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HomeNewsArchivesBankruptcy Court Gives Prosser Two Setbacks, Chastises PSC Counsel

Bankruptcy Court Gives Prosser Two Setbacks, Chastises PSC Counsel

March 20, 2007 — The bankruptcy judge hearing the Jeffrey Prosser cases has ruled against the Innovative Telephone owner on two key issues, and in a flurry of "whereases," rapped the knuckles of the counsel to the V.I. Public Services Commission (PSC).
The court issued two orders on March 15. The first denied Prosser's request for a stay of the appointment of a public trustee in the case (while the appointment is being appealed to the federal district court in St. Thomas). The other order confirmed, over Prosser's objections, the appointment of a San Francisco executive to be the public trustee and take over the reins of Prosser's properties.
The PSC had sought to intervene in the case to dispute the appointment of a public trustee, on the grounds generally that such an appointment would diminish the PSC's own powers.
Judge Judith K. Fitzgerald, who sits on the federal Bankruptcy Court, had resisted the PSC arguments as a violation of the supremacy clause of the U.S. constitution.
Further, in one of her orders she cited a series of what appear to be communication failures on the part of PSC counsel Jeffrey Moorhead. Her order reads:
"WHEREAS counsel for the Public Services Commission represented to the court that the chairperson for the PSC sent, but did not file in any of these bankruptcy cases, a letter with respect to the PSC's position on appointment of a Chapter 11 Trustee;
"WHEREAS this court did not receive the letter;
"WHEREAS counsel for the PSC represented to the court that he would fax the letter to Chambers [i.e. the judge's office] so that the court could review the letter before issuing this order;
"WHEREAS when the court did not receive the letter several hours after the hearing and placed a telephone call to counsel for the PSC with respect to same;
"WHEREAS over 24 hours have passed and counsel for the PSC has not faxed the letter and the court has not been provided such from any other source…" (Emphasis in the original.)
The judge then ordered the appointment of Stan Springel to serve as the trustee. Springel's appointment, recommended by the U.S. Justice Department, had been opposed by Prosser's lawyers on the grounds of previous dealings between Springel and one of the creditors' attorneys in earlier bankruptcy cases (See "Prosser Objects to Naming of Chapter 11 Trustee").
Typically, bankruptcy cases are conducted without the need for the appointment of a case trustee, and judges' orders do not open with a volley of "whereases." But, as Fitzgerald is discovering, this is an unusual case.
Moorhead had tangled previously with the judge and with the Justice Department at a hearing held in Fitzgerald's home courtroom in Pittsburgh on March 7, the transcript of which was just released.
In that hearing, Moorhead was one of the only lawyers who actually appeared in the courtroom, having flown into that city on a particularly snowy day. The rest joined the hearing telephonically or via teleconferencing.
At that time, Moorhead made the argument that the U.S. Justice Department, through the office of the U.S. Trustee, had not actually consulted with the PSC as it was supposed to do regarding the appointment of a case trustee. He agreed that a lawyer for the U.S. Trustee had called him regarding the matter, but Moorhead said that the lawyer should have called the PSC itself, not Moorhead, who called himself but a "messenger" for the PSC.
This argument did not sit well with either the judge or the U.S. Trustee's representative. In judgelike prose she said: "If I called counsel to an entity, and I knew that counsel represented an entity, I would feel myself in violation of my disciplinary obligation if I consulted with the entity as opposed to its counsel…."
Similarly, Assistant U.S. Trustee Guy Gebhardt said, "Every bar standard with which I am familiar, would prohibit my contact with a represented party, and further, it's my understanding that the PSC's meetings under the Sunshine laws are public meetings."
The February 26 meeting in which the PSC decided to seek to oppose the appointment of a public trustee, according to an earlier Source article, was largely an executive session. (See "PSC Wants to Become Active Player in Prosser Bankruptcy").
That much of the PSC meeting was secret was emphasized by yet another lawyer, Kent Brassie, speaking for Prosser's principal creditor, the Rural Telephone Finance Cooperative. Brassie spoke of a "….closed executive session in which the public did not participate … in terms of an open public rule-making process, we think that it was far from that …."
The judge ruled against the stay of the appointment of the case trustee on the grounds that the underlying appeal of that decision to the U.S. District Court was unlikely to be successful and that the appointment would not do any damage to the Prosser companies.
In another part of the order she instructed Springel, who formerly was the short-term CEO of another troubled phone company, to file a business plan (for selling the companies and paying the debts) by April 26; she gave Springel the option of filing it under seal (i.e., as a secret document).
Her rationale for making the appointment was included in a hearing on March 14. That transcript has not yet been made public.
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