Legal Malpractice

Bankruptcy, Standing and Legal Malpractice

By (Andrew Lavoott Bluestone)

What partners will do to each other continues to amaze.  here, in Rock City Sound, Inc. v Bashian & Farber, LLP ;2010 NY Slip Op 05533 ;Decided on June 22, 2010 ;Appellate Division, Second Department.  here, "A dispute arose between Kalish and Lindsay as to the Established Value of Kalish's shares, and in August 2004 Kalish commenced an action against Lindsay (hereinafter the Kalish action). The defendants Gary E. Bashian and Bashian & Farber, LLP (hereinafter Bashian and B & F) represented both Lindsay and Rock City in the Kalish action. Upon Kalish's application, the Supreme Court, Dutchess County, awarded him a preliminary injunction, inter alia, enjoining Lindsay from exercising any control over [*2]Kalish's Rock City shares (see Kalish v Lindsay, 47 AD3d 889, 890).

Subsequently, Lindsay authorized himself to vote all of Kalish's shares, called shareholder meetings at which he was the only one present, deemed himself to have complete authority to operate Rock City, and made decisions about Rock City without notifying Kalish, such as voting to sell all of its equipment and assets. "

Where did that leave Kalish?  Things became even more difficulty when Lindsay filed for personal bankruptcy.  "Kalish appealed both the order and judgment and the order to this Court. By decision and order dated January 29, 2008, this Court modified the order and judgment by deleting the provision thereof denying that branch of Kalish's motion which was to hold Bashian and B & F in civil contempt pursuant to Judiciary Law § 753, and remitted the matter to the Supreme Court for a hearing and new determination on that branch of the motion. This Court reversed the order denying Kalish's motion for partial summary judgment, and granted that motion (id. at 890-892). Thereafter, the Supreme Court issued what was denominated a partial judgment, declaring and adjudging the total value of Kalish's shares to be $1,145,580, and that Rock City was required to perform under the shareholder's agreement and purchase Kalish's shares for that amount, which was due and payable at the time of the judgment.

Subsequently, Lindsay filed for personal bankruptcy, and his bankruptcy trustee, Paul Banner, took over his interests in Rock City. Banner and Kalish then voted their shares to authorize Rock City to commence the instant action against the defendants Bashian & Farber, LLP"

For a technical discussion of standing for the bankruptcy trustee and the entities, see the balance of the decision.  "Contrary to the defendants' contention, Kalish and Banner had the authority to vote their shares to authorize Rock City to commence this action. The Shareholders Agreement entitled Kalish to exercise full voting rights on his shares "until such time as payment in full has been made." Since his shares were never purchased, Kalish's withdrawal from the corporation was never accomplished, and he had the right, according to the agreement, to vote his shares to bring the instant action (cf. Cooper, Selvin & Strassberg v Soda Dispensing Sys., 212 AD2d 498). Further, a bankruptcy trustee stands in the shoes of the debtor and is able to maintain actions that the debtor could have brought prior to the bankruptcy proceedings (see generally Hirsch v Arthur Andersen & Co., 72 F3d 1085). Since, pursuant to the Shareholder's Agreement, Lindsay could have voted his shares to authorize this action, his bankruptcy trustee, Banner, had the authority to do so. "

Full post as published by New York Attorney Malpractice Blog on July 02, 2010 (boomark / email).