Lindo v. Figeroux et al

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UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
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In re: 	:
:
HERBERT G. LINDO, 	: 	Chapter 11
: 	Case No.: 10-13717 (SMB)
Debtor. 	:
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HERBERT G. LINDO, 	:
:
Plaintiff, 	:
:
‒ against ‒ 	: 	Adv. Proc. No. 11-02755 (SMB)
:
FIGEROUX & ASSOCIATES and 	:
BRIAN FIGEROUX, 	:
:
Defendants. 	:
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PROPOSED FINDINGS OF FACT AND CONCLUSIONS OF LAW
A P P E A R A N C E S:
JASPAN SCHLESINGER LLP
Attorneys for Plaintiff
300 Garden City Plaza
Garden City, New York 11530
Shannon Anne Scott, Esq.
Of Counsel
FIGEROUX & ASSOCIATES
Attorneys for Defendants
26 Court Street, Suite 701
Brooklyn, New York 11242
Julius Simpson, Esq.
Of Counsel
STUART M. BERNSTEIN
United States Bankruptcy Judge:
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The Debtor, Herbert G. Lindo, brought this action against his former attorney alleging
professional malpractice, breach of fiduciary duty, breach of the covenant of good faith and fair
dealing and unjust enrichment. Lindo contends that the defendant should have advised him to
file a chapter 11 case or work out his financial problems outside of bankruptcy rather than file a
chapter 7 case which he did. The Court conducted a two-day bench trial during which it heard
the testimony of several witnesses and received numerous documents into evidence. Based upon
the proposed findings of fact and conclusions of law that follow, the Court recommends that a
final judgment be entered against the defendants in the amount of $134,224.37.
PROPOSED FINDINGS OF FACT 1
The Parties
Brian Figeroux is an attorney duly licensed to practice law before the courts of the State
of New York and the Southern District of New York. (Stipulated Facts A.) He is a solo
practitioner, and spends approximately ten per cent of his time on bankruptcy matters. (Tr.
(5/20) at 16:5-17.) He has never filed a chapter 11 case on behalf of a client. (Tr. (5/20) at
100:13-14.) Figeroux and his firm, Figeroux & Associates, will be referred to collectively as
“Figeroux.”
1 	The following conventions are used in this report:
“ECF Doc #” refers to the electronic docket in this adversary proceeding; “Main Case ECF Doc. #” refers
to the electronic docket in bankruptcy case no. 10-13717.
“Tr. (5/20)” refers to the transcript of the trial held on May 20, 2013 (ECF Doc. # 31), and “Tr. (6/5)”
refers to the transcript of the trial held on Jun 5, 2013 (ECF Doc. # 33). The page and line references in the
transcripts are separated by a colon. For example, “Tr. (5/20) at 100:1-5” refers to page 100, lines 1 through 5 in the
May 20, 2013 transcript.
Finally, “Stipulated Facts” refers to the Section IX in the Joint Final Pre-Trial Order, dated Apr. 25, 2013
(ECF Doc. # 24), and “Ex.” refers to the forty-four exhibits identified in Section VI of the Joint Final Pre-Trial
Order that the parties agreed were admissible.
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Lindo has been a cab driver for over ten years. (Tr. (5/20) at 118:13-16.) At all relevant
times, his principal asset was a yellow taxi cab and taxi medallion that he purchased around
1999. (Tr. (5/20) at 118:17-20.)
Pre-Bankruptcy Events
Lindo first came to Figeroux seeking advice regarding a bankruptcy on or about October
6, 2009. (Tr. (5/20) at 20:1-4.) The parties dispute the reasons that prompted the visit.
According to Lindo, he sought advice because he owned a house that was in foreclosure, and he
wanted to stop the foreclosure. (Tr. (5/20) at 119:10-19; 159:19-21.) He testified that his uncle,
David Cole, used Lindo’s social security number to purchase the house in Lindo’s name. (Tr.
(5/20) at 156:12-22.) Cole also apparently incurred unauthorized debt in Lindo’s name. (Tr.
(5/20) at 159:14-17; 162:3-19.) Lindo did not reside in the house, (Tr. (5/20) at 170:21-23), and
never made any monthly mortgage payments. (Tr. (5/20) at 172:15-16.) Lindo testified that he
could not recall whether he advised Figeroux that a family member had obtained the house
fraudulently in Lindo’s name. (Tr. (5/20) at 157:9-12.) The foreclosure sale and delivery of the
Referee’s Deed of Foreclosure occurred on October 8, 2009, two days after Lindo first came to
see Figeroux. (See Ex. 5.)
According to Figeroux, Lindo’s principal complaint was that a family member had used
his credit. Almost all of his unsecured debt was incurred through the relative’s fraud, (Tr. (5/20)
at 76:20-77:10), which he wanted to discharge it. (See Ex. 44 at ¶ 3 (p. 3 of 26).) Lindo did not
disclose the foreclosure, (Tr. (5/20) at 41:3-9), and Figeroux was not aware of the foreclosure.
(Tr. (5/20) at 27:16-18; 38:8-10.)
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When Lindo first visited Figeroux, the latter followed his standard procedure of asking
the client to fill out a one page intake form. (See Ex. 4.) The form consisted of five parts: (1) the
client’s personal information, including his name, address, phone number, etc. (2) a list of
documents that the client might have to provide, (3) a separate section to supply information
regarding real estate owned by the client, (4) a section entitled attorney notes, and (5) a section
entitled attorney fees. (Ex. 4.) Figeroux did not ask his clients to fill out a questionnaire
disclosing the relevant information needed to decide whether to file bankruptcy, and if so, under
which chapter. Instead, the client sat with a bankruptcy paralegal who recorded the information
provided by the client directly into the computer bankruptcy software. (Tr. (5/20) at 24:24-25:4.)
In Lindo’s case, his intake form contained a check mark next to various documents
including tax returns and home and auto insurance declarations, indicating that Lindo was asked
to provide them. (Tr. (5/20) at 20:13-20; see Ex. 4.) Neither Figeroux nor any of his employees
took notes when Lindo first sought advice, (Tr. (5/20) at 20:24-21:2), and Figeroux’s memory of
their meetings was poor. He could not recall asking Lindo if he had any insurance policies, (Tr.
(5/20) at 23:6-8), if he was a party to any lawsuits, (Tr. (5/20) at 27:12-14), or if any of his
property had been garnished, attached or seized. (Tr. (5/20) at 27:19-21.) He also could not
remember whether Lindo had produced a car insurance certificate, (Tr. (5/20) at 41:20-22; 42:2-
4), or whether he had prepared his 2008 or 2009 tax returns, (Tr. (5/20) at 99:14-17.). 2 When
asked whether Lindo had signed a retainer letter, Figeroux testified that he had a standard
2 	Lindo’s 2009 tax returns would not have been due until April 15, 2010.
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retainer agreement but had not found one signed by Lindo, and believed it had been misplaced.
(Tr. (5/20) at 99:20-24.)
On the critical issue in this case, Figeroux testified that that although Lindo came to his
office five to eight times before filing bankruptcy, he did not know that Lindo owned a taxi
medallion prior to the bankruptcy filing. (Tr. (5/20) at 27:25-28:15; 45:8-11.) As discussed
below, the evidence showed otherwise.
The Bankruptcy Filing
Lindo filed this chapter 7 case on July 13, 2010 (the “Petition Date”), roughly nine
months after his initial interview with Figeroux. (See Stipulated Facts H.) Figeroux signed the
petition as Lindo’s attorney. (Ex. 6 at P0002.) Figeroux did not consider recommending that
Lindo file under chapter 11, (Tr. (5/20) at 86:12-17), or chapter 13, (Tr. (5/20) at 28:16-19),
which would have allowed Lindo to retain possession and control of his assets and pay his
creditors pursuant to a court-approved plan over time.
Figeroux also prepared Lindo’s Schedules and Statement of Financial Affairs (“SOFA”)
which were filed with the petition. (See Stipulated Facts J.) The Schedules and SOFA were rife
with obvious errors, inconsistencies and red flags:
1. 	Schedule A listed Lindo’s ownership of a single family dwelling located at 104
North Terrace, Mount Vernon, NY 10550 valued at $321,244.00 with no secured debt. (Ex. 6 at
P0006.) Lindo did not exempt the house, (see Ex. 6 at P0010), which meant he had $321,244.00
in equity that a chapter 7 trustee could seize and sell.3
3 	This was the property that had been transferred to a third party pursuant to the Referee’s Deed of
Foreclosure nine months earlier. Figeroux claimed Lindo did not tell him about the foreclosure or the sale.
Whether he did or not, Lindo did not care about the house and it does not form any part of his damage claim.
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2. 	Schedule D, however, listed two secured creditors, Litton Loan Servicing
(“Litton”) with a claim in the amount of $312,000.00 and Lomto FCU (“Lomto”) with a claim in
the amount of $311,582.00. (Ex. 6 at P0011.) Figeroux thought that that both claims were
secured by Lindo’s house, (Tr. (5/20) at 31:11-19), the same house that Schedule A listed as
unencumbered. Figeroux conceded that if Lomto’s lien was secured by Lindo’s house it was a
mistake not to list it on Schedule A. (Tr. (5/20) at 32:6-9.)
3. 	More perplexing, the Chapter 7 Individual Debtor’s Statement of Intention stated
that Lindo intended to surrender (i.e., turn over to the lien holder) the property securing the
Litton debt but reaffirm (i.e., retain) the property securing Lomto’s debt. (Ex. 7 at P0027.) If, as
Figeroux thought, the same real property secured both debts, the Statement of Intention meant
that Lindo intended to surrender and also retain the same piece of collateral.
4. 	Schedule B did not list the medallion as an asset, but did state that Lindo owned a
twenty-three year old “1987 Yellow Cab Taxi – Ford Crown Victoria.” (Ex. 6 at P0009.) When
shown a draft of the schedules, Joseph Maniscalco, Esq., Lindo’s expert, said he would have
questioned why such an old car was listed on Schedule B. (Tr. (6/5) at 31:12-15.) Had Figeroux
reviewed Lindo’s New York State Department of Motor Vehicle Insurance Certificate, (Ex. 11),
which Lindo was asked to provide through the intake form, Figeroux would have discovered that
Lindo owned a 2008 Ford. Furthermore, although the schedules referred to a “medallion,”
Figeroux did not connect it to the taxicab.
5. 	According to Figeroux, Lindo wanted to file chapter 7 to discharge debts incurred
in his name but without his consent by a relative—his uncle, David Cole. Schedule F listed five
credit card debts and two educational debts. (Ex. 6 at P0013-14.) Yet Figeroux failed to check
the appropriate boxes on Schedule F indicating that any of the debts were “disputed.” 4 (Id.)
6. 	Schedule I listed $6,083.33 as Lindo’s average monthly gross income as a taxi
cab driver, (Ex. 6 at P0017), and Schedule J listed his average monthly business expenses in the
amount of $3,300.00 and his total monthly expenditures as $7,359.95. (Ex. 6 at P0018.) The
latter sum included monthly installment payments of $2,400.00 toward a “Medallion.” (Ex. 6 at
P0018, line 13(b).) However, the $3,300.00 business expense number already included the
$2,400.00 monthly “medallion” payments. (Tr. (5/20) at 36:4-7.) As a result, the monthly
expenses were overstated by $2,400.00, (Tr. (5/20) at 36:18-20), and instead of negative cash
flow, Lindo actually had positive cash flow of $1,123.38 per month.
7. 	Although Figeroux knew that Lindo drove a cab, and earned gross monthly
income of roughly $6,000.00, the response to SOFA Question No. 1 stated that Lindo had not
earned any gross income from the operation of a business during 2008, 2009 or the first six
4 	Lindo testified at trial that the three debts to Chase aggregating $67,742.00 were fraudulently incurred by
his uncle. (Tr. (5/20), at 161:23-162:19.)
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months of 2010. (Ex. 8 at P0020.) Figeroux admitted at trial that the response was wrong. (Tr.
(5/20) at 38:23-39:2.)
8. 	Lindo had paid Figeroux a $3,500.00 retainer, (Ex. 12 at P0029), but the response
to SOFA Question No. 9 stated that Lindo had not made any payments relating to debt
counseling or bankruptcy. (Ex. 8 at P0022.)
The Section 341(a) Meeting
The U.S. Trustee appointed Richard E. O’Connell (the “Trustee”) to serve as the chapter
7 trustee of the estate and he duly qualified as the permanent trustee in Lindo’s chapter 7 case.
(Stipulated Facts I.) The Trustee conducted the section 341(a) meeting of Lindo’s creditors on
August 11, 2010, and Lindo attended accompanied by Frank Castel, Esq., an associate of
Figeroux.
The recording of the section 341(a) meeting was received in evidence as Ex. 15, and a
transcription prepared by one of the parties was received, with the other party’s consent, as Ex.
15-A. When the Trustee asked Lindo if he had listed all his assets, Castel volunteered that the
taxi medallion had not been listed. (Ex. 15-A at 1.) Lindo also testified that he drove a 2008 car,
not a 1987 model. (Ex. 15-A at 2.) Castel asked the Trustee whether Lindo should move to
dismiss his case. (Ex. 15-A at 3.) The Trustee responded that he could make the motion if that
was what he desired. However, the Trustee would only consent to the motion if Lindo agreed
not to refile for two years, because if the case remained in bankruptcy, the Trustee could sell the
medallion and pay off all of the creditors. (Ex. 15-A, at 3-4.) Castel reiterated that he would
make the motion, and the Trustee pointed out that it should be made under Bankruptcy Code
§ 305 and not Bankruptcy Code § 707. (Ex. 15-A, at 4.)
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Figeroux did file a motion to dismiss the case on August 26, 2010. (Ex. 16.) However,
he withdrew the motion without prejudice five days later to address unidentified concerns raised
by the Trustee,5 (Ex. 17), and never renewed it.
The Amended Schedules
On or about September 23, 2010, Figeroux prepared and Lindo filed an amended
schedule “B,” “D” and SOFA. (Ex. 18, 19 and 20.) The amended schedules listed the medallion
and Lomto’s secured claim, (Ex. 18 at P0044; Ex. 19 P0045), but continued to state that Lindo
owned a 1987 motor vehicle, (Ex. 18 at P0044), even though Lindo had testified at the section
341 meeting that he owned a 2008 car. (Ex. 15-A at 2.) In addition, the amended SOFA still
listed no gross income for 2008, 2009 or 2010, (Ex. 20 at P0046), and no payments on account of
debt counseling or bankruptcy. (Ex. 20 at P0048.)
The Trustee’s Efforts to Recover the Taxicab and Medallion
Once Figeroux withdrew the motion to dismiss, the Trustee took steps to recover the
taxicab and medallion. After retaining Samuel E. Kramer as his attorney, (Ex. 22), and MYC &
Associates, Inc. as his auctioneer, (Ex. 23), he filed a motion on or about September 24, 2010 to
compel Lindo to turn over the taxicab and medallion (the “Assets”) for the benefit of Lindo’s
estate. (Stipulated Facts P; see Ex. 21.) Lindo did not oppose the motion, and the Court granted
5 	The motion to dismiss was patently deficient. The ground for dismissal was Lindo’s intention to refinance
his medallion loan and pay his creditors outside of bankruptcy. The motion to dismiss did not mention Lindo’s
intention to refinance the medallion or pay his creditors.
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it pursuant to an order dated October 20, 2010 (the “Turnover Order”). (Stipulated Facts Q; Ex.
27.)
Lindo failed to comply with the Turnover Order. As a consequence, on November 15,
2010, the Court signed an Order to Show Cause submitted by the Trustee that sought, inter alia,
an order directing the U.S. Marshal to seize and take possession of the Assets and deliver them to
the Trustee’s auctioneer. (Ex. 29.) Lindo again failed to oppose the motion, and by order dated
December 13, 2010, the Court authorized the U.S. Marshal to seize the taxicab and medallion
and turn them over to the Trustee’s auctioneer. (Ex. 32.) On or about December 31, 2010, and
following their seizure by the U.S. Marshal, the taxicab and medallion were recovered by the
Trustee.6 (See Stipulated Facts V.)
Figeroux tried to settle the matter. According to Figeroux, the Trustee insisted on enough
cash to pay all of the creditors (approximately $137,000) plus an additional $35,000 to cover his
growing administrative expenses.7 (Tr. (5/20) at 64:13-25; 69:17-19.) Figeroux understood that
a chapter 7 trustee was entitled to commissions and his attorneys were entitled to receive
6 	The Trustee had also filed a contempt motion against Lindo on December 1, 2010, (Ex.30), but withdrew
the motion after the U.S. Marshal seized the taxicab and medallion. (See Letter to Court, dated Jan. 16, 2011 (ECF
Doc. # 40).)
7 	Remarkably, Lindo was able to refinance the medallion on his own during the chapter 7 case. I say
“remarkably” because the taxicab and medallion were property of the estate that only the Trustee could encumber.
Thus, although Lomto disbursed a $137,000 check to Lindo, (Ex. 25), any lien granted by Lindo in the taxicab or
medallion would have been invalid. Lindo brought Lomto check to Figeroux, but it was never cashed because it was
payable to Figeroux & Associates, and Figeroux told Lindo to get a check payable to the Trustee. (Tr. (5/20) at
64:13-25.)
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compensation, but implied that the Trustee was insisting on more money for his “friends,” (Tr.
(5/20) at 62:24-63:4), and felt that the Trustee’s demand was excessive. (Tr. (5/20) at 83:3-10.)
Other than talk settlement, Figeroux did nothing. He did not submit any response or
opposition to the Trustee’s motions, (see Ex. 3), or seek to dismiss or convert the case to a
chapter that would have allowed Lindo to retain the taxicab and medallion. 	Instead, he offered
two pieces of advice to Lindo: turn over the taxicab and the medallion, (Tr. (5/20) at 59:17-23;
72:13-24; 94:12-23), and get another lawyer, (Tr. (5/20) at 66:4-19; 70:20-71:10; 72:13-24;
94:12-23), because he was “not comfortable” with the issues surrounding the case, (Tr. (5/20) at
66:20-67:1). Ironically, Figeroux also did not seek to withdraw from representing Lindo because
he had made mistakes and did not want to abandon his client. (Tr. (5/20) at 91:21-92:21.)
The Conversion to Chapter 11
After the Trustee seized the Assets, Lindo discharged Figeroux and retained Jaspan
Schlesinger LLP (“Jaspan”). Lindo then moved to convert the case from chapter 7 to chapter 11
to allow him to regain possession of the taxicab and medallion from the Trustee in his newfound
capacity as a debtor in possession. (Stipulated Facts Z.) The conversion motion reasoned that
Lindo could refinance the medallion and successfully implement a plan of reorganization rather
than have the Trustee sell the taxicab and medallion for the benefit of Lindo’s estate. (Stipulated
Facts AA.) The Trustee initially opposed the conversion motion, (Stipulated Facts BB), but after
several hearings, all parties agreed and the Court signed the order converting the case to chapter
11 on May 5, 2011, as amended on June 1, 2011 (collectively the “Conversion Order”). (See
Stipulated Facts DD, EE.) As a result, Lindo became a debtor in possession and regained
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possession of the taxicab and the medallion after four months on May 7, 2011.8 (Stipulated Facts
EE, HH.)
The Conversion Order required Lindo to generate not less than $550,000.00 through the
refinancing the medallion and any additional sources to support a proposed Chapter 11 plan.
(Stipulated Facts FF.) Once in chapter 11, he promptly moved to refinance the Assets with
Lomto and Barcelona Capital LLC, (Stipulated Facts II), the Court authorized the refinancing
pursuant to an Order dated Aug. 17, 2011, (Stipulated Facts JJ; Ex. 34), and Lindo obtained the
refinancing proceeds in the total amount of $550,000.00. (Stipulated Facts KK.)
After receiving the refinancing proceeds, Lindo had to deal with the substantial
administrative expenses generated during the chapter 7 case. Pursuant to an Order Granting
Applications for Allowance of First and Final Compensation and Reimbursement of Expenses
entered and dated March 12, 2012, the Trustee and his professionals were awarded the following
fees and expenses by the Court:
Richard E. O’Connell 	Trustee 	10,375.00
Samuel E. Kramer 	Trustee’s Counsel 	55,520.00
Joseph A. Broderick, CPA 	Trustee’s Accountant 	1,932.00
MYC & Associates 	Trustee’s Auctioneer 	4,137.00
MYC & Associates 	Trustee’s Auctioneer 	6,941.06
$78,905.06
8 	On or about October 29, 2010, the Trustee also commenced an adversary proceeding seeking, inter alia, to
revoke and/or deny Lindo’s discharge based upon Lindo’s alleged bad faith in not initially disclosing the medallion.
(Stipulated Facts R; Ex. 25.) On May 5, 2011, an order was entered dismissing the adversary proceeding without
prejudice. (Stipulated Facts GG.)
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(Stipulated Facts LL; Ex. 41.) Lindo paid these chapter 7 administrative costs, (Tr. (6/5) at
68:10-25), and also paid Lomto its legal fees in the amount of $67,754.12 and pending legal fees
in the amount of $1,500.00 when he refinanced the medallion. (Ex. 39 at P0392.)
The Chapter 11 Case
By Order dated June 28, 2012, the Court confirmed Lindo’s Fifth Plan of Reorganization
(the “Plan”). (Stipulated Facts MM; Ex. 42.) The Plan provided that “[t]he Debtor shall make
addition distributions in the event additional funds are recovered by the Estate.” (Debtor’s Fifth
Amended Chapter 11 Plan of Reorganization, dated June 19, 2012, at 14 (Main Case ECF Doc.
# 119-1).) The Fourth Amended Disclosure Statement amplified this commitment, revealing the
pendency of this adversary proceeding 9 and stating that any sums recovered would be distributed
to creditors entitled to distribution. (Debtor’s Fourth Amended Chapter 11 Plan of
Reorganization, dated Mar. 16, 2012, at 2, 17) (see Main Case ECF Doc. # 100-2).) The Plan
did not discharge any debts that accrued during the chapter 7 period. (Plan at 13.)
Finally, pursuant to an Order dated Oct. 5, 2012, the Court awarded Jaspan final fees as
chapter 11 counsel in the amount of $138,617.15, and expenses in the amount of $3,805.96, for a
total amount of $142,422.96. (Ex. 43, Schedule B & n.1.) The Court did not award fees or
expenses to Jaspan for its work during the chapter 7 case but this did not reflect on the value of
those services. A chapter 7 debtor’s counsel is not employed under 11 U.S.C. § 327(a) (referring
to the trustee’s retention of professionals), and does not apply to the court for compensation. See
9 	Lindo had commenced this adversary proceeding on September 28, 2011.
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11 U.S.C. § 330(a) (2006) (authorizing the court to award compensation to a professional person
employed under section 327). These fees and expenses were not discharged under the Plan, but
Jaspan has agreed to look solely to the proceeds of this lawsuit to recover its chapter 7 fees and
expenses (as well as any shortfall in the payment of its chapter 11 award). (Ex. 42 (Order
Confirming the Debtor’s Plan of Reorganization, dated June 28, 2012 (“Confirmation Order”))
at ¶ 15.)
PROPOSED CONCLUSIONS OF LAW
A. 	Jurisdiction and Venue
This Court has jurisdiction over this adversary proceeding pursuant to 28 U.S.C.
§ 1334(b), 28 U.S.C. § 157(a), the District Court’s Order of Reference dated July 10, 1984
(signed by Acting Chief Judge Robert J. Ward) and the Amended Standing Order of Reference,
12 Misc. 00032 (S.D.N.Y. Jan. 31, 2012). Venue is proper under 28 U.S.C. § 1409(a). This is a
core proceeding because it arises in a case under title 11. The malpractice claim accrued when
Lindo filed a chapter 7 petition based on Figeroux’s negligent advice, Rich v. Strada Design
Assocs., Inc. (In re Strada Design Assocs., Inc.), 326 B.R. 229, 237 (Bankr. S.D.N.Y. 2005), and
but for the filing of the chapter 7 petition, Lindo would not have a malpractice claim.
Although this is a core proceeding, the Court concludes that it lacks the authority to enter
a final judgment under Stern v. Marshall, 131 S. Ct. 2594, 2600-01 (2011). The parties have not
consented to that authority and the resolution of Lindo’s claim does not implicate the claims
allowance process. Furthermore, Lindo asserts a common law malpractice claim aimed at
augmenting the estate. Accordingly, the Court submits these proposed findings and conclusions
in accordance with the Amended Standing Order of Reference.
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B. 	Liability
“In order to sustain a claim for legal malpractice, a plaintiff must establish both that the
defendant attorney failed to exercise the ordinary reasonable skill and knowledge commonly
possessed by a member of the legal profession which results in actual damages to a plaintiff, and
that the plaintiff would have succeeded on the merits of the underlying action ‘but for’ the
attorney’s negligence.” AmBase Corp. v. Davis Polk Wardwell, 866 N.E.2d 1033, 1036 (N.Y.
2007) (citations omitted); accord Barbara King Family Trust v. Voluto Ventures, 849 N.Y.S.2d
41, 43 (N.Y. App. Div. 2007). The attorney may be liable for legal malpractice based on his
“ignorance of the rules of practice, failure to comply with conditions precedent to suit, or for his
neglect to prosecute or defend an action.” Bernstein v. Oppenheim & Co., 554 N.Y.S.2d 487,
489-90 (N.Y. App. Div. 1990); accord Perkins v. Am. Transit Ins. Co., No. 10 Civ. 5655 (CM),
2013 WL 174426, at *17 (S.D.N.Y. Jan. 15, 2013); Grago v. Robertson, 370 N.Y.S.2d 255, 258
(N.Y. App. Div. 1975). On the other hand, “an attorney is not held to the rule of infallibility and
is not liable for an honest mistake of judgment, where the proper course is open to reasonable
doubt [citation omitted]. Thus, “‘selection of one among several reasonable courses of action
does not constitute malpractice.’” Bernstein, 554 N.Y.S.2d at 489 (quoting Rosner v. Paley, 481
N.E.2d 553, 554 (N.Y. 1985)).
Figeroux committed malpractice by advising Lindo to file under chapter 7; chapter 7 was
the worst place for Lindo to be, and no competent bankruptcy attorney would have given that
advice. In chapter 7, the debtor must surrender his non-exempt property to his trustee, who will
liquidate the property and distribute the proceeds to the debtor’s creditors. See 11 U.S.C.
§§ 542(a), 704(a)(1). Lindo had substantial equity in the medallion, a fact easily confirmed.
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Lindo listed a debt to Lomto in the sum of $311,582.00. (Ex. 6 at P0011.) According to
Maniscalco, an experienced bankruptcy practitioner, determining the current selling price of a
medallion involves “one Google search” to find information regarding the Taxi and Limousine
Commission’s list for average monthly sales. (Tr. (6/5) at 34:21-35:1-5.) In this case, Figeroux
apparently had little trouble determining the medallion’s value because Lindo’s amended
schedules filed after the section 341(a) meeting listed the medallion as worth $600,000.00. (Ex.
18 at P0044.) The prospect of seizing and selling a medallion with nearly $300,000.00 in equity
would make any chapter 7 trustee drool. (Tr. (6/5) at 31:5-7.)
Equally important, Lindo’s livelihood depended on the taxicab and medallion. He
needed both to earn his living. If a trustee seized them, Lindo would not be able to work.
For a person like Lindo with substantial assets and regular income, there were only two
choices: (1) refinance the asset and pay the creditors outside of bankruptcy; or (2) file a chapter
11 or chapter 13 proceeding, which allows the debtor to retain possession and control of his
assets and propose a plan that pays his creditors. Maniscalco reviewed Lindo’s information, and
opined that he would not have put Lindo into chapter 7. (Tr. (6/5) at 30:23-31:1.) If he had
represented Lindo, he would have explained to him that the medallion would be liquidated by a
trustee because it had substantial equity. (Tr. (6/5) at 31:5-8.) He would have also explained
that he had the option to refinance the medallion, pull out some equity and negotiate with his
creditors. (Tr. (6/5) at 32:2-7.)
Even Figeroux agreed in hindsight that a chapter 7 was inappropriate. He contended that
Lindo did not disclose that he owned a medallion, but if he had, Figeroux would not have filed a
chapter 7 petition, and instead, would have filed under another chapter or refinanced the
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medallion in the first place. (Tr. (6/5) at 119:18-120:5.) Thus, everyone agreed that chapter 7
was not a reasonable alternative, and the question comes down to what Figeroux knew about the
medallion and when he knew it.
Despite Figeroux’s assertion that he did not know about the medallion prior to filing, the
schedules he prepared and his own sworn testimony showed that he did. Initially, Lindo adduced
substantial evidence attesting to Figeroux’s shoddy intake procedures. His one page intake form
did not elicit any relevant financial information from the client. In contrast, Maniscalco requires
the client to complete a twenty-four page intake questionnaire that elicits all of the financial
information necessary to make an informed decision whether to file bankruptcy, and if so, under
what chapter. (See Plaintiff’s Ex. “A.”) His questionnaire effectively mirrors the bankruptcy
petition, schedules and statement of financial affairs. (Tr. (6/5) at 8:22-9:6.) Maniscalco also
conducts an initial meeting taking extensive notes, talking to the client and gathering as much
information as he can. (Tr. (6/5) at 8:12-17.) After his paralegal prepares the draft petition,
schedules, and SOFA, he reviews them for accuracy and also goes through them, page by page,
with the client. (Tr. (6/5) at 16:5-17:5.) In contrast, Lindo primarily dealt with a paralegal who
recorded his answers to the paralegal’s questions directly into a computer program.
Regardless of the method that was used, it should have been obvious to Figeroux that the
schedules and SOFA raised red flags that required his attention. As noted earlier, these included
the listing of unencumbered real property on Schedule A that was encumbered by two liens
according to Schedule D, the listing of a twenty-three year old yellow taxicab on Schedule B, the
failure to dispute any of the fraudulently incurred unsecured debts on Schedule F, the statement
of an intention to surrender and retain the same piece of collateral, the statement that Lindo had
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not earned any gross income in 2008, 2009 and 2010 and the statement that he had not paid a
retainer to Figeroux when Figeroux had signed a disclosure that Lindo had paid him a $3,500.00
retainer. Had he reviewed the schedules with or without Lindo, he would have known that he
did not have an accurate picture of Lindo’s assets and liabilities when he advised him to file
under chapter 7.
Most important, although the schedules referred to the taxicab and the medallion without
connecting them, Figeroux knew that Lindo owned a taxi medallion. After Figeroux failed to
answer the complaint in this adversary proceeding, Lindo moved to enter a default judgment;
Figeroux objected and moved to vacate his default. Figeroux submitted an affirmation in
opposition to Lindo’s motion in which he made the following admission:
The Debtor disclosed that he owned a taxi medallion and a taxi during the
preparation of the petition. The debtor informed the firm and provided
documentation that the medallion was a secured claim to which the amount owed
was $307,000 dollars [sic]. The Debtor sought to reaffirm the debt, and
appropriate re-affirmation documents were submitted with the chapter 7 petition.
(See Exhibit A).
(Ex. 44 at ¶ 4 (p. 3 of 26) (emphasis added).)
The referenced exhibit, (Ex. 44, at pp. 4-8 of 26), a Reaffirmation Agreement that
Figeroux prepared for Lindo, is dated one week after the Petition Date. In it, Lindo agreed to
reaffirm a “MEDALLION LOAN” in the amount of $307,354.00. (Ex. 44, at p. 5 of 26.) Both
Lindo and Figeroux signed the form. (Ex. 14 at P0143.) Figeroux’s signature constituted his
certification that the reaffirmation agreement represented a “fully informed and voluntary
agreement by the debtor [that would] not impose an undue hardship on the debtor or any
dependent of the debtor.” (Ex. 14 at P0143.) Figeroux could not have certified that Lindo was
“fully informed” if Figeroux had not explained to Lindo what the Reaffirmation Agreement
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meant and why it made sense to reaffirm the debt rather than surrender the collateral.
Accordingly, Figeroux knew about the taxi medallion and could have easily determined its
current market and Lindo’s substantial equity prior to filing the petition.
Figeroux also knew or should have known that Lindo’s business generated net income
and his household had positive cash flow. He scheduled monthly operating income of $6,083.33,
(Ex. 6 at P0017), and monthly operating expenses of $3,300.00. (Ex. 6 at P0018.) As noted
earlier, Figeroux’s staff double counted the monthly payment of $2,400.00 made in connection
with the medallion. Reducing his monthly expenses by $2,400.00 resulted in monthly positive
cash flow of $1,123.38. (See Ex. 6 at P0018.)
Accordingly, Figeroux failed to exercise a reasonable degree of skill and care commonly
exercised by an ordinary member of the legal community when he advised Lindo to file under
chapter 7 of the Bankruptcy Code. (See Tr. (6/5), at 36:19-37:5.) This was not a mere error in
judgment in selecting one among several reasonable courses of action. By Figeroux’s own
admission, Lindo did not belong in chapter 7 in light of the medallion, and although Figeroux
knew Lindo owned a medallion with substantial equity, he nonetheless advised him to file under
chapter 7.
The initial malpractice was exacerbated by what followed. As a result of the section
341(a) meeting, even Figeroux admitted he knew about the medallion. The injury resulting from
the chapter 7 filing was still cheap to fix, and Figeroux pursued the right strategy; he filed a
motion to dismiss the case pursuant to 11 U.S.C. § 305 immediately after the section 341(a)
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meeting. (See Ex. 16.)10 Up to this point, the Trustee had not retained a lawyer, accountant or
auctioneer, and had not incurred any administrative expenses to recover the medallion and
taxicab. Nor had he insisted that Lindo set aside or provide the Trustee with the funds to pay his
creditors.11 The Trustee only insisted that the dismissal order bar Lindo from refiling for two
years. However, Figeroux withdrew the motion to dismiss five days later, because the Trustee
indicated that critical information was missing, without prejudice to refiling the motion “once the
Trustee’s concerns have been addressed.” (Ex. 17.)
Figeroux never pursued the motion to dismiss again, and the Trustee took steps to recover
the taxicab and medallion. In response, Figeroux abandoned Lindo. He did not respond to the
Trustee’s motions or advise Lindo to exercise his absolute right to convert the case to a chapter
11 or 13, see 11 U.S.C. § 706(a), which would have automatically terminated the Trustee’s
service, 11 U.S.C. § 348(e), and allowed Lindo to retain his assets and pursue an in-court
workout through a confirmed plan. Instead, Figeroux made an unsuccessful attempt to settle
10 	Section 305 states in relevant part:
(a) The court, after notice and a hearing, may dismiss a case under this title, or may suspend all
proceedings in a case under this title, at any time if—(1) the interests of creditors and the debtor
would be better served by such dismissal or suspension . . . .
Although the legislative history indicates that § 305(a) was intended to serve as an antidote to an involuntary
petition that threatened to scuttle an ongoing out of court workout, see H.R. REP . N O. 95-595, at 325 (1977); S. REP .
N O. 95-989, at 35 (1978), the language of the statute is sufficiently broad to cover voluntary cases, and reflects a
policy that favors less costly out-of-court workouts. In re Colonial Ford, Inc., 24 B.R. 1014, 1015-16 (Bankr. D.
Utah 1982); see In re Chateaugay Corp., 961 F.2d 378, 382 (2d Cir. 1992). Lindo’s motion failed to mention it, but
the section 341(a) meeting transcript confirmed Lindo’s intention to refinance his medallion and pay his creditors
outside of bankruptcy.
11 	In fact, the idea was to pay the creditors outside of bankruptcy. Since the Trustee would not be distributing
any money, he would not earn a commission. See 11 U.S.C. § 326(a).
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with the Trustee, and advised Lindo to turn over the Assets and find another lawyer. In the
meanwhile, the Trustee’s administrative expenses skyrocketed in large part because Figeroux
ignored the Trustee’s motions and ensuing orders. All of the chapter 7 expenses that Lindo seeks
to recover arose after the section 341(a) meeting and were proximately caused by (1) the
erroneous decision to file under chapter 7, (2) the failure to remedy the error after Figeroux
admitted he knew Lindo owned a valuable medallion with substantial equity, and (3) Figeroux’s
abandonment and neglect of Lindo’s interests once the Trustee began his collection efforts.
According to Figeroux, he attempted to negotiate a resolution with the Trustee, but the
latter’s demand of an additional $35,000.00 to cover his administrative expenses was excessive.
Even if Figeroux could not agree with the Trustee on the amount of the Trustee’s expenses,
Figeroux could have always converted the case to chapter 11 or chapter 13 and negotiated or
dealt with the Trustee’s fees at a later date. In the meantime, he would have displaced the
Trustee and cut off the continuing accrual of chapter 7 administrative expenses generated by (1)
the efforts of the chapter 7 Trustee to recover the medallion and taxicab in the face of Lindo’s
seeming obstinacy and (2) the filing of an adversary proceeding objecting to Lindo’s discharge
based on errors in the schedules and SOFA that Figeroux had prepared.
C. 	The Damages
Figeroux’s malpractice proximately caused damages in the sum of $134,224.37.
1. 	Chapter 7 Administrative Expenses
The bulk of damages in the sum of $78,905.06 are attributable to what Lindo paid to the
Trustee and to his attorney, accountant and auctioneer for services rendered during the chapter 7
period. These damages were proximately caused by the erroneous decision to file chapter 7 and
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the subsequent failure to remedy the situation by failing to prosecute the motion to dismiss or
convert the chapter 7 case to one under chapter 11 or chapter 13. But for these breaches of
Figeroux’s professional duties, Lindo would not have suffered these damages.
2. 	Jaspan’s Chapter 7 Fees
The next largest component of Lindo’s damages relates to the services rendered by
Jaspan during the chapter 7 case. In New York legal malpractice actions, a plaintiff may recover
litigation expenses incurred to “avoid, minimize, or reduce the damage caused by the attorney’s
wrongful conduct.” Bua v. Purcell & Ingrao, P.C., 952 N.Y.S.2d 592, 598 (N.Y. App. Div.
2012); accord Leach v. Bailly, 870 N.Y.S.2d 138, 140 (N.Y. App. Div. 2008); see Rudolf v.
Shayne, Dachs, Stanisci, Corker & Sauer, 867 N.E.2d 385, 388 (N.Y. 2007) (plaintiff entitled to
recover damages for litigation expenses suffered as a result of legal malpractice that required a
second trial.) The award is intended to make the plaintiff whole. Rudolf, 867 N.E.2d at 388; see
also Campagnola v. Mulholland, Minion & Roe, 555 N.E.2d 611, 613 (N.Y. 1990).
Lindo incurred legal fees in the amount of $41,525.25 and expenses in the amount of
$554.74 to Jaspan for services rendered during the chapter 7 period between January 21, 2011
and May 4, 2011. (See Plaintiff’s Ex. “D,” at P0623-P0630.) As in the case of the Trustee’s
administrative expenses, Lindo demonstrated that he would not have owed fees to Jaspan for any
chapter 7 work if Figeroux had not mistakenly advised him to file chapter 7 and then failed to
remedy his error. Moreover, Lindo’s chapter 7 debts were not discharged under the plan, and he
remains liable to pay Jaspan from the proceeds of this lawsuit.
Although Figeroux did not take issue with the proposition that Jaspan’s chapter 7 fees
were recoverable as damages, he asserted general objections to time spent researching issues
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relating to Lindo’s chapter 7 case. He also asserted specific objections to the following services
rendered by Shannon Scott, Esq., the Jaspan attorney responsible for the matter, because the time
records referred to telephone calls or conferences but did not detail the reason for the phone call
or what was discussed (Defendants’ Proposed Findings of Fact and Conclusions of Law, filed
Aug. 1, 2013, at ¶ 86 (ECF Doc. # 36)):
Date of Service 	Description 	Time Billed
1/21/2011 	Conference with SRS 	0.4
1/21/2011 	conference with Trustee’s counsel 	0.2
1/25/2011 	call Court 	0.3
1/28/2011 	Prepare application for approval of substitute counsel;
conference with RC regarding the same
1.0
1/31/2011 	Spoke with Trustee 	0.2
1/31/2011 	Conference with secured creditor’s counsel; coordinate
conference call
0.3
2/8/2011 	speak with accountant 	0.2
4/4/2011 	Confer with SRS, client meeting 	1.6
4/8/2011 	call counsel to the Trustee 	0.2
Total 	4.4
Figeroux’s general objection is overruled; if Jaspan attorneys spent time researching
chapter 7 issues, it was only because Figeroux negligently put Lindo in a chapter 7 proceeding,
and Jaspan had to extricate Lindo from it.
Figeroux’s specific objections to vague entries stand on firmer ground. Addressing the
analogous question of fee awards, courts have observed that vague and ambiguous descriptions
of work done prevent the court from assessing the reasonableness of the work, and should be
eliminated or reduced. Cosgrove v. Sears, Roebuck & Co., No. 81 CIV. 3482 (AGS), 1996 WL
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99390, at *3 (S.D.N.Y. Mar. 7, 1996) (“[M]any of the descriptions of the work performed are
vague, including entries such as ‘review of file,’ ‘review of documents’ and ‘review of
[adversary’s] letter.’ There can be no meaningful review of time records where the entries are
too vague to determine whether the hours were reasonably expended.”); accord Dotson v. City of
Syracuse, No. 5:04-CV-1388 (NAM/GJD), 2011 WL 817499, at *24 (N.D.N.Y. Mar. 2, 2011)
(“Descriptions of work such as ‘review of file’, ‘review of documents’ and ‘review of letters’ are
vague and do not permit a court to evaluate the reasonableness of the services.”); Schruefer v.
Winthorpe Grant, Inc., No. 99 Civ. 9365 (GBD)(AJP), 2003 WL 21511157, at *3 (S.D.N.Y. July
2, 2003) (imposing overall reduction of ten per cent based on vague time entries including
“various phone conferences,” “review file,” “legal research,” and “case administration”).
Similarly, vague and ambiguous descriptions prevent the Court from identifying the precise
nature of the legal service that was proximately caused by Figeroux’s malpractice.
All of the time records identified in the table immediately above, except for the entry on
January 28, 2011, are vague. They refer to phone calls or other communications, but do not
identify the nature of the communication. In fact, the services may have been unrelated to the
chapter 7. Lindo bears the burden of proving that his damages were proximately caused by
Figeroux’s malpractice, and the vague descriptions fall short. These vague entries account for
3.4 hours of Scott’s time. Her hourly billing rate was $410.00 for all but 0.9 hours of the total
time billed, (Plaintiff’s Ex. “D,” at P0629), and $1,394.00, will be deducted from the total
amount sought by Lindo on account of Jaspan’s services during the chapter 7 period.
The objection regarding the January 28, 2011 entry is overruled. The entry states that the
services pertained to the preparation of an application to substitute counsel— Jaspan for
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Figeroux. The need to substitute counsel was directly related to Figeroux’s mishandling of
Lindo’s case, and in fact, was consistent with Figeroux’s advice. Accordingly, the balance of
time billed during the chapter 7, $40,131.25, is recoverable as damages. In addition, Figeroux
has not objected to Jaspan’s disbursements in the sum of $554.74, and the disbursements are also
recoverable.
3. 	Lost Wages
Lindo is also entitled to recover four months of lost wages. The Trustee seized the
medallion and taxicab on or about December 31, 2010, and did not return the assets to Lindo
until May 6, 2011 following the conversion to chapter 11. But for the filing of a chapter 7 case,
the Assets would never have been seized. According to his Schedules I and J, his net monthly
income from the operation of his business was $2,783.33.12 (Ex. 6 at P0017-P0018.) He is,
therefore, entitled to recover $11,133.32 in lost wages.13
4. 	Retainer
Lindo is entitled to recover the $3,500.00 retainer he paid to Figeroux. “The attorney’s
malpractice constitutes a failure to honor faithfully the fidelity owed to the client and to
12 	Monthly gross wages ($6,083.33) minus average monthly expenses ($3,300.00). (Ex. 6 at P0017-P0018.)
13 	Although an injured party has a duty to mitigate its damages by making “reasonable efforts and to act as a
reasonable, prudent man would under the circumstances,” Salas v. United States, 974 F.Supp. 202, 211 (W.D.N.Y.
1997); see also State v. Samfred Beltline Corp., 297 N.Y.S.3d 466, 469 (N.Y. App. Div. 1969), the burden rests on
the defendant to prove that the plaintiff failed to mitigate damages. Cornell v. T.V. Dev. Corp., 215 N.E.2d 349, 352
(N.Y. 1966); Eskenazi v. Mackoul, 905 N.Y.S.2d 169, 171 (N.Y. App. Div. 2010); Hawkins v. City of New York,
470 N.Y.S.2d 420, 421-22 (N.Y. App. Div. 1984). Figeroux did not offer evidence that Lindo mitigated his
damages by working during the four months, or that he failed to make reasonable efforts to find employment.
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discharge competently the responsibilities flowing from the engagement.” Campagnola, 555
N.E.2d at 614. Acts of malpractice affect the reasonable value of the legal services performed,
and provide a defense to the attorney’s claim for unpaid legal fees even in the absence of damage
to the client. Redgrave v. Musselman (In re Finley, Kumble, Wagner, Heine, Underberg,
Manley, Myerson & Casey), 157 B.R. 1, 5 (S.D.N.Y. 1993), aff’d mem., 22 F.3d 1091 (2d Cir.
1994). The Court may, in this regard, cancel any retainer agreement relating to the bankruptcy
case, and order the attorney to return the retainer to the extent the retainer exceeds the reasonable
value of the services rendered. 11 U.S.C. § 329. 14 Figeroux’s services were rendered in such a
negligent manner that they had no reasonable value, and accordingly, Lindo is entitled to recover
the retainer in the sum of $3,500.00 that he paid Figeroux pursuant to 11 U.S.C. § 329(b).
14 	Section 329 states:
(a) Any attorney representing a debtor in a case under this title, or in connection with such a case,
whether or not such attorney applies for compensation under this title, shall file with the court a
statement of the compensation paid or agreed to be paid, if such payment or agreement was made
after one year before the date of the filing of the petition, for services rendered or to be rendered in
contemplation of or in connection with the case by such attorney, and the source of such
compensation.
(b) If such compensation exceeds the reasonable value of any such services, the court may cancel
any such agreement, or order the return of any such payment, to the extent excessive, to—
(1) the estate, if the property transferred—
(A) would have been property of the estate; or
(B) was to be paid by or on behalf of the debtor under a plan under chapter 11,
12, or 13 of this title; or
(2) the entity that made such payment.
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5. 	Jaspan’s Chapter 11 Fees
The amounts billed by Jaspan during the chapter 11 period, and ultimately paid pursuant
to the Plan, are not recoverable as damages because they were not proximately caused by
Figeroux’s malpractice. Lindo alleged that Figeroux committed malpractice by putting him in
chapter 7 instead of advising him to refinance the medallion and pay off his creditors outside of
bankruptcy or through a chapter 11. (See Complaint, dated Sept. 28, 2011, at ¶¶ 28, 88, 126(e),
129) (ECF Doc. # 1-1).) Had Figeroux followed the chapter 11 route, Lindo would have had to
pay professional fees to his chapter 11 counsel. Lindo failed to show that Figeroux’s malpractice
increased the amount of those fees.
6. 	Lomto Fees
Lindo failed to demonstrate that the fees he paid to Lomto, aggregating $69,254.12, were
proximately caused by Figeroux’s malpractice. Lindo’s malpractice claim centered on the
contention that he could have refinanced the medallion and paid off his creditors outside of
bankruptcy or through a chapter 11 plan. Thus, the refinancing was unrelated to the malpractice,
and he would have had to pay Lomto’s legal fees anyway. Although Lomto’s participation in the
chapter 7 proceedings may have increased the fees that Lindo ultimately paid, he did not offer
evidence to show how the fees were computed or whether some fees could have been avoided.
Hence, an award for those fees would be purely speculative.
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In conclusion, and based on the foregoing, I recommend that the defendants be adjudged
liable for malpractice, and that Lindo recover damages in the sum $134,224.37 to be distributed
in accordance with the Plan and the Confirmation Order.
Dated: New York, New York
September 16, 2013
/s/ Stuart M. Bernstein
STUART M. BERNSTEIN
United States Bankruptcy Judge
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