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N.J. RICO Claims Against Lawyers Survive, for Now, in Long-Running Attorney-Client Dispute
Federal claims dismissed in scathing opinion that says dispute 'exemplifies why there are reports of ... disdain for lawyers'
The Legal Intelligencer
October 10, 2007
Lawyers whose clients refuse to pay their fees routinely file lawsuits and win judgments against them. But attorney Ellen Marshall's disputes with a former divorce client have been anything but routine.Then again, Warren Matthei is no ordinary client.
Matthei, a millionaire stockbroker from Summit, N.J., spent nearly a decade in jail -- first for refusing to pay child support to his ex-wife and later for refusing to pay Marshall's attorney fees.Marshall obtained an $85,000 judgment against Matthei, but court records show she has all but given up on getting the money from Matthei.
Instead, in a separate lawsuit, Marshall is pursuing RICO claims against lawyers in Pennsylvania and London, England, who, she claims, have assisted Matthei in hiding his assets from her.
Now a federal judge has refused to dismiss the lawsuit in a scathing opinion that says "this dispute exemplifies why there are reports of the public's disdain for lawyers."
In her 46-page opinion in Marshall v. Fenstermacher, U.S. District Judge Gene E.K. Pratter dismissed Marshall's federal RICO claims, but found that she may nonetheless have valid RICO claims under New Jersey law against attorney Ronald Fenstermacher and his firm, High Swartz Roberts & Seidel, in Norristown, Pa., and British attorney David Burgess and his London law firm, Hetherington & Co.To understand Marshall's claims against the Norristown and London lawyers, one first needs to understand Marshall's long history with Matthei.
In 1992, a judge had ordered Matthei to pay $150,000 a year in child support to his three children and ex-wife, Susan Kelley.
The case got ugly in 1993 when Matthei ignored a court order that he put half of a $2.8 million settlement from his former employer, Merrill Lynch, into an escrow account, according to court papers. The money had come from a wrongful-termination suit, and the judge was to decide how it should be shared with his family.
Matthei fled the country and stopped paying alimony and child support, according to court papers.
But in 1996, Matthei was arrested on a bench warrant in Newark, N.J., as he stepped off a flight from London.In the meantime, Marshall, a solo practitioner from West Orange, N.J., had won a default judgment against Matthei for $85,500 in 1995.
Matthei spent three years in New Jersey jails for civil contempt, according to court papers. When the New Jersey courts were poised to release him, federal prosecutors took him into custody because he had been indicted on criminal charges of violating the Child Support Recovery Act.
Ultimately, Matthei pleaded guilty to a federal charge, acknowledged his child support debt and began making monthly payments to his ex-wife, according to court documents.
But his time in jail was extended because Marshall had obtained a rare writ of capias ad satisfaciendum that permits the jailing of debtors who refuse to take part in proceedings to see whether they can pay.
In April 2006, Matthei was set free after his new lawyer, Jeffrey Wild of Lowenstein Sandler in Roseland, N.J., convinced Essex County Superior Court Judge Jared Honigfeld that the only sums subject to the writ were the original $85,000 plus a few years of interest.
Rather than spend more in legal fees to prolong the case, Marshall consented to the release.
Instead, Marshall focused on the Pennsylvania and London lawyers who, she alleges, assisted Matthei while he was in jail in a scheme to hide his assets so that Marshall could not collect her fees.
The suit, filed by attorney Clark Alpert of Alpert Goldberg Butler Norton & Weiss in West Orange, N.J., alleges that Fenstermacher prepared trust and commercial documents for Matthei in 2001 while he was in the Federal Detention Center in Philadelphia.
The suit accuses Fenstermacher of fraud, alleging that the documents were designed to create a false record that Matthei had transferred ownership of a $1 million flat in London years earlier to his second wife, Emma Dawson.
Dawson, a British citizen who is now divorced from Matthei, had called in a U.S. lawyer whose communications would be privileged, the suit alleges, so that Marshall and law enforcement officials would not find out about the transactions.
The suit says that, in 2000, when Matthei was in Philadelphia, Dawson's British solicitors at Slough's Hetherington & Co. contacted Fenstermacher, saying Matthei needed a lawyer to handle his affairs in person because federal authorities were intercepting his mail.
Matthei needed "someone to actually visit him personally to discuss matters with him and get him, if necessary, to sign any papers," the suit says, quoting the letter.
Among the papers needed were documents confirming that Matthei had, years earlier, signed over to Dawson shares of a Bahamian company that owned the posh London apartment. And after the documents were filed with a London court in 2003, Dawson was able to sell the apartment for $900,000, the suit says.
Dawson and Hetherington & Co. are also named as defendants in Marshall's suit.
Fenstermacher's lawyer, Arthur W. Lefco of Marshall Dennehey Warner Coleman & Goggin, argued in court papers that Marshall's RICO claims should be dismissed because she cannot satisfy the U.S. Supreme Court's test for establishing liability.
Under the high court's 1993 decision in Reves v. Ernst & Young, Lefco argued, there cannot be any RICO liability for Fenstermacher and his firm because there is no evidence that they "participated" in the "operation and management" of any alleged RICO enterprise.
Pratter agreed, finding that Marshall failed to muster enough evidence to pursue a federal RICO claim against Fenstermacher.
"Mr. Matthei, the main 'bad actor,' is not a defendant; Ms. Dawson, the only person who arguably benefited here by obtaining any assets of value that belonged to Mr. Matthei, apparently is no where to be found; and Mr. Burgess, Mr. Fenstermacher's English counterpart, who was involved in this matter long before Mr. Fenstermacher became involved, has died," Pratter wrote.
"That leaves Mr. Fenstermacher and High Swartz as the only viable defendants in this case, even though, by any reading of the facts presented, Mr. Fenstermacher had a relatively minute role in the alleged 'scheme,' and had the least to gain," Pratter wrote.
Pratter found that, even viewing the evidence in the light most favorable to Marshall, she "cannot establish the existence of an 'enterprise' for federal RICO purposes."
And even if a viable "enterprise" existed under federal RICO laws, Pratter said, Marshall "has not established that Mr. Fenstermacher or High Swartz conducted or participated in the 'operation or management' of any such enterprise's affairs."
Lefco argued that New Jersey courts construe the New Jersey RICO statute and the federal RICO statute in the same way, and that the same arguments would therefore lead to dismissal of those claims.
But Alpert argued that New Jersey courts have interpreted its RICO statutes more broadly than the federal law. The Reves "operation or management" test is not applied under New Jersey's RICO statute, he argued, and under the New Jersey courts' more lenient interpretation of what constitutes an "enterprise," any one of Marshall's alleged alternative enterprises would satisfy New Jersey's standard.
Pratter sided with Alpert, finding that "the New Jersey courts have interpreted New Jersey RICO's definition of an 'enterprise' to be more broad than the federal counterpart."
As a result, Pratter said, it is "quite conceivable that one could fail to satisfy a federal RICO cause of action, yet meet the requirements for a successful New Jersey RICO claim."
Pratter said Lefco "made no effort to argue that, despite some differences between courts' interpretations of the federal RICO statute and New Jersey's counterpart, Ms. Marshall has still failed to prove the existence of a viable 'enterprise.'"
But Alpert, she said, "has noted these differences in some detail and argued that [Marshall's] alternative enterprises satisfy New Jersey's more liberal tests."
As a result, Pratter concluded that summary judgment on the New Jersey RICO claims was inappropriate because the defendants had "put forth no real arguments as to why summary judgment should be granted in their favor" on those claims.
But in a footnote, Pratter hinted that she remains skeptical of Marshall's chances of ultimately proving RICO liability, even under New Jersey's more liberal test.
"The court suspects that, even under New Jersey's more liberal definition of 'enterprise,' the 'hallmarks' of an enterprise nevertheless easily could prove to be missing from each one of Ms. Marshall's alleged 'enterprises,'" Pratter wrote in the footnote.
Pratter said the "association-in-fact" of Matthei and Dawson "lacks the elements of an 'organization'" that the New Jersey Supreme Court requires, citing a decision that called for proof of a division of labor and separation of functions necessary to "engage in a high degree of planning, cooperation and coordination."
Pratter said in the footnote that Marshall "has not offered any evidence that would indicate that any degree of planning was involved, that the participants performed discrete roles in carrying out the scheme, or that would indicate any semblance of coordination among the participants involved in implementing decisions."Neither Lefco nor Alpert could be reached for comment.
The New Jersey Law Journal contributed to this report.
