Alessi Family Ltd. P'ship v. Centurion Dev., LLC (In re Alessi Family Ltd. P'ship)

• Citation: 261 F.Supp.3d 1268
• Decision Date: 19 July 2017
• Docket Number: CASE NO. 17–61379–CIV–COOKE/GOODMAN
• Parties: IN RE: the ALESSI FAMILY LIMITED PARTNERSHIP, Debtor, The Alessi Family Limited Partnership, Plaintiff, v. Centurion Development, LLC, et al., Defendants.
• Court: U.S. District Court — Southern District of Florida

261 F.Supp.3d 1268

IN RE: the ALESSI FAMILY LIMITED PARTNERSHIP, Debtor,

The Alessi Family Limited Partnership, Plaintiff,

v.Centurion Development, LLC, et al., Defendants.

CASE NO. 17–61379–CIV–COOKE/GOODMAN

United States District Court, S.D. Florida, Miami Division.

Signed July 19, 2017

Brian Scott Behar, Behar, Gutt & Glazer, P.A., Fort Lauderdale, FL, Paul K. Silverberg, Silvergerg & Weiss, P.A., Weston, FL, for Plaintiff.

Paul K. Silverberg, Silvergerg & Weiss, P.A., Weston, FL, Patrick S. Scott, GrayRobinson PA, Fort Lauderdale, FL, Robert A. Stok and Joshua R. Kon, Stok Folk + Kon, P.A., Aventura, FL, for Defendants.

ORDER ON EMERGENCY MOTION TO STAY PENDING APPEAL

Jonathan Goodman, UNITED STATES MAGISTRATE JUDGE

In this appeal from bankruptcy court, Appellant Stok Folk + Kon, P.A. moves, on an emergency basis, to stay a bankruptcy court order pending appeal. [ECF No. 1]. United States District Judge Marcia G. Cooke referred the motion to the Undersigned. [ECF No. 6]. The Undersigned entered a preliminary stay until July 19, 2017, to give the parties a chance to fully brief the issues. [ECF No. 7]. Appellees The Alessi Family Limited Partnership and Fusion Homes, LLC filed opposition responses to the motion to stay. [ECF Nos. 8; 11]. Stok filed a reply. [ECF No. 13].

For the reasons stated below, the Undersigned grants the emergency motion and stays the bankruptcy court order on appeal pending resolution of the appeal.

I. Background

After Alessi allegedly defaulted on certain mortgages encumbering two of its properties, Fusion, the mortgagee, sued in state court to foreclose. Alessi then filed for bankruptcy under Chapter 11 of the Bankruptcy Code. Stok represented Fusion in the state court action and the bankruptcy proceedings.

On Fusion's behalf, Stok filed a proof of claim with the bankruptcy court. Alessi filed an adversary proceeding contesting, among other things, the validity of the proof of claim. Alessi also alleged that Fusion, through its prior counsel Stok, frustrated the sale of Alessi's properties to a third-party buyer by imposing unreasonable conditions before Fusion would satisfy the mortgages.

Partway through the bankruptcy proceeding, a different firm substituted in as counsel for Fusion. The parties hotly contest why Stok stopped representing Fusion. Stok contends that it told Fusion to seek separate counsel in the bankruptcy case because of alleged personal animosity between attorney Robert Stok and the bankruptcy court judge. Fusion and Alessi, meanwhile, maintain that Fusion terminated Stok for cause because of Stok's professional misconduct.

In the adversary proceeding, Alessi served Fusion with a request for production of documents. Fusion responded that several relevant documents are in Stok's possession. Fusion then served a subpoena on Stok, asking the firm to turn over to Fusion documents responsive to Alessi's document request.

Stok took the position that its retainer agreement with Fusion grants it a retaining lien on Fusion's documents until Fusion pays the attorney's fees it owes Stok. (Fusion allegedly owes Stok approximately $111,000 in fees.) Stok filed a motion to quash the subpoena and for a protective order, based mainly on its retaining lien. In those moving papers, Stok stated that it would turn over documents if Fusion posted adequate substitute security.

In its opposition response, Fusion argued that the subpoena is crucial because some of the information Alessi requested—and later threaten to compel Fusion to produce—could come only from Stok, such as how Stok calculated Fusion's proof of claim. Fusion also argued that Stok did not have a retaining lien at all because Stok's withdrawal stemmed from professional misconduct, which is an exception to a retaining lien. And even if a retaining lien did exist, Fusion continued, Federal Rule of Civil Procedure 45 does not include retaining liens as a basis for quashing subpoenas.

The bankruptcy court held a hearing on Stok's motion to quash and for a protective order. The bankruptcy court agreed with Fusion's rule-based argument, announcing on the record that Rule 45, which applies in bankruptcy per Bankruptcy Rule 9016, did not enumerate a retaining lien as a potential defense to a subpoena. The bankruptcy court also found that the information Fusion requested was necessary for Alessi to know.

The bankruptcy court then addressed the charges of misconduct against Stok. The bankruptcy court stated that "[t]here are sufficient allegations in this file of misconduct." [ECF No. 4, p. 91]. The bankruptcy court then said that it had "perceived from the early stages of this case" that Stok had deliberately impeded and delayed the administration of the bankruptcy, and the court would no longer allow that impediment or delay to continue. [ECF No. 4, pp. 91–92]. The bankruptcy court, however, also clarified that it was "not making any determination that there has been misconduct." [ECF No. 4, p. 91].

The bankruptcy court issued a written order denying the motion to quash and for a protective order based on the oral rulings from the hearing. The order required Stok to produce documents responsive to the subpoena within seven days. The bankruptcy court did not require Fusion to post any security before receiving the documents.

Stok appealed the order to the District Court and moved, on an emergency basis in the bankruptcy court, to stay the order pending appeal. The bankruptcy court denied the stay motion for several reasons. First, the bankruptcy court found that Stok had little likelihood of prevailing on appeal because "Stok's financial interests are, in theory, protected by the funds currently held in escrow at the Broward County Circuit Court." [ECF No. 4, p. 118]. The bankruptcy court also set forth as an additional reason: it had a "strong initial impression that Stok's representation of Fusion was terminated for cause[.]" [ECF No. 4, p. 118]. The bankruptcy court also repeated its conclusion that Rule 45 does not have a retaining-lien defense or exception. [ECF No. 4, p. 118].

Second, the bankruptcy court concluded that Stok's withholding of documents was more harmful to Fusion and Alessi than disclosure would be to Stok because the requesting parties needed the documents to determine how Stok calculated Fusion's proof of claim. [ECF No. 4, p. 119]. Absent that information, the bankruptcy court stated, Fusion and Alessi could not meaningfully move forward in the adversary or main bankruptcy cases. [ECF No. 4, p. 119].

Third, the bankruptcy court found that "the public's interests are not served by lawyers who delay cases and make them more difficult to adjudicate." [ECF No. 4, p. 119]. Rather, according to the bankruptcy court, the public's interest would be best served by resolving the bankruptcy promptly. [ECF No. 4, p. 119]. The bankruptcy court did not, however, make a specific finding that Stok had, in fact, delayed the case or made the case problematic.

II. Standard

Ordinarily, a party seeking to stay a bankruptcy court order pending appeal to the District Court must first ask the bankruptcy court for that relief. Fed. R. Bankr. P. 8007(a)(1)(A). The party can also ask the District Court for a stay, and the motion must, among other things, " ‘show that moving first in the bankruptcy court would be impracticable,’ or ‘if a motion was made in the bankruptcy court, either state that the court has not yet ruled on the motion, or state that the court has ruled and set out any reasons given for the ruling.’ " Rosebrough v. Regions Bank, NA , No. 15-CV-80391, 2015 WL 12860291, at *1 (S.D. Fla. July 21, 2015) (quoting Fed. R. Bankr. P. 8007(b) ).

The grant of an emergency motion to stay pending appeal is appropriate when four factors are met: (1) the movant is likely to prevail on the merits on appeal; (2) movant will suffer irreparable damage absent a stay; (3) the nonmovant will suffer no substantial harm from the issuance of the stay; and (4) a stay will serve the public interest. Garcia–Mir v. Meese , 781 F.2d 1450, 1453 (11th Cir. 1986) ; In re Gonzalez , 12–MC–60047–KMM, 2012 WL 12895515, at *1 (S.D. Fla. Jan. 23, 2012).

III. Analysis

A. Likelihood of Success on the Merits

Florida law governs retaining liens. In re Beverly Mfg. Corp. , 841 F.2d 365, 368 (11th Cir. 1988). Florida law also governs "[t]he validity and extent of retaining liens in bankruptcy[.]" In re Alfaro , No. 2011-35116-BKC-AJC, 2012 WL 1255215, at *1 (Bankr. S.D. Fla. Apr. 13, 2012). Indeed, "[t]he Bankruptcy Code preserves valid state law liens to the extent they are consistent with the Code." In re Herrera , 390 B.R. 746, 749 (Bankr. S.D. Fla. 2008) (ordering turnover of financial documents to the bankruptcy trustee under Bankruptcy Code provision requiring same, but not before finding that attorney in possession of documents under a retaining lien was "entitled to an administrative expense in consideration for turning over the documents subject of his lien.").

The Florida Supreme Court has established that an attorney "has a right to a retaining lien upon all of the client's property in the attorney's possession, including money collected for the client." Daniel Mones, P.A. v. Smith , 486 So.2d 559, 561 (Fla. 1986). The retaining lien is a tool available for attorneys to secure payment of fees by attaching a lien to "papers, money, securities and other property coming into his possession in the course of his professional employment[.]" Wintter v. Fabber , 618 So.2d 375, 376 (Fla. 4th DCA 1993). A retaining lien has value through the "leverage which it gives the attorney over a client who fails or refuses to pay for services rendered, through the embarrassment and inconvenience caused the client by withholding papers, documents, and other valuables[.]" Id.

Absent adequate security, "[t]he lien may not be impaired by the client securing the right to inspect and copy the papers or compelling their production by subpoena." Andrew Hall & Associates v. Ghanem , 679 So.2d...