Opinion
96 Civ. 6664 (MGC)
September 7, 2000
DANIEL J. AARON, P.C., New York, NY. Attorney for Plaintiff.
Yosef J. Riemer, Esq., Kathleen M. McCarthy, Esq., KIRKLAND ELLIS, New York, NY. Attorneys for Defendants.
Paul D. Wexler, Esq., BRAGAR WEXLER EAGEL MORGENSTERN, LLP, New York, NY. Attorneys for Barbara Schaffer.
Glenn F. Ostrager, Esq., OSTRAGER CHONG FLAHERTY, P.C., New York, NY. Attorneys for Barbara Schaffer.
MEMORANDUM OPINION
This case was resolved by a settlement between plaintiff AEC One Stop Group, Inc. ("AEC") and defendants on May 10, 2000. Counsel for Barbara Schaffer, the original plaintiff in this action, seek one-third of the settlement fund as compensation for their work on the case before they were relieved by AEC's attorney as plaintiff's counsel. For the reasons that follow, the motion for attorney's fees is denied.
BACKGROUND
In September 1996, Barbara Schaffer, a shareholder of Alliance Entertainment Corp. ("Alliance"), brought an action against defendants pursuant to Section 16(b) of the Securities Exchange Act of 1934. Schaffer was represented by the law firms of Bragar Wexler Eagel and Morgenstern, LLP, and Ostrager Chong Flaherty, P.C. (the "Brager and Ostrager firms"). On July 14, 1997, Alliance filed a voluntary petition for relief under chapter 11 in the United States Bankruptcy Court for the Southern District of New York. This case was automatically stayed pursuant to 11 U.S.C. § 362. In December 1997, Schaffer sought relief from the automatic stay to pursue this action, but the bankruptcy court denied the motion. Schaffer did not appeal that ruling.
On July 30, 1998, the bankruptcy court entered a Confirmation Order confirming the debtor's Third Amended Plan of Reorganization (the "Plan"). The automatic stay was terminated. Pursuant to the reorganization, AEC was formed and assigned the section 16(b) claim that was the subject of Schaffer's suit. On November 20, 1998, I granted a motion by AEC to substitute itself for Schaffer as plaintiff in this action and to substitute Daniel J. Aaron as its counsel. I reserved decision until final disposition of the case on whether Schaffer's counsel are entitled to attorney's fees.
AEC signed a settlement agreement with defendants on May 10, 2000, pursuant to which defendants agreed to pay AEC $750,000 in exchange for dismissal of the complaint with prejudice. The Brager and Ostrager firms request attorney's fees in the amount of $250,000, or one-third of the settlement fund, to compensate them for their efforts in this case before being relieved as counsel.
DISCUSSION
The dispositive question is whether the Brager and Ostrager firms' claims for attorney's fees were discharged in the Alliance bankruptcy proceeding. There can be little doubt that they were.
One day after Schaffer's request to continue this action was denied, both counsel of record for Schaffer filed contingent, unliquidated Proofs of Claim in the bankruptcy proceeding seeking the very fees now at issue before this court. Each Proof of Claim asserts:
BRAGAR WEXLER, P.C. ("BW") and OSTRAGER CHONG FLAHERTY, P.C. ("OCF") performed legal services on behalf of a shareholder of the debtor in connection with a lawsuit entitled Barbara Schaffer, derivatively on behalf of Alliance Entertainment Corp. v. Bain Capital, et al. pending in the United States District Court for the Southern District of New York, 96 Civ. 6664 (MOC). In the event that the debtor recovers any monies from the lawsuit, BW and OCF are entitled to legal fees and the reimbursement of expenses in an amount to be determined by the Court.
By submitting these Proofs of Claim, the Brager and Ostrager firms subjected themselves and their claims for fees to the jurisdiction of the bankruptcy court and thus consented to be bound by its determination.Langenkamp v. Culp, 498 U.S. 42, 44, 111 S.Ct. 330, 331, 112 L.Ed.2d 343(1990).
The Plan specifically addressed the Brager and Ostrager firms' fee claims. Section 1.112 of the Plan defined "Securities Action" as this action. Section 1.113 defined "Securities Claim" as any "Claim based on the Securities Action." Pursuant to Section 6.4 of the Plan, "[e]ach holder of a Securities Claim against Alliance shall receive no Distribution on account of such Claim." Furthermore, pursuant to Plan Section 8.2, AEC received its assets, including the cause of action in this case, "free and clear of all claims, liens, charges, encumbrances and interests of creditors." The Plan thus expressly discharged the Brager and Ostrager firms' claims for attorney's fees.
The discharge of claims by a bankruptcy court precludes relitigation of those same claims in another action. See. e.g., Green v. Welsh, 956 F.2d 30, 34 (2d Cir. 1992); Freed v. Braniff Airways, Inc., 119 F.R.D. 10, 10-11 (S.D.N.Y. 1987). The Brager and Ostrager firms did not appeal the Confirmation Order. The Confirmation Order became final eleven days after it was entered. See Fed.R.Bankr.P. 8002(a). Accordingly, the doctrine of res judicata bars a collateral attack by the Brager and Ostrager firms on the bankruptcy court's determination that their claims for attorney's fees were discharged in the bankruptcy.
CONCLUSION
The motion for attorney's fees is denied.
SO ORDERED.