United States District Court, D. Connecticut
N. Chatigny, United States District Judge
Speer, a debtor in bankruptcy, appeals from an order of the
Bankruptcy Court (Hon. Ann M. Nevins, J.) denying her motion
for an order requiring the Chapter 7 Trustee, Thomas C.
Boscarino, to show cause why he should not be removed from
his position. Ms. Speer, a residential landlord with dozens
of properties, has long been embroiled in disputes with her
primary source of financing, Seaport Capital Partners, LLC
(“Seaport”). For reasons that follow, the order
11 U.S.C. § 324(a), a trustee may be removed “for
cause.” Id. “What constitutes
‘cause' for removal is not defined by the
Bankruptcy Code but is instead left for the courts to
determine on a case-by-case basis.” 2 Hon. William L.
Norton Jr. & William L. Norton III, Norton Bankr. Law
& Prac. § 28:13 (3d ed. 2008). In determining
whether cause for removal exists in a given case, courts
consider the need to protect the best interests of the estate
and the effectiveness and good reputation of the court and
the bankruptcy system. Id. A party that seeks
removal of a trustee must make a strong factual showing
because removal is deleterious to the continuity of
administration of the estate. Surabian v. Picard,
No. 13 Civ. 935(JGK), 2014 WL 917091, at *2 (S.D.N.Y. Mar. 7,
2014). A Bankruptcy Court's decision on a motion to
remove a trustee is reviewed for abuse of discretion. In
re Ampal-Am. Isr. Corp., 691 Fed.Appx. 12, 16 (2d Cir.
2017); In re Haworth, 356 Fed.Appx. 529, 530 (2d
motion, Ms. Speer argued that Mr. Boscarino should be removed
because he was not “disinterested” as defined by
the Code. She claimed to have discovered that Mr.
Boscarino had a relationship with Patrick W. Boatman, the
lawyer representing her largest creditor, Seaport. She stated
that the two had been partners in law practice under the firm
name Boatman, Boscarino, Grasso & Twachtman, the
predecessor to Mr. Boscarino's current firm, Boscarino,
Grasso & Twachtman.
Mr. Boscarino and the U.S. Trustee filed responses to the
motion. In his response, Mr. Boscarino stated:
The Trustee's business and partnership relationship with
Attorney Patrick W. Boatman terminated on or about September
30, 2004, and there has been no ongoing personal or business
relationship between the Trustee and Attorney Boatman since
September 30, 2004, other than the typical and normal
business and/or social relationships that may exist or
develop between a Trustee and any other attorneys in the
Greater Hartford Area practicing bankruptcy law before the
Bankruptcy Courts seated in the States of Connecticut.
U.S. Trustee's response stated that Ms. Speer had failed
to “explain how Trustee Boscarino's business
relationship with Attorney Boatman over a decade ago is
materially adverse to the estate or how it affects [his]
ability to perform fiduciary duties.”
Bankruptcy Court scheduled a hearing on the motion for August
27, 2015. The day before the hearing was scheduled to take
place, Ms. Speer filed a motion asking the Court to rule on
the basis of the written record without requiring her to
appear at the hearing. The next day, Ms. Speer filed a motion
to strike the responses filed by Mr. Boscarino and the U.S.
October 9, 2015, the Court issued a written ruling denying
the motion for an order to show cause and denying the motion
to strike. Acting on the basis of the written record, as Ms.
Speer had requested, the Court ruled that Ms. Speer had
failed to sustain her burden of presenting facts showing a
conflict of interest, actual injury or fraud. Mr.
Boscarino's former partnership with Mr. Boatman did not
support his removal as trustee because eleven years had
passed since the two were partners. The Court also observed
that the Code's statutory pay structure provided Mr.
Boscarino with an incentive to maximize the value of the
estate and there was no reason to think he would do something
against his interest and the interest of the estate merely to
benefit Attorney Boatman or his client. Order Denying Motion
for Order to Show Cause 58 (ECF No. 12-1).
Speer contends that the Court erred in failing to make a
specific finding on whether Mr. Boscarino is disinterested
within the meaning of the Code. In cases involving alleged
conflicts of interest, some bankruptcy courts have removed
trustees who were not disinterested without a showing of
actual injury to the estate. See In re BH & P
Inc., 949 F.2d 1300, 1309-10 (3d Cir. 1991) (citing
In re Paolino, 80 B.R. 341, 345 (Bankr. E.D. Pa.
1987); In re Micro-Time Mgmt. Sys., 102 B.R. 602,
605 (Bankr. E.D. Mich. 1989); and In re O.P.M. Leasing
Servs., Inc., 16 B.R. 932, 937 (Bankr. S.D.N.Y. 1982)).
However, most cases that address trustee disqualification for
cause based on a conflict of interest consider whether the
alleged conflict has caused or is likely to cause actual
injury to the estate. See In re BH & P Inc., 949
F.2d at 1311. The Second Circuit is regarded as the leading
proponent of the majority view that before a trustee may be
removed for an alleged conflict of interest “something
beyond a finding of lack of disinterest is required.”
Id. (citing In re Freeport Italian Bakery,
Inc., 340 F.2d 50, 54 (2d Cir. 1965) (“[G]rounds
for disapproval or removal of a trustee in bankruptcy are not
to be found in his formal relationships. ‘We have
traditionally stressed the elements of fraud and actual
injury to the debtors' interests.'”);
accord In re Ampal-Am. Isr. Corp., 691 Fed.Appx. 12,
16 (2d Cir. 2017); In re Fletcher Int'l, Ltd.,
661 Fed.Appx. 124, 126 (2d Cir. 2016). Under the Second
Circuit's approach to trustee disqualification, the
absence of any actual injury to the estate made it
unnecessary for the Bankruptcy Court to make an explicit
finding that Mr. Boscarino was disinterested.
assuming lack of disinterest can provide sufficient cause for
removal of a trustee in the Second Circuit, the order can be
affirmed because the Bankruptcy Court seems to have found
that Mr. Boscarino was disinterested. The crux of Ms.
Speer's motion was her argument that Mr. Boscarino was
not disinterested (ECF No. 691 at 4). The responses to the
motion focused on whether Mr. Boscarino had an interest
materially adverse to the interest of the estate as a result
of his former partnership with Mr. Boatman, and the
Court's memorandum of decision notes that cause for
removal exists when a trustee is not disinterested (ECF No.
807 at 4). In denying Ms. Speer's motion, the Court gave
no indication that it was refusing to remove Mr. Boscarino
even though he had an interest materially adverse to the
interest of the estate. To the contrary, the Court implicitly
found that he had no such interest.
Speer argues that the Code's definition of a
“disinterested person” is sufficiently broad to
include the relationship between Mr. Boscarino and Mr.
Boatman as a matter of law. She appears to rely on the
“catch-all” provision of 11 U.S.C. §
101(14)(C), which has been construed “to exclude a
trustee with some interest or relationship that ‘would
even faintly color the independence and impartial attitude
required by the Code.'” In re AFI Holding,
Inc., 530 F.3d 832, 845-46 (9th Cir. 2008) (quoting
In re Crivello, 134 F.3d 831, 835 (7th Cir. 1998)).
As discussed above, it is by no means clear that the Second
Circuit would require removal of a trustee for cause based on
alleged conflict of interest when the circumstances do not
implicate fraud or actual injury to the estate. In any event,
the Bankruptcy Court did not abuse its discretion in denying
Ms. Speer's motion. Mr. Boscarino's former
partnership with Mr. Boatman was not sufficiently recent to
create an interest materially adverse to the interest of the
estate or even the appearance of such an interest. Cf. In
re Affidavit of Bias, 947 P.2d 1152, 1154, 1156 (Utah
1997) (holding that a judge's former partnership in a law
firm representing a defendant did not support an inference of
bias because thirteen years had passed since the judge had
left the firm).
Speer also argues that cause existed to remove Mr. Boscarino
from his position because he was seeking to sell her real
estate holdings and litigation rights to Seaport for
“fire sale prices” and was neglecting to maintain
certain real properties after notifying her that he planned
to abandon them, which he had not yet done. On the written
record presented to the Bankruptcy Court, the Court had no
basis for making a finding that Mr. Boscarino was failing to
fulfill his duties as alleged by Ms. Speer. Moreover, Ms.
Speer's unsupported allegations did not require the Court
to go beyond the record and hold an evidentiary
the Bankruptcy Court did not abuse its discretion in denying
the motion for an order to show cause, and its decision must
therefore be ...