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PHOENIX GENERAL & HEALTH v. ADVANCED MEDICAL

August 31, 2001

PHOENIX GENERAL & HEALTH SERVICES, INC., PLAINTIFF,
V.
ADVANCED MEDICAL DIAGNOSTIC CORP., FONAR CORPORATION, RAYMOND V. DAMADIAN, AND LUCIANO BONANNI, DEFENDANTS.



The opinion of the court was delivered by: Spatt, District Judge.

MEMORANDUM OF DECISION AND ORDER

This lawsuit arose out of claims by Phoenix General and Health Services, Inc. ("Phoenix" or the "plaintiff") that American Medical Diagnostic Corp. ("AMDC"), Fonar Corporation ("Fonar"), Raymond V. Damadian ("Damadian"), and Luciano Bonanni ("Bonanni") (collectively, the "defendants") fraudulently conveyed promissory notes, worth the approximate sum of $1.5 million, from AMDC to Fonar. In an order dated January 31, 2001, this Court approved the written settlement agreement of the parties, and the defendants deposited the sum of $1,225,000 into the Registry of this Court. Presently before the Court are applications for distribution of the settlement proceeds.

I. BACKGROUND

The following facts are taken from the complaint and motion papers presently before the Court, including the affirmation of David W. Baer, Esq., dated January 22, 2001, the affidavit of Bernice Pollock ("Ms.Pollock"), dated January 18, 2001, and orders of the Superior Court of the State of California for the City and County of San Francisco ("San Francisco Superior Court").

A. The California Litigation

1. Dr. Kivitz Engages Hanson Bridgett

Dr. Kivitz and Hanson Bridgett entered into a retainer agreement, dated January 9, 1987. The law firm agreed to represent Dr. Kivitz in the California Litigation on a modified contingency fee basis, and Dr. Kivitz granted Hanson Bridgett a lien on any recovery.

2. Dr. Kivitz Engages the Liccardo Firm in the California Litigation

At an unspecified point in the California Litigation, Hanson Bridgett was disqualified from representing Dr. Kivitz. By a retainer agreement dated April 20, 1990, Dr. Kivitz engaged the law firm of Caputo, Liccardo, Rossi, Surges & McNeil (now Liccardo, Rossi, Surges & McNeil, the "Liccardo firm") in substitution of Hanson Bridgett. The Liccardo firm also was engaged on a contingent fee basis, and Dr. Kivitz also granted that firm a lien on any recovery. However, the Liccardo firm agreed that Hanson Bridgett would be compensated from the Liccardo firm's contingent fee.

The California Litigation was tried in January 1993, and the jury returned a verdict in favor of Dr. Kivitz in the amount of $880,000 against AMDC and in the amount of $120,000 against Fonar. However, the trial court granted the defendants' motion for judgment notwithstanding the verdict and entered judgment in the defendants' favor on August 27, 1993.

Subsequently, Dr. Kivitz filed an appeal. The Liccardo firm agreed to be associated with Hanson Bridgett in connection with the appeal and agreed to divide equally the contingent fee, which was 50% of the net recovery.

In an opinion dated February 27, 1995, the California Court of Appeal reversed in part the decision of the San Francisco Superior Court and directed that court to enter judgment in favor of Dr. Kivitz and only against AMDC in accordance with the jury's verdict. On August 16, 1995, the San Francisco Superior Court entered a judgment in favor of Dr. Kivitz and against AMDC. Pursuant to that judgment, Dr. Kivitz was awarded a total of $912,420.62, which consisted of: (a) the $880,000 jury verdict; (b) post verdict, pre-judgment interest in the amount of $20,493.15; and (c) trial costs in the amount of $11,927.47.

3. Dr. Kivitz's Divorce Proceedings

In the meantime, Dr. Kivitz and Irene Kivitz ("Mrs.Kivitz") were in the midst of divorce proceedings, also in the San Francisco Superior Court (Kivitz v. Kivitz, San Francisco Superior Court No. 922429). On January 5, 1993, that Court issued an order that was based on a stipulation between Dr. and Mrs. Kivitz. The order provided that if Dr. Kivitz were to succeed against AMDC and Fonar in the California Litigation, Craig Needham of the Liccardo firm was:

required to take receipt of proceeds or consideration received in a settlement or other agreement or as the result of trial or arbitration and retain said proceeds or consideration in his trust account as trustee and not release, loan, or otherwise transfer to Dr. Kivitz as an individual or as President of Rad-Sonic Diagnostic Medical Clinics, Inc. or to the business Rad-Sonic Medical Clinics, Inc. through any of its employees, agents or officers, any interest in said proceeds or consideration until further order of court.
2. Mr. Needham, and the [Liccardo firm] is [sic] entitled to receive the attorney fee and cost reimbursement for which they contracted with Dr. Kivitz (1/5/93 Order of the San Francisco Superior Court).

On February 5, 1998, the San Francisco Superior Court issued another Order After Hearing in the Kivitz divorce proceedings. That order pertained to the division of property and provided, in relevant part, "The net proceeds from the Fonar lawsuit in the approximate amount of $880,000, are to be divided equally between the parties and to be allocated . . . one half to each party as of March 1, 1990 (the date of separation). `Net' is defined as the money available after attorneys fees have been paid" (2/5/98 Order of the San Francisco Superior Court).

4. The Judgments of Ms. Pollock and Ms. Abrams

Ms. Pollock and Ms. Abrams, sisters of Dr. Kivitz, obtained a money judgment against him in San Francisco Superior Court on May 25, 1995 in the amount of $235,719.54 plus interest at a rate of 10% per annum (Bernice K. Pollock and Rose Ann Abrars v. Philip B. Kivitz, Rad-Sonic Diagnostic Medical Clinics, Inc. and Irene Kivitz, San Francisco Superior Court No. 940540). On June 8, 1995, the sisters filed a Notice of Lien in the San Francisco Superior Court against any recovery by Dr. Kivitz in the California Litigation.

On November 27, 1995, Ms. Pollock and Ms. Abrams obtained money judgments in the amounts of $180,901.84 and $41,997.00, respectively, against Mrs. Kivitz. On January 22, 1998, the sisters filed Notices of Lien in the San Francisco Superior Court against any recovery by Mrs. Kivitz in the California Litigation.

5. Dr. Kivitz Assigns His Rights to Phoenix

In April 1996, David W. Baer, Esq. ("Mr.Baer") of Hanson Bridgett received a copy of an agreement between Dr. Kivitz and Phoenix, dated January 20, 1995. Pursuant to the agreement, Dr. Kivitz sold all of his rights and interest in the proceeds of the California Litigation to Phoenix, of which Dr. Kivitz was president. Upon receipt of this agreement, Mr. Baer prepared a revised document of sale, effective January 20, 1995, which states that: (a) Dr. Kivitz transfers ownership of the recovery in the California Litigation to Phoenix; (b) Phoenix acknowledges that there are liens against Dr. Kivitz' recovery by G.E. Capital, Bernice Pollock, and Rose Ann Abrams, and that Irene S. Kivitz asserts an interest in the proceeds as Dr. Kivitz' former wife; and (c) Phoenix acknowledges that its ownership of any recovery was subject to these claims as well as the past, present, and future attorney's fees and costs, which will be paid from the proceeds of the California Litigation.

B. Collection Efforts

1. The Liccardo Firm Engages Hanson Bridgett

In an agreement written by Mr. Baer on July 21, 1995, and signed by Craig Needham, Esq., ("Mr.Needham") of the Liccardo firm on July 27, 1995, and by Dr. Kivitz on August 3, 1995, the Liccardo firm engaged Hanson Bridgett to enforce the judgment obtained on behalf of Dr. Kivitz ("Collection Agreement"). The parties to the Collection Agreement acknowledged that Hanson Bridgett might be required to file separate enforcement suits in each state in which AMDC's assets were located and to engage local law firms to prosecute those lawsuits. They also agreed that Hanson Bridgett's fees would be based on the firm's standard hourly rates, but payment would be contingent upon recovery.

The Collection Agreement provided the following scheme for the distribution of any recovery in order of priority:

1) first, to the Liccardo firm for the collection expenses owed by the Liccardo firm consisting of Hanson, Bridgett's fees under this agreement;
2) second, to the Liccardo firm in favor [sic] of the expenses incurred in the trial, appellate and collection stages of the case, which shall be further distributed as follows:
a) first, to the Liccardo firm or the Hanson, Bridgett firm, if necessary, to make equal the net amount of expenses incurred by the two firms at the three stages of the proceedings . . .; and
b) second to the Liccardo and Hanson, Bridgett firms on a 50/50 basis.
3) third, to the Liccardo firm in favor of Dr. Kivitz' obligation to pay attorney's fees and as Dr. Kivitz' net recovery, to be distributed proportionately on the following basis:
a) 50% as Dr. Kivitz' net recovery, to be held in trust by the Liccardo firm pending distribution to Dr. Kivitz, Dr. Kivitz' former spouse and/or the judgment lien creditors, in accord with such subsequent agreements and/or court orders regarding these funds as are necessary to effect a distribution thereof;
b) 50% as attorney's fees, to be distributed equally to the Liccardo and Hanson Bridgett firms (Baer Affirmation, Exh. 6, p. 3).

Mr. Baer structured this fee arrangement based on the terms of the January 5, 1993 order of the San Francisco Superior Court, ordered Mr. Needham to place the proceeds of the California Litigation, if any, in his trust account but permitted Mr. Needham and the Liccardo firm to "receive the attorney fee and cost reimbursement for which they contracted with Dr. Kivitz."

2. Hanson Bridgett Obtains the Consent of the Judgment Creditors

As noted, at the time the Collection Agreement was executed, Bernice Pollock and Rose Ann Abrams had asserted liens on any recovery by Dr. Kivitz in the California Litigation. Apparently, GE Capital Corporation also had asserted a lien against the any judgment in Dr. Kivitz's favor. However, this Court is unaware of the details of that lien.

Under the California Code of Civil Procedure ("CCCP"), in cases in which a judgment creditor has obtained a lien, the plaintiff cannot enforce the judgment without the consent of the judgment creditor (Affirmation of David W. Baer, Esq. (hereinafter Baer Affirmation), ¶ 11 (quoting CCCP § 708.440(a))). Therefore, Hanson Bridgett obtained the written consent of GE Capital Corporation on September 20, 1995 and of Ms. Pollock and Ms. Abrams on September 24, 1995 to "any and all reasonable efforts taken on behalf of Philip Kivitz to enforce his judgment . . . provided that any net recovery due to Dr. Kivitz after payment of his attorneys' fees and collection expenses is held in trust pending distribution to Dr. Kivitz, Dr. Kivitz's former spouse and/or the ...


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