Hofmeister v. Official Committee of Unsecured Creditors of Revstone Industries, LLC (In re Revstone Industries, LLC)

Citation: 551 B.R. 745Docket: Bank. No. 12-13262 (BLS); Civ. No. 13-565-SLR, Civ. No. 13-566-SLR

Court: District Court, D. Delaware; September 24, 2015; Federal District Court

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On September 24, 2015, Judge Sue L. Robinson affirmed the bankruptcy court's February 21, 2013 decision in the cases concerning Revstone Industries, LLC, and related debtors, who filed for voluntary bankruptcy under Title 11 of the U.S. Code. The Official Committee of Unsecured Creditors was appointed on December 17, 2012, and subsequently sought approval for Womble Carlyle Sandridge & Rice, LLP (WCSR) to serve as their counsel. George S. Hofmeister, a founder and Chairman of Revstone, objected to WCSR's retention due to alleged conflicts of interest stemming from WCSR's prior legal representation of Revstone.

The bankruptcy court ruled that Hofmeister had standing to object but ultimately overruled his objection, determining that WCSR's disclosures satisfied legal requirements and did not violate Delaware Lawyers' Rules of Professional Conduct. Both Hofmeister and the Committee appealed the decision. Additionally, the bankruptcy court confirmed the debtors’ joint Chapter 11 reorganization plan on March 23, 2015, and WCSR’s final fee application was approved without objection.

The district court has jurisdiction to review the bankruptcy court's decisions under 28 U.S.C. § 158(a), applying a "clearly erroneous" standard for factual findings and a "plenary" standard for legal conclusions. The court must defer to the bankruptcy court's factual determinations unless clearly erroneous while reviewing legal interpretations de novo, as guided by precedents from the Third Circuit Court of Appeals.

Mr. Hofmeister did not file a response to the Committee’s appeal regarding his objection to the retention of the law firm WCSR. The bankruptcy court assumed he had standing to raise his concerns, which involved potential conflicts under the Bankruptcy Code and Delaware Rules of Professional Conduct. However, the court later concluded that Mr. Hofmeister lacked standing to object because he was never a client of WCSR and did not demonstrate that any alleged conflict would harm his rights or the administration of justice, as neither Chicago Miniature nor Revstone objected to WCSR’s retention. 

Despite this finding, the court reviewed the merits of the objection and determined that it did not err in approving WCSR’s retention. According to Section 1103(b) of the Bankruptcy Code, a committee's attorney may not represent any entity with an adverse interest. The court found no ongoing conflict since WCSR's prior representation of Chicago Miniature was unrelated to Revstone’s bankruptcy case and concluded before it commenced. The law allows for counsel's retention if prior representation of an adverse interest predates their engagement by the committee. Even if Mr. Hofmeister’s claims about WCSR advising Revstone were accepted, the court noted there was no formal engagement, the advice pertained to a separate matter, and any representation ended before the bankruptcy filing.

The bankruptcy court's approval of WCSR as counsel for the Committee is upheld despite Mr. Hofmeister's objections. Revstone, a holding company involved in manufacturing for various industries, includes Chicago Miniature as an affiliate, although the latter is not a debtor in the bankruptcy proceedings. WCSR did not bill any time for the consultation related to the case. A judgment domesticated in South Carolina was deemed unenforceable against Revstone, which has no assets there. The engagement between James O’Toole, an attorney for both Chicago Miniature and Revstone, and WCSR occurred over a brief period in June 2012, with WCSR being officially selected as the Committee's counsel in December 2012. The discussion focuses on standing and bankruptcy code analysis, without addressing any alleged violations of professional conduct rules in South Carolina or Delaware. An order will be issued confirming these findings.