Warner's offered a settlement on the mortgage, but the bank said no dice. Ron Warner had already begun to make allegations that Bank One was involved in the fraud scheme with the interior design firm's employees, and the bank would not accept any agreement that didn't release all of its directors, officers, agents and employees.

Besides, the bank said, Warner's wasn't offering enough to cover the debt.
Instead, the bank moved to take the building on Osborn.
The court allowed Bank One to foreclose earlier this year on the property where the Warner's Interiors showroom sits. Bank One claims there is a deficiency balance on the property, which means it is still a creditor in the bankruptcy and may continue to pursue Chapter 7 proceedings against Warner's.

The bank contends that it is simply trying to collect its money. And it has pursued that aggressively.

Although Carolyn Warner hadn't filed for bankruptcy, Bank One went so far as to seek to force her into Chapter 7. Warner fought back, arguing that she didn't qualify for Chapter 7 because the bank was the only creditor she wasn't paying.

Although Bank One dismissed its action, U.S. Bankruptcy Court Judge Sarah Curley scheduled a July hearing on possible punitive damages against Bank One.

As to the bigger question, the judge is scheduled in July to decide whether Warner's will be liquidated under Chapter 7 or reorganized under Chapter 11.

Much as Warner's has banked at the same branch of Bank One for more than three decades, the store and the Warners had been represented by the Phoenix law firm of Streich Lang and its predecessors since Warner's was incorporated in 1952.

When Ron Warner discovered the alleged fraud, he initially turned to Paul Gilbert, a friend from the firm of Beus, Gilbert & Morrill. Still, Streich Lang acted as agent on the Warner's Interiors profit-sharing plan until 1988 and has billed and corresponded with Warner's as recently as January 1991.

But more important to the Warners is that Streich Lang still had some of the company's corporate records. The firm faxed 36 pages of Warner's bylaws and incorporation documents within hours after Warner's requested them in conjunction with firing its employees in October 1992.

Ron Warner was more than a little upset when he found out that Streich Lang was representing the bank against him--in the bankruptcy and the civil cases.

Not only did Warner never sign a conflict waiver releasing Streich Lang, he wrote to top executives at both the firm and the bank stating that he felt that the firm had a direct conflict in representing Bank One against Warner's Interiors.

Streich Lang points out that it wasn't until a few months into the bankruptcy that Warner sent his letters about the conflict. And Warner didn't file a motion to the court to disqualify Streich Lang until February 1994--one year after Streich Lang began representing the bank in the Warner's Interiors bankruptcy--which Streich Lang attorneys contended was a stalling tactic.

Warner, of course, says that he didn't realize Streich Lang was representing his adversary until then.

The law firm's attorneys further contend that Streich Lang had not done work for Warner's in several years, and, therefore, has no conflict of interest.

In a January 1994 letter, John Clemency of Streich Lang told Pamela Vining, Ron Warner's bankruptcy attorney, "We have not had an open file on the Warners or Warner's Interiors in years."

Open files didn't become an issue. It was the previous work that bothered Warner. Streich Lang, Warner says, drafted the employee handbook that forms the basis for part of Warner's suit against its former employees and the bank.

And then there are the property issues.
In 1983, Warner's had applied to Bank One, then Valley National Bank, for a business loan. The Warner's showroom has been in a primarily residential area near 26th Street and Osborn Road since before city zoning standards came into play. Warner's was, officially, a legal, nonconforming use on residential property.

But in order to get a loan from the bank, Warner says, the property had to be rezoned for commercial use. This caused great concern among the neighbors. Warner's was a fine neighbor, even a good neighbor, they said. But rezoning the property could open the door for a less-desirable neighbor should Warner's ever decide to move.

Warner's and the neighbors compromised, Warner says, agreeing to deed restrictions on the property that would limit what the property could be used for. Streich Lang represented Warner's in that case.

Those deed restrictions became an issue as Warner's fought against foreclosure. The deed restrictions would make the property worth considerably less, Warner maintained, should Warner's Furniture move out.

Clemency, lead attorney for Streich Lang, now representing Bank One, argued that there were no deed restrictions on the property. And, in fact, there is no record of those deed restrictions having been recorded in Maricopa County. Nor could Warner produce a copy of them.

However, Warner said that that was because Streich Lang had the deed restrictions, as well as a letter confirming the agreement.

The court in March 1994 ordered Streich Lang to hand over any records it still had for Warner's. Streich Lang produced microfilm and various documents, including a record of billing for preparation of deed restrictions.

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1 comments
stoett22
stoett22

It always warms my heart to see how a small business can develop into a million-dollar enterprise with sheer hard work and talent. But when that same business shatters, the feeling can be crushing. Still, this incident at Warner’s not only opened doors to queries, but also opened eyes to the dirty world of money-making.

 
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