EXCLUSIVE: Teresa Giudice’s Malpractice Suit Bombshell—Bankruptcy Attorney Speaks Out! Read Legal Motions Here #RHONJ

Good things come to those who wait. I am pleased to present All About the Tea readers with new developments and analysis regarding Teresa Giudice’s legal malpractice lawsuit against attorney James A. Kridel. 

In short, The Real Housewives of New Jersey cast member was involved in a seven-year criminal conspiracy before James Kridel represented her. Those crimes committed during the bankruptcy were in furtherance of her effort to conceal her crimes and income. Now, the Bankruptcy Trustee wants control of this “asset,” which changes the legal landscape as Teresa’s ability to pursue the malpractice case may come to a screeching halt.

Teresa Giudice admitted to criminal activity beginning in September 2001 to September 2008 to supply false and fraudulent information and documents to lending institutions that she knew would be relied on by those institutions, which caused financial losses. Teresa submitted false documents and made misrepresentations in connection with obtaining losses well before Mr. Kridel represented her. Teresa admittedly began committing the crimes for which she pled guilty before she and her husband Joe Giudice retained James Kridel to file for bankruptcy. She continued to commit these crimes in connection with the bankruptcy by failing to truthfully disclose assets.  The crimes committed during Teresa’s bankruptcy case were the result of her failure to disclose information and income that predated her bankruptcy petition, and her false testimony regarding her prior income.

The case law establishes that permitting one to collaterally attack a guilty plea without exoneration undermines the integrity of the guilty plea.  Legally speaking, Teresa wants to have her cake and eat it too: She seeks damages against Mr. Kridel for her crimes and conviction without challenging the criminal conviction/guilty plea.  On March 4, 2014, Plaintiff, with the assistance of her criminal law attorney, Harry E. Klingeman, Esq., signed an Application for Permission to Enter Plea of Guilty. Legal precedent illustrates that a plaintiff’s impeached guilty plea bars one’s recovery in a legal malpractice case against his/her former attorney.

As the transcripts and guilty plea make abundantly clear, Teresa unequivocally admitted her guilt.  She does not allege that she committed crimes because anyone (such as Mr. Kridel) told her it was legal to commit these crimes. What Teresa does contend in the Memorandum of Law In Opposition To Defendant Kridel’s Motion To Dismiss is that the malpractice occurred because Mr. Kridel did not find out about her lies prior to filing the petition.  That means the pre-petition claim would belong to the Bankruptcy Trustee. “A lot of acts took place before the petition was filed,” notes Mr. Kridel. That fact has significant legal implications.

Teresa Giudice’s Malpractice Suit: Plaintiff’s Memorandum of Law In Opposition To Defendant Kridel by All About The Tea

Teresa Giudice Malpractice Suit: Kridel’s Motion To Dismiss by All About The Tea

On April 29, 2016, John W. Sywilok, Esq. made a motion for an order reopening Teresa’s bankruptcy case. In Mr. Sywilok’s “Certification In Support of Motion For Order Reopening Case,” he explains that he has been advised that the debtor, Teresa Giudice, filed a legal malpractice action against her former bankruptcy attorney, James A. Kridel in the Superior Court of New Jersey in Morristown, New Jersey.  He further attests that he has reviewed the complaint filed by Teresa, which alleges that this legal malpractice claim arose prior to the filing of the petition in bankruptcy.  Mr. Sywilok contends, “The complaint among other allegations assert that this legal malpractice claim arose prior to the filing of the petition in bankruptcy.”  As a result, he requests that this case be reopened and the U.S. Trustee appoint a Chapter 7 Trustee.  Teresa was mailed this motion at her home address. What are the ramifications of such action for Teresa’s lawsuit against James Kridel?

Teresa Giudice Malpractice Suit: Certification In Support of Motion For Order Reopening Case by All About The Tea

Bankruptcy Code § 541 provides that upon commencement of a Chapter 7 proceeding all legal or equitable interests of the debtor (Teresa) in property as of the commencement of the case become assets of the bankruptcy estate. 11 U.S.C. § 541(a)(1).  Any interest in property that the estate acquires after the commencement of the case is estate property.  11 U.S.C. § 541(a)(7).

Moreover, a determination of the estate under § 541 signals a federal question and therefore it is the sole jurisdiction of the Bankruptcy Court.  Currently, the case sits in the Superior Court of New Jersey. To determine whether the malpractice suit is an asset of the estate, a state court judge cannot make that determination because only the Bankruptcy Court can decide this.   If you were on the receiving end of this lawsuit, would you rather be in Bankruptcy Court or state court?

The legal malpractice cause of action is an asset of the bankruptcy estate, since the events giving rise to it stem from the activities of the debtor pre-bankruptcy. The Giudice bankruptcy case was filed on October 29, 2009. On October 2, 2014, Teresa was sentenced to fifteen months imprisonment; supervised release for two years; a $8,000.00 fine; restitution of $414,588.90; and a special assessment of $400.00.

Mr. Sywilok requests that the case be reopened and a Chapter 7 Trustee be appointed for the Trustee to administer this legal malpractice “asset.”  The Chapter 7 Trustee is making this motion to reopen the bankruptcy case and in effect take over the legal malpractice case.

Because the alleged malpractice is rooted in pre-bankruptcy events, at the moment the bankruptcy case commenced, the proceeds are property of the estate.  Moreover, the Bankruptcy Court, and not the state court where Teresa originally brought her legal malpractice lawsuit, is perhaps the appropriate court to resolve this case.  Federal law governs whether an asset is property of the estate on the petition date. Southtrust Bank of Alabama v. Thomas (In re Thomas), 883 F.2d 991, 995 (1lth Cir.1989) (stating that whether an interest of the debtor is property of the estate is a federal question).

The assets of the bankruptcy estate include all legal or equitable interests of the debtor in property as of the commencement of the case. Legislative history states that the scope of this section is intended to be very broad.  The debtor’s (Teresa’s) cause of action involves legal representation that occurred pre-petition. The Bankruptcy Court would likely have jurisdiction of this malpractice case and civil proceeding under 28 U.S.C. § 1334(a) and (b), 28 U.S.C. § 157(a). This is in fact a core proceeding within the meaning of 28 U.S.C. § 157(b)(2)(A) as a matter concerning the administration of the estate and 28 U.S.C. § 157(b)(2)(E) to determine whether the proceeds are property of the estate.

The Trustee clearly has grounds to make this motion: Property of the estate includes causes of action that belong to the debtor. 11 U.S.C. § 5410)(1); Atanasov v. Brunswick Bank & Trust Co. (In re Atanasov), 221 B.R. 1 l 3, l16 (D.N.J. 1998). Where the events giving rise to a cause of action are rooted in the pre-bankruptcy activities of the debtor, that cause of action is an asset of the bankruptcy estate. Segal v. Rochelle, 382 U.S. 375, 379-80 (1966).  Any harm from the alleged legal malpractice was suffered by the estate before the debtor suffered any harm.

Any proceeds from the pending malpractice action will be delivered to the estate and may satisfy the remainder of creditors in this case. That means even if the estate wins and there is money to be distributed, Teresa would have no claim to said funds.  If the Trustee could establish that Mr. Kridel was negligent and committed malpractice, the Trustee would proceed to complete his administration of the case and file a final accounting, proposing to pay all remaining claims in full. Unfortunately for Teresa, there would unlikely be any surplus money left over for her.

The Chapter 7 Trustee will have to determine 1) the value of this asset and whether its liquidation will provide a meaningful payment to unsecured creditors in this case; 2) whether the retention of special counsel to the Trustee is required; 3) whether the Trustee should be substituted as Party Plaintiff in the State Court; and 4) what will be the cost of litigating this legal malpractice matter. 

James Kridel told me “Something unique is going to take the wind out of Teresa’s sails.”  Indeed he is correct if the court grants the Trustee’s motion and the Trustee goes through the above analysis and thereafter determines it is financially and legally specious to pursue this case against James Kridel as only the Trustee, and not Teresa, can bring the suit.  If the judge grants the motion, the only entity that can bring the instant action for legal malpractice is the Bankruptcy Trustee.  What do you think the likelihood is of that happening?

Practically speaking, if the judge approves the Trustee’s motion, Teresa doesn’t have standing to assert her legal malpractice claim against her bankruptcy attorney because the claims could be traced directly to pre-petition conduct. Teresa’s own claims somewhat sink her chances for success: Plaintiff alleges that Mr. Kridel did not investigate her untruthful claims sufficiently prior to filing for bankruptcy and had he done so he would have realized the extent of her untruthful statements and would not have filed a petition for bankruptcy. Notice that her legal malpractice case is based on admitting wrongdoing.

The motion to reopen the bankruptcy case is returnable May 24, 2016. Grab your gavel, join the conversation, and let us know what you think of these latest legal developments in the RHONJ legal malpractice suit.

 

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