In re Stamell
| Decision Date | 17 August 2000 |
| Docket Number | Bankruptcy No. 196-10614-260. Adversary No. 197-1471-260. |
| Citation | 252 BR 8 |
| Parties | In re Jared B. STAMELL Debtor. Jared B. Stamell, Plaintiff, v. Kirkpatrick & Lockhart, LLP and Gerald A. Novack and W. Shaw McDermott, Trustees of the Kirkpatrick & Lockhart Nominee Trust, Defendants. |
| Court | U.S. Bankruptcy Court — Eastern District of New York |
Robinson Brog Leinwand, Greene, Genovese & Gluck, P.C., By David C. Burger, New York, for Debtor.
Kirkpatrick & Lockhart LLP, By Loren Schechter, New York, for Defendants.
The issue before this Court is whether Jared B. Stamell ("Stamell," "Debtor," or "Plaintiff"), the Debtor in this bankruptcy case, is liable for legal fees incurred by his wife, Susan Frank (her maiden name) ("Susan"), to her attorneys, Kirkpatrick & Lockhart, LLP ("K & L"), which represented her in a criminal case where she was a defendant, payment of which was guarantied by the Debtor. In order to stay a foreclosure sale by Citibank, a secured creditor in this proceeding holding mortgages on both the Debtor's residence and property owned by him on Martha's Vineyard, Massachusetts (the "Vineyard Property"), the Debtor filed a petition for relief under Chapter 11 of the Bankruptcy Code, which case was assigned to, and is pending before, the undersigned. K & L filed a claim in this case for the payment of its fees, which claim was secured by a mortgage also on the Vineyard Property. By initiating the within adversary proceeding, the Debtor, as Plaintiff, has sought to have the claim disallowed and expunged, not only as to its amount, but also on the grounds that the guaranty was executed under duress and coercion and thus is void and of no effect. As hereinafter appears, other areas of relief were sought and counterclaims asserted, which will be discussed.
After 20 days of the trial of the issues raised in this proceeding, followed by unsuccessful attempts at settlement, and upon the record taken during the trial and the memoranda of law submitted by the parties, and after due consideration, this Court concludes that the guaranty is valid. It will now arrange to hold hearings in order to examine into and fix the amount of the claim for the fees and expenses.
On January 24, 1996, Stamell filed his petition for relief under Chapter 11 of the Bankruptcy Code. The instant adversary proceeding was instituted by him against K & L and Gerald A. Novack and W. Shaw McDermitt, Trustees of the Kirkpatrick & Lockhart Nominee Trust (collectively "Defendants"). In addition to seeking judgment denying K & L's claim in its entirety, the complaint also seeks to reclassify any portion of the claim that is not denied, as an unsecured claim, rather than secured on the ground that the K & L mortgage is void. The basis for relief as set forth in the complaint are: (1) violation of the New York Code of Professional Responsibility including Disciplinary Rules 2-110(A), 6-101(A)(3) and 7-101(A)(1-3); (2) breach of fiduciary duty; (3) duress; (4) lack of consideration; (5) breach of contract; (6) receipt of full payment; and as already noted, (7) a declaration that K & L's mortgage is void. Defendants filed an answer on November 12, 1997 denying the allegations contained in the complaint, as well as asserting two counterclaims: (1) seeking a declaration fixing and determining fees owed to K & L as attorneys in the criminal proceeding; and (2) seeking a declaration that K & L's claim against Stamell be deemed a secured and allowed claim. Plaintiff filed a reply to the counterclaims on December 1, 1997. Thereafter, this court conducted an extensive trial. Following the trial on the issues, the parties submitted post-trial memoranda of law as well as replies to each other's respective post-trial memoranda of law. This memorandum opinion constitutes this Court's findings of fact and conclusions of law pursuant to Federal Rule of Bankruptcy Procedure 7052. FED. R. BANKR. P. 7052.
In May of 1993, Stamell's wife, Susan, and her sister, Jane Frank Kresch ("Jane") (collectively the "Frank Sisters"), consulted Michael F. Armstrong ("Armstrong"), then with the law firm of Lord Day & Lord, Barrett Smith ("Lord Day"), about legal representation with respect to a criminal investigation being conducted by the United States Attorney's Office in the Eastern District of New York. The investigation centered upon alleged environmental violations committed by business enterprises in the New York Harbor area, including those in which Susan and Jane were principals.
A grand jury conducted the investigation and it resulted in the issuance of an indictment, dated July 1, 1993, by the United States in the District Court of the Eastern District of New York against the Frank Sisters, other family members and certain Frank company employees (U.S. v. Frank (93 Cr. 706)) (the "Criminal Prosecution"). The indictment alleged a conspiracy to defraud the United States by hiding oil sludge contaminated with poly-chlorinated biphenyls ("PCBs") on the barge Nathan Berman and a conspiracy to commit mail fraud by billing for the lawful disposal of sewage sludge when not all of the sewage sludge was lawfully disposed of.
On or about August 17, 1993, a letter containing terms of retention of Lord Day was executed by Susan and Jane, and by Armstrong and Howard B. Epstein as partners on behalf of Lord Day (the "First Retainer"). Under the terms of the First Retainer, Susan was liable for all reasonable attorneys' fees and disbursements incurred in her defense in the Criminal Prosecution, and Jane was liable for all reasonable attorneys' fees and disbursements incurred in her defense in the Criminal Prosecution. Fees were to be paid on the basis of regular time charges. A note from a buyout of one of the Frank businesses that provided for a monthly pay down at a set amount was assigned to Lord Day in order to establish an escrow account to defray legal expenses on a current basis. As expressly contemplated by the terms of the First Retainer, Armstrong left Lord Day to become a partner of K & L in October 1993. Almost all of the attorneys and staff working on the Criminal Prosecution also left Lord Day to join K & L, so that the work for the Frank Sisters continued uninterrupted.
Over the next year and several months, a team consisting of Armstrong, another partner specializing in environmental issues, several associates, several paralegals and various others on a part-time basis devoted themselves to: (1) discovery efforts examining a massive amount of documents in the possession of the government; (2) selecting, reproducing and organizing an equally substantial number of such documents that were relevant to the defense of the case; (3) lengthy negotiations with government attorneys; (4) extensive motion practice dealing with, among other things, complex environmental issues of law; (5) investigation of numerous factual circumstances and situations that were possibly pertinent to pretrial motion practice or the defense during the trial itself; (6) preparation of a motion and a possible hearing involving possible violations of the Frank Sisters' constitutional rights in the course of a raid conducted by New Jersey environmental authorities; (7) interviewing many witnesses of potential value in pretrial motions or at trial; (8) meetings with potential expert witnesses; (9) intensive legal research on a number of crucial issues; and (10) attending to a variety of requests by the Frank family for related legal services. Pre-bills, which set forth current time charges and disbursements, were given to the clients on a regular basis, usually every week or two.
These efforts were conducted in close coordination with the Frank family, primarily the Frank Sisters. Space was set aside at the Lord Day premises and, later, the K & L premises to accommodate not only the voluminous files relevant to the case but for work space needed by the Frank Sisters in examining and providing K & L with documents pertinent to their defense. The clients maintained almost daily contact with Armstrong and his colleagues.
In September of 1994, the note, proceeds of which had been assigned to K & L that had been providing for the monthly pay downs for the payment of legal fees and expenses was paid in full and, therefore, no longer a source of funds to defray such fees and expenses.
Beginning in or about October 1994, Armstrong and his colleagues at K & L told Susan and her husband, Stamell, the Debtor herein, and Jane and her husband, Dr. Richard Kresch ("Kresch"), that a new retainer agreement was necessary in connection with the continued representation relating to the Criminal Prosecution.
On November 4, 1994, Honorable Edward R. Korman, the District Court Judge to whom the case was assigned and who presided over the trial, ruled that the indictment would be bifurcated into two trials, with the PCB charges to be tried first (the "First Trial"), and the mail fraud charges to follow (the "Second Trial"). Armstrong, on behalf of K & L, entered a notice of appearance for Susan, Jane and their brother, Peter Frank ("Peter"), dated November 4, 1994.
Beginning in November 1994, K & L and the Franks negotiated a guaranty and retainer agreement to cover the payment of legal fees. Armstrong and his trial team devoted their attentions to preparing for trial while Armstrong's colleague and partner, Martin Richman, handled the task of memorializing agreements which included guaranties to be executed by Stamell and Kresch. After considerable negotiations, a first draft of the guaranty and retainer agreement was circulated to the clients and guarantors on November 23, 1994. Thereafter, many telephone conferences were held, letters were exchanged and it appears that about ten drafts of the agreement and guaranties were circulated between November 1994 and January 1995.
On or about January 25, 1995, a Retainer, Non-Recourse Guaranty and...
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