Once-mighty real estate boutique files for bankruptcy, a year after claimed $30M embezzlement
A real estate boutique whose attorney roster has shrunk to a small fraction of the 150 lawyers it once listed has filed for Chapter 11 bankruptcy.
Atlanta-based Morris Schneider Wittstadt made the filing early this week in Richmond, Virginia. It says the firm has approximately $10 million in assets and $17 million in debts. Housing Wire and the Wall Street Journal (sub. req.) have stories.
Last year the firm and an affiliated title company alleged in a lawsuit against former managing partner Nathan E. “Nat” Hardwick IV that he had diverted $30 million from their operating and trust accounts.
However, Hardwick denied the allegations in a March court filing and his lawyer, Edward Garland, blamed the law firm’s accusations against his client for its downfall, the Wall Street Journal reports.
“What happened here, that culminated in the collapse of Morris Schneider and Wittstadt, is really the result of a rash, unverified set of false allegations made against Nat Hardwick,” said Garland.
Garland said Hardwick was involved in no illegal, unethical or improper conduct concerning his legal work and made no improper withdrawals of cash from the law firm. Additionally, Hardwick, as the majority owner of the firm, had no incentive to act in a manner that could destroy the once-valuable business, Garland said.
Morris Schneider Wittstadt, which formerly was known as Morris Hardwick Schneider, once had 850 people working in 50 offices in more than a dozen states. However, as of Thursday there were 128 people employed there, including 33 attorneys, Housing Wire reports. As of Monday, the firm had five attorneys and 31 staff members, partner Mark Wittstadt said.
In the bankruptcy filing, Wittstadt said the alleged $30 million embezzlement, in and of itself, was not a death sentence for MSW. Its subsidiary LandCastle Title company was bringing in $300,000 monthly. So the law firm gave Fidelity National Financial a 70-percent ownership interest in LandCastle, in exchange for Fidelity National’s agreement to fund escrow shortages that amounted to some $22 million, Housing Wire reports.
But after a former client, professional golfer Dustin Johnson, filed a federal lawsuit against Hardwick and the firm, alleging a $3 million theft, clients pressured the law firm to find a merger partner. Morris Schneider then sold much of the firm’s assets to Butler & Hosch in February, and most of its lawyers went to work for Butler & Hosch, the bankruptcy filing says.
The deal didn’t go well: Butler & Hosch purchased Morris Schneider’s foreclosure, bankruptcy and eviction business and assumed its lease obligations, giving MSW an unsecured promissory note for $2,072,167.24, according to Wittstadt.
But the following month, Butler & Hosch made an assignment for the benefit of creditors and laid off all 700 of its employees.
Related coverage:
ABAJournal.com: “Law firm sues Vegas casino for refund of $3.4M they say partner transferred for gambling”
See also:
ABAJournal.com: “Laid-off law firm workers file WARN suit seeking back pay and benefits for some 700 employees”
