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White v. Preferred Investment Services, Inc.

Superior Court of Delaware

April 26, 2019

FLOYD WHITE, Plaintiff,

          Submitted: March 27, 2019

         Motion to Dismiss DENIED.

         The Case is STAYED.

          Floyd White; Pro Se Plaintiff (with Edward J. Fornias, III, Esq. as Counsel re: Rule to Show Cause)

          E. Calvin Harmon, Jr., Esquire; Attorney for Defendant.


          Diane Clarke Streett, Judge.

         The issue before the Court concerns whether the Instant Case (a fraudulent transfer action; "Case #3" or the "Instant Case") should proceed simultaneously with T & H Bail Bonds, et al. v. Preferred Investment Services, Inc. (a judgment action; "Case #2").[1] Although 10 Del. C. § 5031[2] does not appear to prohibit a party from simultaneously proceeding in a fraudulent transfer action while a judgment/garnishment action is ongoing, the parties' roles in Case #2 have created an unusual situation in relation to Case #3 which prompts this Court to Temporarily Stay the Instant Case pending resolution of issues in Case #2.

         Mr. Floyd White ("White") is Plaintiff in the Instant Case. He is also the assigned Plaintiff and garnishor in Case #2. Attorney E. Calvin Harmon, Jr., Esq. ("Harmon") represents Defendants Preferred Investment Services, Inc. ("PISI"), Edwin J. Swan ("Swan"), [3] Anne C. Swan, and Marqueit Jones in the Instant Case. Harmon also represents PISI, Swan, and some of the other garnishees in Case #2. This has created a tangled interplay of responsibilities which has generated conflict of interest issues; threatens to prejudice the due process rights of White, PISI, the other defendants in the Instant Case and the garnishees in Case #2; undermines Delaware public policy; causes significant confusion among the parties; has resulted in extensive litigation; could result in increased litigation; and could unnecessarily expend resources.[4] The Court concludes that under the particular and distinct circumstances of both cases, [5] a temporary stay of the Instant Case, until issues in Case #2 are resolved, is in the interest of justice and an effective safeguard of the parties' rights. It is less severe than dismissal.


         In 2010, Preferred Investment Services, Inc. ("PISI"), through its attorney, Harmon, brought a breach of contract action in Chancery Court against several bail bond companies (Case #1).[6] In 2014, the Defendants successfully defended the lawsuit. The Chancery Court determined that PISI owed more than $300, 000.00 to T & H and the other bail bond companies.[7] T & H Bail Bonds, et al. became the "Original Judgment Creditors."

         In 2014, the Original Judgment Creditors filed a judgment action against PISI (Case #2) to collect on the debt created by the Chancery Court decision (Case #1). Discovery issues in Case #2 were referred to a Superior Court Commissioner.[8]Plaintiffs in Case #2 (the Original Judgment Creditors) were represented by Neil Lapinski, Esq. Defendant PISI continued to be represented by Harmon. In 2014 and 2015, Plaintiffs filed writs of Fieri Facias Garnishment against various bail bond companies, as the purported third party debtors of PISI, in an effort to collect on the judgment.[9] In 2014, Mr. Lapinski also filed writs of Attachment against the Prothonotaries for New Castle, Kent, and Sussex Counties.[10]

         On July 8, 2015, three of the Original Judgment Creditors assigned their rights to pursue collection of the judgment to Mr. Jerzy Wirth and Wirth Financial Services ("Wirth" and "WFS").[11] On January 25, 2017, Wirth and WFS assigned all of their rights to White.[12]

         Since that time, White, as apro se litigant, has vigorously pursued the ongoing garnishment actions and sought judgment against several of the garnishees.[13]Harmon, in addition to representing PISI, also represents some of the garnishees (including Swan).[14]

         On September 18, 2018, White, who in some respects stands in the shoes of PISI in seeking garnishment, filed a Motion to Disqualify Harmon. White contended that it is a conflict of interest for Harmon to represent both PISI and PISFs purported debtors.[15] On December 11, 2018, the Commissioner ordered that "[t]he parties are to discuss the potential conflicts of interest and if the matter is unable to be resolved consensually, the Court will schedule a further hearing as appropriate."[16] On September 25, 2017, White filed a Motion for Relief from Fraudulent Transfer [by PISI].[17] The Commissioner suggested that this should be a separate action.

         Presently, Harmon continues to represent PISI and several garnishees (including Swan) in Case #2 while White, who possesses the rights of (some of) the Original Judgment Creditors to pursue the judgment against PISI, seeks to determine who should represent PISI and/or some of the garnishees in Case #2.[18]

         As of this date, litigation involving White, PISI (represented by Harmon), some of the purported garnishees including Swan (also represented by Harmon), and other garnishees (some represented by other attorneys) has been complicated. Over the course of approximately five (5) years, Case #2 has involved numerous motions, a considerable number of court hearings, several attorneys, [19] and approximately 350 transactions. Despite extensive litigation, many issues remain unresolved in Case #2.

         On April 23, 2018, per the Commissioner's suggestion, White filed the instant fraudulent transfer claim as a separate lawsuit and named PISI, Swan, Anne C. Swan, and Marqueit Jones as the Defendants (the "Instant Case" or "Case #3"). As of this date, litigation in Case #3, concerning PISI's Motion to Dismiss and discovery issues which overlap Case #2, has been delayed due to the unresolved issues in Case #2.

         Based on White's stance in Case #2 that only he (White) could waive any conflict of interest concerning PISI and its garnishees[20] and his apparent assertion that he is entitled to privileged communications between PISI and its attorney (Harmon) and possibly the privileged communications between garnishees and Harmon in Case #2, [21] unresolved discovery issues remain in Case #2. Those unresolved issues potentially impact Case #3. As such, this Court (in Case #3) directed the parties to submit supplemental briefs addressing whether there is a conflict of interest issue concerning White that would merit dismissal of Case #3.[22]

         On February 1, 2019, White submitted a supplemental brief wherein he acknowledged that he is a lay person and does not represent PISI. PISI submitted its supplemental brief moving the Court to dismiss Case #3 "on account of Plaintiff s concurrent conflict of interest in the present matter."[23]

         On February 18, 2019, this Court (Case #3) filed a Rule 41(e) notice and scheduled a Rule to Show Cause Hearing as to why Case #3 should not be dismissed for Conflict of Interest. On March 6, 2019, White filed his Response and, five days later, Edward J. Fornias, III, Esq. filed an Entry of Appearance on behalf of White.

         On March 27, 2019, the Hearing to Show Cause was held and the Court reserved decision. The Court's Opinion follows.

         Parties' Contentions

         PISI writes that White's "dual participation in the Garnishment Action [Case #2] and the Fraudulent Transfer Action [Case #3] is a concurrent conflict of interest under Delaware law."[24] PISI submits that the Delaware Rules of Professional Conduct's prohibition against conflicts of interest apply to White and that "... conflict of interest rules are to protect the client from having confidential information used against him/her in adverse proceedings and to maintain public confidence in the integrity of the justice system."[25]

         PISI elaborates that "[White's] participation in [Case #2] will provide [White] with confidential information pertaining to PISI that will materially advance [White's interests in Case #3], since both actions include PISI's accounting, transactional, and business activities."[26] PISI suggests that "[i]t is also very likely that [White] is [now] using the Garnishment Action [in Case #2] to obtain information in support of [White's] burden of proof in [Case #3], specifically concerning insolvency, fraudulent transfers, and proof of assets."[27]

         In reply, White writes that he "does not represent PISI or any garnishee."[28]However, White concedes that he has, "in effect, elected to place himself in the debtor's [PISI's] shoes vis-a-vis the garnishees [in Case #2]"[29] because "the judgment creditor [White] takes the place and stands in the shoes of the judgment debtor [PISI]."[30] Moreover, White maintains that "any claim, defense or new matter such as a conflict of interest of garnishee's counsel [Harmon] that PISI [the judgment debtor] could have asserted can be made by the garnishor [White]."[31]

         At the Hearing to Show Cause, White, through his counsel, argued that the Court should simultaneously proceed with both cases. White asserted that although White 'stands in the position of PISI', White could only obtain PISI's information through discovery. As to White's claim that he controls PISI's rights and decisions in Case #2, White's counsel stated that White "overtalked" himself and White did not mean that he (White) represents PISI. However, under questioning from the Court, White's counsel stated that he is prepared to stand on all of the papers that White filed.

         At the hearing, PISI argued that White has not withdrawn his motion to disqualify Harmon in Case #2, that White is asserting that PISI and third party garnishees must use White's choice of counsel in Case #2, that White can paralyze PISI in Case #2 by asserting control over PISI, and that White will be able to obtain any information from PISI that he wants in Case #2 and use it to White's advantage in Case #3.

         Standard of Review

         The law is well settled that "the Superior Court has the power to grant a stay."[32] The Court's authority to stay an action is "incident to the inherent power of a court to exercise its discretion to control the disposition of actions on its docket in order to promote economies of time and effort for the court, litigants, and counsel"[33]and the Court may stay an action sua sponte?[34] The question of whether to stay an action "falls squarely within the province of the trial court's discretion and is to be determined in light of all the facts and circumstances and in the interest of expeditious and economic administration of justice."[35]


         Generally, a creditor may pursue a collection action and also seek other remedies against a debtor in separate litigation. However, Case #1 and Case #2 are not ordinary and are "in a category by itself."[36] There are several issues that need to be resolved in Case #2 in order for Case #3 to go forward. As such, proceeding in simultaneous actions has created difficulties of proof, delay, and additional expenses.

         The behavior of PISI (and its owner Swan) has been the source of much litigation in Case #2. The Commissioner wrote that there "is ample evidence"[37] that PISI has acted in a deceptive manner in Case #2 and that "PISI has delayed and obfuscated at every turn in the proceedings in [Case #2]."[38] In addition, the Commissioner stated that PISI has committed fraud upon the Court twice, once in the Chancery Court case (Case #1) and once in Case #2. As such, the Commissioner imposed sanctions on PISI in the amount of $30, 700.00[39] and has allowed White to issue subpoenas for PISI's information that might not be allowed in an ordinary case.[40]

         White has also added to the confusion. In the Instant Case, White's status as an unrepresented litigant is murky;[41] White has argued in Case #2 that he (White) should have ultimate authority to decide who should represent PISI (which is represented by Harmon); and, even more confusingly, that he (White) should have ultimate authority to decide whether Harmon or a replacement should represent some of the purported third party garnishees, including Swan.

         Also, whether some of the purported garnishees were properly served, whether White is the proper party to pursue the garnishment action, and the scope of discovery are currently unresolved issues that have contributed to the protracted litigation in Case #2.[42] Moreover, Case #2 is further complicated by the fact that the judgment debtor's attorney also represents some of the third party garnishees and White's Motion to Disqualify must be finally resolved.

         As such, until there is clarification (and resolution) of some of those ongoing issues which have been litigated for nearly five (5) years and continue to be litigated, there is uncertainty as to the parties' specific roles, the possibility of shifting responsibilities, and difficulty in establishing discovery parameters. These unresolved issues have a direct impact on dispositive motions and discovery in Case #3. Those unresolved issues in Case #2 have already impeded the expeditious and economic administration of justice in the simultaneous advancement of the Instant Case (Case #3) which is interconnected.

         Furthermore, although Mr. Fornias's non-committal response as to his role in Case #3 implies that White continuespro se (in Case #3), Case #2 has already shown that this pro se Plaintiff requires careful oversight. White is not an inexperienced litigator, [43] and the law is clear that the Court "will accommodate pro se litigants only to the extent that such leniency does not affect the substantive rights of the parties."[44]

         If White were an attorney, then his assertions in Case #2 that he controls PISFs rights (beyond traditional discovery and collection) means that he is, in effect, asserting authority and control over all of PISFs communications, records, etc. in general and in relation to Harmon's clients - PISI and some of the garnishees (including Swan) - in Case #2 while simultaneously proceeding in direct opposition to PISI and garnishee Swan, represented by Harmon, in Case #3. The Delaware Lawyer's Rules of Professional Conduct would prohibit such a result.

         Under Delaware Lawyer's Rules of Professional Conduct, a concurrent conflict of interest exists if:

(1)the representation of one client will be directly adverse to another client; or
(2) there is a significant risk that the representation of one or more clients will be materially limited by the lawyer's responsibilities to another client, a former client or a third person or by a personal interest of the lawyer.[45]

         Thus, unless informed consent is obtained, "a lawyer may not act as an advocate in one matter against a person the lawyer represents in some other matter .. ."[46] When the conflict of interest involves former representation, "disqualification [of a lawyer] is proper when the similarity in the two representations is enough to raise a common-sense inference that what the lawyer learned from his former client will prove useful in his representation of another client whose interests are adverse to those of the former client."[47]

         White's pro se status should not exempt him from the same professional conduct rules that would apply to attorneys. Otherwise, the highly protected rights of parties would be eviscerated by a party appearing (at random stages in a case) on his or her own behalf. White's dual roles are competing roles that could adversely affect White's, PISI's, and PISI's debtor's rights in Case #2, prejudice PISI's and the other Defendants' due process right to a fair trial in Case #3, and undermine Delaware public policy goals to protect attorney-client communications and preserve public confidence in the judicial system. Although this case does not present a typical conflict of interest because White is not an attorney, the risk could be the same - unfair prejudice to PISI and third party garnishees in Case #2 and unfair prejudice to PISI and Swan in Case #3.[48] Indeed, the Court in Case #2 has already undertaken examining the potential conflict arising from Harmon's dual representation.[49] Thus, allowing the Instant Case (Case #3) to proceed at this time could cause potential conflicts in Case #2 to spill over and impact the orderly progress of Case #3. Moreover, although conflict issues remain undecided in Case #2, the advancement of the litigation in that case makes it better suited to resolve the issues and forestall possible inconsistent rulings.[50]

         In addition, White's standing in these matters has not yet been finally determined. White purchased some of the interests of the Original Judgment Creditors, but may not have purchased the entire judgment. Additionally, while White is correct that a judgment creditor stands in the shoes of its debtor to collect from any purported third party garnishees, White's attempts to control who can represent PISI ...

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