Berger Harris Clients are Awarded Fees and Expenses in Delaware Wage Act Case

Two Berger Harris clients were awarded their attorneys’ fees and legal expenses at an inquisition hearing held by a commissioner of the Delaware Superior Court on December 8.  Under the standard articulated by the Court of Chancery in the case of Kulp v. Timmons[1]the plaintiffs were also awarded fees and costs they will incur in collecting the amount of the judgment.

Berger Harris attorneys Brian Gottesman and David Anthony had previously secured an award of $36,000 in unpaid wages on behalf of the clients, former attorneys and W-2 employees of the law firm Novak Druce Connolly Bove + Quigg. Berger Harris filed suit on behalf of the Plaintiffs under the Delaware Wage Payment and Collection Act (“Wage Act”).[2]  Novak Druce, which is in the process of winding down its affairs, at first did not respond to the complaint. Only after the plaintiffs filed a motion for judgment by default did the law firm file an opposition and answer.  Judge Eric Davis summarized the case as follows:

The Court finds this case very troubling. Novak Druce is a law firm that did business in Delaware. Moreover, Novak Druce, apparently, created a scheme during its winding down process that made it almost impossible for a creditor to effect service of process. Novak Druce conveniently ignored the Complaint until the filing of the Motion. At that point, Novak Druce filed the Response, argued excusable neglect and contended that it had two viable defenses to the claims of Mr. Lambert and Mr. Lu–failure to perfect service and that the claims were barred by applicable statute of limitations.[3]

The Court found that Novak Druce, which claimed it had not been served with process as required by the Delaware Superior Court Civil Rules, had deliberately established a “labyrinth” that made service essentially impossible:

Novak Druce was a law firm that employed highly sophisticated lawyers. The Court considers the situation before it one purposely and unfittingly created by Novak Druce. Despite listing Mr. Bove as its registered agent, Novak Druce neither told Mr. Bove that he was Novak Druce’s register agent nor authorized Mr. Bove to accept service of process. Strangely, Novak Druce continued to list Mr. Bove as its registered agent in Delaware even after the Hearing. In Houston, it appears that Novak Druce maintained no registered agent or address and instructed Polsinelli PC (a law firm now operating out of the former offices of Novak Druce in Houston) not to accept any mail addressed to Novak Druce. This is true even though Novak Druce is winding up its affairs and should be addressing valid claims of creditors in an orderly and effective manner … The Court reviewed Department of State, Division of Corporations and found that Mr. Bove continued to be Novak Druce’s registered agent on the date of the Hearing and thereafter. A creditor seeking to enforce valid claims should be able to rely on Novak Druce’s public representation that Mr. Bove is its registered agent for service of process in Delaware.[4]

The plaintiffs filed their complaint in late December 2016, within a year of the date on which Novak Druce promised all past-due payments would be made. The only defense Novak Druce could offer to the suit was that the plaintiffs’ claims were time-barred by the one-year statute of limitations applicable to the Wage Act, because their last payment was received in September 2015. Judge Davis held that this defense would not avail them:

The test for finding an acknowledgment of debt, such that the debt is taken out of the statute of limitations, is narrowly defined. At one time the rule was that if the debtor “acknowledge[s] the debt to be a subsisting demand or makes any recognition of it as an existing debt, this will be sufficient to take the case out of the statute of limitations. The naked acknowledgment of a subsisting demand without an express promise to pay it is sufficient to take the case out of the limitation of the statute.” However, the rule has been modified in later cases. Kojro v. Sikorski contains the most modern formulation of the rule:

“Although no particular form is necessary, to remove a case from the statute of limitation there must be a clear, distinct and unequivocal acknowledgment of a subsisting debt and a recognition of an obligation to pay it. There must be more than a vague or loose admission of an obligation.

The Kojro court further noted:

There should be no uncertainty as to the debt referred to by an acknowledgment or new promise. The general rule is that to take a demand from the operation of the statute, the acknowledgment should be clear and explicit in relation to the subject or demand in which it refers-that is, the acknowledgment must either identify it or afford the means of identification, either of itself or in connection with the circumstances under which it was made. It follows that where there are two or more distinct obligations due the same creditor, the acknowledgment must itself identify the one or ones to which the promise to pay attaches, and it seems that the bar of the statute is not removed by a general admission of unsettled matters of account between the parties.

So the question is whether statements made by Novak Druce to Mr. Lambert and Mr. Lu were sufficient as a matter of law to remove the alleged debt from the statute of limitations. After comparing the fact patterns in previous cases with the facts here in this civil action, the Court concludes that the statements in question were sufficiently unequivocal to avoid the bar of the statute of limitations.

With both Mr. Lambert and Mr. Lu, Novak Druce’s Chief Financial Officer sent an email that stated what compensation remained outstanding and unpaid. In addition, Novak Druce’s Chief Financial Officer made representations that these withheld amounts would be paid out through the end of 2015. Further support comes from actual payments made by Novak Druce to Mr. Lambert in August and September 2015, and to Mr. Lu through two payments made in September 2015.

Mr. Lambert and Mr. Lu filed the Complaint on December 29, 2016. Given this, the Court finds that, pursuant to Section 8111, the Complaint was timely when it was filed before December 31, 2016. As such, the Court finds and holds that Novak Druce’s defense based on the statute of limitations fails.[5]

Since its dissolution, Novak Druce has been sued by a number of equity and non-equity partners for unpaid compensation.  It is also facing suits from creditors in federal court, including a suit by Citibank demanding repayment of the outstanding balance on a loan and by its former landlord in Wilmington, Buccini Pollin, for unpaid rent.

[1] Kulp v. Timmon, 944 A.2d 1023, 1033 (Del. Ch. 2002).
[2] 19 Del. C. § 1101 et seq.
[3] Lambert v. Novak Druce Connolly Bove and Quigg LLPC.A. No. N16C-12-412 EMD (Del. Super. Sep. 25, 2017), Mem. Op. at 5.
[4] Id. at 6-7.
[5] Id. at 8-9 (citing, inter alia, Kojro v. Sikorski, 267 A.2d 603 (Del. Super. 1970); other internal citations omitted).
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