In re Teligent, Inc.

• Decision Date: 24 September 2009
• Docket Number: Bankruptcy No. 01-12974 (SMB).,Adversary No. 03-2523.
• Citation: 417 B.R. 197
• Parties: In re TELIGENT, INC., Reorganized Debtor. Savage & Associates, P.C., as the Unsecured Claims Estate Representative for and on behalf of Teligent, Inc., et al., Plaintiff, v. Alex Mandl, Defendant.
• Court: U.S. Bankruptcy Court — Southern District of New York

417 B.R. 197

In re TELIGENT, INC., Reorganized Debtor Savage & Associates, P.C., as the Unsecured Claims Estate Representative for and on behalf of Teligent, Inc., et al., Plaintiff, v. Alex Mandl, Defendant.

Bankruptcy No. 01-12974 (SMB).

Adversary No. 03-2523.

United States Bankruptcy Court, S.D. New York.

September 24, 2009.

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Curtis, Mallet-Prevost, Colt & Mosle LLP, Jacques Semmelman, Esq. Of Counsel New York, NY, Attorneys for Plaintiff Savage & Associates, P.C.

Savage & Associates, P.C., Denise L. Savage, Esq. Of Counsel, Croton on Hudson, NY, Attorneys for Plaintiff Savage & Associates, P.C.

Hall, Lamb & Hall, P.A., Andrew C. Hall, Esq., Adam J. Lamb, Esq., Of Counsel, Miami, FL, Attorneys for Defendant Alex J. Mandl.

Williams & Connolly LLP Thomas G. Ward, Esq., Michael S. Sundermeyer, Esq., Mark S. Levinstein, Esq., Luba Shur, Esq., Of Counsel, Washington, D.C., Attorneys for K & L Gates LLP.

MEMORANDUM DECISION DENYING MOTION TO MODIFY CONFIDENTIALITY RESTRICTIONS IN MEDIATION ORDERS AND CROSS-MOTION FOR INJUNCTIVE RELIEF AND SANCTIONS

STUART M. BERNSTEIN, Chief Judge.

Non-party K & L Gates LLP ("K & L") formerly represented the defendant Alex Mandl. The parties engaged in unsuccessful pre-trial mediation, and following trial, the Court entered a judgment in excess of $12 million against Mandl and in favor of the plaintiff, Savage & Associates, P.C. ("Savage"), the Unsecured Claims Representative for and on behalf of Teligent, Inc. ("Teligent"). After the entry of judgment, Mandl discharged K & L, participated in a second round of mediation with new counsel, and eventually settled with Savage. As part of the settlement, Mandl assigned to Savage a portion of the proceeds derived from his legal malpractice claim against K & L. As contemplated by the settlement, Mandl sued K & L for legal malpractice in the District of Columbia (the "DC Action").

K & L contends that it needs the documents and communications generated during the two mediations to defend itself in the DC Action. (Memorandum of Points and Authorities in Support of [K & L's] Motion to Lift Mediation Confidentiality Restrictions, dated March 5, 2009 (the "Motion"))(ECF Doc. #227.)¹ Toward that end, it has moved for relief from the confidentiality provisions contained in this Court's General Order M-143, dated Jan. 17, 1995 ("General Mediation Order") and the specific mediation order entered in this case.

Mandl does not oppose the relief, but Savage does. In addition, Savage has cross-moved for injunctive relief to restrain K & L from challenging the legality of the assignment in the DC Action and for sanctions pertaining to the disclosure of certain confidential information (the "Cross-Motion"). (Unsecured Claims Estate Representative's (I) Objection to [K & L's] Motion to Lift Mediation Confidentiality Restrictions and II) Application in Support of Representative's Cross Motion to (A) Enforce Court's Mediation Order and General Order 143(B) Direct Turnover of Applicable Documents (C) Impose Monetary Sanctions against Hall Lamb and Hall, P.A., Williams & Connelly, LLP and [K & L] and (D) Enjoin [K & L] From Seeking to Collaterally Attack the Order Approving the [Settlement] and to Void Terms of the [Settlement], dated Apr. 24, 2009 ("Savage Objection and Cross-Motion"))(ECF Doc. # 234.)

The Motion and the Cross-Motion are denied for the reasons that follow.

BACKGROUND

A. The Adversary Proceeding

The background to this contested matter is set out in the Court's post-trial decision, Savage & Assocs., P.C. v. Mandl (In re Teligent, Inc.), 380 B.R. 324 (Bankr.S.D.N.Y.2008), familiarity with which is assumed. In 2003, Savage sued Mandl, Teligent's former Chairman and Chief Executive Officer, to avoid and recover preferential and fraudulent transfers. The principal claim arose out of Teligent's forgiveness of a $12 million debt that Mandl owed at the time that Teligent terminated his employment. K & L had represented Mandl at the time of his termination, and continued to represent him in this adversary proceeding.

On February 3, 2004, the Court issued a mediation order that applied to this adversary proceeding as well as roughly 1,000 other adversary proceedings commenced by Savage. Among other things, the mediation protocol attached to and adopted by the mediation order included certain provisions relating to the confidentiality of the mediation process:

Any statements made by the Mediator, by the Parties or by others during the mediation process shall not be divulged by any of the participants in the mediation (or their agents) or by the mediator to the court or to any third party unless otherwise ordered by the Court. All records, reports, or other documents received or made by a mediator while serving in such capacity shall be confidential and shall not be provided to the court, unless they would be otherwise admissible. See the ADR General Order, section 5.1, January 17, 1995. In addition, and in accordance with section 5.2 of the ADR General Order dated January 17, 1995, Rule 408 of the Federal Rules of Evidence shall apply to the mediation proceedings.

(Order Approving Mediation Procedures and Appointing a Mediator, dated Feb. 3, 2004, Sched. A, § 4)(ECF Doc. # 1806, filed in Bankr.Case # 01-12974.) Unless otherwise noted, the mediation order and the mediation protocol are referred to collectively as the Teligent Mediation Order.

The Teligent Mediation Order was based on and tracked the Court's General Mediation Order.² Section 5.1 states, in pertinent part Any statements made by the mediator, by the parties or by others during the mediation process shall not be divulged by any of the participants in the mediation (or their agents) or by the mediator to the court or to any third party. All records, reports, or other documents received or made by a mediator while serving in such capacity shall be confidential and shall not be provided to the court, unless they would be otherwise admissible. The mediator shall not be compelled to divulge such records or to testify in regard to the mediation in connection with any arbitral, judicial or other proceeding, including any hearing held by the court in connection with the referred matter.

(General Mediation Order, at § 5.1.)

In October 2004, Mandl (then represented by K & L) and Savage engaged in mediation but no settlement resulted (the "2004 Mediation"). The Court subsequently conducted a bench trial, and rendered its decision on January 3, 2008. See Teligent, 380 B.R. 324. The Court concluded that Mandl was liable, and awarded damages in the principal sum of $12,040,105.40, plus interest on $40,105.40 at the federal judgment rate from the petition date to the date of the entry of judgment, in addition to the costs and disbursements of the adversary proceeding. Id. at 338, 344. The Clerk of the Court entered a judgment on January 24, 2008 (the "Judgment"). (ECF Doc. # 173.)

B. The Settlement Agreement

Following the entry of the Judgment, Mandl discharged K & L, retained new counsel, Greenberg Traurig, LLP ("GT"), and moved for relief from the Judgment, a new trial, or other relief. (Memorandum of Law in Support of Relief from Judgment, for New Trial, or for Other Relief, dated Feb. 4, 2008)(ECF Doc. #201.) Savage opposed Mandl's motion, (Plaintiff's Objection to Defendant's Motion for a New Trial and for Other Relief, dated Feb. 12, 2008)(ECF Doc. #205), and cross-moved for additional pre-judgment interest which, if granted, would have increased the Judgment to roughly $24 million. (Plaintiff's Application in Support of Motion for Reconsideration of Court's Decision Regarding Award of Interest on the Recovered Loan and to Amend the Judgment Entered, dated Jan. 24, 2008)(ECF Doc. # 176.) Savage also commenced a fraudulent conveyance action in the United States District Court for the Eastern District of Virginia against Mandl, his wife Susan Mandl, and Mandl's affiliate, ASM Investments, LLC.

In an attempt to reach a settlement of the outstanding matters, GT (on behalf of Mandl) and Savage engaged in a second round of mediation. GT invited K & L to participate because Mandl claimed that K & L was liable to him for legal malpractice relating to its representation at the time he was terminated by Teligent and its representation of him in the adversary proceeding. K & L declined the offer, and the mediation went forward on March 25 and 26, 2008 (the "2008 Mediation" and, together with the 2004 Mediation, the "Mediations").

The 2008 Mediation did not produce a settlement, but the parties continued to negotiate and eventually consummated a settlement agreement (the "Settlement") two months later. The material terms included the following:

1) Mandl agreed to pay Savage $6.005 million;

2) Mandl agreed to pursue a legal malpractice claim against K & L "in good faith," and share 50% of the net recovery (after payment of Mandl's attorneys' fees and legal expenses) with Savage (the "Proceeds Assignment") 3) "[T]he value of the Judgment and the Reconsideration Motion being settled" is about $16 million (the "Agreed Valuation"); and

4) Savage agreed to dismiss the Virginia fraudulent conveyance action.

(See Unsecured Claims Estate Representative's Application Under Federal Rule of Bankruptcy Procedure 9019 in Support of Entry of Order Approving Settlement Agreement and Settling All Claims and Defenses in Adversary Proceeding, dated May 30, 2008, at Ex. 1)(ECF Doc. # 221.)

Savage thereafter moved for approval of the Settlement. (Notice Of Presentment of an Order Approving the Unsecured Claims Estate Representative's Application Under Federal Rule of Bankruptcy Procedure 9019 Approving Settlement Agreement and Settling All Claims and Defenses in Adversary Proceeding, dated May 30, 2008)("9019 Motion")(ECF Doc. # 220.) K & L received notice of the application, (see Savage Objection and Cross Motion, at...