Dewey & LeBoeuf LLP and The Liquidating Trustee of The Dewey & LeBoeuf Liq

UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
In re:
DEWEY & LEBOEUF LLP,
Debtor.
NOT FOR PUBLICATION
Case No. 12-12321 (MG)
Chapter 11
MEMORANDUM OPINION AND ORDER SUSTAINING THE DEBTOR’S
OBJECTION TO CLAIMS AS TO CLAIM NOS. 833 & 1134
FILED BY STEVEN J. STANWYCK
A P P E A R A N C E S:
TOGUT, SEGAL & SEGAL LLP
Counsel for the Liquidation Trust
One Penn Plaza, Suite 3335
New York, New York 10119
By: 	David A. Paul, Esq.
STEVEN J. STANWYCK
Pro Se
225 Montana Ave, No. 103
Santa Monica, CA 90403
MARTIN GLENN
UNITED STATES BANKRUPTCY JUDGE
Pending before the Court is the Liquidating Trustee’s Twenty-Third Omnibus Objection
to Claims (the “Objection,” ECF Doc. # 1558) solely as it relates to Claim Numbers 833 and
1134, filed by Steven J. Stanwyck. In support of the Objection, the Trustee offers the
Declaration of Alan M. Jacobs.1 (ECF Doc. # 1558-4.) The Objection asserts that Claim
Number 833 is amended and superseded by Claim Number 1134 (the “Stanwyck Claim”), which
1 	Alan M. Jacobs serves as the Liquidating Trustee for and on behalf of the Dewey & LeBoeuf Liquidation
Trust.
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should be expunged because the Debtor’s estate bears no liability for the conduct asserted in the
Claim. Stanwyck filed a response to the Objection (the “Response,” ECF Doc. # 1864-1 Ex. 1),
and the Trustee filed a reply (the “Reply,” ECF Doc. # 1863). In support of the Reply, the
Trustee submitted the Declaration of David A. Paul, Esq. (the “Paul Decl.,” ECF Doc. # 1864).
Stanwyck also submitted a supplemental response to the Objection. (ECF Doc. # 1885.) The
Court heard argument on the Objection on December 3, 2013. Following the hearing, the
Trustee filed a letter (the “Paul Letter”) responding to certain questions raised by the Court.
(ECF Doc. # 1904.)
The Court agrees with the Trustee that the Stanwyck Claim should be disallowed and
expunged because portions of the Claim (1) are time barred, (2) are precluded by res judicata,
(3) assert liability for conduct by non-Debtors, (4) lack any support other than conclusory
assertions, and (5) have been rendered moot. The Objection is therefore SUSTAINED.
BACKGROUND
Stanwyck was an associate in Dewey Ballantine’s Los Angeles office from 1971 through
1973.2 (Response ¶ 4.) After leaving the firm, Stanwyck became a client of Dewey Ballantine’s
for six months in 2001 (Reply ¶ 11). Dewey Ballantine’s representation of Stanwyck related to
bankruptcy and family law issues (see Paul Decl. Ex. 2), although Stanwyck claims that the
representation involved an intellectual property rights dispute with AT&T regarding a 1986
software license and development agreement. (See Response ¶ 4.) Dewey Ballantine terminated
its representation of Stanwyck in November 2001. (See Paul Decl. Ex. 3.) The lead counsel
handling Stanwyck’s representation—Paul R. Walker—later left Dewey Ballantine for Sidley
Austin in 2005. (Reply ¶ 5.) Following a merger between Dewey Ballantine and LeBoeuf,
2 	After being declared a vexatious litigant in multiple courts, Stanwyck was disbarred in California in 2009.
(See Paul Decl. Exs. 7–9.)
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Lamb, Greene & McRae, Dewey & LeBoeuf became the successor to Dewey Ballantine. The
Liquidation Trust is the successor to Debtor Dewey & LeBoeuf.
To support his purported intellectual property claim against AT&T, Stanwyck gave
Dewey Ballantine a 1995 appraisal of the intellectual property rights at issue. (Response ¶ 4.)
According to Stanwyck, Dewey Ballantine was long aware of the value of Stanwyck’s claim
against AT&T, yet the firm acted against Stanwyck’s interests in favor of other clients. (Id.)
Stanwyck asserts that (1) Dewey Ballantine preferred AT&T as a client over Stanwyck and acted
in a conspiracy with AT&T; (2) Dewey Ballantine did not adequately disclose a conflict since
the firm also represented AT&T in other matters; (3) after joining Sidley Austin, Walker, who
was “never licensed to practice in New York,” divulged Stanwyck’s confidential information to
Sidley Austin and to AT&T; (4) Dewey & LeBoeuf failed to return Stanwyck’s client files after
he requested them; and (5) Dewey & LeBoeuf perpetrated fraud by disavowing knowledge of
Walker’s actions after he left the firm. (Id. ¶¶ 4–7).
The Debtor commenced a voluntary chapter 11 case on May 28, 2012. On July 30, 2012,
the Court entered an order (the “Bar Date Order,” ECF Doc. # 303) setting the bar date as
September 7, 2012 at 5:00 p.m. for general creditors. On August 15, 2012, the Debtor published
notice of the Bar Date Order in the Wall Street Journal. Stanwyck filed his Claim on September
7, 2012.
On January 7, 2013, the Debtor filed the Second Amended Chapter 11 Plan of
Liquidation of Dewey & LeBoeuf LLP. (ECF Doc. # 807.) On February 27, 2013, the Court
entered an order confirming the Second Amended Plan. (ECF Doc. # 1144.) On March, 22,
2013, the Plan became effective, at which point the Dewey & LeBoeuf Liquidation Trust was
established.
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The Trustee asserts multiple grounds for expunging the Stanwyck Claim, including that
the claim (1) is time-barred, (2) is barred by res judicata, and (3) lacks sufficient support to
sustain a plausible theory of liability. The Trustee also asserts that Stanwyck’s claim regarding
his client files is moot since his files have since been returned.
DISCUSSION
A. 	Claims Objections
Section 502(a) of the Bankruptcy Code provides that a filed proof of claim is “deemed
allowed, unless a party in interest . . . objects.” 11 U.S.C. § 502(a). 	If the claim is properly
filed, it is prima facie evidence that the claim is valid. See FED. R. BANKR. P. 3001(f). A party
in interest may object to a proof of claim, and once an objection is made, the court must
determine whether the objection is well founded. See 4 COLLIER ON BANKRUPTCY ¶ 502.02[2]
(16th ed. rev. 2013).
“Although Rule 3001(f) establishes the initial evidentiary effect of a filed claim, the
burden of proof rests on different parties at different times. In re Allegheny Int’l, Inc., 954 F.2d
167, 173 (3d Cir. 1992). The party objecting to the proof of claim bears the burden of
“providing evidence to show that the proof of claim should not be allowed.” In re MF Global
Holdings Ltd., Nos. 11-15059, 11-02790, 2012 WL 5499847, at * 3 (Bankr. S.D.N.Y. Nov. 13,
2012). If the objecting party satisfies its initial burden and “the presumption of prima facie
validity is overcome—e.g., the objecting party establishes that the proof of claim lacks a sound
legal basis—the burden shifts to the claimant to support its proof of claim unless the claimant
would not bear that burden outside of bankruptcy.” Id. (citing In re Oneida Ltd., 500 B.R. 384,
389 (Bankr. S.D.N.Y. 2009) (“A proof of claim is prima facie evidence of the validity and
amount of a claim, and the objector bears the initial burden of persuasion. The burden then shifts
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to the claimant if the objector produces evidence equal in force to the prima facie case . . . which,
if believed, would refute at least one of the allegations that is essential to the claim’s legal
sufficiency.”).
Bankruptcy Code section 502(b)(1) provides that claims may be disallowed if
“unenforceable against the debtor and property of the debtor, under any agreement or applicable
law.” To determine whether a claim is allowable by law, bankruptcy courts look to “applicable
nonbankruptcy law.” In re W.R. Grace & Co., 346 B.R. 672, 674 (Bankr. D. Del. 2006).
B. 	Claim Number 833 Was Amended and Superseded by the Stanwyck Claim.
Through the Objection, the Debtor seeks expungement of claim number 833 because it
was amended and superseded by the Stanwyck Claim. According to the Trustee, claim number
833 states a claim by the same creditor for the same purported liability identified in the later-filed
Stanwyck Claim. Stanwyck did not oppose this reason for the Trustee’s objection to claim
number 833. The Court therefore concludes that claim number 833 was amended and
superseded by the Stanwyck Claim, and claim number 833 should therefore be disallowed and
expunged.
C. 	Stanwyck May Not Assert a Claim Based on Walker’s Conduct after Walker
Left Dewey Ballantine.
Although Stanwyck alleges that Walker may have divulged certain confidential
information to Sidley Austin and AT&T after Walker left Dewey Ballantine, those allegations do
not implicate any Debtor liability. Dewey Ballantine had terminated its representation of
Stanwyck years before Walker left for Sidley Austin, and any wrongful disclosures Walker may
have made after joining a new firm cannot be imputed to the Debtor. Further, Stanwyck’s claim
that the Debtor fraudulently denied knowledge of Walker’s actions after Walker left Dewey
Ballantine fails because Stanwyck provides no basis to conclude that the Debtor was lying.
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Instead, Stanwyck offers only his conclusory assertion that the Debtor acted fraudulently. This
bare allegation cannot plausibly support any Debtor liability.
D. 	Stanwyck’s Claim Regarding His Client Files Is Moot.
Stanwyck asserts that the Debtor wrongfully retained his client files after he requested
them. Although the Court entered an order approving procedures for the disposition of former
client files (ECF Doc. # 237), Stanwyck did not request his files through the Court-approved
procedures. (See Paul Letter.) Rather, Stanwyck requested his files by e-mail (see Paul Decl.
Ex. 1), and the Trustee produced the files on September 27, 2013. (See Paul Letter.) Even if
failure to return client files could support a claim for civil liability, which is not entirely clear,
these facts do not support any Debtor liability. Rather, the request for the files is moot, and
Stanwyck did not provide any basis to infer that he suffered harm by the delay between his
request and the return of his files.
To the extent Stanwyck asserts liability for the Trustee’s review of Stanwyck’s client
files, that claim also fails because the Trustee was entitled to review those materials since they
pertained to Stanwyck’s allegations of legal malpractice. See N.Y. R. OF P ROF ’ L CONDUCT 1.6
(Consol. 2014); Nesenoff v. Dinerstein & Lesser, P.C., 12 A.D.3d 427 (N.Y. App. Div. 2d Dep’t
2004) (approving disclosure of confidential client information in context of defending accusation
of legal malpractice); CAL . EVID. CODE § 958 (Deering 2014); Gross Belsky Alonso LLP v.
Edelson, No. C 08-4666 SBA, 2009 U.S. Dist. LEXIS 49260 (N.D. Cal. May 27, 2009)
(permitting counsel to reveal client confidences to defend charges of improper conduct). If the
disclosing party is protected when defending charges of legal malpractice, the party reviewing
the confidential information is, too.
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E. 	Stanwyck’s Remaining Claims Are Time Barred.
Stanwyck claims that the Debtor’s estate is liable for alleged legal malpractice committed
in 2001. A bankruptcy court may disallow a creditor’s claim if that claim is barred by the statute
of limitations. See In re Hess, 404 B.R. 747, 750–51 (Bankr. S.D.N.Y. 2009) (“The claims
allowance process of the Bankruptcy Code contemplates that time-barred claims may be filed
and expressly preserves the statute of limitations as a defense and a ground for disallowance of
the claim.”); In re Brill, 318 B.R. 49, 53 (Bankr. S.D.N.Y. 2004) (“A challenged claim will not
be allowed by the bankruptcy court if the claim is barred by the applicable statute of
limitations.”); see also Pickett v. Motors Liquidation Co. GUC Trust (In re Motors Liquidation
Co.), No. 12 Civ. 6785 (WHP), 2013 U.S. Dist. LEXIS, *4 (S.D.N.Y. Jan. 7, 2013) (same).
To determine which state’s statute of limitation applies, the Court applies New York state
choice of law rules. See Statek Corp. v. Dev. Specialists, Inc. (In re Coudert Bros. LLP), 673
F.3d 180, 188–91 (2d Cir. 2012) (holding that the bankruptcy court should apply choice of law
of forum state unless filing proof of claim had effect of transferring pre-existing state-law
action). New York courts will apply New York’s statute of limitations even if the substantive
law of another jurisdiction applies to a claim. See Architectronics, Inc. v. Control Sys., 935 F.
Supp. 425, 431 (S.D.N.Y. 1996). New York’s statute of limitations for legal malpractice claims
is three years. See N.Y. C.P.L.R. § 214 (Consol. 2014).3 Even if the Court construed the
Stanwyck Claim as stating something other than legal malpractice (e.g., breach of contract,
3 	New York also applies a borrowing statute, applying a foreign jurisdiction’s statute of limitations if the
cause of action accrued in that jurisdiction and the limitations period is shorter than New York’s. N.Y. C.P.L.R.
§ 202. If Stanwyck’s cause of action accrued in California (Stanwyck is a California resident and Walker
represented Stanwyck in California), the applicable statute of limitations would be one year from Stanwyck’s
discovery of the malpractice (or one year from the point when Stanwyck should have discovered the malpractice
through reasonable diligence), but under no circumstances longer than four years after the legal malpractice. Cal.
Civ. Proc. Code § 340.6 (Deering 2014). Theoretically, then, the statute of limitations period could be shorter than
New York’s three year bar depending on when Stanwyck discovered the malpractice, but the Court does not need to
resolve that issue here.
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tortious interference), the statute of limitations would be six years at most. See N.Y. C.P.L.R. §§
213, 214. Stanwyck filed his Claim in September 2012—nearly eleven years after Dewey
Ballantine terminated its representation of Stanwyck. Thus, the portions of Stanwyck’s Claim
relating to Dewey Ballantine’s representation of Stanwyck are untimely.
F. 	Stanwyck’s Remaining Claims Are Also Barred by Res Judicata.
Even if Stanwyck’s malpractice allegation was not time barred, it would still be barred by
res judicata. Stanwyck filed a suit in California state court in 2002 alleging breach of contract
and legal malpractice against Dewey Ballantine, among other defendants. (See Paul Decl. Ex.
6.) Specifically, Stanwyck pled that despite agreeing to represent Stanwyck, Dewey Ballantine
“completely abandoned” him in favor of another client, and the firm hid conflicts of interest from
him. (See id.) On April 30, 2002, the California court dismissed Stanwyck’s action with
prejudice. (See Paul Decl. Ex. 7.)
The Second Circuit has explained that “a final judgment on the merits of an action precludes the
parties or their privies from relitigating issues that were or could have been raised in that action.”
Burgos v. Hopkins, 14 F.3d 787, 789 (2d Cir. 1994) (quoting Allen v. McCurry, 449 U.S. 90, 94 (1980)).
“[T]he preclusive effect of a state court determination in a subsequent federal action is determined by
the rules of the state where the prior action occurred . . . .” New York v. Sokol (In re Sokol), 113 F.3d
303, 306 (2d Cir. 1997) (citing 28 U.S.C. § 1738). Under California law, “[o]nly a final judgment on the
merits between the same parties or their privies and upon the same cause of action is entitled to the res
judicata effect of bar or merger.” Busick v. Workmen’s Comp. Appeals Bd., 500 P.2d 1386, 1391–92
(Cal. 1972). Here, the California court issued a final judgment on the merits, and the case involved
Stanwyck and the Debtor’s predecessor, Dewey Ballantine. The preclusive effect of the ruling extends
to the Debtor because the Debtor is a privy to a party to the final judgment. See Rice v. Crow, 97 Cal.
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Rptr. 2d 110, 117 (Cal. Ct. App. 2000) (explaining that a successor to a party to a litigation is considered
a privy of that party).
To determine whether a claim constitutes the same “cause of action” as a previous suit,
California applies a “primary right” theory. See Amin v. Khazinder, 5 Cal. Rptr. 3d 224, 229 (Cal. Ct.
App. 2003). That theory asks whether the same indivisible right is being raised again. See Wade v.
Ports Am. Mgmt. Corp., 160 Cal. Rptr. 3d 482, 489 (Cal. Ct. App. 2013) (“[T]he primary right is simply
the plaintiff’s right to be free from the particular injury suffered.”). Stanwyck seeks protection of the
same primary rights here as he did in his California litigation. Namely, Stanwyck wanted enforcement
of his right to competent legal services free of conflicts, preferences for other clients, or other ethical
violations. He raises those very issues again here in his Claim.
When the elements for res judicata are satisfied, bankruptcy courts may look behind a state court
decision only where such judgment was obtained by fraud or collusion, or where the state court lacked
jurisdiction. Kelleran v. Andrijevic, 825 F.2d 692, 694 (2d Cir. 1987) (citations omitted). “[F]raud in
the procurement of a judgment sufficient to warrant relief therefrom is properly identified with fraud on
the court, i.e. fraud which is directed to the judicial machinery itself and is not fraud between the
parties . . . .” In re Laing, 945 F.2d 354, 358 (10th Cir. 1991) (internal quotations omitted). Stanwyck
has not asserted that the California court’s judgment was obtained by fraud, and his Claims are therefore
barred by res judicata.
CONCLUSION
Stanwyck seeks redress for legal services performed more than ten years ago over a six
month period. He already sued Dewey and Ballantine once and lost. Stanwyck cannot be
allowed to pursue those same claims against the Debtor here. And although Stanwyck added
some new theories for Debtor liability, those theories also fail because they either relate to
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conduct by third parties, are moot, or are supported by nothing more than conclusory allegations.
In these circumstances, Stanwyck’s Claims must be disallowed. The Court therefore
SUSTAINS the Trustee’s Objection to the Stanwyck Claims (Claim Nos. 833 and 1134), and
those claims are DISALLOWED with prejudice and EXPUNGED.
IT IS SO ORDERED.
Dated: January 16, 2014
New York, New York
_____Martin Glenn____________
MARTIN GLENN
United States Bankruptcy Judge
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