Bank of America, N.A. v. New York Merchants Protective Co., Inc. et al
Filing
171
ORDER denying 157 Motion to Compel Receiver to Pay Outstanding Fees and Expenses of Ruskin Moscou Faltischek, PC. Ordered by Judge Denis R. Hurley on 7/9/2012. (Malley, Sean)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
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BANK OF AMERICA, N.A., individually and
as successor to LaSalle Bank, National
Association, a national banking association,
ORDER
11 CV 38 (DRH)(ARL)
Plaintiff,
- against NEW YORK MERCHANTS PROTECTIVE
CO., INC., NEW YORK MERCHANTS
ALARM RESPONSE INC.; and NY
MERCH PROT CO., INC.,
Defendants.
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HURLEY, District Judge:
Before the Court is the application of non-party Ruskin Moscou Faltischek, P.C.
(“RMF”), defendants’ prior counsel, for an Order compelling Ronald J. Friedman
(“Friedman”), defendants’ Receiver, to pay the attorney’s fees for RMF’s legal work
performed between September 24, 2010 1 and July 6, 2011. For the reasons stated below,
the application is denied.
BACKGROUND
The facts underlying this case are set forth in detail in numerous prior Orders
issued by this Court. A familiarity with such facts is therefore assumed for present
purposes.
1
Although the affidavit submitted in support of this application identifies this first date as
September 24, 2011, the Court assumes that it meant to read September 24, 2010. (See,
e.g., Engagement Letter dated 9/23/10, attached to Wurst Aff. as Ex. B.)
This action was commenced on January 5, 2011 with the simultaneous filing of a
complaint and a request for an Order to Show Cause regarding, inter alia, the
appointment of a receiver for the three defendant corporations. A hearing was held that
same day to address plaintiff’s proposed Order to Show Cause. In the months prior to the
commencement of this action, RMF had been retained to “assist Defendants in a workout
of its loan with Bank of America.” (Affidavit of Jeffrey A. Wurst (“Wurst Aff.”) ¶ 2.)
When defendants were initially served with the papers in this case, they apparently did
not have time to retain litigation counsel. Defendants therefore turned to RMF and
requested that the firm make a “limited appearance” on their behalf at the initial January
5, 2011 hearing. Jeffrey Wurst, Esq. (“Wurst”) of RMF agreed to appear. (Id. ¶ 3.)
The Court made a number of rulings on the record at that initial hearing and
scheduled a subsequent plenary hearing for January 18, 2011. (Minute Entry dated
1/5/11, docket no. 5.) On January 10, 2011, plaintiff filed a proposed injunctive order,
which included the powers to be conferred on the proposed receiver. Wurst, on behalf of
defendants, responded with a red-lined version of proposed changes. (See Letters dated
1/10/11, docket nos. 7-8.) By letter dated January 14, 2011, Wurst informed the Court
that defendants had consented to the appointment of a Receiver through agreed-upon
language set forth in a proposed stipulated order. The Court so ordered the parties’
stipulated order appointing Friedman as Receiver, and cancelled the January 18, 2011
hearing.
In the weeks that followed, Wurst also negotiated three separate stipulated
extensions of time of defendants’ deadline to respond to the complaint. Each extension
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was approved by the Court on January 28, 2011, February 9, 2011, and February 17,
2011. (See docket nos. 14-16.) Shortly thereafter, Wurst moved to withdraw as
defendants’ attorney. At a hearing on March 2, 2011, the Court granted the motion and
stayed the case for three weeks to allow defendants time to find new counsel. (Minute
Entry dated 3/2/11.) The Court’s stated grounds for granting the motion was defendants’
failure to pay its legal fees to RMF. (Transcript of 3/2/11 Hearing at 5.) RMF’s
concomitant request for a charging lien against the unpaid balance was denied without
prejudice. (Id.)
After withdrawing as counsel for defendants, RMF made “repeated” demands to
Friedman for payment of the outstanding balance owed to the firm. (Id.) However, with
the exception of a single $7,500 payment on January 18, 2011 for work performed prior
to the commencement of this action, the Receiver has made no payments to RMF for
their legal work. (Wurst Aff. 15.)
On June 29, 2011, the Court directed the Receiver to allocate $10,000 from the
company’s gross revenues to retain Jeffrey G. Stark, Esq. “to represent all three
[corporate] defendants in [this] action for the limited purpose of evaluating those
companies’ potential defenses to this action.” (Order dated 6/29/11 at 3.) The Court
issued this Order primarily out of concern for the potential conflict of interest in
permitting counsel for Wayne Wahrsager, co-owner of defendant New York Merchants
Protective Co., Inc. (“NYMP”) and the individual whose alleged fraudulent activity led,
in large part, to the commencement of this lawsuit, to simultaneously represent
Wahrsager and the defendant companies. Days later, on July 6, 2011, Wurst sent a letter
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to Friedman demanding payment of his firm’s outstanding balance, citing the June 29,
2011 Order. (Wurst Aff. Ex. F.) The letter noted that the Order set aside money in order
for Stark to evaluate the company’s potential defenses to the action – the very same task
RMF claimed in its letter to have performed during their time as litigation counsel. (Id.)
Having still received no payment, RMF filed the instant motion seeking
$20,842.99 in for its legal work, $5,597.98 in fees for bringing the present motion, and
$289.21 in expenses. (Wurst Aff. ¶ 29.)
DISCUSSION
The Court notes at the outset that the Order of Appointment vests the Receiver
“with the power and authority to pay, in his discretion, the reasonable and necessary
expenses of operating the Defendants’ business.” (Order of Appointment ¶ 15 (emphasis
added).) This language was negotiated and stipulated to by Wurst in the first weeks of
this case. 2
Generally, the creation of a receivership does not impute the preexisting
obligations and contracts of the defendant to the receiver. An equity receiver is therefore
not responsible for contracts entered into by the defendant prior to the receiver's
appointment, unless the receiver later affirmatively ratifies that contract. See Ralph
Ewing Clark, A Treatise on the Law and Practice of Receivers §§ 423, 428, 561 (3d ed.
2
The Court further notes that a version of the Order of Appointment drafted by the Court
vested the Receiver with substantially fewer rights and powers than the version
negotiated by Wurst on behalf of defendants. (Compare docket nos. 11 and 12.)
Nevertheless, because the latter was agreed to by the parties, the Court so ordered that
version, which remains the operative Order of Appointment in this action. (See
discussion in Order dated 5/2/11 at 3-4.)
4
1992) (citing at §561 United States v. Illinois Surety Co., 238 F. 840, 841 (D.N.C. 1917)).
Where the contract calls for the payment of money, the creditor cannot compel the
receiver, which is an arm of the court, to make such payments. Id. at § 423.
NYMP’s obligations to RMF were established through a retainer agreement
signed by its president, Wayne Wahrsager, on September 23, 2010, more than three
months before the Receiver was appointed. (Wurst Aff. Ex. B.) Further, Wurst’s
appearance in this case came at the request of defendants, not the Receiver. In fact,
Wurst’s role at that time was primarily to negotiate the powers of the Receiver with
plaintiff. Wurst appeared before the Court and emphasized that his appearance would be
limited to addressing plaintiff’s application for the appointment of a receiver, as he was
concerned that he would not be paid for his services. (See Transcript of 3/2/11 Hearing at
3, Wurst Aff. Ex. D.) Because of the timing of RMF’s work in this case, it does not
appear that the Receiver took any action to ratify or affirm RMF’s preexisting contractual
relationship with defendants, nor does RMF proffer any argument or evidence to that
effect. Moreover, based on Wurst’s representations to the Court at hearing, he was aware
that the subject corporations’ financial health was imperiled and that the likelihood that
he would be compensated for his work was in question. The Court therefore declines to
Order the Receiver to pay RMF its outstanding balance with defendants from such
monies. This ruling, of course, does not extinguish any direct claim for payment that
RMF may have against the defendant corporations.
In rendering this decision, the Court feels it necessary to address one point raised
by RMF in both its July 6, 2011 letter to Friedman and in the present motion. As noted
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above, the Court directed the Receiver to retain the services of outside counsel to
evaluate the corporate defendants’ potential defenses to this action. RMF insists that it
did just that when it first represented defendants here. The crucial distinction is that the
services rendered by RMF pertained primarily to the appointment of a receiver and the
powers that a receiver would possess. While RMF negotiated these terms on behalf of
defendants with plaintiff, those negotiations did not implicate the Court’s concerns which
later resulted in the appointment of Stark. The corporations, as separate legal entities
from Wayne Wahrsager—who initially engaged the services of RMF—may have
possessed certain defenses to the action, including the accuracy of the total sum sought to
be recovered by the Bank. Further, given Wahrsager’s alleged conduct leading to this
action, the corporations conceivably could assert third-party claims against Wahrsager
himself.
Moreover, Receivers are appointed as an arm of the Court, and operate at the
pleasure and under the supervision of the Court. Therefore, any order appointing a
receiver and vesting certain powers therein, is ultimately an act of the Court, not the
adversarial act of a party. The order directing the Receiver to retain counsel pertained the
defenses of the subject corporations against allegations lodged in a complaint. Although
RMF may have had the interests of defendants in mind when it negotiated the Order of
Appointment, it did not actually assert “any potential defenses to this action.” (See Order
dated 6/29/11 at 3.) In fact, during their representation, RMF did not file an answer or
move to dismiss any of the claims. Rather, it sought extensions of time to respond to
those claims. While these acts no doubt offered some benefit to defendants, what is
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important for the present consideration is the distinction between evaluating or asserting
defenses to the claims of an adversary, and the powers of a receiver who is appointed by
and overseen by the Court. The Order to retain counsel concerned the former, not the
latter.
CONCLUSION
Accordingly, RMF’s application for attorney’s fees is denied, as is its
concomitant request to impose a lien.
SO ORDERED.
Dated: Central Islip, New York
July 9, 2012
/s
Denis R. Hurley
Unites States District Judge
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