Jackson v. Reed Smith LLP (In re Jackson)

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In re: CURTIS JAMES JACKSON, III, Debtor

CURTIS JAMES JACKSON, III, Plaintiff v. REED SMITH LLP, and PETER RAYMOND, Defendants.

No. AP-ECF No. 22^[1]

No. 15-21233 AMN

Adv. Pro. No. 17-2005 (AMN)

United States Bankruptcy Court, D. Connecticut, New Haven Division

May 10, 2023

Imran H. Ansari, Esq. (admitted pro hac vice) Joseph P. Baratta Esq. (admitted pro hac vice) Baratta, Baratta & Aidala LLP Counsel for Curtis James Jackson, III, Plaintiff and Former Debtor

John L. Cesaroni, Esq. James Berman, Esq. Christopher H. Blau Esq. Zeisler and Zeisler Local Counsel for Curtis James Jackson, III, Plaintiff and Former Debtor

Thomas G. Rohback, Esq.Allison M. Vissichelli, Esq. (admitted pro hac vice) Craig M. Reiser, Esq. (admitted pro hac vice) Axinn, Veltrop & Harkrider, LLP Counsel for Reed Smith LLC, and Peter Raymond Defendants and Claimants

MEMORANDUM OF DECISION AFTER TRIAL AND ORDER DETERMINING AMOUNT OF REED SMITH LLP'S PROOF OF CLAIM

ANN M. NEVINS, UNITED STATES BANKRUPTCY JUDGE

I. NATURE OF PROCEEDINGS

This post-trial opinion determines whether and to what extent a claim for pre-petition legal fees will be allowed.

The legal fees were generated by the law firm Reed Smith LLP ("Reed Smith"), which represented Curtis James Jackson, III ("plaintiff" or "Mr. Jackson"), in two pre-petition litigation cases: (1) a New York state court case captioned Lastonia Leviston v. Curtis James Jackson, III, New York State Supreme Court, Index No. 102499/2010 (the "Leviston Case"); and (2) an unrelated appeal before the United States Court of Appeals for the Second Circuit captioned Simmons v. Stanberry, et al., docket number 14-3106 (the "Simmons Case").

In the midst of a jury trial in the Leviston Case, Mr. Jackson filed a voluntary Chapter 11 bankruptcy petition commencing case number 15-21233 (the "Main Case") on July 13, 2015 ("Petition Date"). The bankruptcy filing led to a short delay in concluding the trial, but ultimately the Leviston Case resulted in a $7 million dollar verdict against Mr. Jackson. Defendants Reed Smith and Peter Raymond ("Mr. Raymond" and collectively with Reed Smith, the "claimants") represented Mr. Jackson in the Leviston Case until he fired them, approximately eleven (11) weeks before the jury trial started. Soon thereafter Mr. Jackson also terminated the firm in the Simmons Case. Within the umbrella of the Main Case here, Reed Smith filed a proof of claim ("POC 18") for unpaid legal fees and costs incurred from December 2014 through termination in March 2015 for the Leviston Case, and from December 2014 through June 20, 2015 in the Simmons Case. Main Case Claims Register, Proof of Claim 18-1.

Within the Main Case, Mr. Jackson objected to POC 18 on numerous grounds. Separately, he commenced this adversary proceeding alleging pre-petition legal malpractice claims against the claimants and incorporating the arguments in his objection to POC 18 filed in the Main Case. ECF Nos. 660, 832. The parties agreed the entire dispute would be resolved within this adversary proceeding. ECF Nos. 759, 762; AP-ECF No. 22, ¶ 5.

Familiarity with the court's prior decisions limiting the issues to be tried is assumed. See, Memorandum of Decision and Order Granting Motion to Dismiss Counts One, Three, Four, and Five, and Part of Count Two, AP-ECF No. 62; Memorandum of Decision and Order Granting Motion for Summary Judgment, In Part, and Denying Motion for Summary Judgment as to Proof of Claim, AP-ECF No. 395; Partial Judgment in Favor of Defendants, AP-ECF No. 400; and Order Certifying Partial Judgment as a Final Judgment, AP-ECF No. 409 (collectively, the "Prior Decisions"). Mr. Jackson appealed the Prior Decisions and the appeal remains pending. AP-ECF No. 405. See, In re: Curtis James Jackson, III, (Curtis James Jackson, III v. Reed Smith LLP and Peter Raymond), United States District Court for the District of Connecticut, Case No. 3:21-cv-00911 (VLB).

The Prior Decisions narrowed the remaining dispute to whether and in what amount Reed Smith's POC 18 should be allowed, and if so, whether it should be reduced due to:

(1) the lack of a written retainer agreement in compliance with 22 NYCRR 1215.1;

(2) an alleged conflict of interest; or

(3) the legal fees exceeding their reasonable value pursuant to 11 U.S.C. § 502(b)(4)^[2] (the "Remaining Issues").

AP-ECF Nos. 62, 395.

Upon Mr. Jackson's motion, the court entered a limited stay of proceedings related to the Remaining Issues to allow time for his appeal to proceed. AP-ECF No. 439. However, the court declined to further extend the stay after the initial period expired and scheduled trial to commence on July 14, 2022. AP-ECF Nos. 454, 460. See also, ECF No. 34 in In re: Curtis James Jackson, III, (Curtis James Jackson, III v. Reed Smith LLP and Peter Raymond), United States District Court for the District of Connecticut, Case No. 3:21-cv-00911 (VLB).

A six (6) day bench trial was held on the Remaining Issues on July 14, 15, 18, 19, and September 19, and 20, 2022. The court found the testimony of the witnesses to be credible and, in particular, the testimony of Mr. Jackson, Mr. Raymond, Mr. Savva, and Mr. Farber appeared to be based on their recollections of events occurring eight to ten years earlier. Following the parties' post-trial briefing, oral argument was held on December 1, 2022. AP-ECF Nos. 577, 582, 583, 584.

II. JURISDICTION

The United States District Court for the District of Connecticut has jurisdiction over this adversary proceeding by virtue of 28 U.S.C. § 1334(b). This court derives its authority to hear and determine this matter on reference from the District Court pursuant to 28 U.S.C. §§ 157(a), (b)(1), and the District Court's General Order of Reference dated September 21, 1984. While this adversary proceeding originally presented core and non-core claims, the resolution of the Remaining Issues (i.e., the resolution of an objection to a proof of claim) is a core proceeding pursuant to 28 U.S.C. §§ 157(b)(2)(A)(matters concerning administration of the estate) and (B) (allowance or disallowance of claims). This memorandum constitutes the court's findings of fact and conclusions of law pursuant to Rule 52(a) of the Federal Rules of Civil Procedure, applicable here pursuant to Rule 7052 of the Federal Rules of Bankruptcy Procedure. All parties consent to this court entering a final order or judgment in this adversary proceeding. AP-ECF Nos. 28, p .9, n. 1; 367; see, Fed.R.Bankr.P. 7008, 7012(b).

III. PROCEDURAL HISTORY & BACKGROUND

Mr. Jackson is a well-known rap music artist, actor, producer, and business entrepreneur.^[3]

Pre-Petition Litigation

Years prior to the Petition Date, in 2010, Lastonia Leviston ("Ms. Leviston") brought tort claims against Mr. Jackson in New York state court. Reed Smith defended Mr. Jackson in the Leviston Case from 2010 until March, 2015, when Mr. Jackson fired them weeks before the state court trial.^[4] Prior to the Petition Date, the jury returned a substantial verdict for compensatory damages in Ms. Leviston's favor.^[5] Before the punitive damages phase of the Leviston Case could commence, Mr. Jackson filed bankruptcy.

Mr. Jackson's Chapter 11 Filing

On July 13, 2015, Mr. Jackson filed a voluntary Chapter 11 bankruptcy petition, commencing the Main Case. ECF No. 1. After Ms. Leviston obtained relief from the automatic stay, the jury in the Leviston Case awarded her punitive damages bringing the total verdict against Mr. Jackson to $7,000,000.^[6] In his bankruptcy Schedule F - Creditors Holding Unsecured Non-Priority Claims, Mr. Jackson listed Reed Smith as a creditor holding a disputed, unsecured claim. ECF No. 55.

Reed Smith's Proof of Claim

Reed Smith's claim for legal fees relies on a 2004 engagement letter as the underlying agreement with Mr. Jackson (the "2004 Engagement Letter"). POC 18-1, p. 5. On November 3, 2015, Reed Smith filed POC 18 asserting an unsecured claim totaling $609,235.41 for attorney's fees and expenses in the Leviston and Simmons cases, summarized in the following table. POC 18.

POC 18

Leviston Case

Simmons Case

Total:

Attorney's Fees

$503,624.50

$70,190.05

$573,814.55

Expenses

$34,019.72

$1,401.14

$35,420.86

Total:

$537,644.22

$71,591.19

$609,235.41

Of the $34,019.72 of expenses in the Leviston Case, Reed Smith explained it previously billed Mr. Jackson for only $17,859.58, and the remaining $16,160.14 of expenses were billed for the first time in POC 18.

For the Simmons Case, Schedule 3 to POC 18 included a list of seven (7) invoices for work billed from December 16, 2014 through June 20, 2015, with attorney's fees totaling $47,330.05 and expenses totaling $1,276.93, for a total of $48,606.98 billed. POC 18-1, p. 11. With the comment "[t]hrough 7/12/2015," additional, previously unbilled attorney's fees of $22,860 and expenses of $124.21 were added, resulting in the $71,591.19 claimed for the Simmons Case. POC 18-1, p. 11.

Mr Jackson's Chapter 11 Plan

On May 25, 2016, Mr. Jackson proposed his Third Amended Chapter 11 Plan of Reorganization (the "Plan"). ECF No. 485. The Plan provided that Reed Smith's disputed claim (a non-priority, unsecured claim) would be paid its pro rata share of the Plan's seventy-four (74%) percent distribution to unsecured creditors upon allowance. ECF No. 552, Exhibit A, §§ 1.05, 10.06(a). Reed Smith voted to accept the Plan. ECF No. 535. The court confirmed the Plan on July 7, 2016. ECF No. 552.

Mr. Jackson made all payments required under his Plan, including payments of seventy-four (74%) percent to all allowed, non-priority unsecured claims. An escrow account for disputed claims like Reed Smith's was also established. Mr. Jackson earned his Chapter 11 discharge on February 2, 2017. ECF No. 764.

The Plan...