In re: Ridgemour Meyer Properties ( 2020 )

19‐0792
In re: Ridgemour Meyer Properties
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
SUMMARY ORDER
RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A SUMMARY
ORDER FILED ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED BY FEDERAL RULE OF
APPELLATE PROCEDURE 32.1 AND THIS COURT=S LOCAL RULE 32.1.1. WHEN CITING A SUMMARY ORDER
IN A DOCUMENT FILED WITH THIS COURT, A PARTY MUST CITE EITHER THE FEDERAL APPENDIX OR
AN ELECTRONIC DATABASE (WITH THE NOTATION “SUMMARY ORDER”). A PARTY CITING TO A
SUMMARY ORDER MUST SERVE A COPY OF IT ON ANY PARTY NOT REPRESENTED BY COUNSEL.
At a stated term of the United States Court of Appeals for the Second Circuit,
held at the Thurgood Marshall United States Courthouse, 40 Foley Square, in the City of New
York, on the 27th day of January, two thousand twenty.
PRESENT:
RALPH K. WINTER
PETER W. HALL,
Circuit Judges.
DENISE COTE
Judge. *
IN RE: RIDGEMOUR MEYER PROPERTIES, LLC, A
LIMITED LIABILITY COMPANY,
Debtor,
RIDGEMOUR MEYER PROPERTIES, LLC, A LIMITED
LIABILITY COMPANY,
Debtor‐Appellant
v. 19‐0792
GOETZ FITZPATRICK LLP,
Appellee.
* Judge Denise Cote, of the Southern District of New York, sitting by designation.
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Appearing for Debtor‐Appellant: JOSEPH T. ANDRAGNA, Huntington, NY.
Appearing for Appellee: SCOTT D. SIMON, New York, NY (Gary M.
Kushner, New York, NY on the brief),
Appeal from a judgment of the United States District Court for the Southern
District of New York (Failla, J.).
UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED,
AND DECREED that the judgment entered on June 12, 2018, is AFFIRMED.
Debtor‐Appellant Ridgemour Meyer Properties, LLC (RMP), appeals from a
decision and judgment of the United States District Court affirming a decision and final
order of the Bankruptcy Court granting judgment to Appellee Goetz Fitzpatrick LLP (GF)
for attorney fees in the amount of $259,606.71. The district court held that GF was entitled
to fees accumulated before the two parties became in pari delicto. We assume the parties’
familiarity with the underlying facts, the procedural history of the case, and the issues on
appeal.
We independently assess the factual findings and legal conclusions of the
bankruptcy court, reviewing the court’s factual findings for clear error and its legal
conclusions de novo. In re Smith, 507 F.3d 64, 71 (2d Cir. 2007). “Absent law from a stateʹs
highest court,” a federal court interpreting state law must “predict how the state court
would resolve an ambiguity in state law.” Michalski v. Home Depot, Inc., 225 F.3d 113, 116
(2d Cir. 2000); see also In re Coudert Bros. LLP, 673 F.3d 180, 187‐88 (2d Cir. 2012) (noting
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that bankruptcy courts must also follow state law). “In determining how the Court of
Appeals would rule on this legal question, the decisions of New York Stateʹs Appellate
Division are helpful indicators.” Michalski, 225 F.3d at 116. Debtor‐Appellant argues that
they should not be required to pay Appellee any portion of their legal fees because the
two were found to be in pari delicto during this long and drawn out litigation. They also
argue that GF should be estopped from recovering due to a prior position taken in New
York State court.
In pari delicto, meaning of equal fault, is a doctrine which reflects the principle that
a plaintiff who has participated in wrongdoing equally with another entity may not
recover damages that are the result of the wrongdoing from their equal participant.
Republic of Iraq v. ABB AG, 768 F.3d 145, 160 (2d Cir. 2014). The doctrine of in pari delicto
has long been recognized under New York law, Kirschner v. KPMG LLP, 15 N.Y.3d 446,
464 (2010), which both sides agree applies to part of the time period here. “[T]he principle
that a wrongdoer should not profit from his own misconduct is so strong in New York
that [the New York State Court of Appeals ha[s] said the defense applies even in difficult
cases and should not be ‘weakened by exceptions.’” Id. (citing McConnell v.
Commonwealth Pictures Corp., 7 N.Y.2d 465, 470 (1960)). The district court, however,
highlighted what it called a “limit[ ]” of McConnell and an exception to in pari delicto.
SPA135, 137. In McConnell, the New York State Court of Appeals explained that “[i]t is
not every minor wrongdoing in the course of contract performance that will insulate the
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other party from liability for work done or goods furnished. There must be at least a
direct connection between the legal transaction and the obligation sued upon.”
McConnell, 7 N.Y.2d at 471. “Connection is a matter of degree[,]” the court continued,
and “[s]ome illegalities are merely incidental to the contract sued on.” Id.
New York State courts and courts within our circuit have applied exceptions to in
pari delicto narrowly. See Kirschner, 15 N.Y.3d at 464; In re Bernard L. Madoff Inv. Secs. LLC,
721 F.3d 54, 64 (2d Cir. 2013); In re Lehr Constr. Corp., 551 B.R. 732, 743 (S.D.N.Y. 2016).
Debtor‐Appellants argue it was inappropriate for the court to “create an exception” to in
pari delicto. Yet an “exception” is only triggered in a scenario where in pari delicto applies.
When the agreement between parties is lawful on its face and the wrongful action is
“wholly collateral to and independent of the contract’s performance,” in pari delicto does
not apply. Hilgendorff v. Hilgendorff, 241 A.D.2d 481, 600 N.Y.S.2d 150, 151 (2d Dep’t 1997).
Here, the parties were found to be in pari delicto as of July 21, 2008.1 Ultimately,
the bankruptcy court found (and the district court agreed) that because “a substantial
portion of the legal services provided by GF neither contemplated nor abetted the
misconduct identified by the Bankruptcy Court,” allowing GF to recover partially
would not “violate the policy objectives identified by the New York Court of Appeals.”
1We recognize that RMP now contends that the date determined by the district court was
incorrect, and that June 18, 2008 is the date when GF’s wrongdoing began. Before the
Bankruptcy Court, RMP argued that July 21, 2008 was the correct date. We find no clear error
in the Bankruptcy Court’s thorough analysis and factual findings.
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SPA138. We agree. The retainer agreement between the parties “contemplated
accretive conduct by GF over an extended period of time, rather than a single instance
of conduct.” SPA137; see also Bankruptcy Petition No. 08‐13153, Doc. No. 404, Ex. 7.
The illegality in this instance was not central to or a dominant part of GF’s whole course
of conduct; GF had been negotiating with Ginsburg Development Companies, LLC
(GDC) on behalf of RMP for some time without participating in any wrongdoing, and
both parties viewed the representation as part of an ongoing relationship.
The retainer stated that RMP retained GF to represent RMP in connection with
the arbitration with GDC and a related state court action brought by RMP against GDC
and its principal, as well as any other matter RMP asked GF to handle. The retainer
also stated that Carbone, the GF partner, was in charge of the matter and billed at the
hourly rate of $425.00, but GF could assign other attorneys and paralegals to work on
the matter based on cost, efficiency, expertise or unavailability. GF also reserved the
right to change its hourly rate, which then would apply to subsequent work. In a
circumstance such as this, where the contract both can be performed on a rolling basis,2
and clearly contemplates work outside of the arbitration which led to the wrongdoing,
in pari delicto cannot taint the entire scope of the parties’ relationship. The legal fees
2Once the hours were billed by GF, the contract was “complete” in the sense that RMP then
owed GF for that time. The Retainer Agreement was not dependent on any particular
disposition of the arbitration, and RMP in theory could have decided to change legal
representation at any time, which would not have relieved its obligations to GF. See Matter of
Cooperman, 83 N.Y.2d 465, 473 (1994).
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accrued by GF before the wrongdoing in which it participated therefore do not have a
sufficient connection to the wrongdoing tied to the obligation sued upon to bar
recovery of those fees. Cf. McConnell, 7 N.Y.2d at 471. On the other hand, those fees
accrued after the wrongdoing had begun have a direct connection, and therefore
recovery for those fees was correctly prohibited by the in pari delicto doctrine. See id.
RMP also claims that GF admitted to its own wrongdoing in the New York State
Court malpractice action and so is barred from pursuing legal fees. In New York, “a
party who assumes a certain position in a prior legal proceeding and secures a
favorable judgement therein is precluded from assuming a contrary position in another
action simply because his or her interests have changed.” Brooke S.B. v. Elizabeth A.C.C.,
28 N.Y.3d 1, 17 (2016) (internal quotation marks omitted). To determine whether a
party has assumed a particular position, we should look to whether a party’s later
position is clearly inconsistent with its early position; whether the party’s argument on
that issue has been successful; and whether the party seeking to assert an inconsistent
position would receive an unfair advantage if not prevented from doing so. Zedner v.
United States, 547 U.S. 489, 504 (2006).
In the underlying New York State action, GF did not expressly argue that the
parties were in pari delicto, it simply argued that assuming RMPs claims of misconduct
were true, in pari delicto applied. Further, the state court’s decision that the parties were
in pari delicto for purposes of the malpractice action and GF’s current claim for legal fees
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are not co‐extensive because (a) the malpractice action was concentrated in time and
scope specifically to the period beginning with GF’s alleged wrongdoing; and (b) the
bankruptcy court did not permit GF to pursue fees accrued after the wrongdoing at issue
in the malpractice suit had begun.
We have considered Debtor‐Appellants remaining arguments and find them to be
without merit. The judgment of the district court is AFFIRMED.
FOR THE COURT:
CATHERINE O’HAGAN WOLFE, Clerk of Court
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