Two Nevada companies have filed an $18.8 million suit in federal court against a major Salt Lake law firm, accusing the firm of malpractice in its handling of one company's 1984 Chapter 11 bankruptcy.
Flying S Land & Cattle Company and its parent company, Regency Group Inc., are suing the firm of Jones, Waldo, Holbrook and McDonough for work lawyer Brian W. Steffensen did while employed by the law firm."Brian left our firm a long time ago," said Randon Wilson, a senior partner at the firm. "Frankly, I'm a little surprised. We don't know anything about what led the filing of the suit. I'll have to get a copy and look at it. Until then, I have no comment."
Steffensen has a private law practice in Holladay. He did not return Deseret News calls.
According to the suit, the Jones Waldo firm agreed to represent Flying S in its Chapter 11 bankruptcy in April 1984. An $8.3 million ranch in Oasis, Nev., was part of the Flying S estate. Jones Waldo told Flying S in 1984 that the company had grounds for a fraud complaint against the seller of the ranch which could keep the ranch from being turned back to the seller, the suit said.
Jones Waldo agreed to file the complaint if Flying S paid the firm $30,000. Flying S paid the money and the complaint was drafted but not filed, the suit said.
The suit said that despite payments to Jones Waldo totaling $160,000 over three years, Jones Waldo never filed the complaint and Flying S lost the ranch in 1987, the suit said.
According to the suit, Jones Waldo made several demands for payments from Flying S, in all cases refusing to file the complaint unless it got more money.
In May 1985, Jones Waldo demanded an additional $30,000 and required Regency Inc. to sign a secured payment agreement for further fees.
When several motions were filed against Flying S in a Nevada court - including a motion to have the bankruptcy converted to a Chapter 7 - Jones Waldo demanded $50,000 in cash to handle the motions.
When Flying S couldn't come up with the cash, Steffensen arranged for another Jones Waldo client to loan Regency Inc. $50,000 - which was paid to Jones Waldo.
The suit said Jones Waldo arranged the loan through Flying S's parent company to avoid a federal law that requires attorneys to report any fees they receive from a bankrupt estate.
Despite the $50,000 payment, Jones Waldo still refused to file the fraud complaint, the suit said. The firm demanded a second payment of $50,000 and arranged a second loan to get the money, the suit said.
Steffensen arranged a second loan from a Joseph Brunetti for the $50,000 on behalf of Flying S. Steffensen prepared the loan documents, which included a secured promissary note for $50,000 and interest at 100 percent a year, the suit said. Brunetti is now suing Flying S and Regency Inc. over the loan, alleging fraud and violation of the federal racqueteering law.
After payments totaling $160,000, Jones Waldo refused to file the complaint and withdrew as Flying S's counsel in early 1987. Before Flying S could hire another firm, the court gave the ranch back to the seller in April 1987, the suit said.
The process outlined in the suit for obtaining legal fees violates federal bankruptcy law. Assistant U.S. Trustee John Straley explained that law firms seeking payment for work they did for bankrupt estates must apply to the federal bankruptcy court for the fees. "In all cases, they must go through the court first," Straley said.
The fee requests - which must include an itemized account of the work done - are reviewed by a federal judge. He holds a hearing on the request and decides whether the firm should receive part or all of the money it requested, Straley said.
Barbara Barrett, attorney for Flying S, said Jones Waldo received additional payments from the Flying S estate by going through the proper channel. Flying S is only suing over the fees obtained in violation of federal law.
The suit seeks $8.3 million in actual damages for the loss of the ranch and at least $10 million in punitive damages.
The suit also cites several other causes of action and seeks various amounts for each cause ranging from $10 million for breach of fiduciary responsibility to $18.8 million for Jones Waldo's failure to properly monitor Steffensen's actions.
Flying S has demanded the case be heard by a jury and not a judge.