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Lucrative Bankruptcy-Trustee Group Switches From McElroy to McCarter
New Jersey Law Journal
November 03, 2008
With boom times around the corner for bankruptcy lawyers, one of New Jersey's premiere players in the field, Charles Stanziale Jr., led a five-lawyer defection to McCarter & English on Oct. 28
The move takes McCarter to the 390-lawyer mark and gives Stanziale a larger supporting cast than he had during his three-year run at 220-lawyer McElroy Deutsch, Mulvaney & Carpenter.
In return, McCarter gets a practice group best known for its work as operating trustee and counsel to the Office of the U.S. Bankruptcy Trustee in bankruptcies of troubled companies, mostly in New Jersey and Delaware.
Stanziale also is trustee in vast numbers of individual and small company Chapter 7s and Chapter 11s -- not the kind of work large firms covet. But McCarter Chairman Andrew Berry says the firm will support the newcomers' work on those, too, since taking small-case appointments for the U.S Trustee is often a predicate for getting big ones.
Barry and Stanziale say they aren't worried about conflicts. Any that arise can be handled with ethics walls or the appointment of special conflicts counsel -- a common practice for attorneys representing trustees, they say.
Berry and Stanziale have known each other since they competed in high school sports in Essex County in the 1950s. When Berry asked whether he would be interested in joining the firm, "I said, 'Hell, who wouldn't be?'" Stanziale recalled on Tuesday.
Managing partner Eric Wiechmann says Stewart Michaels of Topaz Attorney Search in Livingston brought Stanziale and McCarter together. Wiechmann calls Stanziale "clearly one of the top debtor-creditor lawyers practicing in New Jersey and surrounding states."
Stanziale, counsel at McElroy, Jeffrey Testa, of counsel and Brian Baker, an associate, will be partners at McCarter. Donald Crecca and Christina Davitt will continue as associates.
Besides providing lawyers for backup, including a 30-attorney debtor-creditor department, McCarter has a 25-lawyer office in Wilmington, Del., where Stanziale has some of his largest trustee cases. He is counsel to the Chapter 11 trustee in the reorganization of Pappas Telecasting Inc., one of the country's largest privately held commercial television station groups. He also is counsel to the Chapter 11 and Chapter 7 Trustee of Tower Air Inc.
In New Jersey, the group has been co-counsel to Trump Hotels Casino & Resorts in its restructuring of more than $1.5 billion of debt and post confirmation litigation matters.
Two of the companies under Stanziale's supervision in bankruptcy were brought down by the evils blamed for causing the current economic crisis: an overheated real estate market and corporate greed. And one of the cases shows how much money lawyers like Stanziale can earn sorting out the mess.
He represents the trustee in a Chapter 11 in Trenton, In re Solomon Dwek , 07-11757, the windup of a real estate empire thrown into involuntary bankruptcy by banks and other creditors with claims totaling $45 million.
The Stanziale group's gathering of assets and selling them has generated fees in the millions. U.S. Bankruptcy Judge Kathryn Ferguson has set a Dec. 10 hearing on Stanziale's team's latest request: $1.18 million in fees or commissions and $46,000 in expenses.
How much of an award would go to Stanziale and his group and how much would go to McElroy Deutsch is not a public record.
Stanziale also is trustee counsel in a case in U.S. Bankruptcy Court in Wilmington, In re Student Finance Corp., 02-11620. The company bundled loans to students -- mostly at truck driving schools and other trade institutions -- and sold them to investors. As it turned out, the loan investments were worth little because most of the students had defaulted and the company's chief executive, who covered up the scheme, ended up in jail. Among Stanziale's efforts to recoup sums for the investors was a suit, still pending, against RFC's firm, Pepper Hamilton in Philadelphia.
McElroy Deutsch managing partner Edward Deutsch says it's too early to tell how the move will affect cases being handled by the Stanziale group and lawyers remaining at the firm.
"There are some significant conflict issues," he says. He says Stanziale asked the firm to stay in some matters, including one in which partner Thomas Scrivo appeared in court on Wednesday.
"No hard feelings here, its just a question of what has to stay," he says. In the Dwek case, for example, McCarter represents three banks that are among the litigants, and Deutsch says he is not sure whether these kinds of conflicts are waivable. "It will have to be worked out and I'm sure it will be done amicably and cooperatively," he says.
Meanwhile, the firm's bankruptcy practice is moving forward, he says. In September, the Philadelphia office added two veteran bankruptcy lawyers, Barry Kleban and Gary Bressler, from Eckert Seamans Cherin & Mellott.
Berry, Stanziale and other bankruptcy lawyers said Tuesday that it's not yet clear how much work the financial crisis will generate because there is usually a lag of a year or so between the collapse of markets and the bankruptcies of large numbers of companies.
When credit and consumer sales dry up, the next step is often a spate of bankruptcies of retail companies, says Jack Zackin of Sills Cummis & Gross in Newark. He says his firm is in the market for bankruptcy lawyers, including laterals with three to five years of experience.
