability for their pre-bankruptcy
misconduct,

c) due to potential causes of action against Redmond,
individually and as trustee, for promoting interests adverse to
the Brooke Corporation estate in order to protect and enrich
Husch Blackwell.32

Orr argues that his Motion to Replace Trustee is timely because the last of the adversary

actions filed by the Trustee against Orr and his family members was concluded only a few

months ago and he relied upon the United States Trustee to supervise Redmond until

these actions were completed.33

DISCUSSION

A. Grounds for Removal.
Orr’s motion seeks an order to remove Redmond for lack of disinterestedness due
to his relationship with Husch Blackwell, the law firm alleged to have caused the collapse
of Brooke’s business. Removal of a trustee is addressed by 11 U.S.C. § 324(a), which
provides: “The court, after notice and a hearing, may remove a trustee, other than the
United States trustee, or an examiner, for cause.” The Bankruptcy “Code does not define
what constitutes sufficient cause[, and] courts must make the determination on a case by

32 Doc. 5550 at 2.
33 Doc. 5550-1 at 12.
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case basis.”34 The party seeking removal has the burden of proof.35 “Under the
Bankruptcy Code, causes for removal have included situations in which the trustee was
found to be incompetent or unwilling to perform the duties of a trustee; the trustee was
not disinterested or held an interest adverse to the estate; the trustee violated the fiduciary
duty to the estate; and the trustee was guilty of misconduct in office or personal
misconduct.”36 “[A] trustee will not be removed for mistakes in judgment where the
judgment is discretionary and reasonable under the circumstances.”37 Further, “courts
should consider the best interests of the estate, rather than those of a single movant
creditor, when determining whether to remove a trustee.”38

Orr alleges that the Trustee is not disinterested and acted to protect Husch
Blackwell rather than to promote the interests of the estate. The allegations assert
grounds recognized as sufficient for removal under § 324. Nevertheless, one must look
below the surface of the motion to place the matter in proper context. The grounds for

34 In re Miller, 302 B.R. 705, 709 (10th Cir. BAP 2003).

35 Cf. In re Lundborg, 110 B.R. 106, 108 (“In general, a party seeking the removal of a trustee
must prove that there has been some actual injury or fraud.”); In re Hartley, 50 B.R. 852, 859 (Bankr.

N.D. Ohio 1985) (“Forcing the accusors [seeking removal of a trustee under § 324] to quickly come
forward and show actual harm or fraud protects not only innocent trustees but also the orderly
administration of estates which should not be disrupted because creditors are unhappy when trustees
institute actions against them pursuant to their statutory duties to recover preferences or fraudulent
transfers.”).
36 3 Collier on Bankruptcy, ¶ 324.02[1] at 324-4 to 324-5 (Alan N. Resnick & Henry J. Sommer,
eds.-in-chief, 16th ed. 2015).

37 Id. at ¶ 324.02[3] at 324-6.

38 In re Lundborg, 110 B.R. 106, 108 (Bankr. D. Conn. 1990).

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removal on first examination appear to be significant multiple offenses. However, close
examination reveals that all of the allegations are built upon the single contention that the
Trustee is not disinterested because Husch Blackwell attorneys are liable to Orr
personally and to the stockholders of various Brooke-related companies for alleged
malfeasance that supposedly caused the collapse of the Brooke enterprise during the
period when Riederer was the Special Master. The allegations of a lack of
disinterestedness after the Brooke Corp bankruptcy was filed assert that (1) Husch
Blackwell as counsel for Riederer as the Chapter 11 Trustee, (2) Redmond as the Chapter
7 Trustee, and (3) Husch Blackwell as counsel for Trustee Redmond, have acted to
protect Riederer and Husch Blackwell from being held liable to Orr and the stockholders
for these pre-petition wrongs. The multiple assertions in the Motion to Replace Trustee
have been inflated by creative pleading to appear monumental, when in reality there is
only one basic source of the alleged lack of disinterestedness arising from the alleged
liability for the collapse of the Brooke business during the Special Master period. But
this basic allegation is not a simple matter; the Court’s familiarity with the cases leads it
to conclude that whether this allegation is true could only be established by a trial on the
merits involving multiple experts, after extensive discovery.39

39 The Trustee contends that collateral estoppel bars Orr’s claim of Husch Blackwell liability
arising from events while the Special Master was in control of Brooke because of the District Court’s
dismissal of the Riederer Suit, Orr’s suit against Riederer. The Court has been provided only minimal
facts and arguments, but those facts suggest that there was no adjudication on the merits of the derivative
claims which are important here. See 13A Charles Alan Wright, Arthur R. Miller & Edward H. Cooper,
Federal Practice and Procedure: Civil 3d, § 3531 at 1-2 (3rd ed. 2008) (“Standing doctrines are
employed to refuse to determine the merits of a legal claim, on the ground that even though the claim may

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B. The Motion to Replace Trustee is denied for unjustified delay.
Neither the Bankruptcy Code nor the Bankruptcy Rules provide a time limit for
filing a motion to remove a trustee. However, case law establishes that a motion to
remove a trustee or to disqualify a professional for not being disinterested may be denied
for undue delay. “An unjustified delay in bringing a motion to disqualify [a professional
under § 327(a)] provides a separate ground to deny the relief requested in the underlying
motion.”40 For example, a motion was found to be untimely where a Chapter 11 trustee
had been appointed on September 28, 2012, but the request for removal was not asserted
until March 19, 2014.41 Where the underlying basis for the disqualification of
accountants was known in April 2003 but the motion was not filed until March 2004, the
delay was held to be unjustified. 42 A delay of less than two months in contesting the
disinterestedness of counsel hired by an unsecured creditors committee has also been
found to be unjustified.43

In this case, the delay in bringing the Motion to Replace Trustee is a sufficient
reason to deny it. The predicate for Orr’s assertions of the Trustee’s lack of

be correct the litigant advancing it is not properly situated to be entitled to its judicial determination.”).
40 In re WorldCom, Inc., 311 B.R. 151, 166-167 (Bankr. S.D.N.Y. 2004) (seeking disqualification

of debtor’s accounting firm as holding adverse interest and not being disinterested).

41 In re Fletcher Int’l, Ltd., 536 B.R. 551, 560-61 (S.D.N.Y. 2015).

42 In re Worldcom, 311 B.R. at 165-68.

43 Exco Res., Inc. v. Milbank, Tweed, Hadley & McCloy LLP (In re Enron Corp.), 2003 WL

223455 at *4 n. 2 (S.D.N.Y. 2003).
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disinterestedness is the allegation that the collapse of the Brooke enterprise was caused by
the actions of Riederer and his counsel, partners in Husch Blackwell, while Riederer was
serving as Special Master in 2008. Orr was a party to the BONY litigation in which the
Special Master was appointed and had knowledge of Riederer’s actions and inactions as
they occurred. By the time Brooke Corp filed for bankruptcy in October 2008, the events
giving rise to Orr’s present allegations had occurred and were known or should have been
known by him. In his response to the Trustee’s motion for summary judgment, Orr states,
“It is undisputed that Orr was aware of potential claims against Husch Blackwell for gross
negligence, intentional misconduct, breach of fiduciary duties and unjust enrichment
before filing a lawsuit against Riederer in August 2010.”44 In addition, Orr’s
correspondence with the Office of the United States Trustee conclusively shows that he
had formulated his conflict theory no later than November 26, 2011, the date of the letter
in which he alleged that Redmond had a conflict of interest because of Schmidt’s
representation of Riederer as Special Master. The very specific allegation of a conflict of
interest because Redmond would not fund litigation against Husch Blackwell for prefiling
actions is raised in Orr’s letter dated July 22, 2013, which stated that such refusal
had occurred before March 19, 2012.45

Yet Orr waited until August 18, 2015, to file his Motion to Replace Trustee. Orr
contends that this delay was justified because the Trustee’s actions against Orr’s family

44 Doc. 5611 at 11.

45 Doc. 5476-3 at 13.

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members were not concluded until a few months earlier. He alleges that the pendency of
such actions created a conflict between Orr’s interest in the affairs of his family and his
interest in pursuing the Trustee, and the motion is timely because it was filed shortly after
this alleged conflict was resolved by the conclusion of the claims against his family.46 He
further alleges that “[p]rior to this last settlement, the filing of a motion to replace
Redmond would have been perceived as a strategy for personal defense in the family
adversary actions.”47 In addition, he contends that the delay was justifiable because prior
to filing the motion to replace the trustee, he relied upon the United States Trustee to
pursue the matter.48 The Court rejects these reasons as a basis to find the delay to be
justified. If a motion to remove the trustee could be delayed for personal reasons for
years until the administration of the bankruptcy estate is near completion, the very
purpose of permitting removal — to assure the independent administration of the
estate — would be defeated. Orr’s letter of July 22, 2013, indicates that by a letter dated
March 19, 2012, the United States Trustee advised him that he had analyzed Orr’s
allegations and found them wanting. Relying on the United States Trustee to pursue
disqualification after that date was not reasonable.

C. The circumstances of the present motion evidence the appropriateness of
denying the motion because of delay.
46 Doc. 5611 at 13.
47 Doc. 5550-1 at 12; see Doc. 5578, transcript, Oct. 27, of 10/27/2015, status conference at 8 &
30-32.
48 Doc. 5611 at 13.
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As stated above, when ruling on motions to remove trustees, “courts should

consider the best interests of the estate, rather than those of a single movant-creditor.”49

In this case, removal of the Trustee at this late stage would cause administrative chaos,

resulting in harm to the estates. These are complex cases. Only Redmond and his

counsel can efficiently bring these cases to a conclusion. The cost to the estates resulting

from the substitution of a new trustee, and presumably the appointment of substitute

counsel for the substituted trustee, more than seven years after the cases were

commenced, would be significant.

Further, whether there is cause to remove Redmond cannot be determined until an
unknown date far in the future. The basic allegation of a lack of disinterestedness, from
which Orr’s multiple allegations arise, is that Husch Blackwell attorneys, when acting as
counsel for Riederer as Special Master, controlled or perhaps facilitated Riederer’s actions
which caused the collapse of Brooke’s business. It is understating the obvious to note that
a determination of the cause of Brooke’s failure could not be made until after extensive
discovery and a lengthy trial. Riederer’s unavailability as a witness would increase the
litigation burden. Orr’s delay in moving for the replacement of the Trustee has prejudiced
the Court’s ability to resolve the merits of the conflict-of-interest allegations in a timely
manner before the administration of the estates is substantially complete.

In addition, Orr does not purport to have brought the Motion to Replace Trustee for

49 In re Lundborg, 110 B.R. at 108.
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the benefit of the estates and their creditors. Orr’s motivation is highly personal; he seeks

through litigation under his control to prove that he is not to blame for the collapse of the

Brooke enterprise. Since Redmond has not agreed to pursue litigation alleging that Husch

Blackwell is to blame or to provide Orr with $1,000,000 to do so, he seeks the removal of

Redmond. He explains the purpose of his motion as follows:

Redmond’s Memorandum inaccurately states Orr’s

litigation objective includes the replacement of Redmond with

a chapter 7 trustee who will file a complaint against Husch

Blackwell for their pre-bankruptcy misconduct. Orr, not the

chapter 7 trustee, is the most suitable party to file the

referenced complaint because the complaint includes personal

claims against Husch Blackwell that are owned by Orr and

because the complaint includes derivative claims against

Husch Blackwell in which Brooke Corporation shares

ownership with thousands of other shareholders in non-

bankrupt and publicly traded Aleritas Capital Corp

(“Aleritas”). Orr seeks to share the burden of litigation with

Brooke Corporation’s bankruptcy estate and with Aleritas’

shareholders/creditors. Orr intends to partially fund his share

of litigation expense from payment to Orr on the $12 million

promissory note claim against the Brooke Corporation

bankruptcy estate.50

Before filing his Second Amended Motion to Replace Trustee, Orr advised special counsel

for the Trustee as follows:

My end game is not to replace the trustee. . . . My end game is
for the district court to decide if Husch Blackwell is
culpable. . . .

I am willing to withdraw my motion to replace the trustee and
my objection to Veris compensation if the trustee obtains court

50 Doc. 5611 at 1 (emphasis supplied).

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approval for a $1,000,000 fees retainer to be paid into the trust
account of the attorney I have selected to represent
shareholders. . . .

The payment of a $1,000,000 retainer would be paid by the
estate and not by Husch Blackwell. As such, the only reason
for the trustee to oppose this arrangement is to protect his
employer and partners.51

To remove a trustee under § 324 under the circumstances of this case would be a misuse of

the Court’s authority.

CONCLUSION AND JUDGMENT.

For the foregoing reasons, the Court denies Orr’s Second Amended Motion to
Replace Trustee. Judgment is hereby entered denying the relief sought in that motion.

The foregoing constitutes Findings of Fact and Conclusions of Law under Rules
7052 and 9014(c) of the Federal Rules of Bankruptcy Procedure, which make Rule 52(a)
of the Federal Rules of Civil Procedure applicable to this matter. The judgment based on
the ruling stated above will become effective when it is entered on the docket for this case,
as provided by Federal Rule of Bankruptcy Procedure 9021.

IT IS SO ORDERED.
# # #


51 Doc. 5550-7 at 2.
22
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