At least four law firms have been left hanging for millions of dollars in legal fees from a home restoration company whose former chairman pleaded guilty to fraud involving another corporation.
The latest firm left waiting for payment by Home Solutions of America Inc. is New Jersey-based Riker, Danzig, Scherer, Hyland & Perretti. Ironically, the firm was defending the company in a suit brought in Manhattan Supreme Court by Morgan, Lewis & Bockius over $2.5 million in unpaid fees.
In an order last week, Supreme Court Justice Emily Jane Goodman granted Riker Danzig's request to withdraw from the case. The firm has been owed $60,000 for work performed from November 2008 to April 2009, according to an affidavit by the firm.
Morgan Lewis meanwhile is awaiting a decision from Justice Goodman on its request to hold Home Solutions in default in Morgan, Lewis & Bockius v. Home Solutions of America Inc., 113917/2008.
At the same time, Fulbright & Jaworski and Hallett & Perrin, both in Texas, are trying to withdraw from defending Home Solutions in a class action against the company, also because of unpaid fees.
Morgan Lewis and Fulbright declined to comment. Lawyers at Riker Danzig did not return calls for comment. A call to numbers listed in regulatory filings for Home Solutions in New Orleans and Dallas reached messages that the numbers had been disconnected.
Dallas-based Home Solutions, which specialized in home restoration following disasters, had been having financial and legal difficulties for much of the last year, court and regulatory filings show. In January 2008, Home Solutions was delisted from the Nasdaq Stock Exchange after it missed deadlines for filing quarterly reports. Since then, the company has been divesting itself of its core assets. It is trying to sell or close all of its divisions not tied to New Orleans, according to an SEC filing in June.
Home Solutions turned to Riker Danzig in mid-November after Morgan Lewis filed suit. Morgan Lewis had taken on Home Solutions as a client in 2007, the firm said in a complaint filed in October through then-partner Mark Mandel in New York.
But in July 2008, Mandel gave notice that he was leaving to join Schulte Roth & Zabel. In e-mails cited in the complaint, Mandel told Morgan Lewis partners he had been in negotiations with Michael McGrath, the chairman of Home Solutions, to get the firm paid. In August 2008, McGrath offered Morgan Lewis $1 million to settle its accounts receivable. Morgan Lewis said it was owed $2.53 million. McGrath also asked for all the files to be transferred to Mandel, now at Schulte Roth.
Morgan Lewis then took the unusual step of suing Home Solutions, according to one exhibit.
"It is not the general policy of our firm to sue our former clients for unpaid fees, but the facts of this case were so extreme and the way that our firm was treated was so inappropriate and egregious that we had no option but to file suit," Morgan Lewis partner Bernard J. Garbutt III said in a November e-mail filed as an exhibit.
With Riker Danzig representing it, Home Solutions argued in February that Morgan Lewis "knew of the difficult financial condition of HSOA and the risk of nonpayment for some of the fees charged and disbursements." It also counterclaimed that Morgan Lewis had given faulty advice in connection with the issuing of preferred stock. Morgan Lewis denied the claim.
But in April, Riker Danzig said it wanted out of the case. In an affidavit, J. Alex Kress, the Riker Danzig partner who led Home Solution's defense, pointed to an investigation of McGrath by the New Jersey U.S. Attorney's Office.
Riker Danzig, knowing Home Solutions had "financial difficulties," had required McGrath to sign a personal guaranty for payment of fees and costs. But in February, McGrath resigned as chairman and shortly afterward, federal prosecutors froze "substantially all" of McGrath's assets because of allegations involving U.S. Mortgage Corp. in Pine Wood, N.J., where McGrath was president.
In June, McGrath pleaded guilty to mail and wire fraud and money laundering in what prosecutors described as a $139 million fraud. U.S. Mortgage filed for Chapter 11 bankruptcy in February.
Riker Danzig said in affidavits that it communicated with Home Solutions after McGrath's departure, but its acting chairman and its then CEO refused to authorize it to proceed with a defense in Morgan Lewis's lawsuit.
Meanwhile, other firms were also struggling to collect fees. In March, Home Solutions had agreed to pay $3.5 million to settle a class action in Texas. While it has paid some of the money, the company has since advised the lawyers in the case that it will be unable to pay the remaining $900,000 "in the foreseeable future," according to its SEC filing.
Fulbright & Jaworski represented the company in the class action and a derivative suit, with Hallett & Perrin advising in the derivative action. Both firms have since moved to withdraw over lack of payment.
In April, Home Solutions turned to Mandel, by then at Schulte Roth, to defend it in a suit brought by the restructuring company, Alvarez & Marsal, seeking $605,800 in unpaid fees.
It is not clear if Schulte Roth has been paid. It has not filed papers to withdraw from the Alvarez or other litigation. Mandel declined to comment.
Posts
No comments:
Post a Comment