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Roach v. Verterano

United States District Court, W.D. Pennsylvania

February 17, 2015



ROBERT C. MITCHELL, Magistrate Judge.


Presently before the Court is Defendants' Frank Verterano and Verterano & Manolis' Motion to Dismiss Plaintiffs' complaint pursuant to Federal Rule of Civil Procedure 12(b)(6) and/or Motion for Summary Judgment pursuant to Federal Rule of Civil Procedure 56. For the following reasons, Defendants' Motion to Dismiss is granted and Plaintiffs' Complaint is dismissed with prejudice.


The instant action arises from a legal malpractice claim by Plaintiffs, Michelle Roach ("Plaintiff Roach") and Charles O. Zebley ("Trustee Zebley") against attorney Frank Verterano ("Attorney Verterano") and his law firm, Verterano & Manolis alleging damages arising from a claimed business loss of Plaintiff Roach's business, GRL Packaging, LLC ("GRL") and a denial of discharge to Plaintiff Roach in her personal bankruptcy proceedings.

Plaintiff Roach hired Attorney Verterano and his law firm to represent her with legal matters involving the sale of her personal residence, which was over-collateralized, and a personal discharge in bankruptcy for any remaining balances on the mortgages on the property and any other unsecured debt she had incurred to enable her to continue operating her packaging brokerage company, GRL Packaging, LLC. Plaintiff Roach was president and sole shareholder of GRL and operated the company from her personal residence.[2]

In or about July 2012, Attorney Verterano advised Plaintiff Roach to file two bankruptcy petitions under Chapter 7 of the Bankruptcy Code, one on behalf of herself, and one on behalf of GRL. He advised that it was legal to continue conducting the corporate business of GRL after a Chapter 7 bankruptcy petition had been filed, GRL could retain all of its assets and that GRL's corporate debts would be discharged at the conclusion of the bankruptcy. On or about July 12, 2012, Plaintiff Roach emailed Attorney Verterano to confirm that she could continue to operate GRL after the Chapter 7 bankruptcy was filed on its behalf and that she did not have to discontinue her business operations permanently. Attorney Verterano responded on July 31, 2012 confirming that she was filing both a personal and business Chapter 7 bankruptcy, that filing the business Chapter 7 bankruptcy would not result in shutting down GRL and that business transactions would be treated "as if the petition was not filed." Comp. [ECF No. 1] at ¶ 11. He also advised her that GRL's debt obligation to PNC Bank, the only corporate debt, would be discharged as to GRL and as to her personally and the discharge would be forever and final.

On or about October 31, 2012, Attorney Verterano filed Chapter 7 bankruptcy petitions in the United States Bankruptcy Court for the Western District of Pennsylvania on behalf of Plaintiff Roach and on behalf of GRL. Attorney Verterano listed GRL's bank account as having a balance of $187.60 on the schedules when Plaintiff Roach informed him that the bank account had a balance of $24, 000.00 at the time the petition was filed. Attorney Verterano did not claim any corporate assets to be exempt under Schedule C of the GRL bankruptcy, but advised Plaintiff Roach to continue using those assets after the bankruptcy was filed. Upon her attorney's advice, Plaintiff Roach continued operating GRL and transferred funds from the GRL corporate account to pay creditors and draw living expenses for herself.

On or about November 6, 2012, Plaintiff Charles O. Zebley, ("Trustee Zebley") who had been appointed as trustee in both the Roach and the GRL bankruptcies, contacted Attorney Verterano and instructed him to have Plaintiff Roach remit $1, 500.00 representing the "cash" Attorney Verterano listed on the corporate bankruptcy petition. Plaintiff Roach remitted the $1, 500.00 to Trustee Zebley. In an email exchange between Plaintiff Roach and Attorney Verterano, Plaintiff inquired whether she would need more money for the Meeting of Creditors ("MOC"), to which Attorney Verterano replied that she would not need additional money for the MOC.

The MOC was held on December 28, 2012 before Trustee Zebley for both the Roach and the GRL bankruptcies. During the meeting, Attorney Verterano informed Trustee Zebley that the purpose of the GRL bankruptcy was to discharge corporate debt. Trustee Zebley informed Attorney Verterano that corporate debt is not discharged in a corporate bankruptcy and demanded that the balances in the corporate bank accounts, listed as $187.60 and $223.86 to be turned over to him. Attorney Verterano informed Trustee Zebley that those amounts were no longer in the accounts, as GRL had continued conducting business after the Chapter 7 bankruptcy petition had been filed on October 31, 2012. Trustee Zebley informed Plaintiff Roach that it was illegal to continue to operate a corporation after filing a Chapter 7 bankruptcy and ordered Plaintiff Roach to immediately cease doing business and turn over all corporate assets and to provide an accurate accounting of the corporate bank account as of October 31, 2012, to account for all accounts receivable due to the corporation as of that day and to account for any possible preferential transfers. Attorney Verterano responded that it was his fault that the corporate bankruptcy was filed because he assumed that the corporation could remain in business after filing bankruptcy and stated that he would pay for any damage done as a result of this error. Further, he informed Trustee Zebley that he would file a "Motion to Withdraw" the corporate bankruptcy. At the conclusion of the meeting, the parties and Trustee Zebley agreed that GRL would immediately cease doing business and that Attorney Verterano would file amended schedules accounting for the corporate assets as of October 31, 2012.

In January 2013, the GRL bankruptcy schedules were amended to accurately reflect the corporate assets of GRL as of October 31, 2012. Plaintiff Roach began to establish a new corporation in Arizona and ceased conducting all business activities involving GRL. On January 13, 2013, Attorney Verterano advised Plaintiff Roach to continue conducting business as GRL because he was going to file a motion to dismiss the GRL bankruptcy. He also informed her that using receivables from GRL to fund another business constituted a criminal and fraudulent act. On January 25, 2013, Attorney Verterano filed a motion to dismiss case in the GRL bankruptcy.

On February 22, 2013, Trustee Zebley reconvened the Meeting of Creditors on the GRL bankruptcy. Trustee Zebley noted that the schedules had been amended to show a balance of $22, 858.18 in the GRL bank accounts on October 31, 2012 and the accounts receivable and potential preferential transfers had been accounted for. Trustee Zebley noted that he had told Plaintiff Roach to shut down GRL and how to do it. Plaintiff Roach responded that she was in the process of shutting down GRL and opening a new business, and testified that Attorney Verterano advised her that it would be a criminal or fraudulent act to use the accounts receivable from GRL to fund a new business and that she should continue to operate GRL, as the GRL bankruptcy was going to be dismissed. Attorney Verterano confirmed that this was accurate. Trustee Zebley instructed Plaintiff Roach to remit all of the GRL assets to him. Attorney Verterano replied that he filed a petition to withdraw the GRL bankruptcy and did in fact file a motion to dismiss the bankruptcy petition.

On March 4, 2013, Attorney Verterano filed a motion to withdraw his motion to dismiss. On March 6, 2014, one of the creditors, PNC Bank, filed an amended complaint to determine dischargeability against Plaintiff Roach. On April 23, 2013, Attorney Verterano filed motions to withdraw as counsel on Plaintiff Roach's personal and the GRL bankruptcies. On February 26, 2014, a trial was held on PNC's amended complaint.

On May 12, 2014, the Bankruptcy Court issued a decision as to PNC's amended complaint and determined that Plaintiff possessed the requisite intent to hinder, delay or defraud a creditor or an officer of the estate in utilizing and/or transferring funds from the corporate accounts post-petition in violation of 11 U.S.C. § 727(a)(2)(B) and (a)(7).[3] The Bankruptcy Court ultimately denied Plaintiff's discharge for her bad ...

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