Legal Ethics

Law Firm Must Pay Ex-Client Legal Fees & Punitives for Filing Bad-Faith Bankruptcy Petition

Finding that a law firm made a bad-faith involuntary Chapter 7 bankruptcy petition in an effort to force an ex-client to abandon meritorious counterclaims in a fee-dispute case, a federal bankruptcy judge has dismissed the petition and awarded an as-yet-undetermined amount of attorney’s fees and punitive damages to the ex-client.

The “alleged debtor,” Skyworks Ventures Inc., paid $900,000 of approximately $1,100,000 in legal fees billed by Scarola Ellis, but disputed the remaining amount. Hence, because the $200,000 debt was disputed–and, as the New York law firm knew, Skyworks intended to contest it aggressively in a separate court proceeding–it was not a proper basis for the law firm’s bankruptcy petition against Skyworks, explains Judge Raymond Lyons in a written opinion provided by Leagle.

Determining the New Jersey bankruptcy filing to have been made in bad faith and not in the best interest of other creditors, Lyons dismissed it last week and awarded punitive damages and attorney’s fees in an amount that has not yet been determined.

Hat tip: New Jersey Law Journal.

An earlier post provides additional details about the fee dispute:

Law Firm Spammed Our Investors, Contends Ex-Client in Fee Dispute

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