562 B.R. 8
Bankr. E.D.N.Y.2017Background
- CDC Properties obtained loans secured by Washington commercial real estate, later assigned to Wells Fargo and U.S. Bank; CDC filed chapter 11 in 2011, confirmed a plan, then defaulted.
- Lenders initiated nonjudicial foreclosures and a custodial receiver was appointed; CDC transferred the properties (without lender consent) to four newly formed entities (the Acquirers) in 2016.
- Olympia Office LLC (one Acquirer) and the other three Acquirers subsequently filed chapter 11 in the Eastern District of New York; all four sought to retain the New York law firm LaMonica Herbst & Maniscalco, LLP (LHM).
- LHM partner Jordan Pilevsky disclosed that his first cousins, Michael and Seth Pilevsky, collectively control 90% of the debtors’ equity. Noteholder objected to LHM’s employment on disinterestedness and adverse-interest grounds.
- The core factual dispute: whether under the Bankruptcy Code a first-cousin relationship places Lawyer Pilevsky within "relative"/"insider" definitions (consanguinity within the third degree), and whether that familial tie creates an adverse interest.
Issues
| Issue | Noteholder's Argument | LHM's Argument | Held |
|---|---|---|---|
| Whether Lawyer Pilevsky is an insider because a first cousin is within "third degree" of consanguinity under §101(45) | First cousins (or first cousin once removed) should be treated as within three degrees under the applicable common-law counting method (canon law per Gray) and thus an "insider" | New York common law uses civil-law counting (ascend to common ancestor then descend); first cousins are fourth degree and not "relatives" within §101(45) | Court applies New York common-law method; first cousins are beyond third degree, so Pilevsky is not an insider and LHM is disinterested under §101(14)(A) |
| Whether the familial tie creates an "interest materially adverse" to the estate under §101(14)(C) | The familial relationship creates a conflict/adverse interest making LHM not disinterested | Mere familial relation, without evidence LHM or Lawyer Pilevsky represent or hold interests adverse to the estate, does not create an adverse interest | Court finds no evidence of adverse interest: LHM and Lawyer Pilevsky do not hold or represent conflicting interests here; objection overruled |
| Whether retention should be conditioned and fee-rate increases disclosed | Implicitly urged scrutiny and ongoing oversight | Sought employment but must accept customary disclosure requirements | Court approves employment but requires ten-business-day advance supplemental affidavit for any rate increases and preserves rights to object to reasonableness |
Key Cases Cited
- Angelika Films 57th, Inc. v. Hayes, 227 B.R. 29 (Bankr. S.D.N.Y.) (sets §327(a) two-prong standard for retention)
- Bank Brussels Lambert v. Coan (In re AroChem Corp.), 176 F.3d 610 (2d Cir.) (adverse-interest analysis is fact-specific)
- In re Project Orange Assoc., LLC, 431 B.R. 363 (Bankr. S.D.N.Y.) (same: case-by-case adverse-interest/disinterestedness inquiry)
- In re Gray, 355 B.R. 777 (Bankr. W.D. Mo.) (applied canon-law counting to find certain cousins within third degree)
- In re Hydraulic Indus. Prods. Co., 101 B.R. 107 (Bankr. E.D. Mo.) (applied civil-law counting; held first cousins not within third degree)
- Erie R.R. Co. v. Tompkins, 304 U.S. 64 (U.S. 1938) (federal courts apply state law outside federal statutory/constitutional contexts)