Judge: Thomas D. Long, Case: BC579623, Date: 2022-08-25 Tentative Ruling

Case Number: BC579623    Hearing Date: August 25, 2022    Dept: 48

SUPERIOR COURT OF THE STATE OF CALIFORNIA

FOR THE COUNTY OF LOS ANGELES - CENTRAL DISTRICT

On September 27, 2017, the Court issued an order appointing Byron Z. Moldo as Receiver in this action.  On March 12, 2019, the Court entered judgment in favor of Plaintiff Leonard Schrage and against Defendants Michael Schrage and Joseph Schrage.

On September 2, 2021, the Court of Appeal reversed Leonard Schrage’s monetary judgment against Michael Schrage.  Remittitur issued on January 11, 2022.

On August 1, 2022, the Receiver filed a motion for an order authorizing him to retain Mitchell Silberberg & Knupp (“MSK”) as probate counsel nunc pro tunc.  Michael Schrage and non-party Alexis Schrage filed oppositions.

A receiver may not employ an attorney without the approval of the court.  (California Rules of Court, rule 3.1180.)  An application for approval to employ an attorney must state (1) the necessity for the employment; (2) the name of the attorney whom the receiver proposes to employ; and (3) that the attorney is not the attorney for, associated with, nor employed by an attorney for any party.  (Ibid.)

The Receiver was appointed as receiver for several entities who owned real property and operated automobile dealerships on the properties.  (Moldo Decl. ¶¶ 2-3.)  Joseph Schrage diverted funds from the entities in the receivership estate.  (Moldo Decl. ¶ 6.)  The Receiver seeks the return of those funds from Joseph Schrage’s estate.  (Moldo Decl. ¶ 6.)  Joseph Schrage died on May 10, 2019.  (Cutrow Decl. ¶ 5.)  The residue of his estate was transferred to the Joseph Schrage Revocable Trust (“Joseph Trust”).  (Cutrow Decl. ¶ 5.)  After the resignation of a successor trustee, on or about October 22, 2019, Alexis Taylor Schrage accepted the position of successor trustee.  (Cutrow Decl. ¶ 6.)  On March 16, 2021, Alexis Schrage was suspended as trustee for violating the Court’s order barring her from spending, distributing, or encumbering the Joseph Trust’s assets, and James W. Sullivan was appointed on April 22, 2021.  (Cutrow Decl. ¶¶ 7-8.)  Sullivan confirmed that millions of trust funds were spent.  (Cutrow Decl. ¶ 8.)

On February 10, 2022, the Receiver engaged MSK to assist in analyzing the status of the administration of the Estate and Joseph Trust, to assist with the valuation of the assets making up the Estate and Joseph Trust, and to protect and preserve the status of the Receiver as a creditor in the Estate and Joseph Trust.  (Motion at p. 8; Cutrow Decl. ¶ 9.)  MSK proposes that they also assist the Receiver in (1) making a specific claim regarding recovery of the assets that may have been transferred away from the Estate and Trust, including possible claims for potential conspiracy on the part of the Trustee and Executor with her various counsel and siblings to defraud the creditors of the Estate and Trust, and (2) seeking the appointment of an independent private professional fiduciary for the purposes of taking the lead in pursuing the claims against the former trustee and administrator for the wrongful conversion of Trust and Estate assets; the claim for the conspiracy by the administrator, trustee, the beneficiaries and their counsel to defraud creditors of the Estate and Trust; and to coordinate efforts among the other creditors having a claim against the Estate and Trust so that the pursuit of these claims is undertaken in the most efficient, effective, and economical manner.  (Cutrow Decl. ¶ 10.)  MSK is already familiar with the case, so the Receiver will not need to assist counsel with learning the lengthy and detailed facts of the case.  (Cutrow Decl. ¶ 13.)

Allan B. Cutrow of MSK declares that attorneys and paralegals at MSK bill at rates ranging from $370 to $1000 per hour, and paralegals bill at a rate of $190 to $450 per hour.  (Cutrow Decl. ¶ 11.)  MSK has already incurred fees of approximately $30,000.  (Cutrow Decl. ¶ 9.)  After the initial $30,000, new billing will be at fifty-percent the normal rates.  (Ibid.)  Any unbilled amounts, plus a bonus of twenty-percent, will be payable to MSK after the collection of at least fifty-percent of the amount outstanding on the Receiver’s claim against the Joseph Schrage Estate.  (Ibid.)  In no event will the amounts due to MSK exceed forty-percent of the total recovery by the Receivership Estate.  (Ibid.)

Michael Schrager argues that the Court should reject the Receiver’s request for nunc pro tunc relief six months after the Receiver engaged MSK.  (M. Schrager Opposition at pp. 2-3.)  Although the Receiver employed MSK before applying to the Court, that does not preclude MSK’s appointment after the fact.  “The fact that he may have hired the attorney prior to his application is not relevant.  A receiver may act without prior approval of court and have his acts subsequently ratified.”  (Maggiora v. Palo Alto Inn, Inc. (1967) 249 Cal.App.2d 706, 713.)

Michael Schrager and Alexis Schrager also argue that conflicts prevent MSK’s retention in this matter.  (M. Schrager Opposition at p. 6; A. Schrager Opposition at pp. 2-3.)  The Receiver acknowledges that MSK represented Leonard Schrage in connection with his claims against Joseph Schrage’s estate.  (Moldo Decl. ¶ 8; see Cutrow Decl., Ex. E.)  Both Leonard Schrage and the Receiver executed a conflict waiver in April 2022.  (Cutrow Decl. ¶ 13 & Ex. E.)

Based on the moving papers, it was not apparent that MSK was “not the attorney for, associated with, nor employed by an attorney for any party.”  (California Rules of Court, rule 3.1180.)  According to MSK, on September 10, 2019, it filed a petition on Leonard Schrage’s behalf seeking an order that Leonard Schrage could satisfy his judgment in this action directly from life insurance proceeds paid to the Joseph Trust.  (Cutrow Decl., Ex. E at p. 2.)  On February 1, 2021, MSK filed on Leonard Schrage’s behalf a petition to suspend Alexis Schrage as trustee of the Joseph Trust.  (Ibid.)  On May 20, 2021, that court entered judgment in Leonard Schrage’s favor on the basis of the judgment in this action.  (Ibid.)  The next day, Alexis Schrage filed a notice of appeal (“Trust Case Appeal”).  (Ibid.)  After the Court of Appeal reversed the monetary judgment in this action, Leonard Schrager no longer has a judgment to enforce against Joseph Schrage’s estate.  Accordingly, MSK represented in its April 2022 conflict waiver letter that its work for Leonard Schrager would end upon resolution of the Trust Case Appeal.  (Ibid.)  A portion of the Trust Case Appeal was already moot: the judgment entered in that case based on the judgment in this case.  But the issue of the petition to suspend Alexis Schrage as trustee was still active on appeal.  MSK stated that the appeal was fully briefed and not yet set for oral argument, and MSK would represent Leonard Schrager at oral argument.  (Ibid.)

In reply, the Receiver contends that MSK ceased representation of Leonard Schrager on May 20, 2022.  (Reply at p. 2.)  Andrew C. Spitser of MSK declares that on May 20, 2022, the Court of Appeal issued its opinion in the Trust Case Appeal, reversing the judgment.  (Spitser Decl. ¶ 3.)  Thereafter, MSK has not filed anything on behalf of Leonard Schrager.  (Ibid.)  However, this still means that MSK represented both the Receiver and Leonard Schrager from the Receiver’s February 10, 2022 retention through the May 20, 2022 appellate opinion.  This includes the period from February 10, 2022 through Leonard Schrager signing the conflict waiver letter on April 12, 2022.  (See Cutrow Decl., Ex. E.)  The Court will not ratify the unauthorized employment before waiver of the parties’ conflicts.  The Court also will not ratify the unauthorized post-conflict employment during the time when MSK represented another party.  (California Rules of Court, rule 3.1180.)

The motion is GRANTED IN PART, retroactive since May 21, 2022, following the end of MSK’s representation of Leonard Schrager.

Moving party to give notice.

Parties who intend to submit on this tentative must send an email to the Court at SMCDEPT48@lacourt.org indicating intention to submit.  Parties intending to appear are encouraged to appear remotely and should be prepared to comply with Dept. 48’s new requirement that those attending court in person wear a surgical or N95 or KN95 mask.

         Dated this 25th day of August 2022