361 S.W.3d 304
Ky.2012Background
- Schilling, admitted to practice in 1975, was publicly reprimanded by the Court after the Kentucky Bar Association found him guilty on four counts of professional misconduct.
- He served as examiner in the Big Rivers Electric Corp. Chapter 11 case (mid/late 1990s) overseeing plan negotiations but his compensation terms were not initially addressed.
- At a settlement conference, Schilling proposed a percentage-based fee from unsecured creditors (Chase, BONY, Mapco) for “new value,” without disclosure to the trustee or others.
- Schilling later sought court approval for a percentage-based fee, issued letters calculating fees to creditors, and faced discovery disputes over side agreements and disclosures.
- Letters and affidavits later showed alleged side agreements with Chase, BONY, and Mapco; the Sixth Circuit disgorged all fees and the federal courts sanctioned him; Kentucky proceedings then concluded with a public reprimand and cost-shifting.
- The Board of Governors of the Kentucky Bar Association found misconduct and, on review, this Court found Counts II–V proven, Count I not guilty, and imposed a public reprimand with costs.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Collateral estoppel applicability to misconduct findings | KBA argues the Sixth Circuit decision estops relitigation of issues. | Schilling contends estoppel does not bar jury/board review of disciplinary issues. | Collateral estoppel applied; Sixth Circuit final decision barred relitigation of those issues. |
| Whether Schilling violated disinterestedness, disclosure, and loyalty duties as examiner | Sixth Circuit established breach of disinterestedness, disclosure, loyalty. | Schilling argues some actions were permissible negotiations; disputes about intent. | Guilty on Counts II–V; not guilty on Count I; duties violated as to disinterestedness, disclosure, and loyalty. |
| Appropriate sanction for professional misconduct | Board appropriately recommended public reprimand given misconduct. | Schilling contested severity; the disgorgement in federal court reflected broader sanctions. | Public reprimand with costs; Count I dismissed with prejudice. |
Key Cases Cited
- In re Big Rivers Elec. Corp., 355 F.3d 415 (6th Cir. 2004) (disgorgement of fees and disinterestedness and loyalty duties in bankruptcy examiner context)
- In re Big Rivers Elec. Corp., 284 B.R. 580 (Bankr. W.D. Ky. 2002) (bankruptcy court disgorgement and duties of examiners and trustees)
- In re Big Rivers Elec. Corp., 233 B.R. 754 (Bankr. W.D. Ky. 1999) (prior bankruptcy proceedings and fee issues cited by Kentucky court)
- KBA v. Berry, 626 S.W.2d 632 (Ky. 1981) (collateral estoppel and disciplinary proceedings in Kentucky)
- KBA v. Geisler, 938 S.W.2d 578 (Ky. 1997) (discipline context referenced by Board)
- KBA v. Harris, 269 S.W.3d 414 (Ky. 2008) (discipline context referenced by Board)