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Business Observer Friday, Sep. 3, 2004 17 years ago

Acrid Split

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Bernice Saxon asks a judge to appoint a receiver to oversee the liquidation of Salem Saxon PA. Richard Salem files counterclaims.

Acrid Split

Bernice Saxon asks a judge to appoint a receiver to oversee the liquidation of Salem Saxon PA. Richard Salem files counterclaims.

By David R. Corder

Associate Editor

The split between longtime law partners Richard Salem and Bernice Saxon in October surprised even some of the most senior members of Tampais Salem Saxon PA, including T. Terrell Sessums, the one time Florida House speaker.

Sessums told GCBR last year that the partnership deteriorated quickly. New allegations, however, reveal just how much of a surprise it was.

Neither Salem nor Saxon would talk publicly then about the rift that sank the 17-year-old law partnership, which was one of the top 25 law firms in the Tampa Bay area with a staff of 20 attorneys. The principals would say only the dispute centered on a push by Saxon, the firmis managing partner and minority shareholder, to reward other members of the firm with equity stakes. It appeared the firmis two sole equity partners agreed to disagree, separate and begin anew.

But new details of the rift have emerged in a lawsuit Saxon filed Aug. 12 in the Hillsborough County Circuit Court. She wants the court to formally dissolve the law firm and appoint a receiver to oversee disposition of its assets and liabilities. Such an action comes with potential risk to the firmis former clients. Disclosure proceedings could force billing and fee statements into the public record, as has happened in other law firm receivership actions. It could expose certain confidential lawyer-client relationships.

The complaint comes a little more than a month after Salem filed Salem Saxonis latest annual corporate report and officially removed Saxon as an officer and director. Three days later, Salem apparently signaled his intent to liquidate the firm by renaming it as SS Firm Receiver PA.

Saxonis complaint reveals an ugly side of the split. She criticizes Salem over his handling of the firmis accounts receivables and credit facilities since the split. Salem was traveling on business and unavailable for comment.

He retained F. Lorraine Jahn of Tampais Solomon Tropp Law Group PA to file a motion to dismiss and a counterclaim against Saxon. Jahn also filed a third-party complaint against Saxonis new law firm o Saxon Gilmore Carraway Gibbons Lash & Wilcox P.A. o and six of the new firmis attorneys. The third-party defendants include Susan Ruiz Shiner, Saxon Gilmoreis office administrator, and shareholders Thomas A. Lash, John W. Wilcox, John B. Gibbons, Ricardo L. Gilmore and J. Frazier Carraway.

Through a spokesperson, Saxon would say only that Judge William P. Levens tentatively scheduled a Sept. 3 hearing to hear her complaint. She retained Stanley T. Padgett of Tampais Morgan Padgett & Associates PA to plead her cause and defend her, the law firm and the Saxon Gilmore personnel against the counterclaim.

It was Halloween afternoon last year when Saxon resigned her job as a 10% shareholder, officer and director in Salem Saxon and joined with six other attorneys to form Saxon Gilmore, her complaint states. However, that statement conflicts with an assertion Salem made last fall to GCBR. Salem claimed he and Sessums left the firm to form the Salem Law Group PA.

Following the split, nearly all Salem Saxon lawyers followed Saxon to office space leased in Tampais SouthTrust Plaza. Apparently only Sessums and Washington, D.C., attorney Rachael Galoob Ortega remained with Salem and the then-newly formed Salem Law Group. It appears only Salem, Sessums and a small support staff now occupy the office space originally leased to Salem Saxon in Tampais Bank of America Plaza.

At first, it didnit appear the two sides squabbled much publicly over client representation. Many of the clients followed the lawyers who joined the Saxon Gilmore firm, Saxonis complaint states.

Federal public records show the Salem Law Group still maintains a strong governmental law practice. As a registered lobbyist in the U.S. Senate, for instance, the law firm represents AIS Inc., the Association of Corporate Travel Executives, the city of Tampa, Hillsborough Community College, Karmanos Cancer Institute, Ludwig Cancer Institute, National Alliance for Eye & Vision Research, National Neurovision Research Institute, Recording for the Blind & Dyslexic and STS International Inc.

Among her allegations, Saxon accuses Salem of converting Salem Saxon assets for the Salem Law Groupis use. Those assets include artwork, office furniture, office supplies, computers and the lease on space Salem Law Group now occupies in the Bank of America Plaza.

Saxon also claims in the complaint that as of Oct. 31 Salem Saxon controlled accounts receivables valued at about $2.7 million. She also claims Salem, a 90% equity partner in Salem Saxon, has collected in excess of $1 million in receivables but distributed none to her.

iPlaintiff has repeatedly demanded information and accountings necessary for her to ascertain her legal rights and obligations as a shareholder of defendant, and as a guarantor of certain of the defendantis financial obligations,i the complaint states. iDefendant has failed and refused to provide said information and accounting.i

The complaint cites specific concerns about $200,000 in client funds the Hillsborough County clerk of the court delivered to Salem Saxon as a result of the property sale through a Beal Bank mortgage foreclosure.

Besides the assets, Saxon also alleged sheis a co-guarantor on Bank of Tampa loans extended to Salem Saxon. As of late January, the complaint states, the debt included a revolving line of credit with an outstanding balance due of about $360,000 and a term loan with a balance of about $144,898.

In mid-July, the complaint states, Saxon purportedly received a past due notice on the revolving line of credit. As of June 29, the statement claimed a past due amount of $296,470.

iAfter Salem opened his own law firm, and there were no ongoing operations or employee expense, Salem drew $295,000 on defendantis revolving line of credit with the Bank of Tampa,i the complaint states.

The complaint also claims Salem, as the majority equity partner, also has not paid other creditors. Specifically, the complaint lists vendors such as Iron Mountain Storage, ProVest, First American National Default and Mall Office.

In particular, Saxonis complaint cited concern about IMC Phosphates Co. files stored at Iron Mountainis facilities. She claims Salem has refused to authorize release of those files so Saxon Gilmore attorneys can represent the phosphate producer in various administrative proceedings.

iDefendant has failed and refused to pay a $10,000 deductible on a professional liability policy that already has paid a claim and in which the insurer has threatened to sue,i the complaint states.

Moreover, Saxon claims Salem violated the federal Internal Revenue Code by failing to provide her with a Form K-1, a partnership profit-loss statement. She requires that form to complete her personal federal income tax. She also questions whether Salem has filed federal tax forms or requested an extension on behalf of the firm. Nor has he provided her with an annual financial statement, as required under state law.

iPlaintiff is aware of the possibility that other accounts receivable of defendant may be collected in the near term and is concerned about misapplication or misuse of those funds,i the complaint states. iPlaintiff has no other adequate remedy and a receiver pendente lite is necessary to prevent further corporate mismanagement, and to preserve and protect the interest of plaintiff in the property currently held by, and the accounts receivable owing to, defendant.i

In the motion to dismiss, however, Jahn disputes each allegation in the Saxon complaint. Jahn calls each of the allegations broad, vague and insufficient to state a cause strong enough for a corporate dissolution.

Such unsubstantiated and conflicting allegations also lack the necessary elements for dissolution, the counterclaim states. To prove such a cause, the plaintiff must prove fraudulent or illegal misapplication, waste or material damage to the firm.

iIn fact, Saxon has admitted in her complaint that she has not received any information or accounting sufficient to support her, albeit insufficient, claims,i the motion states.

The counterclaim and third-party complaint offer the most insight into what has become an unfortunate chapter in the careers of these two highly regarded Tampa attorneys.

The dispute emerged out of a plan Salem and Saxon initiated in July 2002 to review the declining profitability of their partnership, the counterclaim states. The two agreed to adopt a remedial plan by that Sept. 30. If not, Salem would consider a change in the management structure, apparently a direct reference to Saxonis performance as managing partner.

By October 2002, the counterclaim states, the law firm retained Hildebrandt International to provide the firm with general counseling services. Following an audit, Hildebrandt representatives recommended Salem reduce his equity stake to 32% from 90%. Members of the firm would purchase shares from Salem, with proceeds funding retirement annuities for Salem. Then the firm would guarantee the Bank of Tampa loans for capital contributions.

In April 2003, the counterclaim states, Salem learned that Saxon paid Hildebrandt $70,000 for its services. Salem claims he was told the firm would receive only $10,000 to $12,000.

iUnbeknownst to the firm, Saxon, together with employees of the firm in supervisory and partner positions, was working in concert with Hildebrandt to develop a scheme wherein not only the primary assets of Salem Saxon (client relationships and employees), but also the entire business of the firm would be converted to Saxon Gilmoreis use and benefit,i the counterclaim states.

Later, Salem learned Saxon and the six other attorneys had quietly formed a new professional association as New Law Partners PA and recorded articles of incorporation, states the counterclaim. New Law Partners eventually became Saxon Gilmore.

iAt around 4:30 p.m. in the afternoon of Oct. 31, 2003, while Salem was out of the office at a previously scheduled meeting, the partners of the firm assembled in a small conference room and presented to a college intern assistant of Salem their resignations,i the counterclaim states. iEach resignation instructed Salem and the firm not to contact the resigning partners but to speak to their attorney, Stanley Padgett.i

On that afternoon, about 27 members of the support staff left the office with 20 partners and attorneys, the counterclaim states. It included ivirtually all the paralegals, secretaries and administrative personnel.i

Salem accuses Saxon and other personnel of taking client records, files, lists, marketing material, accounting information, personal computers and a computer server. Nor did the Saxon Gilmore group purportedly leave an accounting of the property taken.

iThe defendants left the firm with accounts receivable, a substantial portion of which were over 120 days old and are virtually uncollectable,i the counterclaim states. iThe substantial aging of the firmis accounts receivables was the result of Saxonis mismanagement of the firm prior to her departure on Oct. 31, 2003.i

The Salem counterclaim accuses Saxon and the Saxon Gilmore personnel of violating Florida Bar rules that regulate client notification procedures.

iIn order to recruit the clients of the firm, members of Saxon Gilmore, as agents of Saxon Gilmore and of the individual defendants, advised the clients that (a) Salem would not be continuing to practice law, (b) Salem would be retiring and/or moving to Washington and (c) the clients would not have service unless they transferred their files to Saxon Gilmore,i the complaint states. iDuring the recruiting of the firmis clients, the defendants, in violation of the rules regulating the Florida Bar, preemptively and unilaterally sent letters to clients of the firm without the knowledge or consent of the firm.i

Among the allegations filed in the counterclaim, Salem accuses all the defendants of violations of the federal Stored Communications Act and the Computer Fraud and Abuse Act; conversion, trespass and interference with the firmis personal and intangible property; and tortuous interference with a firmis business relationships with its employees and clients.

Salem also seeks preliminary and permanent injunctive relief against Saxon and the Saxon Gilmore personnel.

iThe firm is in fear that defendants will continue their unauthorized use of the firmis confidential and proprietary information, including its financial information, itis licensed operating software, client contact information, client files and confidential client communications,i the counterclaim states. iThe firm will suffer irreparable harm if the defendants are allowed to continue their unauthorized use of the confidential information.i

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