Overlawyered: Chronicling The High Cost Of Our Legal System

Posts Tagged ‘bankruptcy’

Great moments in accountants’ liability

“An en banc Superior Court panel has ordered a new trial in a case in which a western Pennsylvania trial judge awarded $102.7 million in 2003 to one of the owners of a property company identified as being at the center of a mid-1980s Ponzi scheme.” Two couples, Thomas and Barbara Reilly and Edward and Karen Krall, each jointly owned half the stock in Canterbury Village Inc., a property development that was oversold in what was later described as a Ponzi scheme that bilked thousands of investors. When Canterbury Village landed in bankruptcy proceedings, an Ernst & Young predecessor was called in to organize the books, which were in great disarray. According to a judge’s footnote, “the male halves of Canterbury Village’s two couple-owners pleaded guilty to criminal charges stemming from the Ponzi scheme.” Mr. Reilly served about four years on fraud and tax evasion charges. The eventual reorganization plan approved by the court barred the Reillys and Kralls from any stake in the emerging business entity.

The Reillys then proceeded to sue Ernst & Young, alleging that its report had contained inaccuracies which had injured their business interests. When the Reillys filed requests for admissions in support of their allegations, Ernst first missed a deadline to respond and then, granted a do-over, omitted to include a required verification from its lawyer. The judge in response deemed Ernst to have agreed to all the requested admissions — in effect, preventing the firm from contesting the key elements of the Reillys’ case. A verdict was then entered on behalf of Barbara Reilly that “included $34 million for her ownership interest in Canterbury Village — half of the $68 million appraised value — plus an additional $50,945,222 in interest, based on a rate of 6 percent per annum beginning in 1986, for a total compensatory damage award of $84,018,989. Yeager also awarded her $18.17 million in punitive damages for a total verdict of $102,718,989.” The appeals panel has now decided, however, that loss (in effect) of its right to mount a substantive defense is too harsh a sanction for Ernst’s procedural fumblings, so a retrial is on its way. (Asher Hawkins, “Retrial Ordered in Nine-Figure Fraud Case”, Legal Intelligencer, Jul. 27; Karen Kane, “Seven Fields developer faults Ernst & Young in lawsuit”, Pittsburgh Post-Gazette, Aug. 25, 2002).

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August 6 roundup

  • Patent suit by firm called Parallel Processing demands that all Sony PlayStation 3 consoles be impounded and destroyed [ArsTechnica, Slashdot]

  • It’s not all going to Edwards: a scorecard on presidential campaigns’ law-firm fundraising [National Law Journal]

  • Link roundup on Oregon criminal charges against fanny-swatting 13-year-olds [Right Side of the Rainbow; earlier]

  • New at Point of Law: Spitzenfreude is mirth derived from ethical pratfall of NY’s moralist governor; Florida’s insurance fiasco; more on those “medical” bankruptcies; Alabama judge appoints special prosecutor in Dickie Scruggs affair after feds take a pass; and much more;

  • One hurdle for court action by survivors of slain Middle East contractors against Blackwater: the four men had signed contracts agreeing not to sue their employer [Henley; W$J]

  • Saying swim diaper should suffice, Akron mom and “fair housing” advocates sue condo that barred pre-potty-trained kids from pool [AP/FoxNews.com]

  • Not only are those punitive new Virginia traffic laws unpopular, but a judge has just declared them unconstitutional as well [Washington Post; earlier here and here]

  • Pepsi settles class actions over minute quantities of benzene that might form when soft drink ingredients combine [Reuters, Food Navigator, Journal-News]

  • U.K. considers making it easier for unmarried cohabitators to go to court when their households break up [Times Online]

  • Did a securities fraudster use protracted depositions to browbeat his victims? [Salt Lake City Tribune]

  • “Victims’ Rights Amendment” to U.S. Constitution, promoted as giving crime victims a fairer shake, is bad idea for lots of reasons [eight years ago on Overlawyered]

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L.A. attorney ethics beat

A jury has convicted prominent attorney Stephen Yagman, who’s prospered greatly filing police-misconduct and civil-rights lawsuits in Los Angeles, of 19 counts of attempted tax evasion, bankruptcy fraud and money laundering. Prosecutors said Yagman led a lavish lifestyle while declaring bankruptcy, hiding assets from creditors, and failing to pay payroll tax. (“Famed SoCal civil rights attorney found guilty of tax fraud”, AP/Riverside Press-Enterprise, Jun. 22; Patterico, Jun. 22 and Jun. 23 (not sharing Duke lawprof Erwin Chemerinsky’s somber view of the verdict)). Last year (Jul. 5, 2006) Yagman sued a retired police detective who in a letter expressed “glee and profound satisfaction” over the lawyer’s indictment. For Yagman’s other appearances on this site, see Feb. 23, 2000, Mar. 18, 2005, Apr. 3, 2006, and Nov. 4, 2006.

Meanwhile, the city attorney of Los Angeles, Rocky Delgadillo, who’s figured in these columns a couple of times (grandstanding on Grand Theft Auto, Jan. 28 of last year; defending the city’s $2.7 million settlement of the firefighter dog food case, Nov. 22) seems to have landed in an ethical spot of bother himself (more).

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Don’t

More things that it’s really inadvisable to do if you’re a lawyer:

  • Tell a judge to her face in open court that you consider her “a few French fries short of a Happy Meal” (William Smith of McDermott Will & Emery LLP, facing possible exclusion from the right to practice in the bankruptcy court in question; Crain’s Chicago Business);

  • Show up in a hospital room to recruit as client a heavily medicated crash victim, then discourage him from going after the other driver’s personal assets in the case, without mentioning that the other driver is your own wife’s grandfather (Jeffrey Hark of Cherry Hill, N.J., referred for a state-bar ethical investigation although a legal-malpractice claim against him failed for lack of a showing of damages; NJLJ);

  • As part of a $59 million settlement of Benlate fungicide-damage cases, accept a secret $6 million side payment from defendant duPont in exchange for (among other services) agreeing to file no more cases (Roland R. St. Louis Jr. and Francisco R. Rodriguez of Miami, disbarred and given a two-year suspension respectively; NLJ, Elefant).
Earlier entries in this series: Apr. 23, 2007; Jan. 20, Apr. 12 and Apr. 28, 2006; Aug. 3, Sept. 13, 2005.

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15 Minutes of Fame + Lawyers = Bankruptcy

For a brief period in 2004, Jessica Cutler was the hottest story in Washington. Cutler was the Senate aide who blogged at Washingtonienne about her sexual experiences with various Beltway insiders. After being exposed (pun intended), Cutler parlayed her notoriety into a six-figure book deal and Playboy photo shoot.

Unfortunately for Cutler, she had provided enough details in her blog for people to deduce the identity of some of her sexual partners. One of those, Robert Steinbuch, decided to sue her for $20 million for public disclosure of private facts (i.e., “invasion of privacy”) — thereby becoming only one of many recent examples of someone complaining about publicity… by filing a lawsuit that publicizes the acts he allegedly wants to keep secret.

In any case, Cutler began running into problems with her lawyers — namely, that they wanted her to pay them, and she had a different idea. We covered this in June 2006 (and see the Wonkette link in the comments). Now Cutler has filed for bankruptcy. Of course, we don’t know where all of her money went, but we know a good chunk of it went to her attorneys. Good luck collecting that $20 million, Mr. Steinbuch.

(As for collecting, Steinbuch had added some deep pockets to one of his lawsuits against Cutler — Hyperion Press (which published Cutler’s book), Disney (which owns Hyperion), HBO (which purchased the television rights to her story), and Time Warner (which owns HBO) — but that lawsuit, which Steinbuch filed in Arkansas, was dismissed in February on the grounds that it didn’t belong in Arkansas. Steinbuch has appealed, but his chances of success appear low, and his claims against HBO, Time Warner, and Disney are completely meritless anyway.)

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MacDermid v. Discover

Nina Kay MacDermid was bipolar and suffered from drug and alcohol problems. Discover Financial Services did not know this when she successfully obtained a card in her husband’s name and charged $15,000 worth of exotic cats and computer products and other shopping, despite her husband having forbidden her from having credit cards because of her previous manic spending sprees that sent her into personal bankruptcy. MacDermid also obtained cards from American Express and others, but it was checks from Discover that her husband intercepted and confronted her over on February 14, 2003. Ms. MacDermid overdosed on drugs, and was admitted to the hospital for five days that week, but later managed to commit suicide in June, which Mr. MacDermid claims in his lawsuit was a surprise. Mr. MacDermid complained to Discover in March that he had not authorized the card, but sued Discover, claiming that Discover’s resulting attempts to collect on Ms. MacDermid’s debts from the cancelled card was what actually drove her to suicide. (A psychiatrist conveniently submitted an affidavit that MacDermid would have been peachy keen if not for Discover’s actions, notwithstanding her substantial history of mental illness.) A magistrate judge dismissed the case under 12(b)(6), but the Sixth Circuit, in an opinion by Judge Boyce Martin, resuscitated it on a theory that Discover’s allegations of criminal violations may have been an intentional infliction of emotional distress. The opinion does not cite this month’s Twombly decision, which perhaps explains the wild save of the almost-surely doomed case, and Discover will now have to spend additional money defending it—which is why your credit-card interest rates are so high. (MacDermid v. Discover Financial Services (6th Cir. May 29, 2007) (via Bashman)). The opinion contains a variety of gratuitous slams at Discover for being a victim of MacDermid’s fraud.

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Lawyer: guess maybe we burned that fee documentation

Sensational new disclosures in the scandal (Mar. 6, Aug. 25, etc.) over self-dealing by lawyers in divvying up the results of fen-phen litigation in Kentucky:

The three lawyers accused of plundering Kentucky’s $200 million fen-phen settlement “tore up or burned” notes showing how much they paid themselves and their clients, according to one of the lawyers.

Depositions obtained by The Courier-Journal include Lexington attorney Melbourne Mills Jr.’s description of a secret meeting that he said he and lawyers William Gallion and Shirley Cunningham Jr., also of Lexington, held at Gallion’s house in 2001 to divvy up an extra $10 million beyond what they’d already paid themselves from the settlement. …

[Attorney Angela] Ford alleges that Mills’ description is a “dramatic indication of a cover-up.”

She has asked that those lawyers and another attorney, Stan Chesley of Cincinnati, who helped negotiate the settlement, be forced to surrender $62.6 million in funds they allegedly misappropriated — as well as $59.5 million they paid themselves in fees….

Kentucky courts have never required a lawyer to “disgorge” or return a fee for misconduct, but courts in other states have done so, according to Ford’s motion….

Chesley, who was hired by the Lexington lawyers to negotiate the settlement, said he had no reason to question why he was paid $20.5 million — $7 million more than his contract outlined — in part because he could not “believe that these good folks would have sent me more money than I was entitled to.”

In her motion to force the lawyers to give up their fees, Ford said the defendant lawyers, including Chesley, breached their duties in a “spectacular and unparalleled way” by giving only about one-third of the settlement to the clients.

“The facts of this case truly are as egregious as it gets,” she said in court papers. ..

Since the settlement, Gallion and Cunningham have both become permanent residents of Florida, a state that Ford notes allows debtors to keep their homes when they take bankruptcy.

Stanley Chesley was, and remains, one of the most famous plaintiff’s lawyers in the United States and a major powerbroker in national Democratic politics. The article also sheds further light on the close ties between now-disgraced Judge Joseph F. (“Jay”) Bamberger, who approved the Kentucky fen-phen settlement and has since resigned, and the plaintiff’s team in the litigation. (Andrew Wolfson, “Lawyer: Fen-phen notes destroyed”, Louisville Courier-Journal, Jan. 21).

More: a companion piece in the same paper profiles the Cincinnati-based Chesley (Andrew Wolfson, “A breach of duty; wealth mounts for ‘prince of torts'”, Louisville Courier-Journal, Jan. 21)(via Lattman).

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Update: Calif. ADA lawyer suspended

Setbacks for key figures in a prominent disabled-access filing mill:

Two of the attorneys behind an onslaught of ADA lawsuits in California — including at least 20 involving Monterey County restaurants and wineries — have run into serious legal troubles of their own.

Thomas Frankovich, who represented plaintiff Jarek Molski in hundreds of handicapped-access lawsuits over the last five years, was suspended June 19 from practicing in the U.S. District Court in Los Angeles. The six-month suspension came after one judge on the court, Edward Rafeedie, declared Frankovich a “vexatious litigant” and said he would recommend Frankovich for disciplinary action because of his “abusive and predatory litigation practices.”

(Paul Miller, “Indictment, suspension for two ADA lawyers”, Carmel Pine Cone, Jul. 21). outline_ca.gifAlso in June, as was mentioned here in a post at the time (Jul. 5; see also Patterico, Jul. 1), Los Angeles attorney Stephen Yagman, who had represented Frankovich in defense of his ADA practice, was himself indicted on federal charges of tax evasion and bankruptcy fraud. In February 2005, after Judge Rafeedie had threatened Frankovich with sanctions, Yagman had said that “Judge Rafeedie’s mean-spiritedness, his cruelty, and his contempt for civil rights make Hitler look like a humanitarian.” (Paul Miller, “ADA lawyer’s new strategy: Insult the judge”, Feb. 11, 2005). More on Yagman: Jessica Seigel, “Cop griller”, George, Mar. 1998; Patterico, Jun. 3, 2004.

More Carmel Pine Cone coverage of Frankovich and Molski here, here, here and here. Our coverage: Sept. 21 and Dec. 12, 2004, Jan. 8 and Mar. 18, 2005. And for a very different point of view, once again, here’s Mary Johnson, “Jarek Molski’s problem — and I don’t mean access”, Ragged Edge, Oct. 24, 2005, arguing that Frankovich and Molski just aren’t good enough at getting their story out.

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Hip-hop mag told to pay fired editor $15 million

Kimberly Ososio, canned from her job as an editor at The Source magazine, portrayed the magazine’s offices as a “raunched-out workplace where executives watched porn, smoked pot and called female employees “b——.” An attorney for the magazine admitted that coarse and profane language was common there but said it was aimed at all parties, “not a gender-specific conduct”. A jury agreed with Osorio’s claim that she was sacked for complaining about sexualized goings-on; she also complained of defamation, but lost on sexual discrimination and harassment counts. (Jose Martinez, “Hip-hop mag bagged”, New York Daily News, Oct. 24; The magazine already faces bankruptcy proceedings due to other business problems. (Leonard Greene, “Editor’s New ‘Source’ of Woe”, New York Post, Oct. 25; Peter Carlson, “Hip-Hop Editor Wins Suit Over Her Firing”, Washington Post, Oct. 25; Joshua Rhett Miller, “Ex-Source editor hopes ruling redefines rap”, Metro New York, Oct. 25).

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