Lawyers allege firm wrongly urged elderly couple to pursue doomed fraud claims
By Phillip Bantz
The Daily Record Newswire
COLUMBIA, SC — Two South Carolina lawyers are trading barbs with a New York attorney over his hourly fee agreement with an elderly Greenville County couple in a case that ultimately was dismissed for being time-barred – leaving the clients with a $5 million legal bill.
Eric Bland and Ronnie Richter allege that Blair Fensterstock, managing partner of Fensterstock & Partners, which is a stone’s throw from Wall Street, wrongly urged Robert and Veronica Nitsch to pursue doomed claims in 2012 that were connected to corporate fraud allegations rooted in activities that occurred in the 1960s and 1980s.
A judge dismissed the Nitsches’ claims last fall based on a finding that the three-year statute of limitations had expired. The couple has paid nearly $4 million in legal fees to Fensterstock and his New York co-counsel, Eugene Kublanovsky. And they still have an unpaid bill for more than $1 million.
Bland and Richter of Columbia and Charleston, respectively, represent the Nitsches in a legal malpractice suit filed Aug. 8 in Greenville County against Fensterstock, Kublanovsky, and their local counsel in the underlying case, Stephanie Burton of Gibbes Burton in Spartanburg.
The complaint alleges that the defendant lawyers acted “through greed, incompetence, or both.”
“When these people [the Nitsches] were making the decision to hire the New York law firm, the New York lawyers made disparaging remarks about South Carolina lawyers,” Bland said in an interview. “They said, ‘You need real lawyers, not South Carolina lawyers, to handle this matter.’”
He added, “The problem was, irrespective of whether it was a meritorious claim or not, it was time-barred.”
Reacting to Bland’s comments, Fensterstock said: “There has never been a pejorative statement about a South Carolina firm coming out of my firm and anyone who says that is a goddamn liar.”
During an interview, Fensterstock repeatedly described the malpractice suit as “absolutely meritless, sanctionable and a fool’s errand.”
Richter wrote in an email that Fensterstock’s comment “warrants no response.”
Did couple get railroaded?
The underlying corporate fraud claims stem from stock transactions in 1964 and 1985 that involved New York-based Ellcon-National Inc., which made railroad car braking systems, according to the Nitsches’ complaint.
Mr. Nitsch, a former Ellcon shareholder and member of its board of directors, accused another shareholder, Emil Kondra, of deceiving him about his true stock ownership when Ellcon merged with another company in 2008. The Nitsches received $6.7 million for their Ellcon stock as a result of the merger.
They subsequently entered into mediation with Kondra and Ellcon, but the talks failed and the Nitsches hired Fensterstock to initiate arbitration in New York.
Mrs. Nitsch was 69 and Mr. Nitsch was 84 and in “failing health” at the time, their complaint states. The suit also says that the Nitsches were given a fee estimate of $570,000, after paying Fensterstock $10,000 to commence arbitration.
Fensterstock contends that he raised the statute of limitations issue during his first meeting with the Nitsches. But Richter said the Nitsches “were assured that it [the statute of limitations] was not an issue.”
Fensterstock also asserted that Bland and Richter have a conflict of interest because they had been approached to act as local counsel in the underlying fraud case and agreed to come on board for a “very high retainer.”
“After many discussions, sharing strategy and everything, the Nitsches decided not to hire Bland Richter,” he added. “But Bland Richter was privy to everything … and they wanted to take the lawsuit.”
Richter, though, said he and Bland knew little about the case and had only quoted an initial fee, but then heard nothing further until they were contacted about the legal malpractice action.
“We have every confidence that had we been retained, we would have quickly recognized the glaring defect in the case before the clients wasted $5 million in pursuit of claims which are likely time barred,” Richter said.
The Nitsches’ push for arbitration spurred Kondra to go after the couple in South Carolina, where he asked the court to declare that the fraud claims were time-barred. A judge granted Kondra summary judgment in September 2015 and ordered the Nitsches to pay $120,251 in attorneys’ fees as a sanction for “abusive discovery practices,” Bland and Richter wrote in the complaint.
They alleged Fensterstock, Kublanovsky and Burton had used “stacks of documents in large plastic bags” that Kondra’s wife gave to Mrs. Nitsch between 2000 and 2007. The documents, which were supposed to have been destroyed, reportedly contained privileged communications between Kondra and Ellcon and their attorneys.
The petition for attorneys’ fees included an affidavit from former 4th U.S. Circuit Court of Appeals Chief Justice William Wilkins, who said that during his “years in private practice and 27 years on the bench, I have never seen a similar situation,” referring to the discovery tactics that led to the sanction.
Legal disputes over the trash bag papers accounted for the bulk of the hours for which the Nitsches were billed, according to Richter and Bland. They said that only two depositions were taken in the underlying case.
Meanwhile, Dr. Gregory Adams, an expert on lawyer’s ethics who teaches at the University of South Carolina School of Law, stated in an affidavit attached to the Nitsches’ malpractice complaint that he believed Fensterstock, Kublanovsky and Burton had breached the applicable standard of care, committed acts of professional negligence and violated their fiduciary duties to the Nitsches.
“Starting with Mr. Fensterstock’s initial meeting with Mr. and Mrs. Nitsch in August 2012 and continuing throughout the defendants’ representation of the Nitsches, it was clear to defendants – or at least would have been obvious to any competent lawyer – that the Nitsches’ claims against Kondra were perilously subject to a statute of limitations defense,” Adams said.
‘Four years and $5,000,000 too late’
The Nitsches had to take loans against the stock they bought with their proceeds from the Ellcon merger to cover their hefty legal bills – and the interest on their loan payments has ballooned to more than $10,000 a month, according to their complaint.
They’re also selling their home in Greenville “to deal with the aftermath” of their ill-fated claims against Kondra and Ellcon.
And they’re paying another law firm to appeal the dismissal of their fraud claims in “an effort to mitigate the harm inflicted upon them by their failed legal representation,” their malpractice suit states.
They contend that the dismissal was procedurally flawed because the judge’s order relied on the opinion of a discovery referee, but the referee was not asked to opine on the statute of limitations issue, Richter said.
“Success on appeal would return the Nitsches to spend yet more time and money on a claim that is likely time-barred,” he added.
Earlier this year, Burton emailed the Nitsches and their new attorney and urged them to accept a settlement proposal in which Kondra would waive the $120,251 sanction if they agreed to drop the appeal, according to the complaint. Burton did not respond to an interview request.
“I believe that there is a very strong possibility that a court will conclude that the statute began to run no later than at the time of the 2008 transaction and thus expired in 2011 or earlier,” she wrote in the email.
“Defendant Burton’s advice was well-founded,” Bland and Richter wrote in the Nitsches’ malpractice complaint, “but was four years and $5,000,000 too late.”
