The law firm of Hinckley Allen & Snyder LLP represented Robin Cavusoglu, and Cavusoglu's related companies on various matters. One of these matters was the settlement in a case known as "Cevdet Aksut I", which settlement was apparently made on behalf of a Causoglu company known as HGC.
Cevdet Aksut, apparently a foreign company, later sued Cavusoglu and Hinckley Allen, alleging that the latter law firm acted as an escrow agent, and wired $500,000 to two of Cavusoglu's companies (CNC and Cecil) knowing that those two companies were simply "inactive shell corporations" and that the money actually ended up in the hands of Cavusoglu.
With the caveat that the following are simply allegations in Cevdet Aksut's Complaint, and that anybody with $400 can file a lawsuit in federal court meritless or not, Cevdet Aksut alleged that Hinckley Allen was liable for violations of the New Jersey Uniform Fraudulent Transfer Act, New Jersey's Civil RICO statute, aiding and abetting conversion, aiding and abetting breach of fiduciary duty, aiding and abetting fraud, civil conspiracy, and unjust enrichment.
Hinckley Allen moved to dismiss the Complaint, which the Court granted as to the claims for aiding and abetting breach of fiduciary duty, aiding and abetting conversion, and unjust enrichment. However, the Court declined to dismiss the balance of the Complaint, and that is what is of interest here.
As to the allegations that Hinckley Allen had engaged in a conspiracy to violate New Jersey's Uniform Fraudulent Transfer Act, the Court first noted that:
The New Jersey Supreme Court specifically held that a debtor's lawyer can be liable for conspiracy to violate the UFTA. Banco Popular N. Am. v. Gandi, 184 N.J. 161, 178 (2005). In Gandi, the New Jersey Supreme Court found that the creditor/plaintiff had stated a UFTA claim against the debtor's lawyer, Richard Freedman, by alleging that Freedman had encouraged and helped Gandi to transfer assets to Gandi's wife in order to keep the assets away from the creditor. Id. at 178. (“The allegations indicate that Freedman counseled [his client] to transfer his assets to defraud a creditor, and, if proved, [Freedman's] assistance in facilitating the transfer reflects implicit, if not explicit, agreement to further that purpose.”).
Cevdet Aksut had alleged that Hinckley Allen plausibly knew that HGC had an obligation to satisfy its settlement, but as the escrow agent instead funneled HGC money's away to other companies. Hinckey Allen protested that the claim was implausible, but that did not satisfy the Court:
Hinckley Allen's unsupported position runs contrary to Gandi, where the New Jersey Supreme Court held that a lawyer who advises a client on methods of hindering creditors has committed conspiracy to violate the UFTA. 184 N.J. at 178 (stating that lawyer's “assistance in facilitating the transfer reflects implicit, if not explicit, agreement to further [a fraudulent] purpose.”).
The Court also declined to dismiss the New Jersey Civil RICO claim based on Cevdut Aksut's allegations:
The Complaint is rife with examples of mail fraud, wire fraud, and money laundering. For example, Cavusoglu committed wire fraud when he used the telephone to communicate with Cevdet Aksut to make his fraudulent misrepresentations. He committed money laundering when he transferred the proceeds from the sale of the goods to various shell corporations. The Complaint even places Hinckley Allen on notice that it perpetrated either wire or mail fraud by accepting the Sunrise Transfer as an escrow agent and then transferring it into the CNC and Celil bank accounts.
Again, these are simply allegations in the Complaint and the Court made no factual findings, but on a Motion to Dismiss is required to presume that such allegations are true.
ANALYSIS
Although the allegations in this case are extreme, the Court's reasoning should cause concern to attorneys who advise their clients to engage in conduct that will defeat the rights of creditors.
Note that attorneys often have a defense if they were a "mere scrivner" in a transaction, such as where a client simply asks them to perform some legal task and (unbeknownst to the attorney) it later turns out to be a fraudulent transfer.
Once an attorney advises a client to commit a fraudulent transfer or knowingly takes some action to facilitate such a transfer, however, the line has been crossed and the attorney potentially moves into the crosshairs of being sued by the creditor.
A significant problem with fraudulent transfer and related actions, such as Civil RICO, will usually fall into the category of "intentional acts" and thereby be excluded from the attorney's errors & omissions insurance coverage, i.e., the attorney will go out-of-pocket to defend against these actions, in addition to lost professional time. It's a bad scene in the best of cases.
Such actions also carry the potential for punitive damages, or treble damages in the case of Civil RICO, which of course are neither covered by insurance nor usually are dischargeable in bankruptcy.
Creditors will jump at the opportunity to bring these actions, since they reason "The debtor is a deadbeat and difficult to collect against, but the attorney will probably pay up."
Where the attorney is handling client funds, whether in the attorney's trust account or acting as an escrow agent, the problem becomes more acute. If the attorney transfers money to facilitate a fraudulent transfer, then such potentially creates the "predicate act" of wire fraud that the Civil RICO case can be based on.
Handling money for a debtor is always dangerous anyway, since a creditor may choose to levy on the attorney's trust account and thus leave the attorney will not money against which to satisfy billings. It also potentially puts the attorney into the awkward situation of "Who to pay?"
CITE
Cevdet Aksut v. Cavusoglu, 2015 WL 4318131 (D.N.J., Unpublished, July 14, 2015). Full opinion at http://goo.gl/YGAqnj
This article at http://onforb.es/1IMvbrT and http://goo.gl/Vbzuoe
