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In re McK Millennium Centre Parking, LLC

United States District Court, N.D. Illinois, Eastern Division

April 29, 2015

In re MCK Millennium Centre Parking, LLC, Chapter 7, Debtor.
v.
Gina B. Krol, as Chapter 7 Trustee of the Bankruptcy Estate of MCK Millennium Centre Parking, LLC, Appellee. MCK Millennium Centre Retail, LLC, Appellant,

MEMORANDUM OPINION AND ORDER

JOHN ROBERT BLAKEY, District Judge.

Appellant MCK Millennium Centre Retail, LLC ("MCK Retail") filed a motion for leave to appeal [2] an interlocutory order entered by the Bankruptcy Court that granted the Chapter 7 Trustee's Renewed Application to employ as special counsel Shelly DeRousse and her law firm Freeborn & Peters LLP [B. Dkt. 193]. For the reasons stated below, that motion is denied.

I. Background

On June 19, 2012, the Debtor, MCK Millennium Centre Parking, LLC ("MCK Parking"), filed a voluntary petition for relief under Chapter 11 of the United States Code. [B. Dkt. 1]. MCK Parking operated a parking garage located at 33 W. Ontario St., Chicago, Illinois. [B. Dkt. 8]. MCK Retail, the appellant here, ran retail operations at that same location.

On July 17, 2012, Shelly DeRousse ("DeRousse") filed her appearance in the underlying bankruptcy on behalf of United Central Bank k/n/a Hamni Bank - the sole secured creditor. Id. At the time, DeRousse worked with the law firm Stahl Cowen Crowley Addis LLC ("SCCA"). On September 24, 2012, the Bankruptcy Court appointed Gina Krol ("Krol") as the Chapter 11 Trustee for the Debtor. [B. Dkt. 49]. The Bankruptcy Court subsequently granted Krol leave to appoint DeRousse as special counsel to the Trustee for the limited purpose of pursuing certain claims to recover preferential and/or fraudulent transfers. [B. Dkt. 69-70].

In July 2013, DeRousse - on behalf of Krol - filed an adversary proceeding against MCK Retail. See Gina B. Krol, as Chapter 11 Trustee v. MCK Millennium Centre Retail, LLC, Adversary Case No. 13-00961 (USBC N.D. Ill.). In August 2013, DeRousse - on behalf of Hamni Bank - filed a claim in the MCK Parking bankruptcy case. [B. Dkt. 117]. DeRousse also has represented Hamni Bank in Illinois state court proceedings against the principals of the Debtor to collect on guarantees those individuals purportedly made on Hamni's loan to the Debtor. [B. Dkt. 186]. The dates of that representation are unclear from the record but, based on counsel's comments at the April 14, 2015 hearing, it appears to be ongoing.

On September 10, 2013, the Bankruptcy was converted to Chapter 7. Nine days later the Bankruptcy Court again approved DeRousse's employment as special counsel to the Trustee - with full disclosure of DeRousse's representation of Hamni Bank. [B. Dkt. 128-1, 129]. DeRousse left SCCA and joined Freeborn & Peters LLP ("Freeborn") on April 9, 2014. [B. Dkt. 186 at 4]. DeRousse brought her engagements with Hamni Bank and the Trustee to Freeborn, and the firm ran a check to assure that there were no conflicts of interest. [B. Dkt. 186-1 at 3]. It found none. Id. On December 30, 2014, Krol filed a renewed application to employ DeRousse as special counsel to the Trustee. [B. Dkt. 186]. That application was filed to reflect DeRousse's change of firms, not because evidence of a conflict had surfaced. [B. Dkt. 191 at 1-2].

While MCK Retail did not object to the first two applications to employ DeRousse, it filed an objection to the third application on January 12, 2015. [B. Dkt. 190]. MCK Retail argued that DeRousse and Freeborn could not represent Hamni Bank and serve as special counsel to the Trustee without a conflict of interest under 11 U.S.C. § 327(c). [B. Dkt. 190 at 4-5]. MCK claimed that "by representing both the Trustee and the largest creditor, and the only secured creditor of the debtor's estate, there is an unavoidable risk of divided loyalty between Freeborn & Peters' major client, the Hanmi Bank, and the Trustee in this case who has a fiduciary duty to all creditors not just Hanmi Bank." Id. at 4. The Trustee responded that DeRousse's engagements did not create a conflict of interest and that DeRousse and Freeborn were best suited to represent the Trustee given their experience in the bankruptcy. [B. Dkt. 191]. The Trustee did not address MCK Retail's standing to challenge the application. The Bankruptcy Court agreed with the Trustee, and granted the renewed application to employ DeRousse and Freeborn as special counsel. [B. Dkt. 193]. MCK Retail now seeks leave to appeal that decision. [2].

Specifically, MCK Retail advances two questions for appeal: (1) "whether the Bankruptcy Court erred by failing to find the existence of a conflict of interest warranting the denial of the Trustee's request to appoint DeRousse and Freeborn as counsel for the Trustee when they were simultaneously representing the largest creditor in an action by that creditor against purported co-obligors of the debtor, " and (2) "whether the Bankruptcy Court erred by failing to apply the holding in In re Penney, 334 B.R. 517 (Bankr. D. Mass. 2005) to the Application." [2] at 2.

II. Standing

Before considering the substantive issues before it, the Court must briefly address the standing arguments raised by the Trustee. The Trustee claims that Appellant does not have prudential standing to appeal under 11 U.S.C. § 327(c) because it is not a creditor. However, the Trustee waived this argument by failing to raise it before the Bankruptcy Court. National Therapeutic Assocs. v. Concept Rehab, Inc., 2000 WL 1468314, at *1 (N.D. Ill. Sep. 29, 2000); In re Bero, 110 F.3d 462, 466 (7th Cir.1997). The Court therefore will not consider it.

III. Legal Standard

Interlocutory orders from the Bankruptcy Court may be reviewed with leave of the district court sitting in its appellate jurisdiction. 28 U.S.C. § 158(a)(3). While this Court has broad discretion in determining whether to exercise that jurisdiction, Tr. of Jartran, Inc. v. Winston & Strawn, 208 B.R. 898, 900 (N.D. Ill. 1997), "leave to appeal an interlocutory order will not be granted absent exceptional circumstances." In re Pullman Constr. Indus., Inc., 143 B.R. 497, 498 (N.D. Ill. 1992).[1]

In determining whether to allow an interlocutory appeal from the Bankruptcy Court under § 158(a), courts apply the general interlocutory appeal standard from 28 U.S.C. § 1292(b). See Metrou v. M.A. Mortenson Co., 781 F.3d 357, 359 (7th Cir. 2015). The appellant must satisfy four criteria in order to merit leave to appeal under section 1292(b): (1) there must be a question of law, (2) it must be controlling, (3) it must be contestable, and (4) its resolution must promise to speed up the litigation. Ahrenholz v. Bd. of Trustees of Univ. of Illinois, 219 F.3d 674, 675 (7th Cir. 2000). The party seeking leave to appeal bears the burden of demonstrating ...


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