In re Summit Airlines, Inc.
| Decision Date | 16 November 1993 |
| Docket Number | Bankruptcy No. 88-10911DAS,Adv. No. 93-0306DAS. |
| Citation | 160 BR 911 |
| Parties | In re SUMMIT AIRLINES, INC., Debtor. OFFICIAL COMMITTEE OF UNSECURED CREDITORS ON BEHALF OF SUMMIT AIRLINES, INC., Plaintiff, v. Jonathan GANZ, Allen Dubroff, Astor, Weiss & Newman, Paul C. Astor, Sandra Schultz Newman, G. David Rosenblum, Arthur H. Kaplan, David S. Workman, David S. Mandel, Allen B. Dubroff, d/b/a Astor, Weiss & Newman, Rawle & Henderson, J. Grant McCabe, III, Peter C. Paul, Henry C. Lucas, III, Morton F. Daller, Carl D. Buchholz, III, Alan Greenberg, Peter J. Weber, James C. Stroud, Warren L. Simpson, Jr., Patricia A. Mattern, James B. Kozloff, Wendy H. Kock, Thomas P. Wagner, Michael Slotznik, Edward A. Greenberg, H. Coleman Switkay, John S. Bagby, Jr., Fred B. Buck, John H. McCarthy, Clifford A. Goldstein, Thomas A. Kuzmick, Patrick J. Stapleton, III, Tina L. Nugent, and Jonathan H. Ganz, d/b/a Rawle & Henderson, Defendants, RAWLE & HENDERSON, Allen B. Dubroff, Astor, Weiss & Newman, Paul C. Astor, Sandra Schultz Newman, Arthur H. Kaplan, David S. Workman and David S. Mandel, Third Party Plaintiffs, v. REGENT NATIONAL BANK, PNC Bank, Third Party Defendants. |
| Court | U.S. Bankruptcy Court — Eastern District of Pennsylvania |
COPYRIGHT MATERIAL OMITTED
Allen B. Dubroff, Joseph B. Finlay, Jr., Astor, Weiss & Newman, Philadelphia, PA, for debtor.
Mary F. Walrath, Clark, Ladner, Fortenbaugh & Young, Philadelphia, PA, for Creditors' Committee.
John W. Morris, Philadelphia, PA, Special Counsel for Creditors' Committee.
H. Marc Tepper, Margolis, Edelstein & Scherlis, Philadelphia, PA, for Astor, Weiss & Newman and its partners.
Walter J. Weir, Patterson & Weir, Philadelphia, PA, for defendant Rawle & Henderson and its partners.
Steven E. Ostrow, Mesirov, Gelman, Jaffe, Cramer & Jamieson, Philadelphia, PA, for Regent Bank.
William A. Harvey, Klehr, Harrison, Harvey, Branzburg & Ellers, Philadelphia, PA, for former defendant PNC Bank.
Frederic Baker, Asst. U.S. Trustee, Philadelphia, PA.
Before this court in the instant proceeding to recover funds embezzled from the estate of SUMMIT AIRLINES, INC. ("the Debtor") by Defendant JONATHAN H. GANZ, naming as defendants Ganz, two law firms for which he worked, and all of the partners of those firms, are numerous motions seeking to resolve, as a matter of law, many of the substantive and procedural issues arising in the proceeding, scheduled to be tried before this court on November 18, 1993. At this juncture, we are prepared to decide two of these motions, which we believe will be dispositive of many, if not all, of the claims raised in the matter. First, we find that the motion of the Plaintiff OFFICIAL COMMITTEE OF UNSECURED CREDITORS of the Debtor ("the Plaintiff") for partial summary judgment on the issue of liability against Defendant ASTOR, WEISS & NEWMAN ("the Astor Firm"), the firm employed by the Debtor and of which Ganz was a partner at the time of most of the defalcations in issue, must be granted. Second, we conclude that the motion of Third-party Defendant REGENT BANK ("Regent") to dismiss the Third-party Complaint of the Astor Firm against it on jurisdictional grounds must also be granted.
We recognize that these decisions leave the Astor Firm in the uncomfortable position of being subject to liability in this proceeding, while being compelled to pursue the party which it believes was primarily responsible for the misappropriations in issue, i.e., Regent, in another forum. However, these unfortunate consequences are not only legally inescapable, but also they further the public policy of rendering the party with the closest relationship with the wrongdoer, and hence the party normally with the best opportunity to halt such practices, responsible for ferreting out embezzlement by members of the bar, i.e., the law firm which hired and hoped to profit from the deeds of the now-errant partner.
The bankruptcy case underlying the instant regrettable circumstances was initiated by the filing of an involuntary Chapter 7 bankruptcy petition against the Debtor on March 18, 1988. An Order for relief under Chapter 11 was entered on May 9, 1988. On May 11, 1988, Defendant ALLEN B. DUBROFF, ESQUIRE, moved for the appointment of a "boutique" bankruptcy law firm of which he was then a partner, Pincus, Verlin, Hahn, and Reich ("the Pincus Firm"), as counsel for the Debtor. The application was granted on May 13, 1988.
In his deposition, Dubroff described the highlights of the case. He stated that it featured a bidding war between two European an airlines for certain air rights of the Debtor, which itself no longer did business. The ensuring auction of the Debtor's property yielded an unanticipated bounty of several million dollars, resulting in net assets of several hundred thousand dollars after satisfaction of all secured claims against the Debtor. A liquidating Chapter 11 plan, formulated to dispose of the remaining assets, was confirmed on June 21, 1989.
In fall, 1989, Dubroff stated that he became deeply involved in negotiating the terms of the ultimate merger of the practice of approximately seven lawyers then constituting the Pincus Firm into the Astor Firm. In his deposition, Dubroff, with perhaps unjustified modesty, described Ganz, the only other ex-Pincus Firm attorney who became an Astor Firm partner after the merger, as the more brilliant practitioner and hence as the de facto managing partner of these attorneys when they settled in as the bankruptcy group at the Astor Firm. In response to Ganz's offer to help with several of his cases to lighten Dubroff's remaining workload, Dubroff therefore had no reservations about assigning the remaining tasks in the Debtor's case, believed to be litigation of accounts receivable and preference actions, to Ganz.
Unfortunately, during his stewardship of the case, Ganz utilized several checks drawn on the debtor-in-possession account opened by Dubroff at Provident National Bank ("Provident"), which were executed by Dubroff in blank to pay the filing fees of these anticipated legal actions, to withdraw an amount of funds from the Debtor's estate in excess of $500,000; deposit these funds into an account established by him at Regent, entitled "Jonathan H. Ganz, Esq., Attorney for Summit Airlines, Inc.;" and to ultimately convert these funds to his own use.
The Astor Firm was appointed as counsel for the Debtor to replace the then-dissolved Pincus Firm on January 19, 1990. In August, 1991, Ganz, then still in good standing, resigned from the Astor Firm and became a partner in the law firm of Rawle and Henderson ("the Rawle Firm"). Ganz testified, in his deposition, that, while he took the Debtor's case file with him to the Rawle Firm, very little legal activity was needed or undertaken thereafter.
So well had Ganz chosen his victim that neither the Plaintiff, though represented by astute bankruptcy counsel, nor any other interested party, detected his sizable defalcation until well after a Final Decree was entered in this case on November 8, 1991, and the case was closed on December 17, 1991. Ganz first made the court and the United States Attorney aware of the general nature of his grossly improper actions and identified this case as a target of his improprieties when his various embezzlements came to light in February, 1992.
Although the nature of Ganz's actions were generally known to the bar shortly after February, 1992, it is not clear that the identity of this case as one of his targets was publicized. The Plaintiff apparently did not become aware that this Debtor's estate was a victim of Ganz's campaign of dishonesty until shortly before November 19, 1992, when it successfully moved to reopen this case in contemplation of filing this proceeding. On April 8, 1993, the instant proceeding was filed.
The Complaint is divided into five Counts, each of which are apparently directed to all of the Defendants, titled as follows: (I) — Turnover; (II) — Bailment and Breach of Trust; (III) — Tortious Conversion; (IV) — Negligence; and (V) — Disgorgement of Compensation. After a conference with counsel on the original trial date of June 16, 1993, we readily agreed to continue the trial until September 1, 1993. On June 23, 1993, and June 28, 1993, respectively, the Rawle Firm and the Astor Firm filed Answers to the Complaint and Third-Party Complaints against Regent. As the parties apparently now agree that the activities of Ganz while he was at the Rawle Firm involved less than a total of $7,000, that firm has neither been the focus of, nor the moving party in, any of the flurry of recent pre-trial motions.
On August 13, 1993, Regent answered the Third-Party Complaints filed against it. On literally the eve of the September 1, 1993, trial date, the Astor Firm also moved to join PNC Bank ("PNC"), the successor to Provident, where Dubroff had established his accounts for the Debtor, as an additional third-party defendant. On September 9, 1993, having, with some reluctance, continued the trial to at least that date, we entered an Order joining PNC as a third-party defendant; requiring it to answer the complaint against it by September 30, 1993; directing that all discovery be completed by October 29, 1993; and allowing that the trial of the matter be continued to be heard on a must-be-tried basis on November 18, 1993. PNC was subsequently voluntarily dismissed as a party by agreement of all of the other interested parties on October 1, 1993. Regent filed an Amended Answer to the Third-Party Complaint of the Astor Firm against it on September 27, 1993.
The volley of motions before us began with the filing of the Plaintiff's Motion for Partial Summary Judgment against the Astor Firm, with an accompanying Memorandum of Law, on October 12, 1993 ("the PSJ Motion"). Without specifying the precise Counts of the Complaint on the...
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