Confidential
Settlement – $1,748,000Judge
Court
Santa Barbara Superior
Attorneys
Plaintiff
Defendant
Barry Z. Brodsky
(Kaufman, Dolowich & Voluck LLP)
Charles E. Slyngstad Jr.
(Burke, Williams & Sorensen LLP)
Experts
Plaintiff
David Y. Farmer
(technical)
George Goodall
(technical)
Defendant
Paul W. Vapnek
(technical)
James Wheyland
(technical)
Thomas A. Tarter
(technical)
Ellen Peck
(technical)
James Joseph
(Procopio, Cory, Hargreaves & Savitch LLP)
(technical)
Marc A. Cohen M.D.
(technical)
Whipple Manning
(technical)
Herbert Katz Jr.
(technical)
Facts
In January 1995, defendant attorney, counsel for defendant debtor under a confirmed bankruptcy reorganization plan, allegedly promised creditor's counsel that he would hold certain bankruptcy assets (over $1.6 million proceeds from the sale of real property) in his firm's trust account, and approximately $525,000 from avocado ranch proceeds (part in dual-signature CD accounts and part in his firm's trust account), pending resolution of claims. The $1.6 million was initially placed into the defendant law firm trust account. Defendant attorney never took control of the ranch proceeds. In February/March 1995, defendant attorney allegedly assisted defendants debtor and others in a plan to eliminate oversight of the ranch operations by paying off members of the Unsecured Creditors Committee using ranch proceeds that were payable to all unsecured creditors, pro rata. On June 9, 1995, defendant attorney moved $1.1 million of the land proceeds to a CD account at defendant bank on which debtor had single-signature authority, a fact that defendant attorney claimed he did not know. Debtor concurrently secured a $1,085,000 line-of-credit with the CD. She drew down the entire line within two weeks for personal expenses. On June 22, debtor transferred $150,000 to defendant attorney personally. In September 1995, the CD was used to pay off the credit line. Defendant debtor used most of the ranch proceeds for personal expenses. The plaintiff claimed that the defendant attorney knew or should have known of the transactions involving these proceeds. On Oct. 22, the debtor died, apparently by suicide. The plaintiff bankruptcy estate committee brought this action against the defendants based on breach of contract, negligence, conversion and conspiracy. Defendant attorney contended that he had been victimized by the fraudulent conduct of his client who had induced the bank to allow her sole access to the funds, and that he was unaware of the dissipation of the funds until after her apparent suicide at a time when he sought to transfer the funds to an account for disbursment to secured creditors. Per the plaintiff, defendant attorney denied he ever promised to hold any of the funds and asserted that, under the plan, debtor had the right to possession of the funds until disbursement to creditors. Further, the $150,000 transfer was a gift to him. Defendant law firm denied any knowledge of wrongdoing by defendant attorney before he left the firm on June 19 or thereafter. Defendant bank denied any knowledge of the bankruptcy or any encumbrances on the CD funds; claimed that defendant attorney conspired with defendant debtor to defraud the bank; and claimed that the $150,000 was a payoff for assisting the fraud. The attorney defendants denied any duty to the bankruptcy estate, and asserted that the estate ceased to exist upon confirmation of the plan. All of the defendants asserted that the bankruptcy court did not have authority to appoint the committee to pursue these claims on behalf of all creditors.
Settlement Discussions
The plaintiff made a settlement demand for $___________. The defendants made an offer of $___________ .
Damages
The plaintiffs claimed damages for misappropriated funds of approximately $1.7 million. Further, the misappropriation of the ranch proceeds prevented proper maintenance of the avocado ranch, which caused it to depreciate significantly, and eventually led to foreclosure by the Federal Land Bank. This prevented the full payment of all creditors under the Plan, with total claims of approximately $6 million.
Other Information
The settlement was reached approximately one year and six months after the case was filed. SETTLEMENT CONFERENCE: A settlement conference was held on Nov. 14, 1997, before the Hon. Bruce Dodds resulting in the reported settlement.
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