Key Takeaways:

  • National law firm McElroy, Deutsch, Mulvaney & Carpenter filed a motion Thursday asking a court to dismiss its former CFO's Chapter 11 bankruptcy filing, arguing the former executive intends to delay the firm's pending civil litigation against him.
  • The firm filed a civil lawsuit against former CFO John Dunlea in June 2023, seekingcompensatory and punitive damagesagainst Dunlea and his wife, Nicole Alexander, also a former firm employee, over the couple's misappropriation of more than $3.2 million in firm funds. Dunlea filed for Chapter 11 bankruptcy protection in early July.
  • The motion, filed Thursday in New Jersey bankruptcy court, states that Dunlea "obviously did not file for Chapter 11 bankruptcy with the primary goal of reorganization or achieving financial stability. Instead, it is clear that Dunlea's primary purpose is to stay, delay, and/or obstruct the pending litigation with MDMC in state court."

Deep Dive:

Dunlea served as the firm's first executive to hold both the CFO and COO titles starting in 2007 until his termination in April 2023. The motion to dismiss his bankruptcy filing comes after Dunlea was sentenced to five years in state prison before New Jersey Superior Court Judge Stephen J. Taylor for admitting tomisappropriating more than $1.5 million from his former employer, CFO Dive previously reported.

The New Jersey Attorney General's Office brought criminal charges against Dunlea months after MDMC's civil lawsuit, and in May reached a plea agreement with the former CFO requiring him to repay more than $1.5 million to MDMC, pay $20,000 to the state of New Jersey where he resides, and serve a prison sentence.

According to MDMC's complaint filed in June, both the criminal and civil cases involve a decades-long embezzlement scheme. Dunlea, as the executive holding both CFO and COO titles, had responsibilities including overseeing the firm's payroll and compensation processes, through which he overpaid himself by at least $1.6 million. The complaint alleges the misappropriation included both excess compensation and unauthorized charges on the company American Express card by Dunlea and his wife Alexander, totaling more than $3.2 million.

Alexander — who served as the national firm's director of legal recruiting since 2005 — filed a counterclaim in September alleging discrimination and retaliation after the firm terminated her in April, and stated she never saw her husband's American Express statements, CFO Dive previously reported.

The firm has filed a motion for partial summary judgment in its case against Dunlea, and the former CFO filed for Chapter 11 bankruptcy on July 9 — the day his opposition brief was due — to stay that deadline and prevent the court from ruling on the summary judgment motion, MDMC argues in its motion.

"The debtor has no viable path to reorganization under Chapter 11," the motion states. "The debtor lists only seven unsecured creditors, with the listed debt to MDMC far exceeding the combined listed debt of all other unsecured creditors."

Furthermore, the motion notes that if the court finds the debt to MDMC is valid — and given Dunlea's guilty plea to the New Jersey Attorney General's Office, "a substantial portion of that amount is undisputable" — that debt is non-dischargeable in bankruptcy.

The firm also states that the $1.5 million restitution Dunlea agreed to pay in his plea agreement is also non-dischargeable in bankruptcy, as are several other debts he owes. According to the motion, Dunlea "apparently also owes a debt to his former wife," presumably for family support, which is non-dischargeable; and he lists his current wife Alexander as one of the current unsecured creditors for $80,000.

However, "it should be noted that Alexander, as the purported creditor, paid Dunlea's $20,000 bankruptcy retainer fee to Webber McGill LLC," the motion states.

Given these factors — coupled with the fact that Dunlea faces five years in prison, and therefore has no "reasonable expectation to timely or adequately" fund a reorganization — MDMC requests the court dismiss his bankruptcy filing and bar Dunlea from filing any bankruptcy petition again for one year.

Kevin Marino, founder of Marino, Tortorella & Boyle P.C. and MDMC's counsel in the case, declined to comment beyond the motion. Gary Bressler, the MDMC partner who filed Thursday's motion, declined to comment. Douglas McGill, the Webber McGill LLC attorney who filed the bankruptcy petition for Dunlea, did not immediately respond to a request for comment.

Because Alexander is not a debtor in the bankruptcy filing,"her affirmative claims against MDMC will not be stayed or otherwise affected by Dunlea's bankruptcy filing," Ayesha Hamilton of Hamilton Law, Alexander's attorney, told CFO Dive in an email.