In re Roper & Twardowsky, LLC

• Court: U.S. Bankruptcy Court — District of New Jersey
• Writing for the Court: THE HONORABLE STACEY L. MEISEL, UNITED STATES BANKRUPTCY JUDGE
• Citation: In re Roper & Twardowsky, LLC, 559 B.R. 375 (Bankr. N.J. 2016)
• Decision Date: 09 November 2016
• Docket Number: Case No.: 15–32878 (SLM)
• Parties: In re: Roper and Twardowsky, LLC, Debtor.

559 B.R. 375

In re: Roper and Twardowsky, LLC, Debtor.

Case No.: 15–32878 (SLM)

United States Bankruptcy Court, D. New Jersey.

Signed November 9, 2016

Michael J. Connolly, Esq., LeClairRyan P.C., One Riverfront Plaza, 1037 Raymond Boulevard, Sixteenth Floor, Newark, New Jersey 07102, Counsel for Trustee, Charles M. Forman

Jay Rice, Esq., Nagel Rice, P.C., 103 Eisenhower Parkway, Roseland, New Jersey 07068, Counsel for Bendit Weinstock P.A.

Jerrold S. Kulback, Esq., Archer & Greiner P.C., One Liberty Place, Thirty-Second Floor, 1650 Market Street, Philadelphia, Pennsylvania 19103, Counsel for Gorman & Gorman, LLC

Harry M. Gutfleish, Esq., Goldman, Davis & Gutfleish, P.C., Three University Plaza, Fourth Floor, Hackensack, New Jersey 07601, Counsel for Goldman, Davis & Gutfleish, P.C.

Morris S. Bauer, Esq., Norris, Mclaughlin & Marcus, P.A., 721 Route 202–206, Suite 200, Bridgewater, New Jersey 08807, Counsel for Angela Roper and Kenneth Thyne

William J. Skepnek, Esq., 1 Westwood Road, Lawrence, Kansas 66044, Pro Se

Albert M. Belmont, Esq., Bochetto & Lentz, P.C., 1230 Brace Road, Cherry Hill, New Jersey 08034, Counsel for Bochetto & Lentz, P.C.

AMENDED OPINION

THE HONORABLE STACEY L. MEISEL, UNITED STATES BANKRUPTCY JUDGE

Before the Court are two pending motions in the In re Roper and Twardowsky, LLC bankruptcy case (Case No. 15–32878–SLM).¹ The first motion is the Motion of Charles M. Forman, Chapter 7 Trustee, to Approve Settlement with Gorman & Gorman LLC Pursuant to Federal Rule of Bankruptcy Procedure 9019 (the “Gorman Settlement Motion ” or “Gorman Settlement ”). (Docket No. 196). The second motion is the Motion of Charles M. Forman, Chapter 7 Trustee, Approve Settlement with Goldman Davis & Gutfleish, P.C. Pursuant to Federal Rule of Bankruptcy Procedure 9019 (the “Goldman Settlement Motion ” or “Goldman Settlement ”). (Docket No. 204). Collectively these motions will be referred to as the “Settlement Motions .” The Chapter 7 Trustee, Charles H. Forman (the “Trustee ”) filed both motions. Any reference to the “Trustee” means the Chapter 7 Trustee, unless stated otherwise. The Court heard oral argument on the Settlement Motions on August 16, 2016 (the “August 16th Hearing ”).

Bendit Weinstock, P.A. (the “Bendit Firm ”), William J. Skepnek (“Mr. Skepnek ”) and Steven M. Smoot (“Mr. Smoot ”) (collectively “Skepnek & Smoot ”), Angela Roper (“Ms. Roper ”) together with Kenneth Thyne (“Mr. Thyne ”) all filed either an objection or limited objection to the Trustee's motions.² (Docket Nos. 225, 226, 227 and 237). In response, Gorman & Gorman LLC (the “Gorman Firm ”) and Goldman Davis & Gutfleish, P.C. (the “Goldman Firm ”) filed responses in support of their respective settlements, while the Trustee filed a response to the various objections. (Docket Nos. 232, 236 and 237). This prompted the Bendit Firm to file a sur reply. (Docket No. 246).

The Court also permitted Ms. Roper to file a five page fact-only declaration after the August 16th Hearing since she was unable to accompany her counsel to the August 16th Hearing. (Docket No. 251). The Bendit Firm and the Gorman Firm alleged Ms. Roper's declaration exceeded the scope of this Court's instruction, which prompted them to file another response to her declaration. (Docket Nos. 251 and 254). On September 20, 2016, this Court issued an oral decision which, among other things, classified Skepnek & Smoot's claim as unsecured and solely against the Debtor. The decision was memorialized by an Ordered entered on September 29, 2016. (Docket No. 292).

On September 30, 2016, this Court entered a Consent Order between the Trustee and the Bendit Firm wherein, among other things, the Bendit Firm withdrew its objections to both Settlement Motions. (Docket No. 293).

JURISDICTION AND VENUE

The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334, the Standing Order of Reference from the United States District Court for the District of New Jersey dated July 23, 1984 and amended October 17, 2013. These matters concern the administration of the bankruptcy estate and relate to the allowance, disallowance and determination of claims against the estate. They constitute core proceedings pursuant to 28 U.S.C. §§ 157(b)(2)(A), (B) and (O ). Venue is proper under 28 U.S.C. §§ 1408 and 1409. The following shall constitute the Court's findings of fact and conclusions of law as required by Federal Rule of Bankruptcy Procedure 7052.

PROCEDURAL HISTORY AND FACTUAL BACKGROUND

On December 4, 2015 (“Petition Date ”), Roper & Twardowsky, LLC (“Debtor ”) filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the District of New Jersey. (Docket No. 1). The petition was signed by Ms. Roper as one of the principals of the Debtor. Mr. Thyne is also a principal of the Debtor.

At its core, the Debtor's bankruptcy case involves disputes over respective rights to settlement proceeds between the Debtor and a number of law firms that served as the Debtor's co-counsel in a litigation against Prudential Life Insurance Company (the “Prudential Litigation ”), which was venued in the Superior Court of New Jersey (“State Court ”).

By Order of the Honorable Brian Martinotti (“Judge Martinotti ”),³ the funds from the Prudential Litigation settlement were placed in the Roper & Twardowsky Qualified Settlement Fund (“QSF ”). Shortly after the QSF was established, the Prudential Litigation plaintiffs received their settlements payments. The remaining funds in the QSF were for attorney's fees and administrative expenses, if any. However, the Debtor disputed many of its former co-counsel's attorney's fees in the State Court and the remaining disputes carried over into this bankruptcy case.

I. Underlying State Court Action

During the Prudential Litigation, the Debtor represented approximately 163 plaintiffs. Like many other large and complex litigations, the Debtor sought help in its representation of those plaintiffs from various other law firms and attorneys throughout the United States. During the Prudential Litigation, the Debtor entered into various agreements with other law firms and attorneys, including but not limited to, the Gorman Firm, the Goldman Firm, the Bendit Firm, Bochetto & Lentz, P.C. (the “Bochetto Firm ”)⁴ and attorneys Mr. Skepnek & Mr. Smoot to act as its co-counsel (collectively referred to as the “Law Firm Creditors ”). The Debtor, Ms. Roper in her various capacities, and the Law Firm Creditors all generally disputed the amount of attorney's fees owed to each other. Ms. Roper and the Law Firm Creditors all allege they are creditors of both the Debtor and the QSF for legal services provided during the Prudential Litigation.

II. The Bendit Firm's Discharged Attorney's Lien

In August 2007, the Bendit Firm joined the Debtor as co-counsel in the Prudential Litigation. See Rider to Proof of Claim of Bendit Weinstock, P.A. (Claim Registry,⁵ Proof of Claim No. 5 at 5).⁶

Between November 2010 and April 2011, many of the Debtor's clients agreed to settle with the Prudential Life Insurance Company (the “First Settlement ”). Id. Subsequently, the clients who opted into the First Settlement were paid in full and associated counsel fees were disbursed to the Debtor and the Bendit Firm.⁷ Id. At the same time, a number of Debtor's clients also chose to opt out of the First Settlement. Id. The Prudential Litigation continued with respect to those remaining plaintiffs.

Following the First Settlement, it appears that the Bendit Firm stopped serving as Debtor's co-counsel and performed no further services for the clients that opted out of the First Settlement. (Proof of Claim No. 5 at 5). On June 11, 2011, Judge Martinotti entered an Order relieving the Bendit Firm as the Debtor's co-counsel. Id. at 6. In that Order, Judge Martinotti addressed the Bendit Firm's right to further payment of fees in connection with the Prudential Litigation, which was still ongoing at the time. Id. Judge Martinotti held the value of the Bendit Firm's lien shall be determined at the time of the resolution of the Prudential Litigation and shall not exceed 16% of the amount previously offered to each plaintiff who opted out of the First Settlement plus costs. Id. 16% plus costs equated to approximately $2,011,562.85. Id.

The Bendit Firm then filed an attorney's charging lien in the Prudential Litigation in the amount of $2,011,562.85. The Debtor answered by challenging the Bendit Firm's attorney's charging lien. At the August 16th Hearing, Trustee's counsel explained to the Court that Judge Martinotti discharged the Bendit Firm's lien and held that the Bendit Firm's compensation should be calculated based on quantum meruit .

III. Mr. Skepnek and Mr. Smoot's Dismissed Attorney's Lien

Skepnek & Smoot have their own relationship with the Debtor and its principals. Skepnek & Smoot were initially co-counsel to the Debtor in the Prudential Litigation. However, after a dispute arose, the Debtor ended its co-counsel relationship with Skepnek & Smoot.

After the First Settlement, Skepnek & Smoot filed a Petition for Fees and Enforcement of Attorney's Charging Lien in State Court. The State Court dismissed Skepnek & Smoot's petition with prejudice, and denied Skepnek & Smoot's motion for reconsideration in September 2011. (Proof of Claim No. 3 at 21). Nevertheless, the State Court authorized Skepnek & Smoot to file an action against the Debtor for either a breach of contract or quantum meruit or any other non-lien basis. Id.

Subsequently, Skepnek & Smoot filed suit against the Debtor in the United States District Court for the District of Kansas (Case No 11–CV–4102–DCC) based on breach of contract and quantum meruit (the “Kansas Action ”). (Proof of Claim No. 3 at 21–22). While the Kansas Action was pending, the Debtor filed a motion in State Court seeking to discharge the liens asserted by Skepnek & Smoot. By Order dated December 6, 2013, the State Court held that Skepnek & Smoot did not...