Ohio litigation raises questions about ownership of Powell Law Group

By Jennifer Learn-Andes - jandes@timesleader.com | March 20th, 2016 8:00 am

Jill Moran and Robert Powell filed sworn affidavits in an Ohio court last October, testifying to their roles in the Powell Law Group.

She said she’s been the law firm’s sole managing director and president since on or before Aug. 31, 2009.

He said he hasn’t been a member, shareholder or director or had ownership or control over Powell Law since on or before August 2009.

But an August 2011 filing in the same Ohio litigation, containing “stipulated facts” agreed to by both sides, says Powell and Moran are both the “sole shareholders” of Powell Law Group. A September 2011 sworn affidavit from Moran in the Ohio matter also says she is “a partner” at Powell Law.

In a New York bankruptcy court deposition, also in 2011, Powell was asked if he was representing Powell Law at that time and responded, “I am,” court records show.

The contradictions illustrate the challenges lawyers are encountering pinning down the amount of money going to Powell — on the hook for a settlement in the “Kids for Cash” corruption case — as part of fees owed to his former law firm from an environmental lawsuit it previously filed, concerning widespread health issues allegedly caused by a former Avoca-area manufacturing operation.

Powell agreed to pay juveniles and parents between $4.75 million and $7.25 million, based on his net worth, if they dismissed him from their class action civil suit seeking damages in connection with the “Kids for Cash” scandal, which centered around a juvenile detention center kickback scheme linked to Powell, a local real estate developer and two Luzerne County judges.

Now, legal battles in an Ohio courtroom over attorney fees owed in the environmental litigation have shed light on the potentially massive windfall Powell may net, including a new revelation that Powell and Moran, a local attorney, already have obtained a line of credit using anticipated proceeds from the Avoca lawsuit as collateral.

“We are aware of all the situations in Ohio,” said Philadelphia-based Attorney Sol H. Weiss, one of several lawyers representing juveniles and their parents in the “Kids for Cash” civil suit. “We’re going to find out Mr. Powell’s net worth by the end of the year.”

Fee diversion

In the Ohio litigation, attorneys from two Philadelphia-based firms are seeking a portion of the estimated $125.7 million in payments from the environmental lawsuit that have been earmarked for Powell Law Group. The court proceedings are taking place in Cincinnati because it is home to Garretson Resolution Group Inc., the firm appointed to oversee a trust paying out claims to the Avoca plaintiffs.

Montgomery, McCracken, Walker & Rhoades LLP says it is owed $2.9 million for its work on the Avoca litigation after Powell got in trouble as part of the corruption probe. Attorney Richard A. Sprague, of Sprague and Sprague, says Powell and his wife also owe Sprague $169,431.76 for his past legal representation.

According to recent pretrial filings by the Montgomery firm:

Powell Law opted to “divert” its Avoca attorney fees from the trust through a May 6, 2015, irrevocable payment instruction.

Legal fees that normally would flow from the trust to Powell Law instead are directed to a bank account for the lender that extended Powell Law a line of credit collateralized by the firm’s Avoca legal fees.

Powell Law and Robert Powell have been able to draw on that line of credit since at least May 29, 2014, when the firm executed an original irrevocable payment instruction that was replaced by the May 2015 one.

Moran confirmed Powell Law has drawn on the line of credit to pay its expenses, including her salary.

“Robert Powell confirmed that he has personally benefited from payments from the line of credit but refused to testify as to the amount of money drawn by him or on his behalf,” one Montgomery filing says.

The trust had accumulated around $98.1 million in legal fees earmarked for Powell Law as of Jan. 28, with more to come as Garretson continues its claims processing. That sum was scheduled for automatic release last Tuesday, but it’s unclear if the trust sent the $98.1 million to the bank account specified in Powell Law’s payment instruction, the Montgomery filings said.

Joseph Bruemmer, Garretson’s associate general counsel and compliance officer, said Friday that he cannot comment on the status of the release due to the pending litigation.

Bruemmer stressed the $98.1 million is solely legal fees — not settlement awards to the 4,400 Avoca suit participants as compensation for harm from exposure to creosote oil from the former Kerr-McGee Corp. railroad tie manufacturing facility in Avoca.

Uniform Commercial Code filings show Powell Law’s May 2014 loan was through New York City-based Fortress Credit Corp., with Moran, Powell, Chris Diamantis, Perry Weitz, Arthur Luxenberg and Joseph DiNardo as loan guarantors.

Weitz & Luxenberg, a New York City firm known for asbestos-related litigation, has been serving as co-counsel with Powell Law in the Avoca settlement close-out and efforts to revive a 2005 Avoca suit in Luzerne County court seeking additional recoveries for the Avoca plaintiffs.

Diamantis, Weitz, Luxenberg and DiNardo also are on the executive team or board of directors of Counsel Financial, a Williamsville, New York, entity that helps finance litigation, although it’s unclear if Counsel Financial was involved in this transaction.

Another UCC filing shows Powell Law’s May 2015 borrowing was through Fox, Swibel, Levin & Carroll LLP, in Chicago, but the guarantors in that transaction were not made public.

Ownership questions

Sprague’s pretrial filing says Powell will receive 90 percent of Powell Law’s Avoca receipts, with the other 10 percent going to Moran.

He said he will call both Moran and Powell as witnesses at the March 30 trial in Ohio to testify about this 90/10 split agreement.

Powell Law has argued Sprague has no legal authority to receive payments owed to Powell Law because his claim involved legal work for Powell and his wife, not the law firm.

Sprague has argued there is an “abundance of evidence that Robert Powell and Powell Law Group are one and the same,” alleging Powell continues to make decisions on behalf of the firm.

Sprague’s pretrial filing said he intends to question Powell on the stand about Powell’s claims that he has had no ownership interest in Powell Law since he relinquished his attorney’s license in August 2009. He expects Powell to testify that he received and initiated calls and emails with Garretson about the Avoca litigation after August 2009, Sprague’s filing said.

Amount of loan

The Ohio filings don’t cite the dollar amount of any advance loans obtained by Powell Law Group, but that subject came up in another unrelated civil racketeering suit Gregory R. Zappala had filed against Powell and others over the alleged plundering of millions from their jointly owned juvenile detention centers.

In an October 2014 transcript of a teleconference in the Zappala suit, which was later settled, Zappala’s attorney told the judge Powell Law had monetized more than $100 million of the Avoca legal fees through the loan from Fortress.

Zappala’s attorney, Bernard M. Schneider, said the Avoca fees had been used to “fully collateralize the $100 million loan from Fortress to the Powell Law Group through the DiNardo law firm and to the Weitz & Luxenberg firm,” the transcript said.

Schneider told the judge about fears “that money would be used or taken out of the country” or that the Fortress loan and transfers of money were “set up in order to make Mr. Powell judgment proof against the juveniles who are suing him in Luzerne County.”

“We think he’s really trying to scam them, and we just happened to get caught up in it, and we are the ones who have maybe interfered with that plan,” Schneider said in the transcript.

The attorney representing Powell said “those other law firms have earned fees” and are “entitled to their fees.”

Schneider also noted the Internal Revenue Service would be entitled to a percentage of the Avoca legal fees.

Powell defense

The Powell Law Group disputed Montgomery’s previous depiction of Powell Law’s $125 million Avoca receipt as “truly incredible” in magnitude, according to an Ohio filing last week.

Powell Law said its contingency fee will be split three ways among Powell Law Group and two other firms, not naming them.

Powell Law entered into agreements to retain Weitz & Luxenberg in 2012, according to a Luzerne County court filing related to approval of the Avoca payments. Powell Law sent a letter to each Avoca plaintiff in March 2014 informing them it had retained and would be sharing its fees with Weitz & Luxenberg, and no plaintiffs objected, the filing said.

The agreement with the Avoca class-action suit participants gave Powell Law 40 percent of their recovered damages, plus reimbursement for other expenses.

In the Ohio filing, Powell Law alleged the Montgomery firm “magnifies” its role in the Avoca litigation to claim credit for a share of the settlement, saying the firm “had nothing to do” with trial work handled by Powell Law that resulted in the recovery.

The filing details the time, money and efforts Powell Law invested to get the litigation off the ground, including more than $5 million for discovery and numerous experts.

The Montgomery firm has pointed to its agreement with Powell Law entitling it to receive 1 percent of the recovery for its work handling the Avoca litigation and has said the ultimate settlement far exceeding original estimates was evidence of its “exceptional work.”

Montgomery also stressed earlier this month that Powell Law already had received $3 million from the Avoca trust in 2011 as partial advance reimbursement for its fees and costs, and Powell Law’s claimed expenses to Garretson at that time included $1.59 million for legal services provided by Montgomery, even though that bill was never paid.

Kids for Cash

Weiss, of Anapol Weiss, said he and others involved in the juvenile class action suit were fully aware Powell was slated to receive proceeds from the Avoca litigation when the settlement was negotiated.

“We also understood he had some other payment obligations,” Weiss said.

His concern was locking in a fair settlement for the nearly 1,200 juveniles and 600 parents who filed claims to receive settlement money, even if Powell ends up with a sizable profit from the Avoca fees after the settlement is resolved, he said.

“The settlement is fair for the children and that was our primary concern,” Weiss said.

No plaintiffs objected to the settlement, according to a court filing shortly before the settlement was approved.

“Despite the parties’ strong belief in their respective positions, the parties recognized that there were substantial uncertainties and significant litigation costs with respect to the actions and their potential outcomes if they were taken to trial,” said the filing seeking court approval for the settlement.

The settlement approved by U.S. District Court Judge A. Richard Caputo in December contains detailed provisions for calculating Powell’s payment.

Within 30 days of Dec. 21, Powell must provide an evaluation of his net worth. An independent consultant will be called in to calculate and issue a binding determination of net worth if the plaintiffs dispute Powell’s calculation within 10 business days.

The consultant must examine and value Powell’s assets and liabilities according to financial accounting standards, excluding Powell’s principal residence and any personal property that’s worth less than $5,000. Powell moved into a Palm Beach Gardens, Florida, mansion after he finished serving an 18-month prison sentence in connection with the “Kids for Cash” criminal case, court filings say.

Powell must provide all documentation the consultant “reasonably” requests for the calculation, on the condition that they agree in writing the documentation won’t be disclosed to suit filers or anyone else without Powell’s permission and will be destroyed or returned to him after the consultant issues a report.

Powell must pay the maximum $7.5 million if his net worth exceeds $19.9 million, the agreement said.

“Kids for Cash” civil suit defendant Robert Mericle, whose company built the detention centers, settled for $17.75 million, and the companies that owned the detention centers agreed to a $2.5 million settlement.

“If my math is correct, we will end up with $27.75 million total for the juveniles. That is fair compensation for juveniles harmed by this awful travesty in Luzerne County,” Weiss said. “I just want to protect our kids.”

Former attorney’s wealth comes under scrutiny

By Jennifer Learn-Andes


Reach Jennifer Learn-Andes at 570-991-6388 or on Twitter @TLJenLearnAndes.