The ABC’s for Suing A Bad Business Partner

September 01, 2005

Business Law & Partnerships

Attorney Pavone’s dedication to client and cause is unparalleled.   In September 2005, when Tim Cupps retained Pavone to seek redress from the business partner that cheated and fired him, Pavone, moved by the injustice, took on the challenge.   Cupps had co-founded the business in 2001 with the purpose of later disposing of his interest to assist his ability to retire.

Pavone filed suit in state court in November, 2005.   Repeated gestures were made to settle the case, but the defendant, Paul Mendelson, and his lawyer, Attorney Richard Annen, perceived that neither Cupps (nor his lawyer) would stand up to them.   They refused to settle on any reasonable terms and tried to leverage their financial advantage to avoid all responsibility for Mendelson’s obvious wrongs.

Pavone took Annen and Mendelson to jury trial, twice, winning both times.  Pavone prosecuted a full-blown appeal through the state court system which challenged certain aspects of the judgment.  He filed complaints to CSLB and filed a claim against Mendelson’s contractor bond; he issued liens on Mendelson’s assets, including his business and house.  He moved to intercept his business’ income stream. He filed a second and third lawsuit against Mendelson. He sued Mendelson’s partners. He sued Mendelson’s backers.  He sued Mendelson’s new business. He sued Mendelson’s wife, twice.

Pavone also sued Mendelson’s lawyer, Annen, and Annen’s law firm for legal malpractice and civil racketeering (“RICO”).   At times Pavone was litigating the case in six different forums. Pavone has sued, appealed, or otherwise litigated with everyone connected to Mendelson that helped Paul Mendelson cheat Pavone’s client, Cupps.

Here are the consequences: Paul Mendelson lost the case at both phases of the jury trial and suffered a large judgment.  He filed bankruptcy. The Court of Appeal affirmed the judgment as constituting fraud, and as such, it became non-dischargeable in Mendelson’s bankruptcy.   The fraud judgment will negate Mendelson’s professional credibility for life. It may end up causing discipline, suspension or cancellation of his contractor license.  The bankruptcy and fraud judgment destroyed Mendelson’s credit. The stress and chaos that ensued from the legal battle caused Mendelson to botch aspects of the business, a multi-million dollar concern servicing Abercrombie & Fitch’s construction needs.  Mendelson lost the once-in-a-lifetime Abercrombie client and once he lost Abercrombie, he lost the business all together, a business that generated $300-500K revenue per month. At one point, Mendelson was reported to be hiding in a secret office within his building to avoid being physically attacked by unpaid Mexican laborers.

Pavone’s suit against Mendelson’s attorney, Richard Annen, caused Annen’s law firm (Sparber Rudolph Annen), which had been around since 1974, to disband in 2009 due to internal dissension.   The associate handling the Cupps case was so disgusted with the Annen firm, he quit and now works with Pavone. One of Annen’s former law partners volunteered to testify against Annen. Annen never got paid the $650K in attorney’s fees he advanced to Mendelson during the litigation.  It is estimated that Annen advanced another $100K for Mendelson’s appeal, losing those funds as well. Annen additionally advanced $150K of his own cash in an attempt to save the construction business from his and Mendelson’s legal mistakes — and he lost that money too.

Mendelson got sued in state court in 2005; his bankruptcy was filed in 2008.  Eventually Mendelson was unable to pay his bankruptcy lawyer and settled the case in 2010, marking a 5-year legal disaster which included a needless bankruptcy, a fraud judgment, liens on all of his assets, the loss of his contractor’s license, and the loss of his business.

The malpractice case against Annen was eventually settled after Annen incurred approximately another $100,000 in defense costs, on top of the $650K he lost in fees for defending the case, $150 cash, and $100K defending the appeal, for a total of approximately $1M in losses.

Tim Cupps was the proverbial little guy in the Cupps case.   Paul Mendelson had millions of dollars at his disposal from control of the Abercrombie business and the weight of a high profile San Diego law firm behind him.   But size, money and appearance are merely symbols of strength. They do not measure actual fortitude. Size is not a substitute for ferocity.

The settlement with Mendelson within his bankruptcy and the settlement of the malpractice case against Annen provided Cupps with the retirement package he originally bargained for.

Attorney Pavone: “I prefer to settle a case rather than litigate.   I advocate peaceful, constructive solutions over no-holds-barred battle.  I understand the risks — both real and collateral — inherent in the trial process.  But when I take a case, I make a commitment to the client to go the distance. If an opponent refuses to settle and announces that he wants to go to the mat with me, I will go there.  The attack will last many years. Bankruptcy will not save my opponent. I will take the fight to other forums, and I will litigate in multiple forums simultaneously.”

“Any lawyer can advocate a course of action that satisfies his or his client’s ego, or greed.   Unfortunately, some lawyers fail to appreciate that satisfying these urges comes at the expense of legal war, which poses many risks.  The Cupps case is a dramatic example of this, since the lawyer not only risked and then caused his client’s financial death, the lawyer personally paid an extraordinary price.  This case marks a profound lesson in the wisdom of settlement and compromise. Whatever dysfunctions existed in this opponent that required the extra effort, I am proud to say I went the distance to get my client justice.”


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