“Litigation financing is not readily available to lower middle market bankruptcies. Evangelista Worley fills this void. In the Verso Technologies and Baxano Surgical cases, Evangelista Worley conducted a thorough investigation of potential D&O claims, and implemented a successful aggressive legal strategy which substantially benefited unsecured creditors.”John L. Palmer, CTP, CRO Tamarack Associates, Inc.
For companies that enter bankruptcy, a critical asset of the debtor’s estate can be a director & officer liability policy or errors and omissions insurance. Middle-market bankruptcy estates may not have available cash resources to take the risk of paying hourly attorney fees to investigate and/or litigate potential D&O claims, particularly where the recovery is uncertain or the claim risky to establish. Evangelista Worley, LLC provides a solution by representing bankruptcy trustees on a full or partial contingency basis.
Putting aside rote fraud driven by greed or unscrupulous practices, a typical scenario involves a company facing declining future business prospects. Entrenched senior management may conceal or misrepresent the truth to their directors and other corporate stakeholders. The reason is often to buy time to delay or avoid a reorganization or bankruptcy in which they would lose their jobs and equity value. Such actions can raise numerous potential legal claims by adversely affected parties such as equity investors, secured lenders, and trade creditors.
To maximize trustee recoveries, it takes experience recognizing these fact patterns. It takes creativity and technique to develop core case evidence. And, it takes a successful litigation strategy to identify and apply leverage.
In cases where the Firm’s attorneys have represented court appointed liquidation trustees, recoveries were often obtained for the estate that well-exceeded typical recoveries (as a percentage of the available insurance coverage and/or as a percentage of the total unsecured creditor claims) by suing the professional advisors involved, along with the officers and directors, and by splitting the claims into multiple actions. This enabled the respective trustees to recover nearly double the anticipated settlement amounts had just a basic D&O claim been brought, or had the claims been combined into single lawsuits:
• Harold Jones, As Liquidating Trustee of Verso Technologies, Inc. v. Tauber & Balser P.C., et al., 1:11-cv-02995 (AT) (N.D.GA) ($4 million recovery, including $100,000 in sanctions for defendants’ and their counsel’s discovery malfeasance, in accounting fraud and misrepresentations by bankrupt public company’s outside auditors);
• Darryl S. Laddin, As Liquidating Trustee of Verso Technologies v. Odom, et al., 1:09-cv-1293 (AT) (N.D.GA) ($3.5 million recovery against former officers and directors of bankrupt public company);
• Darryl S. Laddin, As Trustee For The Liquidating Trust of the Estates of Verilink and Larscom v. Powell Goldstein, et al., 5:11-CV-03877 (CLS) (N.D.Ala) (substantial confidential recovery against outside corporate legal counsel to bankrupt public company for professional liability); and
• Darryl S. Laddin, As Trustee For The Liquidating Trust of the Estates of Verilink and Larscom v. Belden, et al., 08-80072 (JAC) (N.D.Ala, Bkcy.) (More than $2 million recovered against former officers and directors of bankrupt public company, including personal contributions of defendants beyond insurance coverage, and from former investment advisors).
“One of the most results-driven, client-focused, and dedicated teams of lawyers I’ve had the privilege to work with. That’s how I would describe my experience through multiple trustee engagements of Messrs. Evangelista and Worley.”
Darryl S. Laddin, Esq. Arnall Golden Gregory LLP
In a very recent case, the Firm was able to juxtapose the fiduciary duties of a bankrupt company’s CEO and CFO to provide accurate financial information to the company’s board against the board members’ own fiduciary duties. In denying the defendants’ motion to dismiss, the United States District Court for the District of Delaware rejected the officers’ argument that they were protected by the business judgement rule, found that the detailed allegations, if true established a breach of fiduciary duty by the officers and found that the alleged facts reflected a rarely upheld claim of waste.
John Palmer as Liquidation Trustee For the Baxano Liquidation Trust v. Kenneth Reali et al., No. 15-cv-00994 (MAK) (D. Del) ($2.75 million settlement for breach of fiduciary duty and corporate waste by former officers).
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