Lerner Master Fund, LLC v. Paige (In re Paige)

476 B.R. 867
CourtUnited States Bankruptcy Court, W.D. Pennsylvania
DecidedAugust 1, 2012
DocketBankruptcy No. 5-11-bk-05957-JJT; Adversary No. 5-12-ap-00067-JJT
StatusPublished
Cited by2 cases

This text of 476 B.R. 867 (Lerner Master Fund, LLC v. Paige (In re Paige)) is published on Counsel Stack Legal Research, covering United States Bankruptcy Court, W.D. Pennsylvania primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Lerner Master Fund, LLC v. Paige (In re Paige), 476 B.R. 867 (Pa. 2012).

Opinion

OPINION1

JOHN J. THOMAS, Bankruptcy Judge.

Michele and Christopher Paige filed Chapter 7 bankruptcy on August 29, 2011. Prior to the bankruptcy, under legal counsel of Christopher, Michelle Paige2 managed a young hedge fund that Lerner Master Fund, LLC (hereinafter “LMF”)3, as the fund’s sole investor, entrusted 40 million dollars. The contractual relationship between Michelle Paige and LMF was defined by two distinct documents. One contract, the seeder agreement4, seemingly permitted immediate withdrawals of capital at the end of a three-year lockup period, while a general contract ostensibly applying to all the firm’s investors (the partnership agreement) gave Ms. Paige the discretion to postpone withdrawals that would sap the fund of at least 20% of its current value (the so called “gate provision”). At the end of the three-year period, LMF requested the return of its entire investment but Ms. Paige refused. The Paiges then sued LMF in the Delaware Court of Chancery seeking a declaratory judgment that the partnership agreement allowed them to restrict LMF’s ability to withdraw all of its capital. LMF countersued for breach of contract, breach of fiduciary duty, and a declaratory judgment to enforce the LMF right to withdraw its entire investment.

Agreeing with LMF, the Delaware court found Ms. Paige liable for breach of contract. Because Michelle Paige’s actions were aimed at maximizing her own management fees at the expense of the fund’s only major investor, she was also found liable for breach of fiduciary duty. However, the court dismissed a number of LMF’s claims against Mr. Paige without prejudice.

Several days after the issuance of the judgment, the Paiges filed for Chapter 7 bankruptcy in this Court. The initial § 341 creditors’ meeting was rescheduled, [870]*870and five days prior to the deadline to file a complaint challenging the dischargeability of the Paiges’ debt, LMF filed a Motion to Extend the filing deadline. The Paiges initially objected to the extension, but the attorneys for both parties signed a joint stipulation giving LMF a five day extension from the date of this Court’s disposition of LMF’s Motion to Extend the filing deadline. Shortly thereafter, the Paiges’ attorney withdrew from the case and LMF filed its dischargeability complaint. The Paiges dispute that they provided their attorney the authority to make any such stipulation, concluding that the deadline extension agreement is not binding on them.

The courts recognize three types of attorney authority, i.e., express, implied, and apparent authority. Tiernan v. Devoe, 923 F.2d 1024, 1037 (3d Cir.1991). Express authority will be found when a client gives his attorney explicit instructions regarding an action, and therefore binds himself by the attorney’s compliance. See Tiernan, 923 F.2d at 1033. Express authority is required for an attorney to settle a cause of action on behalf of a client. See Tiernan v. Devoe, 923 F.2d at 1034; Edwards v. Born, Inc., 792 F.2d 387, 389 (3d Cir.1986); Thomas v. Colorado Trust Deed Funds, Inc., 366 F.2d 136, 139 (10th Cir.1966). Merely retaining a lawyer will not suffice for express authority; there must be some affirmative action taken by the client conferring that authority. See Tiernan, 923 F.2d at 1034 (requiring conduct by the client); Freeman v. McCarthy (In re Gsand), 153 F.2d 1001, 1006 (3d Cir.1946). For matters that are distinguished from the cause of action itself, however, such as stipulations and agreements of procedure, attorney authority may initially be presumed. See In re Gsand, 153 F.2d 1001, 1005 (3d Cir.1946) (quoting Cole v. National Casket Co. Inc., 101 Pa.Super. 207 (1931)); Archbishop v. Karlak, 450 Pa. 535, 299 A.2d 294, 297 (1973) (quoting Standard Pennsylvania Practice, vol. 1, Chap. 2 § 214 for implied authority); Starling v. W. Erie Ave. Bldg. & Loan Ass’n, 333 Pa. 124, 3 A.2d 387, 388 (1939)(stating implied and apparent authority attach to the attorney’s broad powers for handling matters that are incidental to the cause of action). However, this presumption can be rebutted by factual evidence that the client would have objected to the attorney’s conduct. See Garabedian v. Allstates Eng’g Co., 811 F.2d 802, 803 (3d Cir.1987).

Implied authority will be found when there are written or spoken words or other conduct by the client that justify an inference that an attorney may act on his client’s behalf. See Tiernan, 923 F.2d at 1034; Tucker v. Tucker, 370 Pa. 8, 87 A.2d 650, 656 (1952). In Tucker, for instance, a client’s deference to his attorney’s prior performance concerning the logistics of a sale created implied authority for the attorney to handle related matters in the future.

In matters concerning the management of the litigation, implied authority is initially presumed for the sake of judicial efficiency; an attorney may typically enter into procedural stipulations and agreements. See City of Philadelphia v. Schofield, 375 Pa. 554, 101 A.2d 625, 627 (1954); Grocery & Food Warehousemen Local Union No. 6S5 v. Kroger Co., 364 Pa. 195, 70 A.2d 218, 219 (1950); see generally, In re Gsand, 153 F.2d 1001, 1005 (quoting Starling, 333 Pa. 124, 3 A.2d 387, regarding general powers of attorney during litigation); Barber-Coleman Co. v. Magnano Corp., 299 F. 401 (1st Cir.1924). In Kroger, implied authority was found where attorneys of both parties stipulated in writing to a modified litigation procedure. The court held that an attorney had implied [871]*871authority to enter into stipulations and agreements regarding procedural matters, and a client was bound by the attorney’s action when the client continued with the proceedings.

Apparent authority is demonstrated through a client’s manifestations to a third party that the client’s attorney has the authority to act on the client’s behalf. See Tiernan v. Devoe, 923 F.2d at 1034; Fennell v. TLB Kent Co., 865 F.2d 498, 502 (2d Cir.1989); Swartz v. D. S. Morgan & Co., 163 Pa. 195, 29 A. 974, 975 (1894). A positive action or direct communication by the client to the third party must be shown. See Fennell, 865 F.2d at 502; see also Edwards v. Born, Inc.,

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Cite This Page — Counsel Stack

Bluebook (online)
476 B.R. 867, Counsel Stack Legal Research, https://law.counselstack.com/opinion/lerner-master-fund-llc-v-paige-in-re-paige-pawb-2012.