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With big money on the line, Cellino & Barnes case explodes in court

There were angry allegations from Ross M. Cellino Jr. about Stephen E. Barnes' "lies," "bullying" tactics and "secret meetings. " He accused his estranged law partner of improperly funneling $1.3 million in law firm funds to a California operation that financially benefits only Barnes.

There were angry claims from Barnes that Cellino engaged in selfish, appalling and "reprehensible behavior," putting his own interests first "in utter disregard of the best interests of the law firm."

Everyone involved claims to have done nothing wrong. And everyone involved agrees that the Cellino & Barnes law firm is very profitable — especially for its two battling founders.

It's all now part of the nastiest, most high-profile legal battle in town — the State Supreme Court litigation over Cellino's attempts to break up the multi-million dollar law firm that he and Barnes started about 25 years ago.

Attorneys for Cellino told Judge Deborah A. Chimes on Thursday that relations between the two estranged partners are so badly broken that the law firm can no longer function properly. They said Barnes has kept Cellino in the dark about business decisions, and bullied and threatened lawyers and other employees, insisting that they take his side, no matter what.

"If compelled by this court to continue, Cellino & Barnes would become a forced marriage that would not be able to serve anyone's interests," said Cellino attorney Terrence M. Connors, "failing its shareholders, employees and mostly its clients."

New court filing: Cellino says 'bully' Barnes created 'venomous culture'

Although Barnes claims that Cellino's attempts to break off and start his own firm would cause "irreparable harm" to Cellino & Barnes, his attorney, Gregory P. Photiadis, told Chimes that the law firm continues to be a huge success.

According to Photiadis, the number of clients has increased by nearly nine percent since early May, when Cellino filed his legal action seeking to break up the firm. He and co-counsel Paul J. Cambria insist that Cellino's plans to leave the firm would hurt not only Barnes, but hundreds of employees and thousands of Cellino & Barnes clients.

"The firm is functioning as a well-oiled multi-million dollar machine," Photiadis said. Even the immense amount of "negative publicity" surrounding the proposed breakup has not stopped the firm from soaring, he added.

And, he gave the judge an idea of how much money has been rolling in for the firm's two founders.

$40 million in four years — each

Over the past 11 weeks, according to Photiadis, Cellino and Barnes have each received $2 million in profits from the company. And over the past four years, each man has made $40 million — four years of $10 million paychecks.

"A law firm is not a machine," said Connors. His client made a long list of allegations of wrongdoing against Barnes in court papers filed Thursday.

Among the allegations:

· Barnes in recent years has been directing some of the firm's cases to its offices in California, offices that are now owned entirely by Barnes. Cellino said the California offices are a "distinct entity" from the Cellino & Barnes firm, and he said Barnes derives an "overwhelmingly greater percentage" of profits from the California firm than he does from Cellino & Barnes.

In 2016, according to Cellino, Barnes used $1.3 million in Cellino & Barnes funds for technology and other expenses that solely benefit the California firm. Cellino said that, when he raised questions about these expenditures in May of this year, Barnes reimbursed Cellino & Barnes for $927,000. Cellino also claims that Barnes made these expenditures without telling him, and he also claims that Barnes's California firm does not adequately reimburse Cellino & Barnes for use of its (800) 888-8888 phone number.

Cellino noted that, in California, lawyers are allowed to receive up to 40 percent of an award their client receives in a verdict or settlement, while in New York, attorneys get one-third.

Cellino alleged that Barnes uses Cellino & Barnes as his California firm's "personal piggy bank, extracting funds, infrastructure, employee time, and other benefits as he sees fit. These practices are the hallmark of a broken relationship, trust, and partnership, and exemplify the need for dissolution," Cellino said in court papers.

Those accusations are untrue, Cambria said.

Barnes accuses Cellino of 'reprehensible conduct,' seeks restraining order

In a court affidavit, Cellino & Barnes managing attorney, Robert J. Schreck, said he has never seen Barnes do anything to show special consideration to the California offices. Schreck was one of 28 lawyers or employees who filed statements with the court siding with Barnes in the dispute.

The California operation has always reimbursed Cellino & Barnes for any expenses generated there, said Daryl Ciambella, chief operations officer for the firm.

· Cellino said he favors giving Cellino & Barnes attorneys 50 percent of the proceeds of a case that they bring to the law firm and win. He said Barnes insists that the lawyers receive no more than 10 percent, 20 percent, or in some cases, 33 percent.

Cellino claimed that Barnes has been "bullying" attorneys in the firm into signing statements supporting Barnes and criticizing Cellino. According to Cellino, when one lawyer refused to sign such a statement, Barnes called him a "coward" and the lawyer wound up leaving the firm.

· For the first time in court papers, Cellino confirmed that Barnes' refusal to hire one of Cellino's daughters as a lawyer for the firm was a bone of contention. He said Barnes "flatly refused" to hire Cellino's daughter in 2012, saying there should be an "anti-nepotism policy" at the firm, "notwithstanding the fact that...Barnes' brother and girlfriend also work at the firm."

"Although this was not a defining reason for requesting dissolution, this dispute represents just how deep the divide is," Cellino wrote.

Sources: Barnes' refusal to hire Cellino's daughter sparked rift

He added: "The issues on which petitioner Cellino and respondent Barnes disagree are fundamental and pervasive. The disagreement touches nearly ever aspect of Cellino & Barnes ... including its internal management, external marketing and overall philosophy."

In an interview, Cambria told The Buffalo News that all of Cellino's allegations will be answered and addressed in court papers before Judge Chimes decides whether the law firm should be broken up.

'Profits are soaring'

What is the point of keeping the law firm intact when one partner — Cellino — feels he can no longer function there? What is the reason for keeping a law firm together when the two founders are at each others' throats?

The case is much bigger than the individual concerns of Cellino and Barnes, Cambria said. He said the firm should be held together for the benefit of hundreds of employees and thousands of clients.

"In the end, the judge is going to consider what the law says — and the law says the best interests of the firm are key," Cambria said. "Self-inflicted angst by one of the partners is not a basis for dissolution. The judge has to look out not only for the interests of the two stockholders, but the clients, the employees and the public."

"Profits are soaring," Cambria added. "All Ross Cellino has to do is sit back and collect checks. And they are very big checks."

Connors said a law firm is about more than making money. He said Cellino wants to run a highly ethical law firm like the one his now-retired father, Ross Cellino Sr., started in the 1950s.

"They say it's profitable. We never debated that it's profitable," Connors said. "That is not the issue here."

Both sides claim victory

A 35-minute court debate ended Thursday afternoon with Chimes refusing Barnes' request for a preliminary injunction that would have placed limits on Cellino's conduct while she decides whether to grant his request for dissolution of the Cellino & Barnes law firm.

But she also told parties on both sides not to take any action that would disturb the "status quo" of the law firm's operations.

"Don't take matters into your own hands," the judge said.

"We won on all counts today. The judge said that the other side has not proven that there is a likelihood that they will succeed in their efforts to prevent the dissolution," Connors said. "That is significant."

But Cambria, who was not at the hearing but commented afterward, said preserving the "status quo" was a win for Barnes.

"Connors is dreaming if he calls this a victory," said Cambria, who has battled with Connors many times over the decades. "The merits of this case are a long way from being decided."

Chimes also turned down a request from Photiadis for a "gag order" that would have barred both sides from talking to the press.

Cellino attended the court proceeding. Barnes did not.

When a News reporter asked Cellino for a comment after the judge made her ruling, one of his attorneys — Vincent E. Doyle III — stopped the would-be interview by jokingly putting his hand over Cellino's mouth.

Decision after Sept. 25

The judge indicated she will rule on the dissolution request sometime after Sept. 25.

If she grants Cellino's request to dissolve the firm, she could appoint a receiver to oversee the split of assets between the two men. Those assets would include lawyers, employees, technical equipment, offices, an estimated 12,000 cases and even the firm's famous 888-8888 phone number.

Efforts to reach a mediated settlement have so far been unsuccessful.

News Staff Reporter Melinda Miller contributed to this report.

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