Nearly three years after he finished serving a prison term for his role in the so-called “Kids for Cash” scandal, former Hazleton-area attorney Robert Powell is poised to cash in on an Avoca environmental-contamination lawsuit launched by his once-powerful law firm, which stands to net an estimated $120 million in fees.
The exact amount going into Powell’s pocket — a matter of interest to plaintiffs in a “Kids for Cash”-related lawsuit slated to receive a settlement based on his net worth — is still a mystery. A few outside attorneys have claimed a piece of the pie in agreements, some confidential, with the Powell Law Group.
But a Times Leader review of hundreds of pages of court filings found clues about the payments which have been spilling out in a contentious legal battle in Cincinnati, Ohio, more than 500 miles from the Wyoming Valley.
Dunmore-based First National Community Bank initiated the action in February 2012 against Garretson Resolution Group Inc., a Cincinnati-based firm appointed to oversee a trust paying out claims to the Avoca plaintiffs. The bank’s lawyers argued the trust couldn’t pay Powell Law until its own bill of more than $6 million was paid.
The Avoca claims were part of a New York bankruptcy case in which the former Kerr-McGee and related companies settled personal injury and property damage claims throughout the country for $5.15 billion, making it the largest environmental settlement in U.S. history.
The 4,400 local class-action participants said exposure to creosote oil from the former Kerr-McGee Corp. railroad tie manufacturing facility in Avoca caused illnesses and death.
Many people who lived or worked near the Avoca property have received payments in the bankruptcy settlement, but some are still waiting due to issues with Medicare and Medicaid reimbursements or the processing of estates involving plaintiffs who have died, suit participants have said.
In addition to First National, four other entities have come forward, saying they also were owed money by Powell and/or Powell Law, and convinced an Ohio judge to allow them to join the consolidated action seeking trust fund proceeds: S&T Bank, Susquehanna Bank, prominent Philadelphia attorney Richard A. Sprague and Philadelphia law firm Montgomery, McCracken, Walker & Rhoades LLP.
Among these court filings, one certainty emerged: Powell Law Group had an agreement with the Avoca class-action suit participants to receive 40 percent of their recovered damages, plus reimbursement for other expenses.
The Montgomery law firm produced documents from Garretson valuing the recovery pot at $314.2 million at the end of 2015, which puts Powell Law’s share at $125.7 million.
“The magnitude of the Powell Law Group’s fees is truly incredible,” the firm’s lawyers said in one filing.
While Powell has claimed in court that he long ago relinquished his stake in the law firm, Sprague argued Powell is still running the business behind the scenes.
“He is the puppet master and Powell Law Group is his puppet. Powell holds the reigns of Powell Law Group and has always done so,” Sprague said in one filing.
Paying the piper
As the law group looks to collect its payout from the Avoca suit, Powell has found himself on the hook for millions of dollars stemming from legal troubles of his own.
Sentenced to 18 months in federal prison for failing to report illegal activity by former county judges Mark Ciavarella and Michael Conahan involving kickbacks for decisions benefiting two juvenile detention centers he co-owned, Powell was disbarred by consent in 2009.
The two former judges are still serving federal prison sentences they received for their roles in the scheme — 28 years for Ciavarella and 17.5 years for Conahan.
According to an affidavit filed in the Ohio case, Jill Moran has been the sole managing director and president of Powell Law Group since Aug. 31, 2009. Powell filed an affidavit saying he entirely surrendered his interests in Powell Law on that date “as a result of the detention center matter.”
While Moran was never charged in the corruption probe that brought down Powell and the two judges, she was forced to resign from her position as Luzerne County’s elected prothonotary in March 2009 as part of an agreement with federal prosecutors.
Attempts to reach Powell and Moran through attorneys were unsuccessful.
Powell — who now lives in a mansion in Palm Beach Gardens, Florida — must pay $4.75 million and possibly up to $2.5 million more if his net worth exceeds $4.75 million by the end of 2016, in exchange for his dismissal from a civil suit filed by juveniles and parents in connection with the corruption scandal.
U.S. District Court Judge A. Richard Caputo granted final approval for Powell’s settlement in December. A total of 1,187 juveniles and 605 parents have filed claims to receive settlement money, attorneys have said.
Powell must provide an evaluation of his net worth by November; an independent consultant will be called in to calculate and issue a binding determination of his net worth if the plaintiffs dispute Powell’s own evaluation within 10 business days.
The agreement gives the consultant the power to examine and value Powell’s assets and liabilities, with the exception of his principal residence and any personal property worth less than $5,000.
In exchange for Powell providing documentation the consultant “reasonably” requests, the agreement restricts the disclosure of Powell’s financial information to the plaintiffs or anyone else without his permission and requires the documents be returned to Powell or destroyed after the final assessment.
Big spender?
Sprague got involved in the Ohio suit last year, saying Powell and his wife, Debra, failed to pay $169,431.76 plus fees for his past legal representation.
The debt should be paid out of the Avoca settlement money coming to Powell Law, Sprague said, alleging the Powells will be “direct recipients” of the Avoca money and will “conceal and otherwise deplete those assets,” depriving Sprague of a means to obtain the money he’s owed.
“Those fees will no doubt be hidden and inaccessible to outstanding creditors, which the Powells have already shown the proclivity to accomplish,” Sprague’s filing said.
Sprague said the Powells are registered owners of a 2014 Maserati Quattroporte and 2015 black Mercedes-Benz S550 sedan worth a combined $200,000. He also said the couple received the benefit of Avoca proceeds “via loans, guarantees or other instruments” and have used those funds to buy cars “and/or invested same offshore.”
Powell Law’s response: Sprague has no legal authority to receive payments owed to Powell Law because his claim involved legal work for the Powells, not the law firm.
The Powell firm also said Robert Powell was “displeased” with Sprague’s representation and disputes the fees. It said Sprague’s filing contains no evidence the Powells concealed Avoca settlement funds in offshore accounts or used settlement funds to buy vehicles.
“It simply lists assets allegedly owned by Robert and Debra Powell, and does not provide any information at all about how the assets were acquired, or how Robert Powell supposedly used his undue influence over Powell Law to acquire them.”
Sprague countered by telling the court there is an “abundance of evidence that Robert Powell and Powell Law Group are one and the same,” alleging Powell continues to make decisions on behalf of the firm.
Some of Sprague’s allegations echo those made by Gregory Zappala, Powell’s former business partner in the two juvenile detention centers, in a racketeering suit filed against Powell, Moran, Powell Law and others in 2014.
Zappala, the brother of state attorney general candidate and current Allegheny County District Attorney Stephen A. Zappala Jr., claimed Powell and Moran had bilked him of millions to fund Powell Law’s litigation and other expenses.
In court filings, Gregory Zappala said Powell had used the name “Robert Kulbacki” as an alias, formed a Cayman Island company and “was reported to have taken duffle bags of cash” to Costa Rica. He also alleged Powell was “making frequent trips to Switzerland,” it says.
The allegations were never fully hashed out in court because Zappala and Powell ended their lawsuits against each other and affiliated companies last July without divulging the outcome.
Powell’s suit had argued that Zappala treated his former partner’s distress as an “opportunity.”
On the hook
The Montgomery firm produced an agreement with Powell Law entitling it to receive 1 percent of the recovery — $3.14 million — for its work handling the Avoca litigation on Powell Law’s behalf when Powell got into legal trouble.
The Philadelphia law firm also has questioned whether Powell Law already sold its interest in the Avoca suit.
Its lawyers pointed to a May 2014 Uniform Commercial Code filing in Pennsylvania, which says New York City-based Fortress Credit Corp. provided a loan for an undisclosed amount in May 2014 using future Avoca receipts as collateral.
The guarantors on this loan were Moran, Powell, Chris Diamantis, Perry Weitz, Arthur Luxenberg and Joseph DiNardo, the UCC filing says.
Weitz & Luxenberg, a New York City firm known for asbestos-related litigation, has served as co-counsel with Powell Law in the Avoca bankruptcy settlement and another legal action attempting to revive a 2005 Avoca suit in Luzerne County court seeking additional recoveries for the Avoca plaintiffs.
Diamantis, Weitz, Luxenberg and DiNardo also are on the executive team or board of directors of Counsel Financial, a Williamsville, New York, entity that helps finance litigation, although it’s unclear if Counsel Financial was involved in this transaction.
Powell Law has opposed the Philadelphia firm’s access to its borrowing agreement with Fortress, saying it intrudes on “highly confidential arrangements between Powell Law Group and its lenders and legal counsel.”
The Ohio judge later approved a protective order agreement ensuring the confidentiality of unspecified information shared between the two firms.
Another UCC filing indicates more borrowing by the Powell firm in May 2015 through Fox, Swibel, Levin & Carroll, LLP, in Chicago.
Contesting the bill
Powell Law is now fighting the Montgomery firm’s payment, maintaining it did not properly handle the Avoca case.
It alleges the Montgomery firm “committed errors and malpractice” by not contesting the addition of 2,000 Mississippi claims in the settlement.
Powell Law said it raised concerns to the Montgomery firm when the Mississippi claims were first filed in the bankruptcy case because Powell Law worried they would “compete with Powell’s clients’ claims for the same settlement proceeds.”
The bankruptcy court ruled the Mississippi claims would be allowed last June, which caused the Powell clients to lose out on tens of millions of dollars in settlement proceeds, Powell Law said.
The Montgomery firm said that argument is “specious” because the bankruptcy court made it clear an objection to the claims of the other injured parties would not have been well received by the court.
When trust fund overseer Garretson, under pressure from Powell Law, asked the bankruptcy court for clarification on the Mississippi claims last year, the bankruptcy court “emphatically rejected” Powell Law’s arguments that these claimants were not entitled to a portion of the recovery funds, the Montgomery firm said.
The ruling conflicts with Powell Law’s “phantom malpractice defense,” maintaining the Montgomery firm should have been able to prevent the Mississippi claims from being allowed, it said.
The Montgomery firm maintains the settlement amount for the Avoca plaintiffs, which far exceeded original estimates, is evidence of its “exceptional work” in the suit and says Powell Law’s malpractice defense is “absurd in the context of such an incredible surplus.”
“Presumably, the Powell Law Group contends that the $125 million it stands to receive is not enough,” its filing said.
Unfinished business
The Powell firm told the court it has settled claims filed by the three banks involved in the Ohio suits but did not disclose details in court filings.
In addition to the $6 million sought by First National Community Bank, the demanded claims were $2.7 million by S&T Bank and $290,000 by Susquehanna Bank.
Hamilton County Judge Robert C. Winkler ordered Garretson to keep $5.5 million in fees earmarked for Powell Law in a reserve until the remaining litigation is resolved. He scheduled a trial for the Ohio litigation in March, though it may be pushed back because attorneys agreed to extend their deadline for discovery.
Powell Law Group acknowledged in court filings the law office does not have regular office staff and has not been an “operational” and “working” practice for several years. The firm continues to exist primarily to receive the Avoca fees and resolve disputes surrounding those fees, it said.
But Powell Law did file a separate lawsuit in June in Palm Beach County, Florida, trying to force Powell’s former co-conspirator Conahan and Conahan’s wife, Barbara, to pay a portion of $4.62 million in past First National Community Bank loans associated with a failed development in Mountain Top, court records show.
Work on the 37-acre Wright Township townhouse development, known as “The Sanctuary,” stopped several years ago, with the windowless shell of a deteriorating structure left standing at the center of the site.
Conahan is currently incarcerated at the Federal Correctional Center in Coleman, Florida, where he’s serving the remainder of his prison sentence from the “Kids for Cash” criminal case. Barbara Conahan, who was not implicated in the federal corruption probe, resides in Palm Beach County.
Barbara Conahan has argued the signature on the loan guarantee is not hers, and both she and her husband allege Powell failed to disclose information he had received indicating the proposed development was “not financially viable and not likely to be successful,” court records show.
Florida court records say Powell Law repaid the First National debt in May 2014, but the law firm argues Barbara and Michael Conahan should provide reimbursement for a share because they also had guaranteed the loans.
The Conahans said Barbara did not sign the loan guarantee, and the signature she maintains is not hers was not notarized on the guarantee document. The purported witness was a Powell Law employee.
Any loan guarantees should be voided, they said, arguing that Powell and Powell Law both misrepresented the viability of the project by describing it in “glowing, positive” terms while failing to disclose warnings about the project Powell had allegedly made to a local Realtor.
Barbara Conahan also raised counterclaims that Powell and Moran have treated the development project “as if it were exclusively their own” and should return or credit $1.2 million Michael Conahan lent the Powell Law Group, Powell and Moran for the project.
The Powell Law Group said the Conahans’ arguments are “preposterous and are seemingly only intended to cause delay.”
http://timesleader.com/wp-content/uploads/2016/02/tl-investigate-logo-2.pdf
Former Hazleton-area attorney Robert Powell, photographed leaving the federal courthouse in 2011 after testifying in the Luzerne County corruption case, agreed to pay “Kids for Cash” plaintiffs based on his net worth the end of this year.
http://timesleader.com/wp-content/uploads/2016/02/web1_markciavarella10-2.jpg
Former Hazleton-area attorney Robert Powell, photographed leaving the federal courthouse in 2011 after testifying in the Luzerne County corruption case, agreed to pay “Kids for Cash” plaintiffs based on his net worth the end of this year.
Pete G. Wilcox | Times Leader file photos
By Jennifer Learn-Andes
jandes@timesleader.com
Reach Jennifer Learn-Andes at 570-991-6388 or on Twitter @TLJenLearnAndes.