Florida-based asbestos litigation law firm Kelley & Ferraro LLP has filed for Chapter 11 bankruptcy seeking reprieve from an Ohio appeals court's ruling that the law firm must be dissolved as part of an agreement with the firm's deceased partner and co-founder Michael Kelley.
On January 26, Kelley & Ferraro filed for bankruptcy in the U.S. Bankruptcy Court of Southern District of Florida in Miami to resolve the nearly 5-year-old civil litigation pending against the firm. The filing has forced an indefinite postponement of the hearing in Cleveland before Common Pleas Judge Nancy Fuerst.
The bankruptcy filing stems from a battle between Lynn Arko Kelley, widow of firm co-founder Kelley, also known as 'King of Torts,' and his former law partner and friend, James Ferraro.
Kelley died in 2006 due to a sudden heart attack and Lynn tried to replace her husband as partner. However, Lynn's move was rebuffed and she sued Ferraro demanding dissolution of the law firm and division of the assets, including private jets and the Cleveland Gladiators arena football team, to honor the partnership agreement between her late husband and Ferraro.
According to Lynn's lawyer, Bill Wuliger, the agreement requires 40 percent of the firm's revenues to be paid to the Kelley estate. Lynn, Wuliger said, is owed at least $35 million but has so far received only a couple of hundred thousand dollars to date. The agreement also requires dissolution of the law firm and division of the assets.
In 2006, Lynn faced off against Ferraro in a three-week trial in Common Pleas Court in Cuyahoga County where she alleged Ferraro was not honoring the agreement. At that time, a jury awarded the widow $4.25 million - a fraction of the $35 million she had sought.
Lynn appealed the decision to the Eighth Ohio District Court of Appeals, contending there were errors before, during and after the trial. Last June she received a favorable order from the appeals court that the partnership agreement between Kelley and Ferraro should have been honored after Kelley died.
The appeals court overturned the lower court's verdict and said the law firm must be dissolved, as provided for in the original partnership agreement.
It also ordered a new trial regarding the damages Kelley suffered, if any, as a result of Ferraro's breach of contractual and fiduciary duties.
The appeals court ruled that the original partnership agreement ought to be honored as the agreement wasn't revised to reflect changes in the composition of its partnership roster.
The plain language of the agreement required Ferraro to treat Michael Kelley's death as an event triggering the dissolution and winding up of the K&F partnership, the appeals court ruled.
The Ohio Supreme Court has approved the appeals court's ruling.
According to Kelley & Ferraro partner Tom Wilson, the firm has filed for bankruptcy protection from creditors to protect the interest of its 30,000-odd clients.
The bankruptcy filing names Kelley & Ferraro as creditors. It estimated the firm's assets and liabilities each at more than $1 million, up to $10 million. There should be funds available for distribution to unsecured creditors, the filing indicated.
In an interview with Cleveland.com, Ferraro said the Chapter 11 filing will allow the firm to reorganize and not dissolve.
Unfortunately, $35 million would have left us totally insolvent. Dissolving the firm would be total suicide for everyone, Ferraro said.
The bankruptcy filing, he said, will help everyone live happily ever after. Kelley & Ferraro is being represented by White & Case LLP.
Wuliger, however, said the Chapter 11 filing doesn't concern his client as it is Ferraro's responsibility to pay Kelley and not the law firm. This was a contract between two people, not Michael Kelley and the law firm, he said.