Opinion ID: 553321
Heading Depth: 2
Heading Rank: 5

Heading: The Pelletier/Elite Travel, Inc. Transaction.

Text: 72 On May 4, while the bankruptcy proceedings were pending, Pelletier sold his interest in House of Travel, i.e., all of his right, title and interest in and to any and all shares of stock of [House of Travel] which he may currently have or ever has had, to Elite Travel, Inc. (Elite), a travel agency. The sale was made pursuant to a written agreement, drafted by Schlanger and Bunch, between Elite, Joyce Carson (Elite's president), House of Travel, and Culpepper, on the one hand, and Pelletier, on the other. For his interest in House of Travel, Pelletier received $50,000, half in cash and half in the form of a promissory note executed by Elite, Carson, and Culpepper. Pelletier also received from House of Travel a partial assignment of any claims that it might have against Zweifel and Lokey & Bowden. The terms of the assignment were, essentially, as follows: (1) Pelletier alone would decide what claims, if any, House of Travel had against Zweifel and Lokey & Bowden and whether to pursue them; (2) if he decided to bring suit against Zweifel and Lokey & Bowden, Pelletier, with leave of the bankruptcy court, would bring it in House of Travel's name, with a lawyer of his choice, and at his (Pelletier's) expense; and (3) of the net proceeds of any recovery, Pelletier would receive 70%, House of Travel 20%, and Elite 10%. Finally, Pelletier agreed to dismiss with prejudice the two state court suits he had been prosecuting: his (and Langston's) shareholders' derivative suit against Culpepper, House of Travel, and the Hursts, and the Hurst Group's suit against Culpepper for specific performance. 73 After this transaction, Pelletier's position vis-a-vis Zweifel and Lokey & Bowden was as follows. First, he could no longer claim that he was a House of Travel shareholder; 38 therefore, he could not bring a shareholders' derivative suit against Zweifel and Lokey & Bowden based on any claims House of Travel may have had against them--he no longer had standing to prosecute such a suit. Second, any claim Pelletier brought against these lawyers would have to be based on their breach of a duty they owed to him. (As we recite infra, Pelletier, on January 23, 1986, sued Zweifel and Lokey & Bowden in state court claiming the breach of such a duty. In that suit, he alleged that Zweifel and Lokey & Bowden, as House of Travel's counsel, had a fiduciary duty to him, as a shareholder; that in representing the company they breached this duty; and that, as a result of such breach, he suffered substantial injury--in part through the depreciation in value of his House of Travel stock.) Third, Pelletier could sue Zweifel and Lokey & Bowden in House of Travel's name to recover damages for their breach of a duty owed to House of Travel if the bankruptcy court granted him leave to do so. 74 Schlanger, representing Pelletier, submitted the Elite agreement to the bankruptcy court on June 3, and requested the court to approve the provision giving Pelletier the right to sue Zweifel and Lokey & Bowden on behalf of House of Travel. Rickertsen opposed Schlanger's request, objecting to the manner in which Schlanger proposed to divide the proceeds of any recovery Pelletier might obtain. Rickertsen thought that House of Travel's share was too small. Before the court could rule on the matter, Schlanger and Rickertsen worked out a new allocation: Pelletier would receive 66 2/3% of any recovery, and House of Travel would receive 33 1/3%. Schlanger and Rickertsen submitted the new arrangement to the court for approval on October 2, 1985. The court set the matter down for a hearing on October 23, and when no party objected, the court approved it, in a written order, on October 24. 75 Neither Zweifel nor Lokey & Bowden received a copy of the October 24 order. Several weeks later, a member of the firm learned about it, and on January 13, 1986, Lokey & Bowden (1) moved the court to vacate the order, contending that it had not been given notice of the October 23 hearing--consequently, the order should not stand, and (2) objected to the court's confirmation of a plan that had been proposed for House of Travel's reorganization. Lokey & Bowden served a copy of its motion and its objection on Schlanger, as Pelletier's attorney, by hand the following day, January 14; the same day, the bankruptcy court scheduled a hearing on the matter for January 30, 1986. 76 Schlanger and Pelletier, realizing that the bankruptcy court might vacate the October 24 order and deny Pelletier permission to sue Zweifel and Lokey & Bowden in House of Travel's name, decided to sue them in Pelletier's name instead. Thus, on January 23, 1986, Schlanger, on behalf of Pelletier, filed a complaint against Zweifel and Lokey & Bowden in the Superior Court of Fulton County charging them with having breached a fiduciary duty they purportedly owed Pelletier. According to the complaint, Zweifel and Lokey & Bowden, as House of Travel's counsel, had a fiduciary duty to advance the best interests of [the company] and not to prefer the interest of one putative shareholder over that of another. Moreover, because [House of] Travel was a close corporation, the duties of Lokey & Bowden and Mr. Zweifel extended not only to the corporation as a whole, but to each of its shareholders. These attorneys, according to Schlanger's allegations, breached such duty by preferring the interests of Culpepper over those of Pelletier, to wit: Zweifel, after Pelletier had purchased the Hurst Group's House of Travel stock, advised Culpepper not to sign the management agreement that Culpepper had, prior to the purchase, told Pelletier that he would sign; Culpepper's refusal to sign the agreement caused Pelletier to suffer great injury--in particular, loss of shareholder equity and the litigation expenses Pelletier incurred in trying to resolve his dispute with Culpepper; Zweifel and Lokey & Bowden, in representing both Culpepper and House of Travel, had a conflict of interest and should have withdrawn; they did not, and instead, had Culpepper bring House of Travel to the bankruptcy court. 39 According to Pelletier, the conduct of Zweifel and his law firm injured him in an amount in excess of $1 million; he therefore sought compensatory damages in that amount. Pelletier also sought $2 million in punitive damages, alleging that the defendants intended to injure him. 77 On January 24, the day after this suit was filed, Schlanger served on Lokey & Bowden Pelletier's memorandum in opposition to Lokey & Bowden's motion to vacate the October 24 order of the bankruptcy court. At the same time, Schlanger furnished Zweifel and the law firm a courtesy copy of the complaint Pelletier had filed against them in the superior court the day before. 78 On January 30, the bankruptcy court convened the hearing on Lokey & Bowden's motion to vacate the October 24 order and its objection to the confirmation of the plan to reorganize House of Travel. Present at the hearing were, among others, Robert Bartlett, counsel for Lokey & Bowden, Zweifel, who was there as a party (representing Lokey & Bowden), Schlanger, and Rickertsen. The court first considered the motion to vacate. Bartlett informed the court of the suit Pelletier had brought against Zweifel and Lokey & Bowden on January 23. Reminding the court that the firm had filed a claim, as an unsecured creditor, against the debtor's (House of Travel's) estate, he said that if Pelletier insisted on going forward with his suit, the law firm would have to amend its claim to include whatever expenses and losses it, and Zweifel, sustained because of the litigation. According to House of Travel's bylaws, Bartlett explained, the law firm and Zweifel were entitled to indemnification for any losses they might suffer by reason of their representation of House of Travel. Bartlett therefore asked the court not to confirm the proposed plan of reorganization; rather, the court should defer its confirmation ruling until the law firm could decide whether an amendment of its unsecured claim would be necessary. When the court indicated that, even if it confirmed the plan, it would give Lokey & Bowden the right to file an amended claim later, Bartlett withdrew his objection to confirmation. On February 4, 1986, the court, in a written order, confirmed the proposed plan of reorganization, 40 without prejudice to Lokey & Bowden's and Zweifel's right to file an amended, unsecured creditor's claim in the event they suffered any loss at the hands of Pelletier. The court also vacated its October 24 order, which meant that Pelletier could not sue Zweifel and Lokey & Bowden in House of Travel's name. 79