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Do-over ordered in Ft Lauderdale bankruptcy after judge wouldn’t drop case involving fiancé’s firm

headshots of judge john olson and steven fender
headshots of judge john olson and steven fender
U.S. Bankruptcy Judge John Olson, right, and his spouse, attorney Steven Fender

By Noreen Marcus, FloridaBulldog.org

For more than a decade, legal bickering over what’s left of the defunct Trafford Distribution Center, a warehousing business, has produced a raft of rulings and appeals out of bankruptcy court in Fort Lauderdale.

Now the litigation has new impetus to go on racking up attorney and trustee fees that apparently already top $1 million. That isn’t unusual in bankruptcy court, but this is: The trouble began when a judge refused to recuse himself after his fiancé took a job at a law firm that the judge later handed a lucrative ruling.

On Sept. 9, U.S. District Judge Federico Moreno became the second federal jurist to criticize the U.S. bankruptcy judge, John K. Olson, for failing to step away from the Trafford matter. Like U.S. District Judge Cecilia Altonaga, Moreno focused on the bigger picture of how Olson’s actions look to the general public, and how they comport with the rule that judges must recuse themselves in cases where their impartiality is questionable.

Trafford “comes amid a long history of concerns of favoritism in the bankruptcy bar,” Moreno wrote in his order returning the case to Judge A. Jay Cristol, now presiding over the  bankruptcy estate. Moreno called for a new bench trial and tossed Olson’s judgment, including an $80,000 sanction against the firm opposing his fiancé’s.

Up for reappointment to bankruptcy bench

Olson finally recused himself in 2010 after Moreno suggested it was the right thing to do. Olson’s 14-year term is expiring, and he’s up for reappointment by the U.S. Court of Appeals for the 11th Circuit.

George Steven Fender, the fiancé who went on to marry Olson, has a solo practice in Fort Lauderdale. He was with Ruden McClosky, onetime counsel to the Trafford trustee, before it dissolved in 2011.

Miami U.S. District Judge Cecilia Altonaga. Photo: Federal Bar Association, South Florida Chapter

Ruling on Aug. 9, 2019 in a different Trafford appeal, Altonaga issued an order that was more pointed than Moreno’s. “The public could reasonably question a headline reading, ‘Judge finds in favor of trustee after trustee’s counsel hires the judge’s fiancé,’ “ she wrote.

Judicial rules prevent Olson from commenting on pending litigation.

Trafford arose from the ashes of Source W, once a thriving printing business in Pittsburgh owned by Joseph Wortley of Boca Raton. After the printing business failed, Source W’s warehousing operation remained viable to serve condiment giant H.J. Heinz & Company.

Warehousing business

Wortley’s wife, Barbara Wortley, started a warehousing and fulfillment business in Florida in 2003 with shelving and other materials from Source W. Five years later, regulatory and other financial issues forced her to file for bankruptcy, according to her appellate lawyer’s brief in the case before Moreno.

Federico Moreno

Trustee Soneet Kapila hired as his counsel Michael Bakst of Ruden McClosky. They pursued Wortley as an adversary, claiming she had worked against Trafford’s best interests, and sued her for $2.7 million. That claim is pending on appeal before U.S. District Judge Ursula Ungaro.

Kapila and Wortley did not respond to requests for comment from Florida Bulldog. Wortley’s lawyer, Douglas Broeker, declined to comment.

Bakst did not respond to a request for comment. He characterized the recusal quest conducted by Wortley’s lawyers as blowback against a negative ruling and a “fishing expedition,” according to the transcript of an Aug. 26, 2010 hearing before Moreno.

Olson’s part of the Trafford case started as a $230,000 claim based on an agreement Wortley used to raise cash for the business. After he ruled favorably for the claim-holder, Wortley’s attorneys, Robert Sweetapple and his partner Broeker, filed their recusal motion.

Finding out

They wrote that they had just learned Olson’s fiancé Fender was working for Ruden McClosky in the firm’s West Palm Beach office, where he was part of a bankruptcy practice headed by Bakst. Fender negotiated for the job at the same time Olson was ruling against them, they asserted.

“None of this was ever disclosed,” Broeker said at the time.

Olson responded indignantly. In his order denying the recusal motion, he said he had no financial stake in Ruden McClosky through Fender because he was a salaried employee, not an equity partner in the firm. Olson cited opinions that he said clearly showed there was no need for him to give up the case because of his fiancé’s separate financial interest.

“Whether movants’ counsel did not adequately research the case law on this subject, or simply did not digest it, I do not know. But fiery, impassioned oral argument in the face of a glass mountain of precedent, with no acknowledgment of that glass mountain, and no hint at a good faith basis for a change in the law? This is normally sanctionable,” he wrote in the Sept. 16, 2010 order.

“The only reason why sanctions are not warranted here despite this appalling lack of diligence is the ‘layman perception’ rule.” Olson added.

Moreno disagreed and, soon after, Olson recused himself. Nine years later, the parties are experiencing the consequences of that recusal. And an end to the Trafford bankruptcy is nowhere in sight.

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