Dive Brief:

• National law firm McElroy, Deutsch, Mulvaney & Carpenter filed a motion Thursday to dismiss their former CFO’s petition for Chapter 11 bankruptcy, arguing the ex-CFO is looking to delay pending civil litigation between himself and the firm.
• The law firm filed a civil lawsuit against ex-CFO John Dunlea in June 2023, seeking both compensatory and punitive damages against Dunlea and his wife, Nicole Alexander — also a former employee of the firm — relating to the embezzlement and misappropriation of over $3.2 million in company funds. Dunlea filed for Chapter 11 bankruptcy protection in early July.
• Dunlea “apparently did not file his chapter 11 petition with the primary goal of reorganization or obtaining financial stability,” the Thursday motion filed in a New Jersey Bankruptcy court argues. “Rather, it is evident that Dunlea’s primary goal was to stay, delay and/or frustrate pending litigation with MDMC in state court.”

Dive Insight:

Dunlea served as the law firm’s first combination CFO and chief operating officer beginning 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 by New Jersey Superior Court Judge Stephen J. Taylor after pleading guilty to embezzling over $1.5 million from his former employer, CFO Dive previously reported.

The NJ AG’s office filed criminal charges against Dunlea a few months after MDMC filed its civil suit and reached a plea agreement with the former CFO in May, requiring him to repay more than $1.5 million to MDMC and pay $20,000 to the state of New Jersey where he is a resident, as well as requiring his prison term.

Both the criminal and civil cases concern a decades-long embezzlement scheme where Dunlea, whose duties as dual CFO and COO included overseeing the firm’s wage and salary payment processes, overpaid himself by at least $1.6 million, according to MDMC’s June complaint. The embezzlement concerned both overpaid salary amounts and unauthorized charges made by both Dunlea and his wife, Alexander, on their company American Express cards, totaling over $3.2 million, according to the complaint.

Alexander — who served as the national law firm’s director of legal recruiting beginning in 2005 — filed a countersuit in September where she alleges the firm engaged in discrimination and retaliation against her after terminating her employment in April, and that she had never seen her husband’s Amex statements, CFO Dive previously reported.

The law firm filed a motion for partial summary judgment in its case against Dunlea, with the ex-CFO filing his petition for Chapter 11 on July 9 — the day his opposition complaint was due — in order to stay that deadline and prevent the court from resolving the summary judgment motion, MDMC argues.

“The Debtor has no viable avenue for a chapter 11 reorganization,” the motion argues. “The Debtor lists only seven unsecured creditors, of which the listed debt to MDMC dwarfs the collective listed debt owed to the remaining unsecured creditors.”

Furthermore, if the debt owed to MDMC is determined to be correct by the court — and “a significant amount of it cannot be disputed” given Dunlea’s guilty plea to the NJ AG’s office — that debt will not be dischargeable in bankruptcy, the motion states.

The $1.5 million in restitution Dunlea agreed to pay as part of his plea agreement also isn’t dischargeable in bankruptcy, the law firm said, nor are several other debts owed by the ex-CFO. Dunlea “apparently owes a debt to his ex-wife,” presumably for domestic support, which would not be dischargeable, and listed his current wife, Alexander, as one of his current unsecured creditors with an amount of $80,000, according to the motion.

However, “it should be noted that Alexander, a purported creditor, paid Dunlea’s $20,000 bankruptcy retainer fee to Webber McGill LLC,” the motion says.

Given these factors — and plus the fact Dunlea will be incarcerated for a five-year period and therefore has no “reasonable expectation of timely or adequately” funding reorganization — MDMC is asking that his bankruptcy petition be dismissed and that Dunlea be barred from filing any other bankruptcy petitions for one year.

Kevin Marino, founder of Marino, Tortorella & Boyle P.C. and attorney for MDMC in its case against the ex-CFO, declined to comment beyond the motion. Gary Bressler, a partner at MDMC who filed the Thursday motion, declined to comment. Douglas McGill, attorney with Webber McGill LLC which filed the bankruptcy petition for Dunlea, did not immediately respond to requests for comment.

As Alexander is not a debtor in the bankruptcy filing, “her affirmative claims against MDMC are not stayed or otherwise affected by Mr. Dunlea's bankruptcy filing,” attorney for Alexander, Ayesha Hamilton of Hamilton Law told CFO DIve via email.