When Greenbaum, Rowe, Smith & Davis took on all but one lawyer from Farer Fersko earlier this year, it got more than the established environmental and real estate business they brought with them.
Now it has got itself sued by Farer Fersko’s former landlord, which seeks $2.3 million in rent for the remaining lease based on claims that Greenbaum Rowe conspired with Farer Fersko to help it get out of its lease.
And another suit might be on the way.
At the same time, Farer Fersko shut down and its lawyers moved to Greenbaum Rowe in Woodbridge, it filed for Chapter 7 bankruptcy on the ground that it could no longer meet its obligations once it ceased to be a going concern.
The trustee appointed to handle the matter has hired special counsel to look into the possibility of pursuing unspecified claims against Greenbaum Rowe and Farer Fersko’s equity partners David Farer, Jack Fersko, Jay Jaffe and Ann Waeger.
The special counsel, Edmond George, has subpoenaed a wide variety of materials from Greenbaum Rowe, including its partnership agreement and communications and financial information pertaining to the Farer Fersko acquisition.
Douglas Friedrich and Robert K. Brown, as trustees for the trust that owns the property, sued Greenbaum Rowe and former name partners Farer and Fersko in Essex County Superior Court on May 30 on claims of civil conspiracy and tortious interference with contract.
Friedrich v. Greenbaum Rowe Smith & Davis, L-3992-12, describes the match between Greenbaum Rowe and Farer Fersko as one “seemingly made in heaven” except for “one major obstacle” Farer Fersko’s lease obligations, which Greenbaum Rowe would have to assume if it absorbed the smaller firm through a traditional merger.
Farer Fersko occupied 18,467 square feet at 600 South Ave. in Westfield at an annual base rent of $517,076, plus $30,000 toward common area maintenance, under a lease that runs until Jan. 31, 2016, the complaint says. The firm, founded in the 1950s, had been at that location since 1989.
Its 13 lawyers brought Greenbaum Rowe’s head-count to 110, making it the state’s 15th-largest firm.
Merger discussions between Greenbaum Rowe and Farer, a 61.37 percent owner of Farer Fersko at the time it ceased operations, began in July 2011, “motivated by greed” on the part of Farer and Fersko, who were making more than $1 million per year but “simply did not believe they were earning enough money as a boutique law firm compared to compensation being paid to partners at larger law firms,” the landlord contends.
Greenbaum Rowe allegedly conditioned the deal on getting rid of the lease obligations.
One of its real estate partners, Martin Dollinger, allegedly called Brown, of Epstein Brown & Gioia in Chatham, around July 19 to discuss the possibility of taking back part of the premises or working out some other form of rent relief.
Brown allegedly told Dollinger he would be open to subletting, but could not relieve Farer Fersko of its rent obligations and then never heard from him or Greenbaum Rowe again. The landlord claims it tried to find a subtenant, but Farer Fersko would not make the premises available for showings.
Stuck with the lease, Farer, Fersko and the Greenbaum lawyers “utilized their skills as attorneys and their knowledge of the bankruptcy laws to achieve the goals of their conspiracy,” which “ran afoul of the very principles governing attorney conduct,” according to the landlord.
The alleged aim was to terminate the lease obligation by having Farer Fersko file for bankruptcy even though it was economically viable, enabling the defendants to effectuate a merger without calling it that.
Farer Fersko allegedly vacated its offices on Friday, Dec. 30, without notice and filed the bankruptcy, In re Farer Fersko, No. 12-10042, in Newark on Jan. 3, the same day 13 of its 14 lawyers all but a junior associate began working at Greenbaum Rowe.
The complaint calls the two events “finely choreographed” with the en masse move leaving Farer Fersko with no lawyers to sustain its business and the sham bankruptcy terminating its ability to perform under the lease.
Civil conspiracy is alleged against all three defendants and tortious interference against Greenbaum Rowe.
Filings in the bankruptcy case seem to support some of the allegations.
A Dec. 1 resolution by Farer Fersko’s shareholders to end operations at the end of 2011 refers to the firm’s inability to match big-firm salaries and the landlord’s refusal to negotiate a reduced rent as the firm shrank below 20 lawyers.
Further, the financial schedules show $4,897,223 in assets compared with $868,937 in liabilities.
Most of those assets consisted of the nearly $3.2 million in the firm’s 401(K) plan and $348,000 in the attorney trust account, which are not available to bankruptcy creditors. Accounts receivable, which are, totaled $1,111,000.
The trustee asked for approval to appoint special counsel to give advice “concerning the pursuit of certain claims and causes of action” against the Farer Fersko principals and Greenbaum Rowe and to prepare any necessary complaints or other papers against them, which Bankruptcy Judge Rosemary Gambardella granted on April 12.
Farer, Fersko, Jaffe and Waeger have retained the Roseland firm of Nagel Rice to represent them in the bankruptcy.
Randee Matloff of that firm says she believes discussions are ongoing to narrow the broad scope of the subpoena on Greenbaum Rowe.
Co-managing partner W. Raymond Felton, of Greenbaum Rowe, says of the landlord’s suit, “we’re aware of it and we’re addressing it” but declines further comment.
Lawrence Rosen, of LaRocca Hornik Rosen Greenberg & Blaha in New York, who represents the landlord, declines comment, as does special counsel George, who is with Obermayer, Rebmann, Maxwell & Hippel in Philadelphia.
Farer, Fersko and trustee Benjamin Stanziale Jr., of Stanziale & Stanziale in West Orange, did not return calls.