In re Mahoney Hawkes, Llp

• Decision Date: 29 September 2005
• Docket Number: No. 01-12880-WCH.,01-12880-WCH.
• Citation: 334 B.R. 41
• Parties: In re MAHONEY HAWKES, LLP, Debtor.
• Court: U.S. Bankruptcy Court — District of Massachusetts

Page 41

334 B.R. 41

In re MAHONEY HAWKES, LLP, Debtor.

No. 01-12880-WCH.

United States Bankruptcy Court, D. Massachusetts, Eastern Division.

September 29, 2005.

Ruth M. Bayley, Mintz, Levin, Cohn, Ferris, Glovsky, Boston, MA, Joel G. Beckman, Nystrom Beckman & Paris LLP, Boston, MA, Daniel S. Bleck, Mints, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., Boston, MA, John T. Daley, Dane & Howe, LLP, Boston, MA, David Duncan, Zalkind, Rodriguez, Lunt & Duncan, Boston, MA, Janet E. Dutcher, Law Office of Paul Kazarosian, Haverhill, MA, Richard D. Glovsky, Prince, Lobel, Glovsky & Tye, LLP, Boston, MA, Philip H. Graeter, Sherin and Lodgen LLP, Boston, MA, James C. Gross, Klieman, Lyons, Schindler & Gross, Boston, MA, David Hadas, Massachusetts Attorney General's Of Assistant Attorney General, Boston, MA, Ian Hammel, Mintz, Levin, Cohn, Ferris, Glovsky and Pope, Boston, MA, Marian B. Hand, Duane Morris LLP, Boston, MA, Allen J. Holland, Jr., Lynch, Brewer, Hoffman & Sands, LLP, Boston, MA, James E. Howard, Charlestown, MA, William W. Kannel, Mintz, Levin, Cohn, Ferris, Glovsky & Popeo, P.C., Boston, MA, Michael Kendall, McDermott, Will & Emery, Boston, MA, Dale C. Kerester, Lynch, Brewer, Hoffman & Sands, LLP, Boston, MA, Kenneth D. Kerr, Quincy, MA, Frank D. Kirby, Frank D. Kirby & Associates, P.C., South Boston, MA, Peter B. Krupp, Lurie & Krupp, Boston, MA, John C. La Liberte, Sherin and Lodgen LLP, Boston, MA, David B. Madoff, Madoff & Khoury LLP, Foxboro, MA, George L. Marlette, Brockton, MA, James Michael Merberg, Law Offices of James Michael Merberg, Boston, MA, Richard E. Mikels, Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, Boston, MA, Robert J. Muldoon, Jr., Sherin and Lodgen LLP, Boston, MA, Pamela R. O'Brien, Holland & Knight LLP, Boston, MA, Jonathan D. Plaut, Prince, Lobel, Glovsky & Tye, LLP, Boston, MA, Jeffrey D. Sternklar, Duane Morris, LLP, Boston, MA, James F. Wallack, Goulston & Storrs, PC, Boston, MA, Lynne B. Xerras, Holland & Knight LLP, Boston, MA, for Creditors.

David B. Madoff, Madoff & Khoury LLP, Foxboro, MA, Christopher J. Panos, Craig and Macauley, P.C., Boston, MA, Kathleen Rahbany, Craig and Macauley, P.C., Boston, MA, for Debtors.

MEMORANDUM OF DECISION REGARDING OBJECTION OF DEBTOR AND OFFICIAL COMMITTEE OF UNSECURED CREDITORS TO PROOF OF CLAIM OF GO-BEST ASSETS LIMITED

WILLIAM C. HILLMAN, Bankruptcy Judge.

I. Introduction

Mahoney Hawkes, LLP (the "Debtor") and the Official Committee of Unsecured Creditors of the Debtor (the "Committee") filed an objection to the proof of claim of Go-Best Assets Limited ("Go-Best"). They argued that Go-Best cannot hold a malpractice claim based upon its failed investment activities with a former partner of the Debtor because such activities did not create an attorney-client relationship between Go-Best and the Debtor. Go-Best responded defending the validity of its claim. Based upon the following findings of fact and conclusions of law, I will enter an order sustaining the objection.

II. Background

A. Procedural Background

The Debtor was a law firm engaged solely in the practice of law.¹ A former partner of the Debtor, Morris Goldings ("Goldings") mishandled client funds. At the time the Debtor filed for Chapter 11 relief on April 6, 2001, it was the subject of several malpractice claims as a result of his actions.² See In re Mahoney Hawkes, LLP, 289 B.R. 285 (Bankr.D.Mass.2002). The United States Trustee appointed the Committee on April 23, 2001. A plan of reorganization has not been confirmed.

On October 3, 2001, Go-Best filed a proof of claim in the amount of $6,588,400 (the "Claim"). The basis for the Claim was set forth in the Verified Complaint which Go-Best had filed in the Superior Court Department of the Trial Court of the Commonwealth of Massachusetts in February of 2001 (the "Complaint"). Go-Best described the Complaint as one for "damages as a result of, among other things, the misappropriation, breach of contract and deception by Morris M. Goldings, in his capacity as a lawyer and a named partner at Mahoney, Hawkes & Goldings, LLP, and the apparent disappearance of plaintiff's money." Complaint, p. 2.

Subsequent to the objection to Claim and response thereto, the Debtor and the Committee filed a motion for summary judgment. Go-Best filed an objection and a cross-motion for summary judgment. I denied both motions and set the matter for an evidentiary hearing. The parties stipulated that the hearing would be bifurcated to allow first for the determination as to whether the Debtor owed Go-Best any duty that could have been breached. The parties also filed their Joint Pretrial Statement With Respect to Objection of Debtor and Official Committee of Unsecured Creditors to Proof of Claim of Go-Best Assets Limited (the "PTS"). I held a hearing and took the matter under advisement.

B. Factual Background

The following facts are based upon the agreed-upon facts in the PTS and the testimony and evidence at the evidentiary hearing.

1. The Players

Go-Best is a corporation which Kan Shu Ming ("Kan") formed to invest his personal assets. Kan is the sole beneficial owner. Go-Best is one of at least 10 entities which Kan has formed for investment purposes. It was formed in the British Virgin Islands to take advantage of their tax laws.

Kan received a degree in Computer Science and Accounting from the University of Manchester in 1980 and has been working as an accountant since that time. Kan has been a partner of Wong Brothers & Co., a firm of certified public accountants in Hong Kong since 1990. Go-Best and the other entities which he has formed are separate from Wong Brothers and he does not share any of the profits from his investment vehicles with his partners.

Prior to his companies' investments with Goldings, Kan was involved in two investment opportunities in the United States during the summer of 1997. In both deals, Go-Best lent a total of $950,000 with interest of 30% per annum on each loan. To obtain information about the transactions, Kan relied on the advice and assistance of two individual intermediaries who are described below.

Go-Best hired counsel, a Boston law firm not involved in these proceedings, to represent it in these initial investments and gave its counsel a power of attorney. The binders which contained the documentation for these two transactions were entered into evidence. On the cover of the bound volumes are the name and address of counsel. The first binder contains copies of the six loan documents and five consents and certificates. Included in the miscellaneous section are seven documents including a conflict waiver which Go-Best signed and an opinion letter for Go-Best which special counsel to the borrower signed. The second binder contains copies of six loan documents, two certificates and consents and four miscellaneous documents which include a waiver that Go-Best signed. Both loan agreements provided that any notices would go to the lawyer to whom Go-Best had executed a power of attorney.

Goldings was an experienced and prominent lawyer who was a founding and one-time managing partner of the Debtor. At the evidentiary hearing, his former partners explained that Goldings enjoyed a stellar reputation and was considered to be an excellent litigator with high standards. They testified that in the winter of 2000, when it came to light that client funds were missing, Goldings checked into a hospital. Goldings did not testify at the hearing.³

While he was a partner, Goldings established an account at Citizens Bank entitled the Morris Goldings Client Funds Account (the "Account"). The partners at the Debtor knew of the Account but did not oversee it or determine whether it was in compliance with applicable rules regarding a client funds account. Goldings' secretary helped administer the Account and Goldings would pay the Debtor for his clients' bills from the Account.

Paul Hoiriis ("Hoiriis") is the Chief Financial Officer for Aqua Leisure Industries, Inc. He holds a Master's degree in Business Administration and has been involved in corporate management for almost thirty years. The chairman of Aqua Leisure is Simon Fireman. Hoiriis has been involved in many negotiations between business entities but none where all of the participating parties were represented by the same counsel.

In 1996, during the course of his duties with Aqua Leisure, Hoiriis became acquainted with Goldings as Goldings represented the company. Also in the course of his employment, Hoiriis visited Hong Kong several times annually to oversee a subsidiary named Greyland. In 1994, he became acquainted with Kan whose company provided accounting services for Hoiriis' company. Kan eventually let Hoiriis know that he was interested in obtaining investments in the United States. During the transactions set forth below, Hoiriis conveyed information between Kan or his investment vehicles and Goldings. He was not an employee or an attorney for either party. He explained at trial that he entertains a sense of culpability for the eventual loss of Go-Best's funds and worries that a negative outcome in these proceedings will have an effect his relationship with the Kan.

Andrew Lam was a partner in Wong Brothers & Co. until 2000. He holds a law degree and is licensed to practice law in the United Kingdom, Hong Kong and Australia. During all but the last transaction described below, Lam served as the conduit between Kan and Hoiriis. He was not an employee of Kan or his entities or their lawyer. He did not testify at the evidentiary hearing and the parties reported that he is pursuing a theology studies in Australia.

2. The Deals

The Claim arises from two transactions which the parties refer to as the Starwood transaction and the Rodin transaction. Goldings and Kan were involved in two prior transactions which the parties generally refer to as the Jedrick transaction and the Kline transaction. The transactions arise from Kan's desire to...