In re W.A.R. LLP
| Decision Date | 03 May 2012 |
| Docket Number | Case No. 11-00044 |
| Parties | In re W.A.R. LLP, Debtor. |
| Court | United States Bankruptcy Courts – District of Columbia Circuit |
The document below is hereby signed.
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S. Martin Teel, Jr.
This is a case in which Ty Clevenger, a member of the bar of this court, and Wade A. Robertson repeatedly advanced the frivolous argument that funds that W.A.R. LLP had lent to Robertson in exchange for promissory notes were property of the estate of W.A.R. LLP, as the debtor in this bankruptcy case, all for the purpose of causing delay and unnecessary expense for William C. Cartinhour, Robertson's adversary in a civil action in the district court. Pursuant to Fed. R. Bankr. P. 9011, the court will impose a fine of $10,000 each, payable to the clerk, against Clevenger and Robertson. In addition, the court will grant an award of fees to Cartinhour against Robertson for utilizing Ray Connolly as a purported creditor and party adverse to Robertson to advance arguments designed, in extreme bad faith,vexatiously and wantonly to delay Cartinhour in his rights and to cause him undue litigation expense.
On November 15, 2010, Douglas Sims commenced the above-captioned bankruptcy case by the filing of an involuntary petition against the debtor, W.A.R. LLP, in the United States Bankruptcy Court for the Western District of Tennessee.1 The case was transferred to this court on January 4, 2011. At the time the petition was filed, the relationship between W.A.R. LLP's two sole partners, Cartinhour and Robertson, had already deteriorated, and the two were embroiled in their contentious litigation in the United States District Court for the Districtof Columbia. That litigation has since resulted in a $7,000,000 judgment against Robertson in favor of Cartinhour.
Robertson has repeatedly argued to this and other courts that prosecution of Cartinhour's claims in the district court either violates the automatic stay arising in this case or otherwise improperly implicates estate property. He has continued to advance this legally frivolous position notwithstanding multiple rulings to the contrary, and the evidence shows that he has done so in bad faith in order to advance a broader litigation strategy in multiple courts against his adversary, Cartinhour. Robertson also engaged in an unusual and unethical strategy of ghostwriting papers on behalf of Ray Connolly, a purported creditor and adversary of Robertson in this case. And while ghostwriting is not outright prohibited in this court, doing so in a manner that misleads the court and violates the D.C. Rules of Professional Conduct is.
The record clearly demonstrates that Robertson has intentionally and in bad faith: (1) misrepresented the legal significance of these proceedings in other courts as part of a broader litigation strategy against Cartinhour; (2) engaged in deceptive practices in this court that simultaneously violated Robertson's fiduciary duties to Ray Connolly and Robertson's duty of candor to this tribunal; and (3) advanced legally and factually frivolous arguments in this court. In addition toRobertson's sanctionable conduct, the court also finds that the debtor's attorney, Ty Clevenger, joined Robertson in knowingly and in bad faith advancing frivolous arguments in this bankruptcy case.
Under Rule 9011, sanctions against Robertson and Clevenger are warranted in the form of fines payable to the clerk without even reaching Robertson's misuse of Connolly. Robertson's utilization of Connolly to advance his effort to cause Cartinhour delay and unnecessary expense rose to the level of bad faith in the extreme such as to warrant awarding fees to Cartinhour arising from such misconduct pursuant to the court's inherent powers. The court will also refer Robertson's misconduct as to Connolly to the appropriate state bar authorities. Finally, although Connolly facilitated Robertson's misconduct by permitting him to ghostwrite papers on his behalf, having considered the entire record, including Connolly's testimony at the August 24, 2011 show cause hearing in front of this court, and a settlement amount that Connolly paid to Cartinhour, I conclude that Connolly's conduct does not warrant sanctions.
Wade A. Robertson is an attorney admitted to practice law in the District of Columbia and the State of California. He is notformally admitted to practice in the United States District Court for the District of Columbia or in this Bankruptcy Court. In September 2004, Robertson entered into a partnership agreement with Dr. William C. Cartinhour, Jr. to form the debtor-partnership, W.A.R. LLP, under the laws of the District of Columbia. Pursuant to the terms of the partnership agreement, Robertson had "the exclusive right and authority to manage the business of the Partnership and [was thus] authorized to take any action he deem[ed] necessary in accordance with the provisions [of the partnership agreement] and any applicable law." By contrast, Cartinhour was to "not have any control over the Partnership's business [or] authority or right to act for or bind the Partnership." See Partnership Agreement (Dkt. No. 143, Exh. B). Although Robertson reserved to himself control over the partnership, Cartinhour provided $3,500,000 in capital contributions, whereas Robertson provided $3,500. Under the agreement, the partnership was permitted to make zero-interest loans. Two such loans were made to Robertson in exchange for promissory notes, including an April 8, 2005 loan in the amount of $1,970,000, and an April 18, 2007 loan in the amount of $1,435,000. The proceeds of those loans were deposited into Robertson's personal brokerage account. Robertson ultimately lost approximately $2,814,065 of those funds in unsuccessful securities trading.
The Civil Action in the U.S.
The relationship between Cartinhour and Robertson eventually deteriorated, and on August 28, 2009, Robertson brought a declaratory judgment action against Cartinhour in the United States District Court for the District of Columbia, Robertson v. Cartinhour, Civil Action No. 09-01642, regarding W.A.R. LLP and certain agreements relating to the partnership. Cartinhour, in turn, filed various counterclaims against Robertson. Cartinhour's amended counter-complaint asserted that Robertson committed fraud or negligent misrepresentation and breached his fiduciary duties to Cartinhour and committed legal malpractice by taking from Cartinhour $3.5 million in capital contributions for W.A.R. LLP. The Honorable Ellen M. Huvelle has presided over the civil action.
Cartinhour's Amended Counter-Complaint included a Count XI (Equitable Trust) which, after pleading Robertson's wrongful acts against Cartinhour, stated:
Most of the funds that Cartinhour sought to reach by this request for a constructive trust were Robertson's property (with the majority of the funds being proceeds of the loans Robertson received from the partnership in exchange for promissory notes). Pursuant to preliminary orders in the district court, various funds were placed in the registry of the district court awaiting the outcome of Cartinhour's equitable trust claim. The only amount placed in the registry of the district court that came from an account in the name of the debtor partnership was $4,611.66 in funds held in the debtor's Citibank account, and deposited in the registry of the district court on April 2,2010.2 That deposit occurred well before the commencement of this bankruptcy case in November 2010. After the commencement of the bankruptcy case, Cartinhour and his attorneys were very clear that they were not pursing Cartinhour's claims against the $4,611.66 out of concern that such efforts would violate the automatic stay.
To explain in more detail, the source of the funds placed in the registry of the district court can be traced as follows. Robertson had caused the partnership to lend him $3,405,000 pursuant to Article XXIII of the W.A.R. LLP partnershipagreements,3 as borne out by an accounting Robertson filed in the civil action.4
Specifically, before this bankruptcy case commenced, the district court directed Robertson to file an accounting regardingthe partnership (D. Ct. Dkt. No. 18). On January 4, 2010, Robertson filed an affidavit (D. Ct. Dkt. No. 25), which included an Exhibit B, which set forth the partnership's assets as:
+------------------------------------------------------------------------+
¦ASSETS: ¦ ¦
+----------------------------------------------------------+-------------¦
¦Cash ¦ ¦
¦ ¦$4,541.44 ¦
¦Receivables ¦ ¦
+----------------------------------------------------------+-------------¦
¦-(Article XXIII , WAR. Partn. Agreemt) Accounts Receivable¦$3,405,000.00¦
+----------------------------------------------------------+-------------¦
¦(Contingency class claims - Expenses) Accounts...To continue reading
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