Martin Schackner

UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF NEW YORK
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In re
Chapter 7
MARTIN SCHACKNER,
Case No.: 08-73742-478
Debtor.
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MEMORANDUM DECISION AND ORDER
Appearances:
Kirschenbaum & Kirschenbaum P.C.
Attorneys for the Chapter 7 Trustee
Kenneth Kirschenbaum, Esq.
By: Steven B. Sheinwald, Esq.
200 Garden City Plaza, Suite 500
Garden City, New York 11530
Thaler & Gertler LLP
Attorneys for the Debtor
By: Richard G. Gertler, Esq.
90 Merrick Avenue, Suite 400
East Meadow, New York 11554
Siller Wilk LLP
Claimant
By: Eric J. Snyder, Esq.
Stephen D. Hoffman, Esq.
675 Third Avenue, 9th Floor
New York, New York 10017
Honorable Dorothy T. Eisenberg, United States Bankruptcy Judge
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Before the Court is the Trustee’s objection to proof of claim number 2 filed by Siller
Wilk LLP in the amount of $343,367.08 for prepetition legal fees. This Court has jurisdiction
over this core proceeding under 28 U.S.C. §§ 1334(b) and 157(b)(2)(A), (B), and (O) and 11
U.S.C. § 502. The following constitutes the Court’s findings of fact and conclusions of law as
mandated by Fed. R. Bankr. P. 7052.
FACTS
Debtor was the Chief Financial Officer for Breslin Realty Development Corp. (“BRDC”).
Debtor was allegedly terminated from BRDC when he gave testimony adverse to the interests of
BRDC. Debtor submitted a claim for unemployment insurance which was challenged by BRDC.
BRDC also commenced a state court lawsuit against the Debtor in January of 2005 (the “Breslin
Action”). The state court action alleged that the Debtor used his position as the Chief Financial
Officer to authorize bonuses and payments to himself and several employees without consent of
BRDC’s principal, Wilbur Breslin, and sought $500,000 in damages on the grounds of, inter
alia, breach of contract, fraud, conversion, unjust enrichment with the last claim brought under
the federal Racketeer Influenced and Corrupt Organizations Act (“RICO”). The RICO claim
carried the threat of treble damages. Siller Wilk was retained by the Debtor prepetition to defend
against the Breslin Action.
Siller Wilk removed the Breslin Action to the United States District Court in an attempt
to get the RICO claim dismissed to eliminate the debtor’s potential exposure to treble damages.
The District Court denied a motion to dismiss the RICO claim that was made on behalf of the
Debtor and the parties proceeded to conduct discovery. Siller Wilk conducted more than 10
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depositions, some purportedly at the request of the Debtor. In the middle of 2006, the Debtor
moved for summary judgment to dismiss the RICO claim and the motion was denied. Trial was
then scheduled to take place in April 2007. On or about March 21, 2007, BRDC and Siller Wilk,
on behalf of the Debtor, reached an oral settlement. Siller Wilk received the proposed settlement
agreement on April 2, 2007. The proposed agreement did not contain any general release for the
benefit of the Debtor.
On or about April 17, 2007, Siller Wilk was informed that the Debtor was the subject of a
criminal investigation by the Nassau County District Attorney’s Office regarding the alleged
payment of additional salary. The Breslin Action was stayed pending the outcome of the
criminal investigation.
Meanwhile, on or about March 1, 2007, Siller Wilk had attempted to get the Debtor to
assign a security interest in his 20% interest in a real estate investment company, Arbor Inn
Homes LLC, as collateral for the payment of the Debtor’s outstanding legal fees accrued in
defending the Breslin Action. The only substantial asset the Debtor had at the time was his 20%
interest in Arbor Inn Homes LLC and approximately $200,000 equity in his residence. The
Debtor never executed the agreement, stating that his 20% interest in Arbor Inn Homes LLC was
the only asset he could use to settle the Breslin Action. If he agreed to Siller Wilk’s request, he
would not be financially able to resolve the BRDC’s claim. Debtor had previously paid Siller
Wilk approximately $200,000 of the more than $500,000 of legal fees that had accrued and the
Debtor and Siller Wilk were unable to reach any arrangement regarding the reduction or
payment of the outstanding legal fees. On May 18, 2007, Siller Wilk filed a motion with the
District Court to be relieved as Debtor’s counsel in the Breslin Action which was subsequently
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granted.
The Debtor had to retain new counsel to finalize the settlement in the Breslin Action.
Under the settlement, the Debtor agreed to pay BRDC $625,000 secured by the debtor’s 20%
interest in Arbor Inn Homes and a mortgage against his residence in the amount of $145,000.
On July 14, 2008, Siller Wilk filed an involuntary Chapter 7 bankruptcy petition against
the Debtor in this Court. Siller Wilk was the only petitioning creditor and listed a claim for legal
fees in the amount of $330,274.95. Debtor filed an answer on August 5, 2008 asserting, inter
alia, that Siller Wilk’s claim is subject to a bona fide dispute as to liability and/or amount.
Debtor claimed that the Siller Wilk’s claim was for work performed in formulating a settlement
agreement with BRDC and alleged that Siller Wilk filed the involuntary petition solely for the
purpose of avoiding the settlement agreement as a preference under the Bankruptcy Code.
Accordingly, Debtor argued that the avoidance of the settlement agreement would render Siller
Wilk’s services valueless. As Siller Wilk’s claim was the subject of a bona fide dispute, the
Debtor asserted that Siller Wilk cannot be a petitioning creditor under 11 U.S.C. § 303 and the
involuntary petition should be dismissed.
The Court held a hearing on the Debtor’s objection to the involuntary petition on August
14, 2008 and set deadlines for discovery. Subsequently, the Debtor withdrew his answer and
consented to the entry of an order for Chapter 7 relief. The order of relief was entered by the
Court on September 26, 2008.
On December 22, 2009, the Trustee filed the motion seeking to disallow Siller Wilk’s
proof of claim based upon the absence of any documentation supporting the claim and the
Debtor’s dispute over Siller Wilk’s claim. The Debtor argued that Siller Wilk’s legal services
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did not produce any benefit or result in any value to the Debtor. Siller Wilk’s fees totaled more
than the $500,000 in damages sought by BRDC under the state law claims. While BRDC’s
RICO claim would have resulted in treble damages of $1.5 million, the Debtor argued that the
RICO claim was a throw-in without any serious expectation by Breslin of prevailing. The
Debtor argues Siller Wilk allegedly wasted time and money attacking the RICO claim in District
Court.
Rather than obtaining a settlement which reduced the debtor’s liability, Siller Wilk negotiated a
settlement which resulted in a liability of $625,000 to the Debtor. In addition, the proposed
settlement did not provide for a general release which exposed the Debtor to further liability.
Debtor accuses Siller Wilk of acting in its own best interest rather than that of the client by
attempting to have the Debtor assign his interest in Arbor Inn Homes LLC as security for its
legal fees when the Debtor’s ownership interest was his only substantial source for funding a
potential settlement with BRDC. When the Debtor and Siller Wilk were unable to reach an
agreement with respect to legal fees, the Debtor asserts that Siller Wilk abandoned him by
withdrawing as counsel on the eve of trial and then filed the involuntary petition to set aside the
Debtor’s settlement agreement with BRDC so that it could participate with BRDC in any
distributions arising from the Debtor’s interest in Arbor Inn Homes LLC as a creditor of the
Debtor’s bankruptcy estate.
Siller Wilk filed its objection to the Trustee’s motion and the documentation supporting
its legal fees with the Court under seal. Siller Wilk argued that it provided value by reducing the
Debtor’s exposure to treble damages under the RICO claim which Siller Wilk perceived as a real
threat and there were sworn affidavits by third parties that could negatively impact the Debtor’s
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credibility and veracity as a potential witness. Siller Wilk also asserted that while it negotiated
an oral settlement with BRDC, it was the Debtor’s replacement counsel that negotiated and
finalized the settlement with BRDC.
A hearing on the Trustee’s motion in regard to the allowance of Siller Wilk’s claim was
held on March 16, 2010. It was noted that the Trustee is a neutral party in this dispute over
Siller Wilk’s proof of claim and needs a resolution as to the allowance of Siller Wilk’s claim in
order to determine whether Siller Wilk would be entitled to receive any distribution from the
Debtor’s bankruptcy estate. The only other significant creditor of the bankruptcy estate is
BRDC. Other than the allegations as stated herein, the Debtor did not object to any particular
time spent or particular rate charged for the legal services provided by Siller Wilk.
DISCUSSION
A proof of claim executed and filed in accordance with the Federal Rules of Bankruptcy
Procedure constitutes prima facie evidence of the validity and the amount of the claim. Fed. R.
Bankr. P. 3001(f). Pursuant to 11 U.S.C. § 502(a), a proof of claim is deemed allowed unless a
party in interest objects. The party objecting to the proof of claim has the burden of rebutting the
presumption of validity. In re Koloch, 416 B.R. 375, 378 (Bankr. E.D.N.Y. 2009).
While the Debtor claims that Siller Wilk’s filing of the involuntary petition was to
advance its own interest by seeking to have the Debtor’s settlement with BRDC set aside as a
preference and thereby undoing the settlement in which Siller Wilk had a hand in negotiating
and for which it seeks reimbursement of its legal fees, the Court notes that there is no legal
authority that provides that an attorney’s filing of an involuntary petition against a client would
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require a reduction of the attorney’s claim for legal fees for prepetition services. Siller Wilk as a
prepetition creditor has the ability under the Bankruptcy Code to file an involuntary petition
against the Debtor. The Debtor had an opportunity to object to the involuntary petition and in
fact initially contested the involuntary petition on several grounds, including the defense that
Siller Wilk’s claim was subject to a bona fide dispute. However, the Debtor subsequently
withdrew his objection and consented to the entry of the order of relief. Having agreed to
proceed under the Bankruptcy Code, the Debtor cannot now claim that Siller Wilk’s filing of the
involuntary petition was wrongful and should be penalized for it. Indeed, the time to object to
Siller Wilk’s filing of the involuntary petition and whether Siller Wilk’s claim was the subject of
a bona fide dispute was prior to the Court’s entry of the order of relief. Having found no
evidence of any illegality or impropriety relating to Siller Wilk’s filing of the involuntary
petition, Siller Wilk’s legal fees should not be reduced simply because the filing undid some of
the work for which Siller Wilk is seeking reimbursement.
As to whether the fees for Siller Wilk’s legal services are reasonable, the courts in this
Circuit have considered, inter alia, the following:
(1) the time and labor required; (2) the novelty and difficulty of the questions; (3)
the level of skill required to perform the legal service properly; (4) the preclusion
of employment by the attorney due to acceptance of the case; (5) the attorney’s
customary hourly rate; (6) whether the fee is fixed or contingent; (7) the time
limitations imposed by the client or the circumstances; (8) the amount involved in
the case and the results obtained; (9) the experience, reputation, and ability of the
attorneys; (10) the “undesirability” of the case; (11) the nature and length of the
professional relationship with the client; and (12) awards in similar cases.
Arbor Hill Concerned Citizens Neighborhood Ass’n v. County of Albany, 522 F.3d 182, 186-90
(2d Cir. 2007)(finding that courts should consider the factors in Johnson v. Ga. Highway
Express, Inc., 488 F.2d.714 (5th Cir. 1974)). While it is natural that “a reasonable, paying client
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wishes to spend the minimum necessary to litigate the case effectively”, Id., 522 F.3d at 190, the
amount involved in a case and the results obtained are not the only deciding factors in
determining whether an attorney’s fees are reasonable. Siller Wilk expended time and labor in
defending the Debtor in the Breslin Action over the course of several years which involved filing
pleadings and conducting discovery and depositions. The attorneys at Siller Wilk that worked
on the Breslin Action were experienced and capable litigation attorneys and they were faced with
a litigious Plaintiff. While the Debtor argues that the fees incurred were excessive, he does not
specify with particularity as to which of the services and charges where objectionable. Rather, in
hindsight, the Debtor disagrees with the strategy and efforts undertaken by Siller Wilk in
defending the Breslin Action and asserts that the $200,000 Siller Wilk received prepetition was
adequate and that Siller Wilk should not be entitled to receive any more legal fees. What
appears to be simple and clear in hindsight may or may not be obvious during the pendency of
litigation and different attorneys who are just as experienced and capable could undertake
different litigation strategies. It is not the Court’s position to determine whether one litigation
strategy is more or less effective than another, especially when legal strategies are subject to
many variables and may change over time as a result of discovery and steps taken by opposing
counsel. While the Debtor is unsatisfied with the amount of legal fees incurred, legal services
amounting to more than $500,000 were nevertheless provided by Siller Wilk prior to its
withdrawal as Debtor’s counsel. It is unfortunate that the parties could not resolve a reduction of
these fees amicably,
but since the parties could not do so, the Court finds Siller Wilk’s fees to be reasonable and its
claim allowed.
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CONCLUSION
Based upon the foregoing, the Trustee’s objection to Siller Wilk’s proof of claim in the
amount of $343,367.08 is denied.
So ordered.
Dated: Central Islip, New York
April 6, 2010
s/Dorothy Eisenberg_________________
Dorothy Eisenberg
United States Bankruptcy Judge
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