U.S. Bankruptcy Court for the Southern District of New York

Jeffrey Liddle, a New York employment lawyer who filed for bankruptcy this year, prevailed in a dispute with law firm lender Counsel Financial over the security interest it claimed to have in the sale proceeds of Liddle's co-op.

But several other disputes remain in Liddle's Chapter 11 case, filed in March when he reported that creditors were pursuing him for more than $10 million. In July, his own firm, Liddle & Robinson, filed for Chapter 11 bankruptcy protection.

Liddle is the only partner remaining at Liddle & Robinson, known for representing white-collar professionals in suits against their employers. The firm continues to function. Liddle has said it has about 35 cases in its portfolio. In 2018, according to its bankruptcy papers, its revenues were about $2 million. That's down from about $5 million the year before.

In a decision posted Friday, U.S. Bankruptcy Judge Sean Lane of the Southern District of New Yotk rejected law firm lender Counsel Financial's claim to have a perfected security interest in Liddle's $1.1 million share of the sale proceeds of a co-op apartment he and his wife owned.

The decision does not appear to have a practical effect, as Liddle was given permission in April to use the funds to operate his law firm business and make personal outlays according to an approved budget. Counsel Financial still has other avenues to try to recover what remains outstanding of the $7 million it says it has loaned Liddle's firm.

Jeffrey Liddle. Courtesy photo

An affiliate called Counsel Financial II, which sued Liddle in Erie County Supreme Court before he filed for bankruptcy, argued that its loan was secured because it had "possession" of the sale proceeds under Section 9-133 of the New York Uniform Commercial Code. It said that Liddle's lawyer Diane Nardone, who was holding the money in escrow under the terms of an agreed-upon order in Erie County, did so for CFII's benefit.

But Lane said that wasn't the case.

"CFII contends that by appointing Nardone to act as escrow agent, the stipulated order essentially made Nardone CFII's agent and perfected CFII's security interest in the cash proceeds once Nardone took possession of the funds," the judge wrote. "But Nardone was holding the sale proceeds as an agent of the debtor, not for CFII. That is, in fact, exactly what the stipulated order says."

Liddle had argued that the security interest hadn't been perfected because an attachment order entered by the Erie County court hadn't been filed with a sheriff. Counsel Financial ultimately didn't argue that the attachment order was the basis for its perfected security interest, however.

While Liddle won out in Friday's decision, many issues remain to be hashed out in his Chapter 11 case and that of Liddle & Robinson.

In addition to going after Liddle's share of the coop sale proceeds, Counsel Financial has gone after the 50% of the proceeds received by his wife, who has filed an adversary proceeding against the lender.

Meanwhile, Liddle's firm has sought to query former partner Blaine Bortnick, who is now at the firm Rasco Klock, a firm with offices in Miami and New York that lists 16 lawyers on its website, about any communications or deals he might have struck with Counsel Financial. Liddle has said in court papers Bortnick purportedly settled with the lender, but no details have been provided. Bortnick didn't respond to comment requests.

David Wander, a lawyer at Davidoff Hutcher & Citron who represents Counsel Financial, said "as a practical matter, [the decision] doesn't really change things," saying his client had assented to Liddle's use of the collateral pursuant to court-approved budgets.

"The big issue is the law firm bankruptcy," he said. "That's where the main collateral and the main asset [is]." Wander asserted that his client has a lien on the firm's cases and the cash collateral.

Alison Bauer, a lawyer for Liddle at Foley Hoag, didn't respond to a comment request and Liddle declined to comment.

Counsel Financial didn't immediately respond to a comment request.