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In re Jacom Computer Services

July 31, 2006


The opinion of the court was delivered by: Richard J. Holwell, District Judge


Appellant here, Stuart Cauff, appeals February 9, 2005 and March 4, 2005 Orders entered by the bankruptcy court (Cornelius Blackshear, B.J.) in In re Jacom Computer Services, Inc., UniCapital Cor et al., disallowing and affirming the disallowance of appellant's claim, respectively. For the reasons that follow, the orders are affirmed.


The following facts are taken from the record as designated on appeal. Appellant is a former officer and director of UniCapital, who, by the end of fall 2000, had resigned both positions. (Record Tab 2, Cauff Aff., 1-7; Record Tab 8, Unnumbered Exhibit, Sept. 23, 2004 Stipulation and Agreement of Settlement (the "Settlement Agreement") at 7, 1(h).)*fn1 Following the filing of several class action complaints, an amended consolidated class action complaint was filed in United States District Court for the Southern District of Florida in a matter entitled In re UniCapital Corporation Securities Litigation, Case No. 00-2054-CIV-Highsmith. (Settlement Agreement at 1-2, ¶¶ A-C.) In this securities litigation, UniCapital and its control persons, including appellant, were accused of securities fraud and other violations of the securities laws. (Id.)

On December 11, 2000, UniCapital filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code. (Id. at 3, ¶ E.) Upon the initiation of the bankruptcy action, the Florida securities litigation was automatically stayed as to UniCapital. (Id.) By stipulation and order dated August 14, 2002, the stay was modified to allow the securities litigation to proceed against UniCapital. (Id. at 3, ¶ G.)

On May 24, 2001, appellant filed a proof of claim in the bankruptcy action in the amount of $335,000, on the basis that he was allegedly owed certain commissions relating to work he had performed for UniCapital. (Record Tab 1, Ex. D.) In response, UniCapital filed its Third Omnibus Objection on December 18, 2001, seeking to reduce appellant's claim to zero. (Record Tab 1 at 6, ¶ 14.) Judge Blackshear issued an opinion on May 25, 2004, denying the motion to disallow appellant's claim on the grounds that an evidentiary hearing would be necessary to resolve questions of fact over what services appellant provided for UniCapital. (Record Tab 5.) On June 8, 2004, Judge Blackshear scheduled an evidentiary hearing for December 13, 2004. (UniCapital Supplemental Record Tab 10, Tr. 11.)

On September 23, 2004, however, the parties to the securities litigation, including UniCapital and appellant, entered into the Settlement Agreement settling all claims subject to approval by the district court and entry of a final order and judgment. By the express terms of the agreement, the appellant released his pending claim against UniCapital in the bankruptcy action:

NOW THEREFORE,.it is hereby STIPULATED AND AGREED, by and among the parties to the Stipulation, through their respective attorneys, subject to approval of the Court . in consideration of the benefits flowing hereto from the Settlement, that all Settled Claims (as described below) as against the Released Parties (as defined below) and all Settled Defendants' Claims and Settled Defendants' Cross Claims. shall be compromised, settled, released and dismissed with prejudice. (Settlement Agreement at 5-6 (emphasis added).) The Settled Defendants' Cross Claims are defined in the agreement as any and all claims, debts, demands, rights, or causes of action or liabilities whatsoever (including, but not limited to, any claims for damages, interest, attorneys' fees, expert or consulting fees, and any other costs, expenses or liability whatsoever), whether based on federal, state, local, statutory or common law or any other law, rule or regulation (whether foreign or domestic), whether fixed or contingent, accrued or unaccrued, liquidated or unliquidated, at law or in equity, matured or unmatured, foreseen or unforeseen, whether class or individual in nature, including both known claims and Unknown Claims, that could have been asserted at any time in any forum by one or more of the Defendants against any one or more of the other Defendantswhich arise out of, are based upon, or related in any way to the Action and/or to the allegations, transactions, facts, matters or occurrences, representations or omissions involved, set forth or referred to in the Complaint and/or to the purchase, sale, or acquisition of shares of the common stock of UniCapital during the Class Period and/or to the operations of UniCapital, including any claims filed against UniCapital in the Chapter 11 bankruptcy case. (Id. at 10 ¶ 1(s) (emphasis added).) The Honorable Shelby Highsmith, United States District Judge for the Southern District of Florida, preliminarily approved the Settlement Agreement in an order filed September 29, 2004. (Record Tab 8, Unnumbered Exhibit.)

On the basis of the release of the claim that appears in this agreement, the liquidating trustee for UniCapital brought a motion in the bankruptcy court on November 4, 2004, seeking a stay of the December 13, 2004 evidentiary hearing scheduled by Judge Blackshear until final approval of the settlement in the securities litigation. (Record Tab 8.) In an opposition to the stay request dated November 15, 2004, counsel for appellant explained his lack of awareness of the release in the Settlement Agreement until very recently; separate counsel, Steven Silverman, had apparently negotiated the agreement on appellant's behalf. The opposition papers also quoted a letter dated that same day from Mr. Silverman to UniCapital counsel, advising that there was never an intent to release appellant's bankruptcy claims, and indicating that if the motion to stay was not withdrawn, Mr. Silverman would "file appropriate papers in the class action and bring this inappropriate use of the [settlement] to the [Florida district court's] attention and request that the settlement be reformed in connection with the intent of the parties and to specifically exclude any release of the claims asserted by Mr. Cauff in the bankruptcy proceedings."*fn2 (Record Tab 9, at 3.) By order dated November 18, 2004, Judge Blackshear granted the liquidating trustee's motion and imposed a stay to and including February 9, 2005. (Record Tab 11.)

On January 12, 2005, appellant filed a "Limited Objection of Stuart Cauff to Stipulation and Agreement of Settlement" (the "Limited Objection") in the securities litigation, arguing that he did not intend to release his bankruptcy claims and that his counsel did not have authority to do so. (Record Tab 19, Ex. D at 1.) Appellant contended, therefore, that there was a unilateral mistake of fact that warranted reformation or rescission of the Stipulation. (Id. at 6-8.) However, appellant and the liquidating trustee thereafter entered into a Stipulation (the "Stipulation") withdrawing the Limited Objection which Judge Highsmith so ordered on January 26, 2005. (Record Tab 19, Ex. F.) The Stipulation provided, in relevant part:

After review of Cauff's Limited Objection . Cauff and UniCapital agree that Cauff's Limited Objection is withdrawn and may be dismissed for lack of standing and that the Stipulation and Agreement of Settlement filed in this action on September 24, 2004 should be approved as submitted to this Court. This Stipulation [the instant Stipulation] . and any order and final judgment entered in this case are without prejudice to Cauff and to UniCapital raising in UniCapital's bankruptcy proceeding pending in the United States Bankruptcy Court for the Southern District of New York, Chapter 11, Case No. 00-42719 (CEB) and in Cauff's claims pending therein the positions set forth by Cauff in Cauff's Limited Objection and by UniCapital in UniCapital's Response to Limited Objection. (Id.)

Pursuant to Federal Rule of Civil Procedure 23, a fairness hearing was conducted on January 26, 2005, and the Florida district court's final order and judgment was filed on January 27, 2005. The order enjoins defendants (including Cauff) from asserting at any time in any forum any and all claims against other defendants "including any claims filed against UniCapital in the Chapter 11 bankruptcy case." All such claims are released and discharged "on the merits and with prejudice." (Record Tab 8, Unnumbered Exhibit.)

On February 7, 2005, appellant brought his motion to lift Judge Blackshear's November 18, 2004 stay order and to establish the date for the adjourned evidentiary hearing on his bankruptcy-related claims. (Record Tab 12.) As part of his motion, appellant submitted an affidavit dated February 7, 2005. (Record Tab 14.) In this affidavit, appellant indicated that, while Mr. Silverman signed the Settlement Agreement on his behalf, appellant subsequently learned that, in the final days leading up to the execution of the agreement, "additional language had been inserted in paragraph 1(s) which purported to release my pre and post-petition claims in this proceeding. I never saw a draft of that document before it was signed by my attorney. I did not authorize my attorney to sign the Settlement, and if I had known the language was added releasing my claims in the bankruptcy proceeding, I would in fact have forbidden Mr. Silverman to execute the Settlement." (Record Tab 14 (Cauff Aff. ¶¶ 6-8).)

Following oral argument on the issue on February 9, 2005 (Record Tab 20), Judge Blackshear issued an order "that pursuant to the Settlement Agreement, Cauff compromised, settled, released and dismissed with prejudice any claims filed against UniCapital in the above-captioned Chapter 11 proceeding" (Record Tab ...

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