Fraud Counts against Westchester Law Firm Continue, says Federal Judge (MORE, CLICK HERE)

NY Firm Faces Allegations of Double-Crossing Embattled Client
by Beth Bar - New York Lawyer - January 30, 2008

Stressing that the case raised "important issues concerning the integrity of the bankruptcy process," a federal bankruptcy judge in Manhattan has declined to dismiss claims by a trustee against a Westchester-based law firm.

In In re Food Management Group (Grubin v. Rattet), 04-22880, Judge Martin Glenn ruled that allegations of fraudulent concealment, breach of fiduciary duty, negligence and fraud on the court could proceed against attorneys Robert L. Rattet and Jonathan S. Pasternak, as well as the law firm Rattet, Pasternak & Gordon Oliver.

The lawyers and the firm are accused of failing to disclose that an "insider" of debtor Food Management Group had violated a court order by submitting a bid in the auction of the company's assets.

The trustee also alleged that the lawyers improperly failed to disclose that they had represented one of the insiders before the auction.

Judge Glenn said that if the allegations are proven, the attorneys and their firm engaged in "serious wrongdoing."

"We deny liability," John Collen of Quarles & Brady in Chicago, who represents the lawyers, said in an interview yesterday. "The decision merely requires us to answer a complaint. It does not contain any findings of liability or wrongdoing."

He declined to elaborate further.

The lawyers were hired to represent Food Management, which managed 24 Dunkin' Donuts franchises when it filed for bankruptcy on June 1, 2004.

Janice E. Grubin, Food Management's chapter 11 trustee, filed her complaint against the firm and a host of other parties in February 2007. She is seeking to recover damages arising from what she said was an unlawful scheme by the lawyers, their firm and others who "colluded to effect a fraudulent sale of [bankruptcy] estate assets to and for the benefit of [Food Management's] principals, Anastasios Gianopoulos and Constantine Gianopoulos . . . without disclosing such to the Court."

The Gianopouloses had been sued by Dunkin' Donuts in 2000 for failure to pay franchise fees. As part of an Oct. 18, 2002, settlement of that case, the Gianopouloses agreed not to have any further involvement, directly or indirectly, with Dunkin' Donuts franchises. But Ms. Grubin said Messrs. Rattet and Pasternak and their firm helped the Gianopouloses get around this agreement.

The lawyers filed a motion on Jan. 11, 2005, on behalf of Food Management seeking authorization to conduct an auction of the debtors' property. Judge Glenn granted the motion on Feb. 22, 2005.

"The Bidding Procedures provided that any offer be 'a good faith, bona fide, offer to purchase' and required that each bidder 'fully disclose the identity of each entity that will be bidding for a[n] Asset or otherwise participating in such a bid, and the complete terms of any such participation,' and that each bidder submit a registration form certifying that the bidder was not an insider of the Debtors," Judge Glenn explained in his decision.

But Ms. Grubin alleged that between March 1 and March 16, 2005, the attorneys and firm had discussions with the Gianopouloses concerning the sale of Food Management's assets. She said that Thomas Borek, a principal of a company called 64 East who had been a Rattet Pasternak client, was present at the March 16 meeting.

Meanwhile, 64 East was one of the two companies that bid. Dunkin Donuts ultimately rejected 64 East's bid, and the trustee said that without her consent Mr. Rattet attempted to have Mr. Borek's $2.1 million returned to him. She also charges that the law firm concealed the fact that 64 East was a front for the Gianopouloses and that they had funded the deposit.

"The Debtors have suffered damages as a direct result of the fraudulent concealment in that the $2.1 million would not have been returned to 64 East had . . . Rattet and the Rattet Law Firm complied with their duties as officers of the Court and disclosed the agreement with 64 East concerning the purchase of Debtors' property," Ms. Grubin alleged in her complaint. "Rather, those funds would have been retained by the Trustee and made available to satisfy the allowed claims of creditors."

According to the decision, in September 2005, Ms. Grubin ordered the lawyers to have "no further involvement in the case."

She is asking Judge Glenn to hold the Gianopouloses, the law firm and the attorneys jointly and severally liable for at least $2.1 million. The trustee is also seeking punitive damages and the disgorgement of all compensation paid to the attorneys.

Judge Glenn took no position on the merits but ruled the trustee had standing to bring the action and had presented sufficient facts to survive the motion to dismiss.

In addition to Mr. Collen, Messrs. Rattet and Pasternak and their firm are represented by Gil M. Coogler of White Fleischner & Fino in Manhattan.

Ms. Grubin and the debtors are represented by Warren von Credo Baker of Drinker Biddle & Reath in Chicago. Mr. Baker declined to comment.