GOLENBOCK EISEMAN ASSOR BELL 8e PESKOEur

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1 GOLENBOCK EISEMAN ASSOR BELL 8e PESKOEur Attorneys at Law Madison Ave., New York, NY T (212) I F (212) I OrHECr Dia[. No, :!2 / 2J DiRecr Fax No.: (2 / 2J ADDRESS: DE/SEMAN~GOLENBOCK.COM BY HAND AND ELECTRONIC FILING Supreme Court of the State of New York, New York Count 60 Centre Street Koom 615 New York, New York Re: Arkin Kaplan Rice LLP v. Kaplan, et al. (Index No /20 1 2) Dear Justice Sherwood: We represent the Plaintiff, Arkin Kaplan Rice LLP ("AKR"), in the abovereferenced action. We write in response to the letter submitted to the Court by Defendants' counsel, Arthur Ciampi, Esq., on Friday, July 27, In his letter, Mr. Ciampi complains of certain actions allegedly taken by Stanley Arkin, Esq., AKR's majority owner, in connection with AKR's billing system and the purchase of tail insurance. Mr. Ciampi asks for a Court conference. Mr. Ciampi's complaints have no anerit and there is no need for a Court conference. Not only does Mr. Ciampi's letter fail to tell the whole story with respect to these matters, thereby misportraying the situation entirely, but it makes allegations against Mr. Arkin that are plainly false and can have no purpose except to attack Mr. Arkin personally and to distract the Court from the fact that Defendants still have not accounted to AKR for receivables t~iat Defendants admitted in Court they had billed for themselves. Below, we set out the relevant facts. In addition, an affidavit from Kris Collins is submitted together with this letter. The facts show no "unilateral action xequir[ing] Court intervention," as Mr. Ciampi asserts. Following our discussion of the facts, we take the liberty of making a proposal for an expeditious resolution of the disputes between the parties. Defendants Were 1~'ot Locked Out ofakr's Billing System by Mr. Arkin or Anyone Else I~ Ir. Ciampi asserts that Howard Kaplan and Michelle Rice "were locked out of the AKR billing and financial system based upon Mr, Arkin's instructions." This is untrue.

2 Page 2 AKR maintains acomputer-based billing system. While AKR was in operation, each of its attorneys was able to log into that system with his or her own password, and enter billable time and descriptions of work. Attorneys including partners have never been able to access the system to view other attorneys' time and work entries. The same is true with respect to the financial information maintained in the billing system; attorneys, including partners, have never had direct access to it. The only person with full access to all the information is the person designated as "administrator." While AKR was operational, Kris Collins and her assistant, Jocelyn Pintor, knew the administrator password allowing for administrative access. No attorney or partner (whether it be Mr. Arkin, Mr. Kaplan or anyone else) had such access. As the Court knows, on May 17, 2012, Defendants formed their own law firm and hired certain of AKR's associates. Ms. Pintor also accepted employment with Kaplan Rice LLP and as a result was told she would no longer be in AKR's employment on July 18, About a week after Ms. Pintor was terminated, on July 25, Ms. Collins changed Ms. Pintor's password, such that Ms. Pintor could not access AKR's billing system, and also changed the "administrator" password on that system. As set forth in Ms. Collins' affidavit, Ms. Collin's actions were prompted by her suspicion that Ms. Pintor (at the instruction of her new employer, Defendant Howard Kaplan) had intentionally failed to deposit to AKR's account checks written by Arkin Solbakken to reimburse AKR for certain payroll payments made by AKIN to Arkin Solbakken employees. As Ms. Collins also states, she believes that Mr. Kaplan wanted Ms. Pintor to delay this deposit in order to create a false record that Arkin Solbakken had not reimbursed AKR, in order to support an allegation that Defendants have made in this lawsuit. Notably, the affidavit from Ms. Pintor that Mr. Ciampi attaches to his letter admits that the checks at issue were not deposited (albeit while contending that the reason for the failure was innocent). The very next day, July 26, Ms. Collins restored Ms. Pintor's password so that Ms. Pintor could have time entry access. At no time did Ms. Collins change Mr. Kaplan's or Ms. Rice's passwords or otherwise alter their ability to access AKR's system. At most, Ms. Collins prevented Ms. Pintor not Defendants from accessing the system for a period less than 24 hours, and her individual access was restored prior to the time Mr. Ciampi wrote his letter to the Court. Her status as an "administrator" has not been restored since, unlike Ms. Collins, she no longer works for AKR. In short, Defendants were not locked out of the billing and financial system. None of AKR's partners has ever had direct access to the information Defendants now claim they were blocked from accessing. Mr. Kaplan and Ms. Rice have continued to have the same access to the billing and financial information on AKR's billing system that they have always

3 Page 3 had. It is the sanne access, moreover, that Mr. Arkin and Ms. Solbakken have: when they need billing or financial information that only an "administrator" can view, they can request that information from Ms. Collins. Ms. Collins has always been responsible for accessing that information upon request by an AKR attorney, and still generates that information when requested by any AKR partner, including Defendants. In addition to inaccurately portraying the events relating to the billing and financial system, Mr. Ciampi's letter falsely accuses Mr. Arkin of giving "instructions" to limit Defendants' access to the system. Mr. Arkin gave no such instructions and Defendants have no basis to allege that he did. Mr. Arkin Dick Not Eradicate Defendants' Adjustments to Pie-bills Mr. Ciampi asserts that "Mr. Arkin has provided our clients with copies of `prebills' which eradicated multiple necessary edits and adjustments made by our clients to the bills." This is untrue. AKR's billing system generates bills for its clients. Typically, the billing process bzgins with the running of a "pre-bill." The pre-bill captures all of the time and work descriptions entered for any given matter. An AKR partner then reviews the pre-bill, makes corrections, and may also "write off ' or discount some of the billed time. A final bill then is generated and sent to the client. The "eradication and adjustments" that Defendants complain about were caused by Defendants' own actions. After the Court's July 20 ruling, Defendants entered their April time into AKR's billing system. They had not entered that time previously. Before they entered their April time, Defendants had generated pre-bills for certain matters and made edits to those pre-bills. Because these pre-bills did not include Defendants' time for April, however, new pre-bills had to be run after Defendants entered their April time. An unintended (and purely mechanical) consequence of re-generating the pre-bills was that previously-made edits or adjustments were lost. Had Defendants entered their April time before editing the pre-bills, there would have been no need to re-generate the pre-bills, and no edits or adjustments would have been lost. Notably, Ms. Collins advised Mr. Kaplan that she was running new pre-bills, and he did not object. Mr. Ciampi's entirely false accusation that Mr. Arkin had anything to do with "eradicated" changes to the pre-bills is wholly unsupportable. Putting this allegation in a letter to

4 GOLENBOCK EISEMAN Page 4 the Court is especially egregious because Defendants, who have practiced with Mx. Arkin for many years, have every reason to know that he is not involved in the process of generating prebills and has no knowledge of the details of how pre-bills are generated or changed. Tail Insurance At the July 20 hearing, the Court determined that, until an accounting, the cost of malpractice tail coverage should be allocated to AKR. While there is therefore no dispute that AKR must purchase malpractice tail coverage, the level of coverage must be decided before the tail policy can purchased. That determination requires a goad faith discussion between the parties, but Defendants have so far refused to engage in that discussion. Rather, they have insisted that there must be $30 million of coverage, an amount that in AKR's view is excessive and would impose an unnecessarily huge upfront cost on AKR. In this respect, Mr. Ciampi falsely states that "Mr. Arkin refuses to take steps to authorize the purchase of malpractice tail insurance." Mr. Arkin, through his attorneys, has obtained information from the insurance broker as to the details concerning the purchase of tail insurance and, in a letter dated July 27, 2012, has communicated his views to Defendants as to the appropriate amount of tail coverage. That letter makes the following points: Everyone is currently covered. The broker has informed the parties that all of AKR's former attorneys are covered for acts prior to May 17, 2012 under Arkin Solbakken's current policy. Separate tail coverage will be purchased in accordance with the Court's ruling, but there needs to be a conversation between the parties to determine the appropriate amount of tail coverage to purchase. T'he determination as to the amount of coverage should take account of the reality of AKR's cash position and its obligations to its creditors. Purchasing a tail policy now at the $30 million coverage level that Mr. Ciampi advocates would leave few, if any, assets to meet current obligations to AKR creditors. ~ The broker has informed AKR's lawyers that tail insurance cannot be financed; the total premium for tail coverage must be paid up front and it is considered fully earned by the insurance company at the inception of the coverage. Given these factors, and Mr. Arkin's assessment of the risk that AKR and/or one of its former attorneys will be successfully sued based on acts prior to May 17, l

5 Page 5 AKR's view is that $5 million of tail coverage is appropriate. In fact, AKR has never been sued for malpractice; AKR is not aware of any recent matter that could reasonably give rise to damages in excess of $5 million; and, in any event, there are no facts suggesting that there is a malpractice suit on the horizon. As stated in our July 27 letter to Mr. Ciampi, AKR is open to compromise on the level of coverage. We invited Mr. Ciampi to discuss the issue. He has since written us a letter in which he continues to adhere to his position that there must be $30 million of coverage. If we cannot reach a resolution, we would welcome the Court's guidance. At least initially, however, the parties should try to resolve this issue consensually. AKR 's Proposal Given the parties' mutual distrust, and with Defendants continuing to occupy AKR's premises thus far without paying rent additional disputes are likely. In our view, the preferable way to deal with the situation is to resolve the parties' disputes on the merits and expeditiously. To that end, we propose that, within the framework of the current litigation; the parties consent to an ADR process that allows for binding and expedited arbitration of all issues. Plaintiff is prepared to provide its consent to that process now, before the parties incur undue expense and impose further on the Court's resources, provided only that the status quo, as reflected in the Court's rulings on July 20, remains in effect until there is an arbitration award. We do not believe a conference is necessary on the matters contained in Mr. Ciampi's letter. We respectfully request, however, that the Court take such steps as are available to bring this matter to an expeditious resolution. cc: Arthur J. Ciampi, Esq. 6~l David J.