A proposed settlement in the Birdsall Services Group bankruptcy would allow 13 law firms to keep more than half a million dollars in fees incurred by officers and employees who were under investigation in the pay-to-play scandal that brought down the company.
The agreement would tap Birdsall’s $6 million in director’s and officer’s coverage with U.S. Specialty Ins. Co. to settle a suit by Chapter 7 trustee Edwin Stier to recoup the fees.
It would also resolve Stier’s separate suit seeking $35 million or more in damages from an overlapping group of directors, officers and shareholders who allegedly helped drive Birdsall under by failing to ensure that it was obeying the law.
The settlement provides that U.S. Specialty will pay Stier $3.95 million and that seven Birdsall employees who were criminally indicted will give up claims totaling more than $10 million against the company
In return, Stier will drop his suit for the return of the $526,239 in legal fees and seek a “bar order” to shield the firms and their clients from possible claims by Birdsall creditors concerning the fees.
The firm paid the most by Birdsall was New Jersey’s largest, Newark-based McCarter & English, which received $212,672 for representing former marketing director Phil Angarone.
The next two largest amounts were paid to Newark’s Krovatin Klingeman, which got $108,176 for services to executive vice-president Thomas Rospos, and Somerville’s McDonald & Rogers, which got $59,696 for representing president and CEO Howard Birdsall.
The other 10 firms—paid sums ranging from $6,150 to $25,862—are Chatham’s Arseneault Fassett & Whipple; Morristown’s Belsole & Kurnos; New Brunswick’s Benedict and Altman; West Long Branch’s Chamlin Rosen Uliano & Witherington; Livingston’s Critchley Kinum Vazquez; Dover’s Nuzzi & Mason; Freehold’s Lomurro Davison Eastman & Munoz; Toms River’s Starkey Kelley Kenneally Cunningham & Turnbach, Red Bank’s Weir & Plaza and the Princeton firm of Robert Stevens.
The general releases to be exchanged as part of the settlement would extinguish any claims the firms might have against Birdsall, Stier or any of the defendants.
A motion seeking approval was filed on Feb. 12 and is returnable March 17 before U.S. Bankruptcy Judge Michael Kaplan in Trenton.
The deal was mediated last November by former U.S. Magistrate Judge John Hughes, now with JAMS.
Mark Sheridan of Patton Boggs in Newark, who is co-counsel with Henry Klingeman for Rospos, took part in the mediation on behalf of all but the McCarter and Lomurro firms.
Those two firms were in a different position because their clients, Angarone and marketing manager Eileen Kuhfahl-Spears, pleaded guilty to criminal charges.
David Aronson of McCarter’s Philadelphia office spoke for the firm at the mediation. Lomurro did not take part.
In arguing for approval of the settlement, Stier noted that the policy is a “wasting” one, which is depleted by defense costs and would thus be eaten away by continued litigation of his claims. He told the court the proposed global settlement of the two matters could stop the accumulation of fees and maximize the policy proceeds available to the bankruptcy estate.
Stier’s attorney, Daniel Stolz, of Wasserman Jurista & Stolz in Millburn, says Stier was competing for the same pot of insurance money against officers and directors who wanted to be covered in the negligence case and those facing criminal charges who want their defense counsel paid.
He says of the fact that the lawyers got their fees, “We were not in a position to rewrite the insurance policies.”
U.S. Specialty refused to pay legal fees because Birdsall’s D&O policy excludes coverage for “deliberately criminal acts,” leading the company to step in and pick up the tab.
Stier’s position in the lawsuit was that the coverage exclusion kicked in only when criminal guilt was finally determined, by a trial or guilty plea, as with Angarone and Kuhfahl.
Sheridan says the law firms are “happy to put this behind them and are looking forward to defending their clients in concert with the ongoing criminal investigations.”
Aronson did not return a call, nor did Frank Velocci of Drinker Biddle & Reath in Florham Park, who represents U.S. Specialty.
Birdsall, an Eatontown-based engineering firm, pleaded guilty in June 2013 to charges that it made illegal campaign contributions to obtain government contracts. It agreed to pay $1 million in fines, penalties and restitution on top of the $2.6 million it was already paying to resolve a civil forfeiture action by the state Attorney General’s Office.
The company decided to pay the legal fees at a specially called telephonic board meeting on May 4, 2012, right after the service of grand jury subpoenas on its management and the execution of a search warrant on its premises.
Stier contended that the carrier wrongfully denied coverage and that the board’s resolution to pay the fees was ultra vires and violated company by-laws and New Jersey law.
In addition to the $526,239 Birdsall paid for its officers’ and directors’ fees, another $522,633 went for legal fees incurred on its own behalf during that same period.
Stier is not challenging those payments, made to Walder Hayden & Brogan in Roseland ($264,846), Wilentz Goldman & Spitzer in Woodbridge ($249,430), Bury & Associates in Mountainside ($5,000) and Genova Burns Giantomasi & Webster in Newark ($3,357).