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.
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
A. The California Litigation
In 1985, Philip B. Kivitz, M.D. ("Dr.Kivitz") entered into
agreements with AMDC and Fonar pursuant to which AMDC and Fonar
granted Dr. Kivitz the right to
operate a magnetic resonance imaging ("MRI") scanning center in
San Francisco, California. Disputes arose between Dr. Kivitz and
AMDC and Fonar, and on January 30, 1987, Dr. Kivitz, by his
attorneys Hanson, Bridgett, Marcus, Vlahos & Rudy ("Hanson
Bridgett"), commenced a lawsuit against AMDC and Fonar in the
San Francisco Superior Court captioned Philip B. Kivitz, M.D.
and Rad-Sonic Diagnostic Medical Clinics, Inc. v. Advanced
Medical Diagnostic Corp. and Fonar Corp., San Francisco
Superior Court No. 870407 (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
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:
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
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
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.
1. The Liccardo Firm Engages Hanson Bridgett
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
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 ...