Wimbledon Financing Master Fund LTD. v. Bienert Miller & Katzman, PLC

Background

Wimbledon held an approximately $8.5 million money judgment against David Bergstein and others. After Wimbledon served restraining notices barring Bergstein and Graybox LLC from transferring property in which they had an interest, Bergstein and his lawyer, Steven J. Katzman, negotiated a settlement with another creditor, The Wimbledon Fund, SPC, referred to as Class TT. The settlement involved a $2.412 million payment and a later $5 million payment.

The defendants facilitated the $2.412 million transfer. A New York state court later found Katzman, Bienert Miller & Katzman, PLC (BMK), Bergstein, and Graybox in civil contempt and ordered payment of Wimbledon’s attorneys’ fees and related costs. The state court did not order Katzman and BMK to pay Wimbledon the $2.412 million itself. In the earlier federal proceedings, this Court granted the defendants summary judgment on claims arising from that transfer because the state-court proceeding precluded those claims.

The current opinion concerned only the $5 million transfer. The Court had already determined that the defendants owed Wimbledon a duty not to assist Bergstein in violating the restraining notices and that their participation in the $5 million transfer breached that duty. The remaining issues in this round were causation and, later, damages.

Causation ruling

Under New York negligence law, causation includes cause-in-fact and proximate cause. The Court concluded that, in this restraining-notice setting, causation required Wimbledon to show that the defendants’ transfer of restrained funds had the potential to cause, and actually caused, some injury. Wimbledon did not have to prove at the causation stage that it necessarily would have recovered all or part of the $5 million if the defendants had not violated the notices.

The Court treated questions about the relative priority of Wimbledon, Class TT, and other creditors—and whether Wimbledon ultimately would have been entitled to some or all of the money—as damages questions. The defendants had not shown that Class TT had an undisputedly superior interest, that Bergstein retained enough funds to satisfy Wimbledon’s judgment, or that the transfer caused no injury. The Court also rejected reliance on speculation that Xanadu had enough money to satisfy Wimbledon’s judgment after the transfer.

Applying these principles, the Court found that Wimbledon properly served the restraining notices, the defendants knew about them, the defendants knowingly and willfully participated in transferring $5 million in which Bergstein had an interest, and the transfer left Wimbledon unable to recover that money or any portion of it from Bergstein. The Court held that these undisputed facts established causation for both the negligence and gross-negligence claims.

Motion to strike

Wimbledon moved to strike the defendants’ argument that the government had a superior interest in the funds because of a later forfeiture order. The Court denied the motion as moot because the government-interest argument did not affect the causation issue; later changes in priority belonged to the damages analysis.

Disposition and next steps

The Court granted Wimbledon’s motion for summary judgment on the causation element of its claims based on the $5 million transfer and denied the defendants’ cross-motion on that issue. The Court denied as moot Wimbledon’s motion to strike. It directed the parties to conduct limited discovery about intervening events relevant to the amount of damages, including payments Wimbledon may have received and agreements involving Wimbledon and Class TT. After that discovery, the Court planned further briefing on damages, including creditor priority, recoveries, mitigation, and equitable considerations. The Court did not determine the amount of damages in this opinion.