Ridgemour Meyer Props., LLC v. Goetz Fitzpatrick, LLP (In re Ridgemour Meyer Props., LLC)

• Decision Date: 15 March 2019
• Docket Number: 18 Civ. 5302 (KPF)
• Citation: 599 B.R. 215
• Parties: IN RE RIDGEMOUR MEYER PROPERTIES, LLC, Debtor, Ridgemour Meyer Properties, LLC, Appellant, v. Goetz Fitzpatrick, LLP, Appellee.
• Court: U.S. District Court — Southern District of New York

599 B.R. 215

IN RE RIDGEMOUR MEYER PROPERTIES, LLC, Debtor,Ridgemour Meyer Properties, LLC, Appellant,

v.Goetz Fitzpatrick, LLP, Appellee.

18 Civ. 5302 (KPF)

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

Signed March 15, 2019

Joseph T. Adragna, Huntington, NY, for Appellant.

Scott David Simon, Gary M. Kushner, Goetz Fitzpatrick LLP, New York, NY, for Appellee.

OPINION AND ORDER

KATHERINE POLK FAILLA, United States District Judge

A real estate venture that failed in 2006 continues to spawn litigation — in New York State courts, in federal bankruptcy court, and now in this Court. At its core, the instant appeal concerns the harmonization of two seemingly contradictory judicial findings: first , a finding by United States Bankruptcy Judge Stuart M. Bernstein in 2008 that Debtor Ridgemour Meyer Properties, LLC ("Debtor," "Ridgemour," or "RMP") had engaged in deceptive conduct with its attorneys, Goetz Fitzpatrick LLP ("GF"), which finding was instrumental to the dismissal of a later state-court malpractice action brought by RMP against GF; and second , Judge Bernstein's more recent opinion that GF was entitled to recover most, though not all, of the attorneys' fees it had billed to RMP. RMP protests that the same in pari delicto defense that brought about the demise of its malpractice lawsuit against GF compels the denial of GF's claim for fees. GF responds that Judge Bernstein was correct in determining that the doctrine of in pari delicto did not bar recovery for the entirety of the fees billed, but only for that portion that was incurred after GF was found to have engaged in joint misconduct with RMP. For the reasons set forth in the remainder of this Opinion, the Court affirms the decision of Judge Bernstein.

BACKGROUND¹

A. The Parties and the Joint Venture

The parties are largely in agreement concerning the underlying real estate transaction. The Court therefore adopts Judge Bernstein's summary so that it may focus greater attention on the procedural history that ensued:

Ridgemour is a New York limited liability company whose members are owned and controlled by William Meyer ("Meyer") and A.J. Rotonde ("Rotonde"). In 2003, Ridgemour and Ginsburg Development Companies, LLC ("GDC") formed a joint venture, known as Pinnacle-Westchester LLC ("Pinnacle"), to develop and erect a high rise building in White Plains, New York. Ridgemour contributed a parcel of real property known as the "Primary Lot" which was subject to a mortgage in the approximate amount of $ 3,386,000 held by Merida Associates, Inc. ("Merida") and contract rights to purchase two other lots. Ridgemour subsequently sold another lot (the "Jomas Lot") to Pinnacle. Unless otherwise indicated, Property refers to all of the Pinnacle real property that originated with Ridgemour.

By 2006, if not sooner, Ridgemour and GDC became deadlocked over the future of Pinnacle. Ridgemour still hoped to develop the project while GDC sought to dissolve the joint venture. On November 22, 2006, GDC commenced an arbitration against Ridgemour, Meyer and Rotonde (the "Arbitration"). Ridgemour originally hired a different firm to represent its interests, but eventually retained GF. Donald Carbone, Esq., a GF partner, was in charge of the legal work performed by GF on behalf of Ridgemour.

Ridgemour IV , 2018 WL 2305765, at *1-2.

B. The Arbitration and the Misconduct

On or about November 22, 2006, GDC commenced an arbitration in accordance with the Pinnacle Operating Agreement against RMP, Meyer, and Rotonde. Proceedings were conducted before Arbitrator Thomas Scarola (the "Arbitrator"). On June 18, 2008, after several days of evidentiary hearings, the Arbitrator sent an email to the parties (the "June 18 Email"), which, among other things, offered the Arbitrator's conclusion that Pinnacle should be dissolved:

[The June 18 Email] stated, among other things: RMP incurred damages due to GDC's management of Pinnacle; control of the Property should be returned to RMP to allow for its development; and the parties should be prepared to discuss the methods of dissolving Pinnacle. The email also stated that the foregoing would not preclude assigning a value to the Property contributed by RMP and compensating GDC for its investment, with such issues to be determined after hearing the parties' damage claims and defenses.

Ridgemour II , 2013 WL 5574533, at *2 ; see also Ridgemour IV , 2018 WL 2305765, at *2 ("Ridgemour was ‘elated’ and ‘delighted’ with the Arbitrator's ruling directing return of the Property back to Ridgemour." (citing exhibits) ).

The parties met with the Arbitrator the next day, June 19, 2008, during which time they discussed the transfer of control of the Property back to RMP, and the concomitant protection of GDC's rights through a mortgage and note. See Ridgemour II , 2013 WL 5574533, at *2 ; Ridgemour I, 413 B.R. at 104-05. That afternoon, the parties advised the Arbitrator of an agreement in principle on the remaining issues. They then set out to draft the settlement documents, which included draft deeds that reconveyed the property from Pinnacle to RMP, as well as a mortgage, a note, and an indemnity agreement in favor of GDC.²

Here began the mischief that has prompted so much litigation. The parties reached an impasse concerning the settlement documents, and while certain documents (such as the deeds reconveying the Property back to RMP) had been deemed acceptable to both sides, the parties contemplated that all documents would be executed simultaneously at the time of the closing. See Ridgemour I, 413 B.R. at 105 ("The transmittal email advised Carbone that the documents were being sent prior to GDC's review to expedite the matter, and ‘[a]ccordingly, the documents remain subject to our client's further review, comment and approval.’ " (record citation omitted) ). In clear derogation of this understanding, on or about June 30, 2008, A.J. Rotonde of RMP signed the deeds and delivered them to a real estate attorney, Carol Dall, for recordation. Dall retained the documents in her possession for several weeks, before delivering them to the Westchester County Clerk on July 21, 2008, who then recorded the deeds on July 29, 2008. See id. at 107 ; Ridgemour IV , 2018 WL 2305765, at *2.

Unaware of Rotonde's conduct — and, more broadly, of the deception being perpetrated by RMP and, later, RMP's counsel — the Arbitrator issued an interim award (the "Interim Award") dated July 9, 2008:

The Interim Award provided, in pertinent part, that [i] Pinnacle would be dissolved, [ii] ownership of the Property would be transferred from Pinnacle to the debtor [RMP], [iii] the debtor would execute a note and mortgage in GDC's favor in the sum of $ 14.629 million to secure the repayment of monies that GDC had invested or expended on behalf of Pinnacle, [iv] the amount of the note and mortgage could increase or decrease based on the disposition of the debtor's damage claims, and [v] the debtor would indemnify Pinnacle, GDC and Ginsburg from any liability arising from its efforts to develop the Property after the date of the transfer or arising from the debtor's actions prior to the date of the transfer. Each component was contained in a separate paragraph.

Ridgemour I , 413 B.R. at 105 ; see also Ridgemour II , 2013 WL 5574533, at *2-3. However, drafting difficulties still plagued the parties throughout June and July 2008, prompting them to seek assistance from the Arbitrator several times to resolve their disputes. During all of these communications, GF attorney Donald Carbone failed to advise GDC or the Arbitrator that the deeds had been executed and transferred to RMP's real estate counsel for recordation. See, e.g., Ridgemour I, 413 B.R. at 105-06 (discussing June 28, 2008 email from Arbitrator to parties discussing issues of ownership and control of the Property); id. at 106 (discussing July 3, 2008 email from Carbone complaining that GDC was attempting "to delay the transfer of the property to RMP"); see generally id. ("Both sides viewed the conveyance of the Property as something that had not yet occurred, and depended on the delivery of the mortgages and other documents.").

On July 31, 2008, two days after the recordation, counsel for GDC learned that Rotonde and RMP had recorded the deeds, thereby reconveying the property back to RMP without any corresponding protections for GDC. Counsel for GDC immediately advised the Arbitrator, prompting Carbone to proffer the not-at-all-convincing response that such conduct was entirely in accord with the parties' jointly-held understanding. See Ridgemour I, 413 B.R. at 107. The Arbitrator dismissed Carbone's efforts at placation, and instead imposed the following deadlines: "After resolving the disputed mortgage and other terms, the [A]rbitrator directed GDC to modify the documents by August 6th, and gave [RMP] until August 12th to return the signed documents and produce a letter of credit." Id.

C. The Bankruptcy Petition and the Appointment of a Trustee

RMP did not abide by the Arbitrator's deadline, but instead filed a petition under Chapter 11 of the Bankruptcy Code late in the evening of August 11, 2008. (Bankr. Dkt. # 1).³ On August 25, 2008, GDC filed a motion to dismiss RMP's petition or to appoint a Chapter 11 trustee (Bankr. Dkt. # 8), and the following day it filed a motion for sanctions against RMP and GF (Bankr. Dkt. # 13-14). Judge Bernstein held a hearing on these and other matters on September 23, 2008. (Bankr. Dkt. # 36 (transcript) ). Thereafter, RMP changed counsel, and new counsel offered to dismiss the petition and reconvey the property back to Pinnacle. (Bankr. Dkt. # 37-41). GDC refused the offer unless its attorneys' fees were reimbursed by RMP, and modified its motion to seek only the appointment of a Chapter 11 trustee. (Bankr. Dkt. # 44).⁴

Judge Bernstein refused RMP's request to dismiss the petition, and held an additional two days of hearings on GDC's motion for a trustee. (Bankr. Dkt. # 54-55 (transcripts of hearings on ...