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Friday, November 25, 2005

Helping a Client Engage in a Fraudulent Transfer May Incur Liability

Editor's note: Nov. 27, 2005 -- A staff writer mistakenly believed he could alter this article after it had been edited and posted. The changes have been reversed.

These excerpts from a Third Circuit Court of Appeals case, Morganrogh & Morganroth v. Norris, McLaughlin & Marcus, P.C., 331 F.3d 406 (3d Cir. (N.J.) 2002), pretty much speak for themselves:

This appeal raises thorny questions relating to the bounds of legitimate legal advocacy and transgressive participation by attorneys at law in a client's illegal conduct. The plaintiffs, Morganroth & Morganroth, a Michigan law firm, and Mayer Morganroth, Esq. ("Morganroths"), sued John Z. DeLorean in a federal court in Michigan for legal services rendered over approximately ten years. The jury returned a verdict in their favor against DeLorean and Ecclesiastes [*2] 9:10-11-12, Inc. ("Ecclesiastes"), a corporation controlled by him, in a sum exceeding six million dollars. The Michigan Court en joined DeLorean from transferring his assets. It set aside a purported transfer to Genesis III, Inc. ("Genesis") (another corporation DeLorean controlled) of DeLorean's Lamington Farm in New Jersey as a fraudulent conveyance to hinder, delay, or defraud DeLorean's creditors.
The Morganroths have alleged facts that, if proven, would establish that the defendants went beyond the bounds of permissible advocacy; they allege that defendants were active participants and planners in the scheme to obstruct the plaintiffs' efforts to execute on their judgment. Plaintiffs allege that Norris, McLaughlin prepared a confirmatory deed that purported to transfer Lamington Farm from DeLorean to Genesis. The Morganroths assert that the defendants knew this deed to be false when they prepared it and that they did so with the intent of unlawfully aiding DeLorean in his efforts to defraud the Morganroths and to hinder and delay enforcement of the Michigan judgment.

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