Attorneys representing Ahmed Zayat in a complicated bankruptcy proceeding have withdrawn as the owner/breeder's counsel due to delinquent payments, but July 28 this move was challenged as more "delay and interference" for a New York investment firm trying to recover $24 million in defaulted loans made to Zayat Stables.
Attorneys representing MGG Financial Group, the investment firm that has been since February 2020 pursuing fraud charges associated with defaulted loans made to Zayat Stables, sees the withdrawal of counsel primarily as an act of gamesmanship.
"As this court is well aware, there are numerous time-sensitive matters that are going to be forced into a state of abeyance as a result of the filing of the Motion to Withdraw," wrote attorney Paul Hollander with Okin Hollander in a July 28 request to U.S. Bankruptcy Judge Vincent Papalia for a status conference. "Indeed, the Motion to Withdraw, in our view, is motivated in large part by a desire to delay or interfere with the present proceedings."
A mediation hearing with MGG is scheduled for Aug. 12.
"It seems especially troubling that the Motion to Withdraw is premised upon the Debtor's supposed failure to pay his counsel," Hollander continued, "when the parties plan to hold a mediation in just a few weeks at which the Debtor's good-faith participation would require him to make a very significant payment to resolve these matters. This means that either the Debtor's refusal to pay his counsel is strategic, or the mediation will be, contrary to the Debtor's representations and commitments, a pointless endeavor."
Jay Lubetkin, a partner with the firm Rabinowitz, Lubetkin & Tully with the primary responsibility of managing financial affairs, wrote in a July 26 notice filed with U.S. Bankruptcy Court of New Jersey that Zayat owes the firm $368,273 and that no payments have been made since May 5. Zayat reportedly agreed to make monthly payments of $50,000.
"The Debtor has been consistently advised that absent satisfactory arrangements for the payment of the outstanding fees and expenses due our firm and newly incurred billings, the firm would have no alternative but to seek to withdraw from the representation of the Debtor," Lubetkin wrote. "I attempted at least nine times during the month of July to communicate with the Debtor regarding status of payments to our firm, without substantive or satisfactory response by the Debtor."
Lubetkin went on to note that Zayat has relationships with numerous other attorneys capable of representing him and that "based on the Debtor's intelligence, and the detailed statutory and case law information which has been shared with the Debtor, the Debtor is fully capable of representing himself in his main bankruptcy case and the Adversary Proceedings."
Papalia allowed Rabinowitz, Lubetkin & Tully to withdraw having concluded the action "can be accomplished without material adverse effect on the interests of the Debtor" and that continuing will "result in an unreasonable financial burden on the law firm."
Hollander argued in his letter to Papalia for a status conference next week to ensure there is no delay in efforts to access Zayat Stables' electronically stored information, that subpoenas and depositions continue to move forward on behalf of the Chapter 7 bankruptcy trustees, and that a deadline is set for Zayat to identify any substitute counsel or disclose if he intends to represent himself.
Clement Farley, an attorney representing bankruptcy trustee Jeffrey Testa for the estate of Zayat Stables, also submitted a letter to Papalia urging the request for a status conference and to prevent any delay in securing information stored in the electronic devices of those principally involved in Zayat Stables or in any cloud storage system utilized by the stable.
Bankruptcy trustees have been wrestling with repeated delays and efforts to thwart proceedings according to court documents. Last month, a motion to reject subpoenas from David Biase, Chapter 7 trustee for the estate of Ahmed Zayat, was filed by attorneys for Ahmed Zayat's wife Joanne, sons Justin and Benjamin, his daughter Emma, and a company run by Justin Zayat named JPZ Holdings.
In his response to the effort to quash the subpoenas, Biase called the motion "an exercise in gamesmanship, obstruction, and delay."
Justin Zayat, the president of Zayat Stables, was the beneficiary of nearly $1 million in transfers at a time when the financial condition of the stable and his father "were deeply troubled," according to court documents. JPZ Holdings also reportedly received millions of dollars in payments from Ahmed Zayat's brother and creditor, Sherif Zayat, who also provided a "string of very substantial payments" to Zayat Stables during 2017-19.
Joanne Zayat received more than $1 million in direct transfers from Zayat Stables. She is jointly named on every material bank account used by Ahmed Zayat and is also a joint account holder with Justin Zayat. The accounts of Justin Zayat, Joanne Zayat, and JPZ Holdings have been and are continuing to be used by Sherif Zayat to pay his brother's claimed $72,000 in monthly expenses, according to court filings.
