Searching over 5,500,000 cases.

Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

Korotki v. Hiller & Arban, LLC

Superior Court of Delaware

May 23, 2017


          Submitted: January 23, 2017

         Defendant Brian Arban's Motion for Summary Judgment - GRANTED Defendants Hiller & Arban, LLC and Adam Hiller's Motion for Summary Judgment -DENIED

         Defendants Hiller & Arban, LLC and Adam Hiller's Motion for Summary Judgment Based on the Doctrines of Unclean Hands and In Pari Delicto - DENIED

         Defendants Schwartz & Schwartz, Attorneys at Law, P.A. and Steven Schwartz's Motion for Partial Summary Judgment - DENIED

         Defendants Schwartz & Schwartz, Attorneys at Law, P.A. and Steven Schwartz's Motion for Summary Judgment - GRANTED IN PART, DENIED IN PART

         Defendants Schwartz & Schwartz, Attorneys at Law, P.A. and Steven Schwartz's Motion for Summary Judgment Based on Their Motion in Limine to Exclude Plaintiffs' Expert - DENIED

          Thomas H. Kovach, Esquire, Anthony M. Saccullo, Esquire, A.M. Saccullo Legal, LLC, Attorneys for Plaintiffs.

          David L. Braverman, Esquire, Benjamin A. Garber, Esquire, Braverman Kaskey, P.C., Attorneys for Plaintiffs.

          John E. Elzufon, Esquire, Loren R. Barron, Esquire, Peter C. McGivney, Esquire, Elzufon Austin Tarlov & Mondell, P.A., Attorneys for Defendants Hiller & Arban, LLC, Brian Arban, Esquire, and Adam Hiller, Esquire.

          Paul M. Lukoff, Esquire, Andrea Schoch Brooks, Esquire, Wilks, Lukoff & Bracegirdle, LLC, Attorneys for Defendants Schwartz & Schwartz, Attorneys at Law, P.A. and Steven Schwartz, Esquire.



         This is a malpractice action relating to legal advice and services rendered in connection with a complex bankruptcy matter by two Delaware law firms and their attorneys: (1) Hiller & Arban, LLC (the "Hiller Firm"), Adam Hiller, Esquire ("Mr. Hiller"), and Brian Arban, Esquire ("Mr. Arban") (collectively, the "Hiller Defendants"); and (2) Schwartz & Schwartz, Attorneys at Law, P.A. (the "Schwartz Firm") and Steven Schwartz, Esquire ("Mr. Schwartz") (together, the "Schwartz Defendants"). Before the Court are a number of Motions for Summary Judgment filed on behalf of both sets of Defendants. With regard to the Motion filed by Mr. Arban, summary judgment is GRANTED. The remaining motions of the Hiller Defendants are DENIED. The Schwartz Defendants' motions are DENIED IN PART and GRANTED IN PART.

         I. FACTS

         The instant litigation was filed in July 2015 on behalf of Abraham Korotki ("Mr. Korotki"), Saleena Korotki ("Saleena"), Reserves Development, LLC, The Reserves Resort, Spa & Country Club, LLC, The Reserves Management, LLC (collectively, "Reserve Entities"), STL Development LLC ("STL"), and ST2K, LLC ("ST2K") (together, "Plaintiffs"). At all relevant times, Mr. Korotki was the sole member of the Reserves Entities and his wife, Saleena, was the sole member of STL and ST2K.[1]

         In 1998, Mr. Korotki began developing a 185-lot residential real estate community in Sussex County: The Reserves Resort, Spa & Country Club ("Reserves"). Mr. Korotki transferred the land to Reserves Resort, Spa & Country Club, LLC ("Resort") in August 2001.[2] Reserves Management, LLC ("Management") was the entity through which the community's grounds and common areas were managed and maintained. Reserves Development, LLC ("Development") was created as a "tax device" used in the conveyance of certain lots within the Reserves.[3] All of the Reserves Entities were wholly-owned and controlled by Mr. Korotki.

         Beginning in 2004, the lots within the Reserves were sold to various third party builders and developers.[4] Several disputes arose from these transactions, and, by 2007, Plaintiffs were involved in a "multiplicity of litigation."[5] Mr. Korotki initiated a number of lawsuits in Delaware state courts, on behalf of himself and certain of plaintiff entities, alleging fraudulent conduct and "breaches of contract by various purchasers and/or their successors and assigns, among others."[6]

         It appears that, sometime in 2007, a dispute arose relating, in part, to two letters of credit issued by Wilmington Trust Company, which Resort posted and Mr. Korotki personally guaranteed in reliance on one purchaser's alleged representation that they would pay their share of bonding costs. The letters of credit were initially supported by $2.5 million in cash, but Wilmington Trust later accepted a mortgage from Resort encumbering 22 lots at the Reserves as replacement collateral for the $2.5 million.

         The Schwartz Defendants were retained in November 2007 to represent Mr. Korotki and certain of the plaintiff entities in connection with matters surrounding the Reserves.[7] While Mr. Schwartz served primarily as litigation counsel in this regard, he also performed various transactional services including effectuating the conversions of certain entities into limited liability companies and preparing bylaws, corporate minutes, and deeds. In June 2008, Mr. Korotki also sought the advice and counsel of Mr. Hiller, who allegedly "held himself out to the public as a bankruptcy specialist."[8]

         In November 2008, as a result of the disputes and proliferation of litigation surrounding the Reserves, Mr. Korotki, "upon the advice and counsel of the Schwartz Defendants and the Hiller Defendants, " retained the law firm of Offit Kurman, P.A. ("Offit Kurman")[9] to represent him, his entities, and Saleena in "creating and implementing an 'asset protection plan.'"[10] Hiller and Schwartz allegedly participated with Offit Kurman attorneys to plan and cause the transfer of Mr. Korotki's interest in substantially all unencumbered lots at the Reserves to his wife, Saleena ("Asset Protection Plan").[11] Mr. Hiller and Mr. Schwartz allegedly received copies of the Asset Protection Plan, once finalized, from Offit Kurman.

         Pursuant to the Asset Protection Plan:

a. On December 1, 2008, STL was created and 100 shares of STL's common stock were issued to Reserves;
b. On December 2, 2008, Reserves transferred the STL stock to Mr. Korotki;
c. On December 3, 2008, Reserves deeded 69 lots to STL (the "69 Lots"); and
d. On January16, 2009, Mr. Korotki's stock in STL was transferred to Saleena….
e. Additionally, all other real property owned by Mr. Korotki, as well as all of his personal property, were transferred to Saleena…at or about the time of the stock transfer to her, and Mr. Korotki directed his attorneys in writing to "pay over, distribute and convey any and all monies received on my behalf and those of the above corporations [Resort] [and Management] to Saleena …." [12]

         Saleena was neither a party to any of the pending suits, nor did she face potential liability under the letters of credit.[13] As of 2008, all bills relating to the Reserves were paid by Saleena or STL. While Saleena apparently owned STL, Mr. Korotki almost immediately obtained power of attorney over STL, which allowed him to manage the entity.[14]

         In 2010, Wilmington Trust demanded payment from Mr. Korotki and Resort in connection with the letters of credit. When no payment was made, Wilmington Trust initiated proceedings in the Delaware Superior Court seeking reimbursement. Wilmington Trust's rights were eventually assigned to USAP, a subsidiary of Republic Financial. On February 23, 2012, USAP obtained a judgment against Resort and Mr. Korotki in the amount of $2, 216, 233 plus interest, costs, and attorneys' fees.[15] Upon Defendants' advice, Resort deeded 14 additional lots at the Reserves to STL on May 16, 2012, leaving STL and Saleena with a total of 83 unencumbered lots and Resort with the 22 lots encumbered by the mortgage held by USAP.[16]

         In a "series of telephonic meetings that took place in Philadelphia and elsewhere throughout the latter part of 2012, " Defendants allegedly advised Mr. Korotki that both he and Resort should file for bankruptcy relief under Chapter 11 of the United States Bankruptcy Code.[17] Defendants purportedly assured Mr. Korotki that pursuing this course of action would allow him and Resort to remain "debtors-in-possession" and thereby "retain possession and control of their assets, business and property" and "continue to prosecute their pending state court litigations."[18] Defendants apparently rendered such advice "even though as a result of the Asset Protection Plan that the Offit [Kurman attorneys] had implemented, Mr. Korotki was 'judgment proof.'"[19]

         It was agreed that Hiller would be designated counsel of record in the bankruptcies, and that Schwartz and the Offit Kurman attorneys would seek appointment as special litigation counsel once the Chapter 11 petitions were filed in order to continue prosecuting the Delaware state court actions.[20] Before filing for bankruptcy, and allegedly at Defendants' direction, Mr. Korotki borrowed $600, 000, $400, 000 of which he paid to Mr. Schwartz and $175, 000 to Offit Kurman, to retain the attorneys' representation in the pending litigation.[21]

         Pursuant to the parties' discussions, Hiller filed the Chapter 11 petitions in the United States Bankruptcy Court in the District of Delaware on behalf of Mr. Korotki and Resort on December 10, 2012, and a Joint Plan of Reorganization ("Reorganization Plan") and Disclosure Statement the following day.[22] Upon later review by the Bankruptcy Court, the cases were converted from Chapter 11 to Chapter 7.[23] As a result, a Chapter 7 Trustee was appointed in July 2013 to take possession of "all of the assets forming the bankruptcy estates" of Mr. Korotki and Resort, including Korotki's interest in Management and the state court litigations, "for liquidation and distribution to creditors."[24]

         According to Plaintiffs, the bankruptcy filings were "doomed from conception and non-confirmable as a matter of law."[25] Specifically, Plaintiffs allege the Reorganization Plan proposed to establish a liquidating trust consisting of "effectively one asset, " the state court claims, even though "potential recoveries from a lawsuit, notwithstanding their expected value, are insufficient to create a reasonable likelihood of rehabilitation for purposes of successfully prosecuting a Chapter 11 bankruptcy, " which Defendants allegedly "knew or should have known" beforehand. [26] The Plan also provided that the costs of litigation would be funded by the trust's assets, i.e., any proceeds of the litigation. "In substance, Defendants' Reorganization Plan required the creditors to fund the prosecution of the…Claims." Additionally, according to Plaintiffs, the Disclosure Statement "conceded that a Chapter 7 liquidation was the only realistic alternative to the Reorganization Plan (which was per se non-confirmable) and further conceded, prophetically, that a Chapter 7 Trustee would 'settle quickly, even for nominal values, without realizing the true value of the…Claims."[27]

         Further, "pursuant to the… Plan and in violation of the absolute priority rule, Mr. Korotki would retain all of his equity and interest in [Resort], Management and Development, and their assets"[28] and Saleena, STL, and ST2K would purportedly be able to "retain their interest in the 90 unencumbered lots in…Reserves…that had previously been owned by Mr. Korotki and [Resort]."[29]However, as a result of the conversion and the timing of the bankruptcy filings less than four years from certain asset protection transactions, Plaintiffs faced the possibility of losing 69 of the Reserves lots to the bankruptcy estate should the Trustee pursue a fraudulent conveyance action.[30] These circumstances allegedly left Plaintiffs no choice but to accept the Trustee's proposed settlement, under which: "(i) they released all claims they had, and the right to collect" on those claims, and "(ii) the lots that they owned, including but not limited to the 90 lots owned by STL and ST2K, would be sold as part of a sale, from which Plaintiffs would be entitled to a fractional payment of the proceeds "instead of the[] actual value."[31]

         As a result of the foregoing, Plaintiffs commenced litigation in this Court on July 20, 2015.[32] Count I, asserting legal malpractice, is the only claim currently remaining in the lawsuit.[33] Plaintiffs allege that "Defendants breached their duty of care and otherwise deviated from acceptable professional standards by:" (1) advising Mr. Korotki to file a personal bankruptcy, despite the fact that his Asset Protection Plan essentially rendered him "judgment proof" from creditors; (2) failing to advise Korotki that, by filing a personal bankruptcy, his retained ownership interest in Management would become a part of the bankruptcy estate and therefore subject to the control of a Chapter 7 Trustee; (3) "[f]iling misguided Chapter 11 bankruptcy petitions" on behalf of Mr. Korotki and Resort, when Defendants knew or should have known Mr. Korotki and Resort "had no chance of reorganizing;" (4) failing to timely and adequately investigate and advise Mr. Korotki and Resort "of the potential pitfalls of filing for bankruptcy, including the total loss and control of valuable lawsuits and…Development itself;" (5) "[m]istiming the filing of the Chapter 11…Petitions and thereby exposing the transfers made pursuant to the Asset Protection Plan to the Chapter 7 Trustee's avoidance powers;" and (6) "[c]reating and proposing" a plan of reorganization that was "ill-conceived, non-confirmable as a matter of law, and destined for total failure, " all of which Defendants knew or should have known before filing the petitions and Reorganization Plan.[34]

         The Hiller and Schwartz Defendants have filed motions pursuant to Superior Court Civil Rule 56, asserting various theories under which they claim they are entitled to summary judgment. Both sets of Defendants joined in supporting each other's motions. This is the Court's decision on those motions.


         In reviewing a motion for summary judgment pursuant to Rule 56, the Court must determine whether any genuine issues of material fact exist.[35] Specifically, the moving party bears the burden of showing that there are no genuine issues of material fact so that it is entitled to judgment as a matter of law.[36] In deciding a motion for summary judgment, the Court must view the record and any inferences in a light most favorable to the non-moving party.[37] Therefore, the Court will deny summary judgment if it appears that there is a material fact in dispute or that further inquiry into the facts would be appropriate.[38]


         To establish a claim of legal malpractice, a "client must prove the employment of the attorney and the attorney's neglect of a reasonable duty, as well as the fact that such negligence resulted in and was the proximate cause of loss to the client."[39] Both Defendants move for summary judgment, contending Plaintiffs have failed to adequately establish the elements required to succeed in an action for legal malpractice. The Court will first address the arguments presented in the Hiller Defendants' Motions, before turning to the Motions filed by the Schwartz Defendants.

         A. Hiller Defendants

         1. Mr. Arban's Motion for Summary Judgment

         Mr. Arban has filed a separate motion for summary judgment arguing that Plaintiffs have failed to satisfy the second element of a legal malpractice claim: neglect of a professional duty.

         Notably, the pleadings filed in this matter make hardly any mention of Mr. Arban.[40] To the contrary, the record makes clear that Plaintiffs sought the legal counsel of Mr. Hiller in connection with the bankruptcies. Following discovery, it appears Mr. Arban's involvement in the matter was limited to domesticating a $1.3 million judgment, a task he performed at Mr. Hiller's direction while Hiller was away on vacation. Plaintiffs' only ground for seeking to hold Mr. Arban liable for malpractice is essentially that the judgment he domesticated, which was in the Development's favor, was later assigned to Resort and became a part of the bankruptcy assets.[41]

         Even if Arban's narrow role in the case was enough to expose him to liability for malpractice, which the Court does not believe it does, Plaintiffs have adduced no expert testimony opining on the matter. "It is well-established in Delaware that expert testimony is necessary to support a claim of legal malpractice."[42] Plaintiffs attempt to rely on the exception to this general rule, which applies "when the professional's mistake is so apparent that a layman, exercising his common sense, is perfectly competent to determine whether there was negligence."[43] This exception is a narrow one, however, and Plaintiffs have not convinced the Court that it should apply here, in the context of complicated bankruptcy proceedings.[44] It appears that, at most, Plaintiffs are attempting to hold Mr. Arban liable simply because of his association with Mr. Hiller. This is insufficient and, as a result, Mr. Arban's Motion for Summary Judgment will be granted.

         2. Motion for Summary Judgment

         The arguments advanced in support of the Hiller Defendants' Motion for Summary Judgment can be grouped as follows: failure to establish an attorney-client relationship, lack of requisite causation testimony, collateral estoppel, and lack of expert testimony relating to sale of Reserves following bankruptcy.

         i. Attorney-client relationship

         The Hiller Defendants first argue the claims of Saleena and her entities, STL and ST2K, and the claims of Management and Development must fail because no attorney-client relationship existed between these Plaintiffs and the Hiller Firm.

         In order to bring a legal malpractice action, a "plaintiff…must plead and prove the existence of an attorney-client relationship."[45] "Whether an attorney-client relationship exists depends on the facts and circumstances of a particular case, " with the "most significant fact or circumstance" being "whether the attorney and client entered into an express agreement for legal services."[46] Absent an express agreement, a lawyer-client relationship may still be inferred "from the conduct of the parties."[47] Under such circumstances, "there would have to be, at the very least, a preexisting relationship that would create a reasonable expectation on the 'client's' part that the attorney was representing his [or her] interests, and reliance by the client upon that expectation."[48] An attorney will only be found to owe a duty to a non-client where "the complaining party can show there was fraud or collusion on the part of the attorney, privity of contract with the attorney or that they were an intended beneficiary of the attorney's services."[49]

         There is no documentation in the record evidencing that a formal agreement for legal services existed between the Hiller Defendants and Saleena or either of her entities. There appears to be two written engagement agreements. The first is dated August 2011 indicating that Hiller agreed to represent Management and Development, in addition to Korotki and Resort. The second, dated November 2012, reflects an agreement whereby Hiller would provide legal services for Mr. Korotki and Resort alone.

         Plaintiffs do not appear to dispute the absence of express engagement agreements documenting that an attorney-client relationship existed between Mr. Hiller and every Plaintiff. Instead Plaintiffs argue that an attorney-client relationship may be inferred from the conduct of the parties. According to Plaintiffs, there is a "lengthy factual history" showing that the Korotkis and their "family of entities" relied on Hiller's legal advice in connection with "the development of the Reserves" over the course of several years.[50]

         At the outset, the Court will not grant the Motion to the extent it attempts to exclude Management and Development. The record demonstrates that Hiller continuously represented Mr. Korotki from 2008-2012, in addition to each of the Reserves Entities at some point or another throughout the relevant time period. It is undisputed that the Reserve Entities are related and that all three were solely owned and controlled by Mr. Korotki. Hiller thus presumably understood Mr. Korotki's interest in the entities and how each could be impacted as a result of the bankruptcy.

         Nor will the Court grant the Motion with respect to Saleena and her entities, though it admits its decision was more difficult in this regard. Plaintiffs' argument is not a strong one insofar as they attempt to convince the Court that a formal attorney-client relationship existed between the Hiller Defendants and Saleena or her entities. Indeed, Plaintiffs' claim that Mr. Hiller, in representing the Reserves Entities, "concomitantly" and "by de facto" represented the interests of Saleena and her entities is logically unpersuasive.

         That said, Mr. Hiller allegedly participated in advising Plaintiffs with respect to the Asset Protection Plan in 2008. Saleena and STL assumed significant roles in connection with the asset protection transactions: STL was formed to facilitate the transfer, Mr. Korotki's assets were transferred to STL and Saleena, and it was agreed that any monies received by the Defendants on Mr. Korotki's behalf would be conveyed to Saleena. There is no record of Saleena or STL having separate independent counsel, and while action may have been taken in an attempt to protect assets, Saleena and her entities were merely a conduit for Mr. Korotki's actions. From 2008 forward, it appears STL and Saleena paid most of the Defendants' legal bills. Given Hiller's apparent familiarity with and participation in the structuring of Mr. Korotki's personal and corporate affairs, it is reasonable to infer that he owed some duty to Saleena and her entities in recommending and filing the bankruptcy petitions, given the potential impact this course of action could and would have on all Plaintiffs. Hiller cannot hide behind the lack of a formal representation agreement since he was not only aware of, but participated in, the restructuring of Korotki's assets. Hiller was clearly aware that Mr. Korotki was the one controlling the decisions with respect to the merging of these assets. It appears Saleena was simply used as a shield in order to protect those assets from Mr. Korotki's creditors. Viewing the foregoing facts in Plaintiffs' favor, summary judgment must be denied.

         ii. Lack of requisite causation testimony

         Plaintiffs have retained Jeffrey Kurtzman, Esquire ("Mr. Kurtzman"), as an expert in this matter. Since Mr. Kurtzman is a member of the bars of Pennsylvania, New Jersey, and New York, but not Delaware, Plaintiffs have also retained James Huggett, Esquire, ("Mr. Huggett") as a bridging expert. The Hiller Defendants do not dispute Mr. Kurtzman's competency to testify as to the standard of care with regard to Mr. Hiller. Rather, they take the position that he is incapable of providing a causation opinion consistent with Delaware law.

         The causation standard applied in Delaware is the "but for" test.[51] Plaintiffs cite case law indicating that New Jersey courts apply the "substantial factor" standard of causation in malpractice cases.[52] While this may be true, Kurtzman's testimony reflects that he employed "but for" language throughout the course of his deposition. Never once does he appear to have proclaimed to apply the substantial factor test in his testimony. Ultimately, the Court finds Plaintiffs have met their burden to proffer standard of care testimony, along with bridging testimony where needed. This rationale likewise applies to the Hiller Defendants' alternative argument concerning Plaintiffs' alleged failure to provide requisite causation testimony with regard to the Reorganization Plan.

         iii. Collateral estoppel

         Next, the Hiller Defendants argue that Plaintiffs are collaterally estopped from claiming damages based on the Reorganization Plan and alleged loss of the state court litigations. "The doctrine of collateral estoppel precludes a redetermination of facts actually litigated and determined in a prior proceeding."[53] A party raising collateral estoppel bears "the burden of showing that the issue whose relitigation he seeks to foreclose was actually decided in the first proceeding."[54] Thus, the test applied for purposes of collateral estoppel requires: "(1) a question of fact essential to the judgment (2) be litigated and (3) determined (4) by a valid and final judgment."[55]

         The Hiller Defendants argue Plaintiffs should be precluded from seeking damages as a result of the failed Reorganization Plan Mr. Hiller prepared and filed with the bankruptcy court because Judge Gross's conversion order makes no specific mention of the Reorganization Plan. They further assert that Plaintiffs must be collaterally estopped from claiming damages related to the alleged loss of state court litigations because the bankruptcy court already determined, in its order approving settlement, that the lawsuits were not worth pursuing outside of settlement.

         Plaintiffs respond that collateral estoppel does not bar its claims because the bankruptcy court orders were not "final judgments." A "final judgment" is generally defined as one that "determines the merits of the controversy or defines the rights of the parties and leaves nothing for future determination or consideration."[56] It appears that, "[i]n bankruptcy cases, finality is construed more broadly than for other types of civil cases."[57] Plaintiffs have cited no controlling authority tending to support their position that the bankruptcy court orders here were not "final judgments." To the contrary, there is Delaware case law recognizing that "the Third Circuit has held that an order converting a Chapter 13 case to Chapter 7 is final and appealable" and that "several courts have…[found] that an order granting a motion to convert a case from Chapter 13 to Chapter 7 is final because it denies the debtor the substantive right to reorganize under Chapter 13 and forces the debtor into liquidation."[58] Delaware courts have also recognized that bankruptcy court orders approving settlement agreements are considered "final orders."[59] As a result, the Court is not persuaded by Plaintiffs' assertion that the bankruptcy court orders converting the case from Chapter 11 to Chapter 7 and approving the settlement agreement did not constitute "valid and final judgments" for purposes of collateral estoppel.[60]

         Plaintiffs also argue that the appropriateness of the Reorganization Plan and value of the state court litigations have not been "actually litigated." With regard to the conversion proceedings, Plaintiff contends the Reorganization Plan was abandoned before the bankruptcy court's order was entered and Judge Gross, having been advised as such, allegedly did not even consider the Plan. Having reviewed Judge Gross's opinion, it is unclear to the Court to what extent the Plan was reviewed in connection with the Judge's decision to convert the case to Chapter 7. Judge Gross cited the factors for consideration in determining whether the appointment of a trustee is appropriate: "(1) the trustworthiness of the debtor; (2) the debtor's past and present performance and prospects for…rehabilitation; (3) the confidence or lack thereof of the business community and of creditors in…present management; and (4) the benefits derived by the appointment of a trustee, balanced against the cost of…appointment."[61] According to Judge Gross, "[a]pplication of each of these factors weigh[ed] heavily in favor of conversion."[62]In addition to noting the "absence of rehabilitation" and that "Debtors are plagued by mismanagement, " Judge Gross emphasized that the "decision to convert these cases is in no small measure the result of Mr. Korotki's conduct."[63] Viewing the record in Plaintiffs' favor, the Court cannot conclude the confirmability of the Reorganization Plan had been "actually litigated" such that collateral estoppel would apply to bar the instant malpractice allegations.

         As for the bankruptcy court order approving the settlement agreement, Plaintiffs argue collateral estoppel should not apply because the court did not determine the merits of the state court litigations or their value. After spending "considerable time" independently evaluating the claims and defenses asserted in the relevant state court litigation, the Chapter 7 Trustee determined that pursuing the claims would "cost considerably more than the amount of funds in the Estates, and…take several years to conclude."[64] As a result, the Trustee filed a motion for approval of settlement pursuant to Bankruptcy Rule 9019(a). In its motion, the Trustee informed the bankruptcy court that there was "no reasonable degree of certainty that pursuit of the claims and causes" would result in "a net benefit to the Estates over the cost of litigation."[65]

         In exercising its sole discretion to approve a settlement, a bankruptcy court generally must determine whether the compromise is fair, reasonable, and in the best interests of the estate.[66] To approve a settlement under Bankruptcy Rule 9019(a), the court need only determine that the proposed settlement does not fall below the lowest point in the "range of reasonableness." [67] A court need not find that a proposed settlement reflects the "best possible" arrangement or that it allows the parties to maximize their recovery.[68] Rather, whether a settlement is within the "range of reasonableness" involves consideration of certain factors, which include the probability of success in litigation; the complexity of the litigation and related expense, inconvenience, or delay; and the interests of creditors.[69]

         The bankruptcy court order cites only that there was "good and sufficient cause" to grant the Trustee's motion and approve the terms of settlement.[70] As discussed above, a bankruptcy court's decision to approve or reject a settlement offer involves consideration of a number of factors. While "probability of success" in the pending litigation may have been among the factors considered by the bankruptcy court in issuing its order, there is simply no basis upon which this Court can find that the merits or value of Plaintiffs' pending lawsuits has been "actually litigated" such that collateral estoppel would apply to prevent their claim. While the Court finds that collateral estoppel would not preclude litigation over the value of Plaintiffs' pending lawsuits, that finding does not mean it is an appropriate measure of damages as will be discussed later in this Opinion.

         iv. Expert testimony concerning the Reserves

         It appears undisputed that, following the Chapter 7 sale of Reserves, Mr. Korotki received $4.8 million from the Trustee. Plaintiffs proffer the report of real estate expert and appraiser, Philip J. McGinnis ("Mr. McGinnis"), who opined that the market value of the Reserves land as of December 3, 2014 was $10.4 million. Accordingly, Plaintiffs seek the difference between these two figures as damages.

         The Hiller Defendants contend that Mr. McGinnis simply "assumed the lots were saleable outside the bankruptcy process" and failed to testify "regarding the complex factors of real estate acquisition and development."[71] As a result, they argue Plaintiffs' claims for damages from the sale "fail as a matter of law" for failure to establish causation.[72]

         Mr. McGinnis's expert report is based on his real estate appraisal of the Reserves development. Mr. McGinnis's report reflects the factors he considered in making his assessment, including: the real estate market in Sussex County (where Reserves is located), considering the neighborhood, local market analysis, as well as economic, social, governmental, and environmental forces; the costs associated with the project, i.e., for site improvements, assessments, and taxes; a comprehensive analysis of the Reserves and surrounding residential subdivisions; county regulations, zoning requirements, and property tax rates; the value and "best use" of the lots; and the marketability of the entire project to a real estate developer at the time. Plaintiffs also seek to introduce the testimony of Mr. Korotki "in support of [their] damages relating to the bulk sale of the lots in the bankruptcy, "[73] citing the rule of law that an owner of real property can testify to its value.[74]

         Still, the Hiller Defendants argue summary judgment is justified because Mr. McGinnis makes no mention of Mr. Korotki's mismanagement of the property, certain liens encumbering the land, or the costs associated with preparing the lots for sale. Defendants dispute Mr. Korotki's ability to fill in such gaps, arguing this is not a circumstance "where a lay person is testifying as to the value of his own personal property[, ]" but rather an "attempt [] to put a number on sophisticated market and ...

Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.