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Wiener Weiss & Madison A Professional Corp. v. Fox

United States District Court, W.D. Louisiana, Shreveport Division

March 20, 2018

WIENER, WEISS & MADISON, A PROFESSIONAL CORPORATION, ET AL.
v.
LESLIE B. FOX

          HAYES MAGISTRATE JUDGE

          MEMORANDUM RULING

          S. MAURICE HICKS, JR., CHIEF JUDGE UNITED STATES DISTRICT COURT

         The Plaintiffs, Wiener, Weiss & Madison, A Professional Law Corporation, and Kantrow, Spaht, Weaver & Blitzer (A Professional Law Corporation) (collectively, the “Firms”) filed the present Partial Motions for Summary Judgment against Defendant, Leslie B. Fox (“Fox”) claiming the inapplicability of Louisiana Rules of Professional Conduct 1.5(d)(1) and 1.8(a) as it concerns the contingency fee agreements entered into between the Firms and Fox. See Record Documents 43 and 49. In response, Fox filed a Cross-Motion for Partial Summary Judgment. See Record Document 42. Furthermore, the Firms filed Motions to Strike the Declaration of Charles Wolfram (“Wolfram”) and Dane Ciolino (“Ciolino”) and the Supplemental Declaration of Wolfram. See Record Documents 53 and 66. After careful consideration of all parties' submissions, and the law applicable before the Court, the Firms' Motions for Partial Summary Judgment (Record Documents 43 and 49) are GRANTED. Fox's Cross-Motion for Partial Summary Judgment (Record Document 42) is DENIED. Moreover, the Firms' Motions to Strike (Record Documents 53 and 66) are GRANTED.

         FACTUAL AND PROCEDURAL BACKGROUND[1]

         This is an action for breach of a contingency fee contract between the Firms and their former client, Fox. Although the factual and procedural background of this case is extensive, it is necessary for the Court to set forth the complete factual background in order to gain a complete understanding of the underlying dispute.

         On July 6, 2005, Fox filed for divorce from her husband, Harold Rosbottom, Jr. (“Rosbottom”), in the 256th Judicial District Court of Dallas County, Texas (“Texas Divorce Proceeding”). See Record Document 42-2 at 14, ¶ 2. Throughout the Texas Divorce Proceeding, Rosbottom repeatedly disregarded court orders, including orders regarding the disclosure of certain financial information and other data pertaining to his business interests. See id. at ¶ 4; see Record Document 42-3 at 8. As a result, on June 9, 2009, the Texas district court orally appointed a receiver to assume control over the community estate. See id. at ¶ 2; see id. at 1. However, within hours of the court's ruling, Rosbottom filed for Chapter 11 bankruptcy in the Western District of Louisiana. See Record Document 42-3 at 1, ¶ 1.

         The bankruptcy consisted of two related proceedings, namely:

(a) a Chapter 11 bankruptcy filed by Rosbottom, see In re Harold L. Rosbottom, Jr., No. 09-BR-11674 (W.D. La. filed June 9, 2009) (“BR Docket No. 09-11674”); and
(b) a Chapter 11 bankruptcy proceeding filed by Caddo- Bossier Gaming Company, LLC (an entity owned by Fox and Rosbottom), see In re Caddo-Bossier Gaming Company, LLC, No. 09-BR-11673 (W.D. La. filed June 9, 2009).

(collectively, the “bankruptcy proceedings”). See Record Document 1 at 2, ¶ 7. The bankruptcy proceedings had the effect of transferring all matters relating to the couple's community property, including community property division, from the Texas family court into the Louisiana bankruptcy court. See id. at 3-5, ¶¶ 10, 14, 18; see Record Document 42-2 at 14-15, ¶¶ 3, 6-7. Additionally, Fox had claims against Rosbottom's bankruptcy estate for delinquent monthly support payments of prior support orders of the Texas family court. See Record Document 1 at 1, 4, ¶¶ 13, 65.

         On June 16, 2009, Wiener Weiss & Madison (“WWM”) agreed to represent Fox in the bankruptcy proceedings and any and all matters relating to those bankruptcy cases for the purpose of protecting Fox's interest in the community estate. See Record Document 1 at 2, ¶¶ 7, 15; see Record Document 42-3 at 26. WWM recommended that Fox also retain Kantrow, Spaht, Weaver & Blitzer (“KSWB”), to which Fox consented. See Record Document 42-3 at 29-34; see Record Document 42-4 at 1. As set forth in the engagement letters, the Firms agreed to represent Fox on an hourly fee basis. See Record Document 42-3 at 26-34, see Record Document 42-4 at 1. However, recognizing that Fox's assets were tied up in the bankruptcy proceedings, the Firms agreed to seek their fees directly from the bankruptcy court, to be payable out of the Rosbottom bankruptcy estate. See Record Document 42-3 at 26.

         “The Firms jointly pursued Fox's community property, support, and other interests in the bankruptcy proceedings and began incurring substantial fees and expenses.” Record Document 49-3 at 2, ¶ 12, Declaration Pursuant to 28 U.S.C. § 1746 of R. Joseph Naus (“Naus”). For example, “the Firms commenced an investigation for the purposes of locating assets and liabilities that were not included on Rosbottom's bankruptcy schedules.” Id. at ¶ 13. As a result of the Firms efforts, with the help of Fox and others, the Firms identified and located “community assets of significant value that Rosbottom had illegally and fraudulently concealed, both pre- and post-bankruptcy, thereby substantially enhancing the value of the Rosbottom bankruptcy estate for the benefit of Fox and the other creditors.” Id. at ¶ 14. Additionally, “the Firms' investigation revealed that Rosbottom had wasted and mismanaged the assets of the community both prior to and during the pendency of the bankruptcy proceedings.” Id. at ¶ 15.

         Based on the extensive evidence the Firms developed, the Firms “filed a motion to remove Rosbottom as the debtor in possession and appoint a Chapter 11 bankruptcy trustee in his place.” Id. at ¶ 16. On February 19, 2010, the bankruptcy court appointed a Chapter 11 Trustee (“Trustee”) to assume control of Rosbottom's business affairs and assets and to otherwise reorganize the significant debts owed by Rosbottom individually and the many corporations, partnerships and limited liability companies under his direction or control. See Record Document 42-5 at 1, 20; see Record Document 42-7 at 12.

         With the appointment of the Trustee, the Firms achieved Fox's initial objectives of ending Rosbottom's fraudulent control over the bankruptcy estate and enforcing her support obligations. See Record Document 49-3 at 3, ¶ 18. However, the Firms had not been paid for their services, and virtually all of Fox's assets remained tied up in the bankruptcy. In the first eight months of representation, the Firms billed 3, 361.75 hours of time and $1, 216, 656.92 in fees and expenses to Fox. See Record Document 42-8 at 18, 49-51. Accordingly, “in line with their engagement letters, the Firms moved the bankruptcy court for an order, pursuant to 11 U.S.C. § 331, requiring that the bankruptcy estate pay the Firms' professional fees as administrative expenses.” Record Document 49-3 at 3, ¶ 20. “However, the bankruptcy court denied that motion, holding the Bankruptcy Code did not authorize the court to pay the professional fees of a non-debtor spouse or creditor like Fox.” Id. Following this ruling, “the Firms submitted a Substantial Contribution Application to the bankruptcy court pursuant to 11 U.S.C. § 503(b)(3)(D).” Id. at ¶ 21. “In their Substantial Contribution Application, the Firms contended that the Rosbottom bankruptcy estate should pay the Firms $1.2 million for their fees and expenses incurred through February 28, 2010, because their work- culminating in the appointment of the Trustee- had substantially enhanced the value of, and preserved, the bankruptcy estate for the benefit of the creditors as a whole.” Id. The bankruptcy court ultimately approved the Firms' Substantial Contribution Application, and the Firms received payment for all of their fees for its work performed through February 28, 2010. See Record Document 33 at 4, ¶ 12.

         Following the appointment of the Trustee, Fox sought the Firms assistance in:

(a) working with the Trustee to preserve and protect her equity interest in the bankruptcy estate and to identify additional assets that Rosbottom had concealed;
(b) enforcing her rights against the bankruptcy estate for monthly support payments;
(c) defending against various creditors' claims made against her, individually;
(d) investigating her and her children's interest in various entities ostensibly owned by the children in which Rosbottom had attempted to divert millions of dollars of community assets; and
(e) assisting her with the Trustee's demand that she vacate her home in Dallas and liquidate its contents.

         Record Document 49-3 at 3-4, ¶ 23. “In addition, Fox needed assistance in connection with a criminal investigation that had been initiated against Rosbottom by the United States Attorney for the Western District of Louisiana.” Id. at 4, ¶ 24. However, since virtually all of Fox's assets were the property of Rosbottom's bankruptcy estate and she was receiving no support payments from her former husband, Fox did not have the means to pay the Firms' fees and expenses for the Firms continued representation. See id. at ¶ 26. Therefore, in November 2009, Fox requested that the Firms submit a proposal to her for her consideration concerning the fees. See id. On April 29, 2010, the Firms tendered to Fox a new fee agreement (“2010 agreement”). See Record Document 42-4 at 4-5. The 2010 agreement, which was to be retroactively effective as of March 1, 2010, altered the fee arrangement between Fox and the Firms from an hourly arrangement to a contingency fee arrangement “on a going forward basis.” Id. at 4. The 2010 agreement stated that “[a]t the outset of the case, it was hoped that the bankruptcy case would be relatively short. However, we currently cannot estimate when the case might end and what the results might be.” Id. The 2010 agreement proposed that Fox grant to the Firms:

an undivided vested interest in the gross proceeds (whether cash or property) (the “Gross Proceeds”) distributed to [Fox] either for [her] claims against the bankruptcy estate or as an equity owner of the bankruptcy estate of Harold L. Rosbottom, Jr., the following: 25% if the value of the Gross Proceeds is $3, 000, 000 or less, 30% if the value of the Gross Proceeds is between $3, 000, 000 and $5, 000, 000, and 35% if the value of the Gross Proceeds is more than $5, 000, 000 . . . .

Id. On May 3, 2010, Fox and the Firms entered into a written contingency fee agreement. See Record Document 49-3 at 4, ¶ 27.

         “With the bankruptcy estate now under the Trustee's sole management and control, the Firms filed an adversary proceeding on behalf of Fox against Rosbottom, seeking an inequitable distribution of the equity of the bankruptcy estate because of Rosbottom's fraud, waste, and mismanagement of the community.” Id. at ¶¶ 28-29. “Following the entry of a preliminary injunction in the adversary proceeding, Rosbottom agreed to a settlement, whereby any remaining equity in the bankruptcy estate would be allocated between him and Fox, 25 percent and 75 percent, respectively.” Id. at ¶ 29. However, the Firms, with the assistance of others, thereafter discovered that Rosbottom was continuing to conceal community assets and the Firms moved the bankruptcy court to set aside the settlement. See id. at ¶ 30.

         On March 22, 2013, while the motion to set aside the settlement was pending, the Trustee proposed a plan of reorganization (the “Plan”). See Record Document 42-5 at 1. The Plan included language that entitled Fox to 100 percent of the equity of the bankruptcy estate due to Rosbottom's conduct, which included 100 percent equity interest in Louisiana Truck Stop and Gaming, LLC (referred to in the Plan as ABC Holding, LLC and hereinafter referred to as “LTSG”) . See Record Document 1 at 14, ¶ 61, see Record Document 42-5 at 28-30.

         “On May 1, 2013, the bankruptcy court confirmed the Plan, with the result that, after payment of the claims of all of the creditors, 100 percent of the bankruptcy estate's equity would become vested in Fox, subject to the terms and conditions of the Plan and the Trustee's continued control and administration.” Record Document 49-3 at 5, ¶ 32. One of the conditions of the Plan required Fox to finalize her divorce from Rosbottom in order to become vested. The Plan stated that:

After entry of a final unappealable divorce decree and community partition (“Divorce Condition”), the Trustee will agree to transfer the membership interests of [LTSG] to [Fox], subject to the terms of this Plan . . . . Prior to the Divorce Condition, [Fox] shall have no right or claim, vested or otherwise, to the membership interests in [LTSG] . . . .

         Record Document 42-5 at 28. Accordingly, on May 17, 2013, Fox represented by her Texas divorce attorney, Michael DeBruin (“DeBruin”) appeared for a hearing in the divorce action whereby the judge entered a final divorce decree. See Record Document 43-4 at 4, ¶¶ 20-21. Nonetheless, the bankruptcy estate still had substantial debt remaining and liquidation of the estate by the Trustee remained a possibility. See Record Document 49-3 at 5, ¶ 36. Therefore, it was still uncertain if Fox would receive any distributions from the estate. See id.

         “Although the original scope of the Firms' work had largely been concluded, Fox desired the Firms to continue to represent her during the post-confirmation period in an effort to preserve and maximize the value of her expected equity interest in the bankruptcy estate, to avoid the Trustee's sale of the estate's assets, and generally to assist her in matters related to the Plan.” Id. at ¶ 38. Specifically, Fox wanted the Firms to help her:

(a) raise money by selling a portion of her equity in the bankruptcy estate to an investor who could help her ...

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