More than two years after Zucker, Goldberg & Ackerman filed its Chapter 11 petition, a federal bankruptcy judge in Newark has approved the defunct foreclosure firm’s liquidation plan, though that hardly ends the matter.
U.S. Bankruptcy Judge Christine M. Gravelle issued an order Nov. 3 signing off on the plan, which provides for the appointment of Eduardo Glas of Tseitlin & Glas in New York as plan administrator. Glas had been representing the unsecured creditors committee as conflicts counsel.
Among Glas’ tasks will be to work toward resolving outstanding claims the unsecured creditors committee has lodged against former Zucker Goldberg managing partner Michael Ackerman and 4S Technologies, a software company Ackerman helped found years ago. A bankruptcy examiner previously alleged that Zucker Goldberg and 4S, which shared an address in Mountainside, improperly commingled finances, including into the bankruptcy period.
A rebuttal to the examiner’s report denied that any improper connection between the two entities existed. But in August, the committee filed complaints against Ackerman and 4S, claiming fraudulent transfer, unauthorized post-petition transactions and breach of fiduciary duty. The Ackerman complaint charges him with paying his personal credit card and automotive expenses out of Zucker Goldberg’s funds.
Since filing the Chapter 11 petition in August 2015, Zucker Goldberg has been represented by Wasserman, Jurista & Stolz of Basking Ridge.
The lead attorney, Daniel Stolz, said in a statement: ”Confirmation of the Plan is the culmination of 2 years of hard work. Even though [we] were unable to reorganize the firm, we were able to collect sufficient fees from former clients to pay off the $2.8 Million secured debt of J.P. Morgan Chase. We are continuing to vigorously pursue the remaining $4 Million of accounts receivable, including the $2.7 Million due from Wells Fargo, who after being largely responsible for the demise of the Zucker firm, have been unwilling to pay a penny of the fees due for the services performed on their behalf. Confirmation of the plan will not in any way impede our efforts to collect what is justly due. The confirmation of this plan was only possible because of the patience, wisdom and guidance of Bankruptcy Judge Christine Gravelle.”
David Adler of McCarter & English’s New York office, lead counsel to the unsecured creditors committee, filed the August complaints. Adler said in a statement: “The Committee is pleased that the Plan of Liquidation has been confirmed and looks forward to the Plan Administrator assuming control of the Debtor and liquidating its remaining assets, including the litigation against the Ackerman related parties. The Committee remains optimistic that recoveries from the liquidation of the remaining assets will provide a distribution to unsecured creditors.”
Ackerman’s counsel, James McGovern Jr. of Davison, Eastman, Muñoz, Lederman & Paone in Freehold, didn’t return a call seeking comment.
Neither did Daniel Eliades of LeClairRyan’s Newark office, who represents 4S.
Glas, reached by phone, declined to comment.
A call and email seeking a response to Stolz’s remarks on Wells Fargo to an attorney listed in electronic court documents as the bank’s counsel in this bankruptcy matter, Derek Baker of Reed Smith’s Princeton office, were not returned.
Wells Fargo was a longtime Zucker Goldberg client, and its primary client at the time of the firm’s 2015 demise. The firm in 2015 openly blamed its financial condition on nonpaying clients. Wells Fargo spokesman Tom Goyda said at the time: “While I won’t comment specifically about the situation at Goldberg, Zucker & Ackerman, protracted foreclosure timelines in the states where they did work for us have created challenges for every party involved in the foreclosure process.”
The bankruptcy plan provides for an hourly rate of $350 for Glas, and states that, if he retains his firm to assist with claims lodged on behalf of the estate, Tseitlin & Glas would get 20 percent of any recoveries resulting from those claims.
For Wasserman Jurista, the engagement has generated steady fees. According to the firm’s most recent application for compensation, the court had approved fees and costs totaling $828,748 as of last June. The most recent application, dated Oct. 13, seeks $179,059 for fees and costs generated from April 1 to Sept. 30. If approved, that application would push the firm’s total fees above the $1 million mark.
Zucker Goldberg, which handled almost exclusively foreclosures, was founded in 1923 and announced in mid-2015 that it would close its doors. It found itself deeply in debt, even after posting $30 million in gross revenue in 2014. Stolz at the time said clients’ payment practices changed, leading to delayed payments. Zucker Goldberg’s typical flat fee for handling a foreclosure to sale was $1,300, but the per-file cost to the firm had become “several times that amount,” Stolz said then. Court documents said the firm had $28 million in assets and $19.5 million in liabilities in 2009, and $9.3 million in assets and $54.2 million in liabilities by 2015.
In the summer of 2015, staff was furloughed, and the firm moved to wind-down mode. The August 2015 Chapter 11 petition documented more than $53 million in liabilities, including more than $23 million in accounts payable.
The proceedings have been contentious. In February 2016, acting U.S. Trustee Andrew Vara appointed as examiner Donald Steckroth, a retired bankruptcy judge who spent 28 years at Gibbons in Newark before his appointment to the bench. Steckroth obtained court approval to enlist services from other professionals at his current firm, Hackensack-based Cole Schotz, at hourly rates ranging from $165 for paralegals to $850 for the highest-charging partners.
Steckroth was brought in to investigate claims by the committee that Zucker Goldberg “insiders,” current and former members of the firm and related third parties, attempted to retain control over firm assets during the bankruptcy. Zucker Goldberg countered with accusations that the committee made unsubstantiated claims, and said firm principals used personal funds to keep up operations when business was at its worst.
Steckroth’s November 2016 report delved deeply into the relationship between Zucker Goldberg and 4S. The report said: “Simply put, but for the funding of, and control over, 4S by ZGA and Michael Ackerman, ZGA’s creditors might very well have a larger pool of assets from which to satisfy their claims.”
“The support of 4S stripped value from ZGA at its beginning, enriching the insiders at the expense of ZGA creditors,” he added. “The ‘loans’ to 4S represent capital invested that could have been paid to ZGA creditors to reduce their debt.”
While Zucker Goldberg initially floated 4S through loans, later it was 4S that lent to struggling Zucker Goldberg, according to the report. As of the end of 2009, 4S owed the law firm $1.96 million; five years later, Zucker Goldberg owed $2.61 million to 4S, the report said.
A rebuttal to Steckroth’s report was filed soon after, by Eliades, on behalf of 4S. He said the report contains “factual inaccuracies and improperly founded legal conclusions,” and 4S “repaid, with interest, all loans extended to it by” Zucker Goldberg. He noted that, as of a year ago, 4S had loaned the firm about $12 million.
“The Examiner acknowledges in the Examiner’s Report that he could not find a single definitive instance where a creditor of ZGA treated ZGA as indistinct from 4S,” Eliades wrote. “The undeniable conclusion which flows from a complete review of the relationship between ZGA and 4S is that ZGA and its creditors have benefited rather than been harmed by the dealings between 4S and ZGA.”