Riemer & Braunstein LLP v. Mark G. DeGiacomo (In re A&E 128 North Corporation)

Riemer & Braunstein LLP v. DeGiacomo (In re A&E 128 North Corp.), ---F.3d --- (1st Cir. BAP Apr. 2, 2015)
Affirming Bankruptcy Court’s determination that a new trustee was not elected pursuant to 11 U.S.C. § 702(b) as the secured creditor was disqualified from voting for the permanent Chapter 7 trustee because it had a materially adverse interest and the unsecured creditor was disqualified because its claims were unliquidated. The BAP affirmed the appointment of the interim Chapter 7 Trustee as the permanent Chapter 7 trustee.
Procedural context:
Appeal from the Bankruptcy Court order appointing the interim Chapter 7 Trustee as the permanent Chapter 7 Trustee based on the disqualification from voting of two creditors for an election under 11 U.S.C. § 702(b). At the debtors’ § 341 meeting, two creditors (a secured creditor, Santander Bank, and law firm, Riemer & Braunstein LLP) requested an election for a permanent trustee pursuant to § 702(b). The Appellee (as interim trustee) objected to the election. The Bankruptcy Court held a hearing on the disputed election disqualifying both creditors. Santander was disqualified because it held an interest “materially adverse” to the interests of the unsecured creditors as Santander’s promissory notes were personally guaranteed by the Debtors’ principal and because the Debtors’ estates had claims against their principal, Santander had the ability to enhance its recovery at the expense of the estate. Riemer was disqualified because its proofs of claims did not sufficiently demonstrate liquidated claims against the Debtor. Specifically, no itemization or apportionment of its claims against either debtor were included; Riemer stated that an aggregate total was owed by both debtors for legal services; and never provided any information to the US Trustee or the Court on how the aggregate amount of its claim should be divided.
Debtors filed individual Chapter 11 petitions and their cases were jointly administered. Both debtors scheduled Santander as a secured creditor with a contingent and unliquidated claim and both debtors scheduled Riemer as an unsecured creditor with an unliquidated claim in an unknown amount. Both debtors later amended their schedules to include receivables from their principal as well as unsecured claims. Santander filed identical proofs of claim in both debtor’s cases for a secured claim for approximately $385,000. The Debtors reached an agreement with Santander for Santander to receive a certain amount from the proceeds of the sale of the debtor’s assets with the balance of the claim treated as a general unsecured claim. Riemer filed identical proofs of claim against the Debtors for legal services in the approximate amount of $240,000 and included an invoice, though no itemization or apportionment between the debtors was included. The Bankruptcy Court converted the case to Chapter 7 and the US Trustee appointed DeGiacomo as interim trustee. At a meeting of the creditors, Riemer and Santander requested an election for the permanent trustee pursuant to § 702(b).
Kornreich, Tester, Cary

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