June 4, 1999

Portland, Maine

Nearly 14 years after Catherine Duffy Petit filed a lawsuit against them in York County Superior Court alleging tortious interference which resulted in her losing ownership of the Old Orchard Beach Pier, Key Bank of Maine formally proposed to settle the case with the bankruptcy trustee of Petit’s estate for $1.75 million.

That sum is $2.2 million less than Key Bank’s co-defendants – the Portland law firm of Bernstein, Shur, Sawyer & Nelson settled for in 1990 – and $18.25 million less than Key Bank’s lead counsel, Ralph Lancaster of Pierce Atwood, suggested it would cost the bank in a memo he wrote in 1987.

Last year, State Senator Peter Mills, hired by the bankruptcy court as special counsel to evaluate the worth of the Key Bank case, suggested the case merited being heard in a court, the chances of recovery were strong and any damages would be bolstered by an additional 94% interest.

Approximately two dozen creditors who showed up at the hearing in U.S. Bankruptcy Court in Portland Wednesday concurred, standing up when prodded by another creditor to express their desire to see the case brought to trial.

John Boyajian, counsel for trustee Stephen Nottinger, told U.S. Bankruptcy Judge Arthur Votolato, that the trustee had received an offer from Key Bank that morning and determined that it was best for the estate to accept it.

Stephen Gordon, Petit’s bankruptcy lawyer, argued strenuously that the proposed settlement would be to the detriment of the creditors and only reward the lawyers who have worked on the case since 1993.

"For Key Bank to buy their way out for $1.75 million would be an absolute, total, out-and-out victory for Key Bank,’’ Gordon lashed out. To settle this case for that amount is in no one’s interest but Key Bank’s. I don’t know that a penny of that would ever get to the creditors, so what’s the point."

TANGLED BANKRUPTCY PROCEEDINGS

Creditor William Lumb, who was allowed to read a four-page statement by Judge Votolato, echoed that sentiment. Votolato suggested that the move to allow Lumb to read was highly unusual, but he was clearly swayed by the emotions of the spectators.

At one point, when Portland attorney John Connor addressed the judge on a point of law after Lumb requested to speak, many of the creditors in attendance shouted "Let him speak," referring to Lumb. Votolato angrily gavelled the courtroom to order.

Connor represent creditor New England Home Mortgage Co., who he says is owed approximately $1 million by Petit.

In an interview after the hearing Connor acknowledged Petit’s claim that he consulted with Pierce Atwood attorney John Aromando, now lead counsel for Key Bank, before filing a petition for involuntary bankruptcy, effectively taking the Key Bank lawsuit out of Petit’s hands and putting it into the hands of a court-appointed trustee.

"I did review documents pertaining to Petit’s lawsuit against Key Bank at their office, but many attorneys share information with each other,’’ Connor said. "It’s not that unusual.’’

Connor agreed that it was in Key Bank’s interest to have Petit placed into involuntary bankruptcy. However, he said, he took the action to prevent Petit from keeping any money from a potential settlement with the bank and not paying her creditors. This, he said, she did when she received the $3.9 million from the Portland law firm.

Connor said he was not aware of an accounting presented into evidence at Petit’s criminal trial that showed that a number of her creditors were paid by a Boston law firm charged with disbursing the settlement.

Connor was joined in the involuntary bankruptcy petition by attorney Neil Shanckman, a former partner of Thomas Blackburn, the government’s star witness in the Petit trial, and the George Lewis Trust, a major Key Bank stockholder and a representative on the bank’s board of directors until the early 1990’s.

CONFLICTS OF INTEREST

In his statement, Lumb said that he and other creditors were prepared to fund the Key Bank lawsuit, as they were prior to Petit’s conviction in March on 78 felony counts of conspiracy, money laundering, and mail, securities and bankruptcy fraud.

Lumb lambasted the "layers of lawyers upon layers of cost" that have tied up the Key Bank case in seemingly inextricable knots. He also suggested that a number of lawyers involved in the case have been conflicted.

Attorney Peter Garcia from the Lewiston law firm of Skelton, Taintor & Abbott, who represents several creditors in the estate, is severely conflicted, Lumb said. According to Lumb, Garcia’s partner, Charles Abbott, was disqualified from testifying as an expert witness in a case in York County Superior Court.

That case was filed by Key Bank against Pepperell Trust Bank and the Portland law firm of Verrill & Dana, claiming they failed to indemnify the bank against any claims brought by Petit. The case was settled just as the Petit trial got underway.

When asked after the hearing Wednesday about Lumb’s allegations, Garcia claimed it was the first he had heard of them.

Petit claims Garcia was in attendance at the hearing when Abbot was disqualified because of his representation of Key Bank’s counsel in the 1987 lawsuit filed by Scarborough Downs racetrack owner, Joe Ricci. Ricci won a $15 million judgement from the bank in a case that has some similiarities with Petit’s allegations.

In a phone conversation Friday, Garcia said he was not aware of any disqualification of Abbott, let alone did he attend a hearing. He said Lumb did not give him copies of his statement, so he was unable to respond to allegations that he has a conflict in representing 19 people in the bankruptcy proceedings. All of his clients were also named as victims in the government’s indictment against Petit, Garcia said.

In addition, Petit claimed last year that Garcia, who also represented a number of Sun Life investors in their settlement with the state, attempted to round up a class-action lawsuit against her on behalf of the investors. According to some Sun Life investors, Garcia and Lewiston attorney Paul Murphy were referred to them by the Maine Securities Division and the state Attorney General’s office.

Garcia denied Friday that he tried to get together a class-action lawsuit against Petit. Instead, he said he filed a number of individual lawsuits on behalf of investors related to the Key Bank investments. Petit, Garcia said, was not a defendant in those suits.

Garcia is also listed in bankruptcy court filings in 1995 as having filed an $833,000 claim against Petit’s estate on behalf of RAM Investments, owned by Roland Morin. The claim was later withdrawn.

Morin was convicted on conspiracy and bankruptcy fraud charges in the six-week trial. The bankruptcy fraud charges are related to the withdrawal of the claim filed by Garcia. He said Friday he could not comment on the claim without first contacting Morin for permission.

Most Sun Life investors agreed to accept their portion of the $2.3 million settlement. Some were paid 100% of their investment, others 80%. As conditions of the settlement, they were told not to talk about the settlement – even with each other – and agreed to testify in proceedings against Petit and other defendants.

If they violated that agreement, according to at least two Sun Life victims, they were told it would be revoked and they would get nothing.

At least one Sun Life investor – Roland Leveque of Lewiston - refused to accept the settlement. He said that he found the attorney’s 33% contingency fee excessive for simply having them sign an agreement hammered out between the state and the insurance company

CREDITORS PREPARING LAWSUIT

In his statement, Lumb also suggested that some creditors have consulted with attorneys and are prepared to bring a lawsuit against the "various professionals and or parties who participated in a course of misconduct which interfered in an advantageous business relationship which Old Orchard Ocean Pier Co. enjoyed."

That company was one of three owned by Petit in relation to her proprietorship of the venerable Old Orchard Beach Pier.

Also in attendance at the hearing was former Portland attorney Richard Poulos. Poulos represented Petit during much of the 1980’s and 90’s in the Key Bank case. Later, she filed a statement in bankruptcy court claiming that she might bring a malpractice claim against Poulos for his representation.

Poulos subsequently spoke to both the state Attorney General’s office and the U.S. Attorney’s Office about Petit’s fund-raising activities. He made a criminal referral to Assistant U.S. Attorney Paula Silsby in January 1996, kicking of their investigation into what they claim is Maine’s largest investment fraud to date.

U.S. ATTORNEY’S OFFICE ATTENDS HEARING

Also in attendance was Nancy Evans, a U.S. Attorney’s office paralegal. In a motion filed with U.S. District Court Chief Judge D. Brock Hornby last month, Petit alleged that Asst. U.S. Attorney Donald Clark intervened in her bankruptcy case by contacting the attorney for a creditor and suggesting they accept Key Bank’s settlement offer.

Petit also alleged that Clark committed prosecutorial misconduct on a number of occasions. Clark, she claimed, withheld evidence, filed false and misleading material with the Probation Department, threatened witnesses and her attorneys with possible indictments, and named her 23-year-old son as the target of a federal grand jury for his efforts to have Sun Life investors write to Judge Hornby and ask that his mother be allowed to stay in Maine and press forward with the Key Bank case.

Judge Hornby dismissed the motion because Petit did not file it through her attorneys. Clark refused to comment on the allegations.

Petit is scheduled to be sentenced Tuesday, June 8 at 8:30 a.m. in U.S. District Court in Portland. Her co-defendant, Paul Richard. will be sentenced the next day at 9:30 a.m.

Government witnesses Thomas Blackburn, James Erskine and Robert Paradis – who all pleaded guilty to felony counts in exchange for sentencing leniency – have had their sentencing postponed so that they can testify against former Sun Life insurance agent, Stephen Hall.

Hall was granted a mistrial after his attorney fell ill during the six-week trial. He recently refused to accept a 78-month plea agreement from the U.S. Attorney’s office, opting instead for a jury trial. It is expected to start in September.

His brother David Hall and co-defendant Morin will be sentenced next week also.