How to Avoid Paying for Your Divorce

Whether DiBattista made the promise is unclear; he has neither admitted nor denied it. But what is certain is that when he filed for bankruptcy last July, he listed the fees as an unsecured, nonpriority claim, and they were discharged along with his other debts on Aug. 21.

Sodini tried to block the discharge, filing an adversary action on July 24, but U.S. Bankruptcy Judge Donald Steckroth granted DiBattista's motion to dismiss on Oct. 13. Sodini is appealing that decision to the district court.

Background

DiBattista paid a $3,000 retainer fee to Sodini & Spina in Freehold, NJ, in October 2008. At the time, he was of counsel at Morrison & Foerster in New York, making more than $400,000 a year, but according to Sodini, DiBattista said he expected to lose his job soon and had financial problems that might lead him to file for bankruptcy.

Sodini claims he made it clear that the firm would not represent DiBattista “without specific assurances that Debtor would satisfy any and all obligations to Sodini & Spina that he might incur in connection with the Matrimonial Action irrespective of whether Debtor might file for bankruptcy protection at some point.”

Sodini claims that because DiBattista promised he would pay the fees out of future income and would not seek to discharge them, the representation went forward. On Dec. 31, 2008, DiBattista lost his job and stopped paying his legal bills, but, according to Sodini, he kept reiterating that he would pay when he could and not discharge them.

The Motion to Dismiss

DiBattista's motion to dismiss admits DiBattista told Sodini up front that he had no assets, expected to be terminated in the near future and might have to file for bankruptcy, and both of those things did in fact happen. The motion calls the alleged vow to pay the fees “the type of assurances commonly given by individuals facing severe financial challenges,” which “do not rise to the level of an actionable claim for nondischargeability under all the circumstances.”

DiBattista's attorney says the bankruptcy judge threw out the adversary case because a debtor's pre-bankruptcy promise not to discharge a debt is unenforceable as a matter of public policy. The purpose of bankruptcy, which is to help people get back on their feet, would be undermined if creditors could enforce such commitments, DiBattista's motion argues, adding, “Lots of people make promises when they are in financial distress that the law does not require them to live up to.”

That DiBattista is a lawyer should not make a difference, his attorney reasons. “If attorneys as debtors should be held to a higher standard, then attorneys as creditors should be” too, he says, noting that Sodini could have protected himself by requiring a larger retainer. The firm's lawyers took the case despite being told about DiBattista's situation and “have no one to blame but themselves,” he says.

The appeal is partly grounded on DiBattista's failure to deny making the promise, but DiBattista's attorney says the absence of a denial does not matter because the bankruptcy judge did not have to decide that issue to dismiss. In the event the district court reverses, DiBattista has reserved the right to contest the existence of the promise and the reasonableness of the fees, he says.

DiBattista, now with Lowenstein Sandler in Roseland, NJ, declined comment, deferring to his attorney.

Comments from Sodini

Sodini & Spina recently split up. Sodini, who heads a Freehold firm, says what bothers him most is that DiBattista lied to him, even though Sodini interviewed him for his first job out of law school, and they were once colleagues. To Sodini, it does matter that DiBattista is a bankruptcy lawyer, who knows the law on the enforceability of non-discharge promises but still went ahead and made the promise. In his view, the case denying enforcement of such a promise on which the judge relied, In re Kroen, 280 B.R. 347 (Bankr. D.N.J. 2002), is distinguishable because the debtor there was not a lawyer, and the promise was not made at the start of the representation.

As for public policy, it “does not go so far as to excuse a fraud in the inducement,” says Sodini. The appeal, Sodini & Spina v. DiBattista, 10-cv-0044, is assigned to U.S. District Judge Katharine Sweeney Hayden in Newark, NJ.

A Pending Malpractice Suit Against a Firm Does Not Excuse Paying Fees

In the second case, a family court order requiring a divorce litigant to pay law firm Budd Larner $50,000 in legal fees, even though he had a malpractice case pending against the firm, has been upheld on appeal. The New Jersey Appellate Division ruled on Feb. 8 that there was no error in ordering and enforcing the fee award to the Short Hills, NJ, firm, because the client neither asked the family court for a stay nor sought to consolidate the malpractice and matrimonial cases. The court, in Cole v. Cole, A-1710, also found it significant that the court below “expressly carved out the malpractice issue from its decision, and made no findings on those allegations.”

The Case

Joseph Cole retained Thomas Baldwin of Budd Larner on April 28, 2003, to handle his divorce from Justine Cole, which was being litigated in Monmouth County Family Part. By the time Cole fired Baldwin on Nov. 4, 2005, he had run up a tab of $124,547.81, by the firm's calculation, and paid $60,684.

Cole hired a new lawyer ' Tinton Falls, NJ, solo August Landi ' and in February 2006 signed a consent order that gave Budd Larner “an enforceable charging lien” for $53,347.76, but the lien was vacated in March 2007. A few months later, on May 14, 2007, the Coles resolved their financial issues, with Joseph agreeing to pay Justine $75,000 if she waived her right to alimony. A subsequent order, on Sept. 21, 2007, however, required that the $75,000 payment be held in escrow until Cole set up an escrow account as security for the Budd Larner lien. In the meantime, he had to pay $300 per week in alimony.

Family Part Judge Richard English then held a plenary hearing to decide the amount of the lien. With adjustments and write-offs, Budd Larner was claiming a balance of $53,663.89, plus 12% interest, compounded monthly.

Cole had filed the malpractice case, Cole v. Budd Larner, MON-L-1055-08, a few months earlier and Budd Larner and Baldwin were aware of it, though they claimed had not yet been served. Cole is pro se in the malpractice case.

The Hearing

At the 2008 hearing, English refused to allow Cole to litigate the malpractice issue and denied Baldwin's request to say there was no negligence, insisting that he was “not dealing with a malpractice case,” but “simply an attorney fee lien and then services provided.” Judge English found no evidence of overbilling or charging for work not done, but reduced the claim slightly due to some irregularities in the invoices. He held that Budd Larner was entitled to $50,000, but did not allow the interest, denied a request to reconsider and required Cole to pay the fees, despite the pending malpractice action.

The Appeal

Cole appealed, arguing fees should not have been decided while a malpractice action was pending in which the allegations went to the necessity of the services and the reasonableness of the fees.

In an unpublished per curiam opinion, the appellate panel found no error, saying there was no law that prohibited holding a plenary hearing on fees within the matrimonial case and finding it was “in accordance with the generally accepted procedure regarding attorney's liens.”

The panel also found that Cole did not “make any effort to coordinate his legal malpractice case with the plenary hearing by requesting a stay or consolidation until after the decision was made” and that Judge English “was careful to carve out the legal malpractice issues from his rulings,” leaving Cole to pursue them in the Law Division.

The panel compared the situation with Saffer v. Willoughby, 143 N.J. 256 (1996), where a fee arbitration committee awarded fees, even though the client had a pending malpractice suit against the attorney. The lawyer contended the fee award amounted to a conclusive determination that there was no malpractice, but the Supreme Court disagreed, finding the fee committee had no jurisdiction to decide malpractice claims.

Although Judge English may have had such jurisdiction, he deferred to the court handling the malpractice case, the panel said. Cole was arguably entitled to a stay of the attorney lien issues until the malpractice claim was resolved but he did not ask for one and, in any event, it made sense to decide the lien dispute because it was holding up the Coles' financial settlement, the panel added.

The appeals judges also saw no error in making Cole pay the fees, though fee arbitration awards are stayed for related malpractice cases where the judge finds a “substantial basis.” While Cole tried to vacate the judgment, he did not ask to stay enforcement, they noted.

Comments

Baldwin says there was no malpractice and he believes Cole filed his malpractice claim “to thwart my firm's fee collection case.” Landi did not return calls seeking comment.

Mary Pat Gallagher is a reporter for the New Jersey Law Journal, an ALM sister publication of this newsletter.

Two recent New Jersey cases highlight the problems matrimonial attorneys are having collecting their fees, and the creative methods clients are using to avoid payment. In one case, the client tried to discharge the fee in bankruptcy; in the other, the client filed a malpractice claim against the attorney to avoid paying the fee.

Can a Lawyer Hold a Client to an Alleged Vow to Pay Fees Even if Bankrupt?

Legal fees, like other debts, are usually wiped clean in a Chapter 7 bankruptcy, but Jason DiBattista's $35,000 debt to his divorce lawyer, Gregg Sodini, was not typical. For one thing, DiBattista is himself a lawyer, concentrating in bankruptcy, and was once Sodini's colleague at Cuyler Burk in Parsippany, NJ. For another, Sodini contends he handled the divorce based on DiBattista's promise to pay the fees even if his precarious finances landed him in bankruptcy.

Whether DiBattista made the promise is unclear; he has neither admitted nor denied it. But what is certain is that when he filed for bankruptcy last July, he listed the fees as an unsecured, nonpriority claim, and they were discharged along with his other debts on Aug. 21.

Sodini tried to block the discharge, filing an adversary action on July 24, but U.S. Bankruptcy Judge Donald Steckroth granted DiBattista's motion to dismiss on Oct. 13. Sodini is appealing that decision to the district court.

Background

DiBattista paid a $3,000 retainer fee to Sodini & Spina in Freehold, NJ, in October 2008. At the time, he was of counsel at Morrison & Foerster in New York, making more than $400,000 a year, but according to Sodini, DiBattista said he expected to lose his job soon and had financial problems that might lead him to file for bankruptcy.

Sodini claims he made it clear that the firm would not represent DiBattista “without specific assurances that Debtor would satisfy any and all obligations to Sodini & Spina that he might incur in connection with the Matrimonial Action irrespective of whether Debtor might file for bankruptcy protection at some point.”

Sodini claims that because DiBattista promised he would pay the fees out of future income and would not seek to discharge them, the representation went forward. On Dec. 31, 2008, DiBattista lost his job and stopped paying his legal bills, but, according to Sodini, he kept reiterating that he would pay when he could and not discharge them.

The Motion to Dismiss

DiBattista's motion to dismiss admits DiBattista told Sodini up front that he had no assets, expected to be terminated in the near future and might have to file for bankruptcy, and both of those things did in fact happen. The motion calls the alleged vow to pay the fees “the type of assurances commonly given by individuals facing severe financial challenges,” which “do not rise to the level of an actionable claim for nondischargeability under all the circumstances.”

DiBattista's attorney says the bankruptcy judge threw out the adversary case because a debtor's pre-bankruptcy promise not to discharge a debt is unenforceable as a matter of public policy. The purpose of bankruptcy, which is to help people get back on their feet, would be undermined if creditors could enforce such commitments, DiBattista's motion argues, adding, “Lots of people make promises when they are in financial distress that the law does not require them to live up to.”

That DiBattista is a lawyer should not make a difference, his attorney reasons. “If attorneys as debtors should be held to a higher standard, then attorneys as creditors should be” too, he says, noting that Sodini could have protected himself by requiring a larger retainer. The firm's lawyers took the case despite being told about DiBattista's situation and “have no one to blame but themselves,” he says.

The appeal is partly grounded on DiBattista's failure to deny making the promise, but DiBattista's attorney says the absence of a denial does not matter because the bankruptcy judge did not have to decide that issue to dismiss. In the event the district court reverses, DiBattista has reserved the right to contest the existence of the promise and the reasonableness of the fees, he says.

DiBattista, now with Lowenstein Sandler in Roseland, NJ, declined comment, deferring to his attorney.

Comments from Sodini

Sodini & Spina recently split up. Sodini, who heads a Freehold firm, says what bothers him most is that DiBattista lied to him, even though Sodini interviewed him for his first job out of law school, and they were once colleagues. To Sodini, it does matter that DiBattista is a bankruptcy lawyer, who knows the law on the enforceability of non-discharge promises but still went ahead and made the promise. In his view, the case denying enforcement of such a promise on which the judge relied, In re Kroen, 280 B.R. 347 (Bankr. D.N.J. 2002), is distinguishable because the debtor there was not a lawyer, and the promise was not made at the start of the representation.

As for public policy, it “does not go so far as to excuse a fraud in the inducement,” says Sodini. The appeal, Sodini & Spina v. DiBattista, 10-cv-0044, is assigned to U.S. District Judge Katharine Sweeney Hayden in Newark, NJ.

A Pending Malpractice Suit Against a Firm Does Not Excuse Paying Fees

In the second case, a family court order requiring a divorce litigant to pay law firm Budd Larner $50,000 in legal fees, even though he had a malpractice case pending against the firm, has been upheld on appeal. The New Jersey Appellate Division ruled on Feb. 8 that there was no error in ordering and enforcing the fee award to the Short Hills, NJ, firm, because the client neither asked the family court for a stay nor sought to consolidate the malpractice and matrimonial cases. The court, in Cole v. Cole, A-1710, also found it significant that the court below “expressly carved out the malpractice issue from its decision, and made no findings on those allegations.”

The Case

Joseph Cole retained Thomas Baldwin of Budd Larner on April 28, 2003, to handle his divorce from Justine Cole, which was being litigated in Monmouth County Family Part. By the time Cole fired Baldwin on Nov. 4, 2005, he had run up a tab of $124,547.81, by the firm's calculation, and paid $60,684.

Cole hired a new lawyer ' Tinton Falls, NJ, solo August Landi ' and in February 2006 signed a consent order that gave Budd Larner “an enforceable charging lien” for $53,347.76, but the lien was vacated in March 2007. A few months later, on May 14, 2007, the Coles resolved their financial issues, with Joseph agreeing to pay Justine $75,000 if she waived her right to alimony. A subsequent order, on Sept. 21, 2007, however, required that the $75,000 payment be held in escrow until Cole set up an escrow account as security for the Budd Larner lien. In the meantime, he had to pay $300 per week in alimony.

Family Part Judge Richard English then held a plenary hearing to decide the amount of the lien. With adjustments and write-offs, Budd Larner was claiming a balance of $53,663.89, plus 12% interest, compounded monthly.

Cole had filed the malpractice case, Cole v. Budd Larner, MON-L-1055-08, a few months earlier and Budd Larner and Baldwin were aware of it, though they claimed had not yet been served. Cole is pro se in the malpractice case.

The Hearing

At the 2008 hearing, English refused to allow Cole to litigate the malpractice issue and denied Baldwin's request to say there was no negligence, insisting that he was “not dealing with a malpractice case,” but “simply an attorney fee lien and then services provided.” Judge English found no evidence of overbilling or charging for work not done, but reduced the claim slightly due to some irregularities in the invoices. He held that Budd Larner was entitled to $50,000, but did not allow the interest, denied a request to reconsider and required Cole to pay the fees, despite the pending malpractice action.

The Appeal

Cole appealed, arguing fees should not have been decided while a malpractice action was pending in which the allegations went to the necessity of the services and the reasonableness of the fees.

In an unpublished per curiam opinion, the appellate panel found no error, saying there was no law that prohibited holding a plenary hearing on fees within the matrimonial case and finding it was “in accordance with the generally accepted procedure regarding attorney's liens.”

The panel also found that Cole did not “make any effort to coordinate his legal malpractice case with the plenary hearing by requesting a stay or consolidation until after the decision was made” and that Judge English “was careful to carve out the legal malpractice issues from his rulings,” leaving Cole to pursue them in the Law Division.

The panel compared the situation with Saffer v. Willoughby , 143 N.J. 256 (1996), where a fee arbitration committee awarded fees, even though the client had a pending malpractice suit against the attorney. The lawyer contended the fee award amounted to a conclusive determination that there was no malpractice, but the Supreme Court disagreed, finding the fee committee had no jurisdiction to decide malpractice claims.

Although Judge English may have had such jurisdiction, he deferred to the court handling the malpractice case, the panel said. Cole was arguably entitled to a stay of the attorney lien issues until the malpractice claim was resolved but he did not ask for one and, in any event, it made sense to decide the lien dispute because it was holding up the Coles' financial settlement, the panel added.

The appeals judges also saw no error in making Cole pay the fees, though fee arbitration awards are stayed for related malpractice cases where the judge finds a “substantial basis.” While Cole tried to vacate the judgment, he did not ask to stay enforcement, they noted.

Comments

Baldwin says there was no malpractice and he believes Cole filed his malpractice claim “to thwart my firm's fee collection case.” Landi did not return calls seeking comment.

Mary Pat Gallagher is a reporter for the New Jersey Law Journal, an ALM sister publication of this newsletter.