Trigee Found., Inc. v. Lerch, Early & Brewer, Chtd. (In re Trigee Found., Inc.)
| Decision Date | 24 May 2021 |
| Docket Number | Adversary Proceeding No. 16-10025,Case No. 12-00624 |
| Parties | In re TRIGEE FOUNDATION, INC., Debtor. TRIGEE FOUNDATION, INC., Plaintiff, v. LERCH, EARLY & BREWER, CHTD., et al., Defendants. |
| Court | United States Bankruptcy Courts – District of Columbia Circuit |
This is an action for legal malpractice brought by Trigee Foundation, Inc. ("Trigee") against Lerch, Early & Brewer, Chtd. ("Lerch Early") and Jeffrey M. Sherman regarding their services as counsel for Trigee in its bankruptcy case, Case No. 12-00624 in this court (the "main case"), commenced on September 13, 2012.1 Sherman left Lerch Early on Friday, June 28, 2013, and Trigee elected to proceed to be represented by Sherman as a solo practitioner in lieu of Lerch Early.2 Sherman continued to represent Trigee until the court dismissed Trigee's bankruptcy case in September 2014.
Trigee commenced this malpractice action in 2016. On September 23, 2016, the court entered an order ("Dismissal Order") dismissing the malpractice damages claims relating to services provided by the defendants through June 30, 2013. This resulted in the dismissal of Lerch Early as a defendant, and the dismissal of claims against Sherman other than those relating to services he rendered as a solo practitioner after June 30, 2013. However, the Dismissal Order was not made a final and appealable order under Fed. R. Civ. P. 54(b). Trigee seeks reconsiderationof the Dismissal Order. I will deny reconsideration as to Lerch Early but will vacate the Dismissal Order as to Sherman (but on grounds other than those raised by Trigee).
THE DISMISSAL ORDER OF SEPTEMBER 13, 2016,
On January 10, 2014, Lerch Early, as Trigee's former counsel, filed its Final Application for Approval of Compensation for Lerch, Early & Brewer for the Period May 2013 Through June 2013 ("Final Application") seeking approval under 11 U.S.C. § 330(a) of compensation for the period May 2013 through June 2013, along with a notice of opportunity to object. The Final Application included time billed for services rendered by Sherman as a Lerch Early attorney during the period May 2013 through June 30, 2013.3 On the day that Lerch Early filed the Final Application, Lerch Early sent Trigee a copy of the Final Application with notice of the opportunity to oppose the Final Application.
Trigee did not object to Lerch Early's Final Application, and on February 4, 2014, the court entered its Order Granting Final Application for Approval of Compensation for Lerch, Early & Brewer for the Period May 2013 Through June 2013 ("Final FeeOrder") and directing Trigee to pay Lerch Early the approved fees.
In March 2016, more than a year after the bankruptcy case was dismissed in September 2014, Trigee filed its Complaint asserting malpractice damages claims against Lerch Early and Sherman in the Superior Court of the District of Columbia. Lerch Early and Sherman removed that civil action to this court, where it was assigned Adversary Proceeding No. 16-10025. On May 27, 2016, Lerch Early and Sherman filed a Motion to Dismiss or, in the Alternative, for Summary Judgment on Allegations Arising from Professional Services Performed Through June 30, 2013 ("Motion to Dismiss"). On September 23, 2016, the court issued a Memorandum Decision addressing that Motion to Dismiss and concluding, based on Capitol Hill Group v. Pillsbury, Winthrop, Shaw, Pittman, LLC, 569 F.3d 485 (D.C. Cir. 2009), that the Final Fee Order in the bankruptcy case had the res judicata (claim preclusive) effect of barring the claims relating to services performed through June 30, 2013.4 Consequently, also on September 23, 2016, the court entered the Dismissal Order dismissing with prejudice the claims arising from professional services performed by Lerch Early and Sherman through June 30, 2013. The Dismissal Order didnot dismiss the claims against Sherman regarding professional services he performed after June 30, 2013.
The court did not make the Dismissal Order of September 23, 2016, final and appealable under Fed. R. Civ. P. 54(b). On August 20, 2020, almost four years after entry of the Dismissal Order, Trigee filed its Motion for Reconsideration, seeking to set aside the Dismissal Order. The Motion for Reconsideration concerns certain steps Lerch Early and Sherman took in the bankruptcy case regarding the unsecured claim of SGA Companies, Inc. ("SGA").
THE MALPRACTICE DAMAGES CLAIMS RELATING
TO SERVICES RENDERED CONCERNING SGA'S CLAIM
Paragraph 27 of the Complaint alleges:
The defendants also failed to file a correct List of Creditors. For example, Defendants did not list as "Disputed" the claim of the architect Sassan Gharai and his architectural firm SGA ("SGA"). That failure and the failure to assert the statute of limitations as to SGA, coupled with Defendants failure to file a confirmable Plan, allowed this disputed creditor to file another Plan that would liquidate Trigee and turn over its stock to SGA. This mistake by Defendants was expensive and time-consuming for Trigee. SGA's claims were large, with legal fees and interest. Defendants' failure to assert the statute of limitations and other defenses, and the mishandling of this claim, kept Trigee from being able to dismiss the bankruptcy until SGA's claim was resolved. Trigee ultimately had to settle and pay SGA $100,000 and dismiss its appeals.
There is no dispute that Sherman, while still employed at Lerch Early, failed to schedule SGA's claim as disputed and that, afterhe left Lerch Early on June 30, 2013, he failed to include the statute of limitations as a ground of objection in Trigee's objection to SGA's claim. I will assume (without deciding) that each of these failures sufficed to require rejection of any statute of limitations defense to SGA's claim, and constituted an act of negligence because the statute of limitations defense would have succeeded but for such negligence.
The failure to list SGA's claim as disputed occurred in 2012, before Lerch Early filed its Final Application on January 10, 2014. By the time Lerch Early filed its Final Application, Trigee was already aware that SGA's claim had not been scheduled as disputed, and Trigee was aware, or ought to have been aware, of its injury arising therefrom. Two of Trigee's officers had been at the hearing of November 13, 2013, at which SGA's counsel raised the argument that the statute of limitations was inapplicable because Trigee scheduled SGA's claim without an indication that it was disputed.
On November 26, 2013, the court entered an Order Overruling Objection to Claim of SGA Companies, Inc. pursuant to the court's oral decision at the November 13, 2013 hearing. As the holder of this allowed claim, SGA filed a motion on December 12, 2013, advising that it would proceed to file a competing reorganization plan in light of Trigee's failure to timely file a confirmable reorganization plan that would permissibly address SGA's claim.For the reasons explored below, the consequence on this current record is that the res judicata effect of the Final Fee Order extends to any malpractice damages claims against Lerch Early relating to the failure to list SGA's claim as disputed.
Trigee additionally notes that its schedules were not signed by Johnnie Mae Durant, the owner and president of Trigee, despite a representation on the schedules that she had signed them under penalty of perjury. However, even assuming without deciding that the failure to obtain Ms. Durant's signature was a factor leading to the scheduling of the SGA claim as undisputed, it was the listing of SGA's claim on Trigee's schedules as not disputed that proximately damaged Trigee, and not the failure to obtain Ms. Durant's signature.5
The following facts pertinent to the Motion for Reconsideration are not in genuine dispute. They include facts that the court previously found incident to entering the Dismissal Order of September 23, 2016. Other recited facts are based on filings in the bankruptcy case or adversary proceeding,including a transcript of the hearing of November 13, 2013, in the bankruptcy case.
Trigee owned and operated a 96-unit residential rental property in Washington, D.C. (the "Property") located in the 3500 block of Minnesota Avenue, SE. On September 12, 2012, Trigee formally retained Lerch Early and Sherman to represent Trigee in a case under Chapter 11 of the Bankruptcy Code (11 U.S.C.). On September 13, 2012, Sherman and Lerch Early filed a voluntary Chapter 11 petition in this court on Trigee's behalf, commencing the main case and thereby staying an imminent foreclosure sale of the Property.
LISTING, ON TRIGEE'S FILINGS,
OF SGA'S CLAIM AS NOT DISPUTED; SHERMAN'S
On September 14, 2012, Sherman filed Trigee's list of the creditors holding the 20 largest unsecured claims pursuant to Fed. R. Bankr. P. 1007(d). SGA was listed as a creditor but the list failed to indicate that SGA's claim was disputed.
On October 11, 2012, SGA timely filed its proof of claim,6 attaching invoices dated from October 1, 2006, to February 1, 2007, issued to Faisal Khan, Rehana Khan Enterprises, LLC, for $90,968.75, plus finance charges, for architectural work relating to the Property.
On October 12, 2012, Sherman filed Trigee's Schedules, which listed SGA's claim on Schedule F - Creditors Holding Unsecured Nonpriority Claims in the amount of $80,000 without indicating that the claim was disputed. SGA's claim was the third largest claim on Schedule F. On November 29, 2012, Sherman filed Trigee's Amended Schedule F, which once again listed SGA's claim as being in the amount of $80,000 without indicating that the claim was disputed. Sherman electronically filed the Rule 1007(d) list, the initial...
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