The judge overseeing the Chapter 11 auction sale of Christ Hospital in Jersey City says an allegation that a prospective buyer used strong-arm tactics against the facility’s lawyer does not warrant an investigation.
U.S. Bankruptcy Judge Morris Stern said no probe was needed because the sale of the hospital was conducted in a transparent manner and competition among bidders was vigorous, lawyers in the case say.
Stern also said reports of misconduct might be more credible if they were leveled against the prevailing party in the auction, rather than being made, as they were, against a losing bidder.
The Office of the U.S. Trustee asked Stern on Sept. 28 to appoint an examiner to investigate a claim by Christ Hospital lawyer Warren Martin Jr. that he was threatened by William Colgan, a principal of Community Health Associates of Bloomfield.
Colgan’s company bid on Christ Hospital but lost to another company, for-profit hospital operator Hudson Holdco. The trustee’s interest was prompted by an email that Martin sent Sept. 12 to about three dozen bankruptcy attorneys and judges, in which he claimed Colgan sought favorable treatment in the hospital auction.
Martin’s email claimed that Colgan threatened to sue Martin for malpractice, in connection with another case, if Martin did not fix the hospital bidding in favor of Colgan. The email also said Colgan offered to pay off a $385,000 legal bill he owed to Martin’s firm, Porzio, Bromberg & Newman, if Martin would arrange for Colgan to win the hospital auction.
Stern denied the request for a probe in an order issued Oct. 17. The lawyer who filed the motion for the U.S. trustee, Peter D’Auria, did not return a call about the judge’s ruling.
The judge’s decision was welcomed by Colgan, who maintained all along that he never made any such threats against Martin.
“I am relieved that Judge Stern was able to clear my name from these false and ridiculous accusations,” Colgan said in a statement.
Colgan’s lawyer, David Mazie of Mazie, Slater, Katz & Freeman in Roseland, said “at the end of the day, the bankruptcy judge’s denial speaks volumes. There was no way my client could have rigged this sale.”
Meanwhile, Martin finds himself sinking deeper in hot water thanks to the accusations he leveled against Colgan in the email. Already facing a $4.5 million legal malpractice suit filed by Colgan and several of his business associates, Martin was hit with a defamation claim in an amended complaint filed in that case Oct. 3. The new complaint in Morales v. Porzio, Bromberg & Newman, BER-L-6881-12, says Martin’s publishing of the defamatory Sept. 12 email to several dozen people hindered Colgan in his business dealings and was done with the express intent to injure him.
Hudson Hospital filed for Chapter 11 on Feb. 6, and Stern approved its sale for $42.5 million to Hudson Holdco on March 27. Colgan’s company, the only other bidder, had offered $40.5 million for Christ Hospital in a bid submitted jointly with Jersey City Medical Center.
Colgan and his associates, who sold a medical billing company in 2008, hired Martin in 2011 when the buyer fell behind on its payments. In April 2011, Martin filed an involuntary Chapter 7 against the buyer, Apollo Health Street of Bloomfield, but the petition was dismissed that May after U.S. Bankruptcy Judge Novalyn Winfield found that the company was keeping current on its debts.
Then, on Sept. 10 of this year, Colgan and two business partners filed Morales v. Porzio, Bromberg & Newman, the legal malpractice suit, which sought to recover $4.5 million.
Two days later, on Sept. 12, at 9:16 p.m., Martin emailed Colgan, saying, “It was interesting how you told me that if your company, CHA, won the Christ Hospital auction, you would pay Porzio’s fees 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 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,” the message stated.
At 2:56 the next morning, Martin wrote another message to Colgan, saying, “it’s always easier to blame others for our own shortcomings.”
Both messages were copied to 34 people. The next day, Martin sent another email message to the same group, saying, “I wish to apologize to everyone, including Bill Colgan, for sending the emails that you received from me last night. It was inappropriate to send such emails. I am sorry that I burdened any of you with this matter.”
Martin did not return a reporter’s call. The lawyer representing him on the defamation count, Bruce Rosen of McCusker, Anselmi, Rosen & Carvelli in Florham Park, declined to comment.