The U.S. Trustee in New Jersey is requesting a probe into whether a Chapter 11 hospital auction bidder tried to strong-arm the hospital’s lawyer.
In a motion filed Sept. 28, Peter D’Auria, a trial attorney for the office, says “an independent third party is needed to investigate the bona fides of the entire sale process … to ensure both that the Debtor’s estate received fair and valuable consideration in exchange for the sale of its assets, and that the sale process was not tainted in any way by self-dealing, a power-play, or an attempt to improperly influence [it].”
The motion is based on allegations that William Colgan, a principal of CHA, which was a bidder for Christ Hospital in Jersey City, promised to call off plans for a malpractice suit against the hospital’s counsel, Warren Martin of Porzio, Bromberg & Newman, and to pay $385,000 in outstanding legal fees, if Martin “fixed” the auction in Colgan’s favor.
Christ Hospital filed for Chapter 11 on Feb. 6, and U.S. Bankruptcy Judge Morris Stern approved its sale for $42.5 million to Hudson Holdco, a for-profit hospital operator, on March 27.
Martin ran the auction, in which the only other bid, for $40.5 million, was from CHA and Jersey City Medical Center.
In his motion papers, D’Auria said certain emails had come to the trustee’s attention in which “it appears to be alleged that one of the bidders [Colgan] attempted a significant power play on the professional retained by the estate [Martin] who conducted the auction.”
On Sept. 12, at 9:16 p.m., Martin emailed Colgan: “It was interesting how you told me that if your company, CHA, won the Christ Hospital auction, you would pay Porzio’s fees in full on the [previous] matter (you owe me $385,000) and there would be ‘no issues’ with my handling the [previous] matter and no lawsuit.
“But you later told me that since I didn’t ‘fix’ the Christ Hospital auction in your favor, not only would you not pay me what you owe me … but you would sue me for $4.5 million,” Martin continued.
“I am sorry — but I made sure that the Christ Hospital auction was honest and fair for all parties — and not rigged in your favor. That is the only way I know how to do business,” Martin’s e-mail stated.
Two days earlier, on Sept. 10, Colgan and his partners filed Morales v. Porzio, Bromberg & Newman, BER-L-6881-12, seeking to recoup the $4.5 million they claimed as damages from the law firm’s alleged malpractice.
Colgan and two business partners had sold a medical-billing company in 2008 and hired Martin in 2011 when the buyer, Apollo Health Street Inc., fell behind on payments.
On April 26, 2011, Martin filed an involuntary Chapter 7 petition against Apollo, but the petition was dismissed on May 18, 2011, after U.S. Bankruptcy Judge Novalyn Winfield found that the company was keeping up with its debts.
D’Auria said the examiner appointed should review whether the Christ Hospital sale was competitive, whether any party acted improperly and whether any professional had a conflict or failed to report misconduct.
Colgan’s attorney, David Mazie of Mazie, Slater, Katz & Freeman in Roseland, says Martin’s allegation was an “outright lie.” There was no way Martin could fix the auction, he says, and Martin would be subject to an ethics violation for not bringing such misconduct to the authorities’ attention if his claims were true.
Mazie says Colgan will sue Martin for defamation for having copied his emails to about three dozen other people, including Winfield.
A call to Martin was returned by Karen Kessler of Evergreen Partners in Warren, a public relations adviser to his firm. She would not address why Martin failed to take action for six months to notify authorities about Colgan’s alleged request to fix the auction before sending out the mass email.
In response to Mazie’s plan to file a defamation suit, Kessler says, “We expected this action by Mr. Mazie. We will address all allegations in due course and in the appropriate forum.”