Thursday, June 22, 2017
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No Merit to Action Against Sheppard Mullin—C.A.
Appeals Panel Says the Law Firm Is Justified in Taking Steps to Collect Its Attorney Fees Even If Liens It Secures From Client Blocks Access to Its Assets by Judgment Creditors
By a MetNews Staff Writer
There’s nothing wrong with a law firm putting its own financial interest in collecting past-due attorney fees from clients, through acquiring a lien on their property, ahead of the interests of parties that successfully sued those clients and, in light of the lien, can’t secure satisfaction of their judgment, the Court of Appeal for this district has ruled.
It found no fault on the part of Sheppard, Mullin, Richter & Hampton in tying up property belonging to Ampton Investments, Inc. and its CEO and general counsel, Laurence Strenger, in order to gain payment of its bill which, as of 2011, amounted to $837,702.31.
Ampton and its CEO were found liable in a fraud action that year to four trusts, represented by Sheppard Mullin, in the amount of $8.5. The defendants’ appeal was dismissed by the Court of Appeal in 2013 in Stoltenberg v. Ampton Investments, Inc. under the disentitlement doctrine based on their refusal to obey orders of courts in New York, where enforcement proceedings were brought.
The trusts in 2014 sued Sheppard Mullin, alleging that “transfers” of assets to it—the creation of a lien in favor of a creditor is a “transfer” under Civil Code §3439.01(m)—were fraudulent.
The plaintiffs asserted in their complaint that the judgment debtors, in collusion with Sheppard Mullin and then-partner James McCarney, “intended to secretly convey, transfer, or attempt to create a blanket priority security interest in all of defendant Strenger’s or Ampton’s personal property and/or real property, without regard to total value and without regard to amount(s) actually owed to Sheppard Mullin by Ampton and/or Strenger, and by such a blanket security interest attempt to prevent execution by plaintiffs in satisfaction of the judgment.”
Murphy’s Ruling
Los Angeles Superior Court Judge Daniel S. Murphy found that there was no merit to the contentions, granting summary judgment to the law firm.
He held that “the transfer in question was simply a preference” and that there was “no evidence of intent to hinder, delay, or defraud plaintiffs.”
Murphy relied on the 1994 Court of Appeal opinion in Wyzard v. Goller, in which this district’s Div. Four held that “a preferential transfer” to a creditor law firm, “if made for proper consideration,” is valid even if “that the transfer will effectively prevent another creditor from collecting on his debt.”
The judgment creditors argued that the liens encompassed property of a value far exceeding the Sheppard Mullin bill for services, including Strenger’s art collection, valued by Sotheby’s at $6 million-$14 million.
Murphy declared:
“Plaintiffs’ argument that the secured property is worth considerably more than the legal fees owed is unavailing. Sheppard Mullin retains a lien on the subject property―it does not own the property outright. Once the property is liquidated, Sheppard Mullin will only receive the amount to which it is entitled pursuant to the lien.”
Dunning’s Opinion
Writing for Div. Seven, Acting Justice Kim Dunning, on loan from the Orange Superior Court, pointed out, in an unpublished opinion on Tuesday, that Civil Code §3432, since its enactment in 1872, has provided:
“A debtor may pay one creditor in preference to another, or may give to one creditor security for the payment of his demand in preference to another.”
She wrote:
“Without a doubt, the preferential treatment may hinder or delay the other creditor’s efforts to satisfy the debt. But as a matter of law, that does not permit the disadvantaged creditor to collaterally attack and void the preferential transfer. The preferential treatment of a legitimate creditor is not a fraudulent transfer. Summary judgment was properly granted.”
The case is Stoltenberg v. Sheppard, Mullin, Richter & Hampton, B271524.
Richard A. Love represented the trusts. Richard W. Brunette and Robert T. Sturgeon of Sheppard Mullin acted for their law firm.
Brunette explained yesterday that after his firm obtained a promissory note for $837,702 “and a security interest in Mr. Strenger’s art collection to secure payment of existing and future legal fees, Sheppard continued to do substantial work on post-trial motions, fully-briefed appeals and some work in the New York court where the plaintiffs pursued post-judgment remedies.”
After the appeal was dismissed, he said, Sheppard Mullin “disengaged and was relieved as counsel for the defendants.”
He recounted:
“In 2014, Sheppard commenced arbitration proceedings in New York to recover its fees, and an arbitrator in 2015 issued an award for $1,849,988. That arbitration award was confirmed and became a final judgment. Sheppard’s clients did not contest Sheppard’s entitlement to those fees. Sheppard’s only recovery has been from a real estate asset (not the art collection) pledged by a guarantor which was not a defendant or judgment creditor in the Stoltenberg lawsuit, in the amount of $100,000. With interest, the unpaid judgment now exceeds $2 million.”
Strenger has been put on inactive status by the State Bar of California based on non-payment of dues and is on similar status in New York.
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