It's Sue and Be Sued in a Mega-Huge Legal Malpractice Case
In today's New York Law Journal Christine Simmons reports on how the big boys play at legal malpractice. Basically, it's client with at least $1B in play hires Proskauer to advise them on a new borrowing/lending plan, which goes awry. Lots of taxes become due, and finger pointing ensues. The news in this dog bites man story is that Proskauer has counterclaimed against the client for fraud, constructive fraud and misrepresentation.
Here is something from the story: " After its former client sued the firm for malpractice, Proskauer Rose and four of its partners have sued the client's senior executives, claiming the malpractice suit has harmed the firm's reputation and led it to incur substantial legal fees (See Complaint).
Proskauer is suing James Edelson, the general counsel to Overseas Shipholding Group (OSG); and Myles Itkin, the company's former chief financial officer in Manhattan Supreme Court.
The firm and the partners—Alan Parnes, Richard Rowe, Peter Samuels and Steven Weise—claim the executives solicited legal advice from Proskauer based on "materially false and misleading representations."
Ultimately, OSG filed for Chapter 11 relief in 2012 and a year later sued Proskauer for malpractice, claiming the company expected to have to pay hundreds of millions of dollars in U.S. taxes due to Proskauer's advice (See Complaint).
Proskauer and the four partners are claiming fraud, constructive fraud, negligent misrepresentation and contribution against the executives. They say they have "suffered tremendous reputational damage as a result of OSG's meritless [claims]."
In May 2011, OSG entered into a new credit agreement, but within a few months began preparing refinancing negotiations, Proskauer said. These discussions drew attention to the "joint and several" language in the 2006 credit agreement and the bank lending group expressed concerns about OSG's potential tax liability, Proskauer said.
"Spurred by its need for liquidity, and with knowledge that its own false representations were a fundamental basis of the Memorandum, OSG drew down the funds that remained in its 2006 credit facility—approximately $340 million," Proskauer said in its complaint.
Negotiations with the bank lending group broke down, and OSG became focused on a bankruptcy filing. Proskauer was hired as its restructuring counsel.
Around this time, when Proskauer was asked to turn the memo into an opinion, the firm said it learned of a "trove of hidden documents."
In late October 2012, Samuels, while at OSG's offices, saw for the first time "numerous documents that wholly undermined Edelson's and Itkin's repeated assertions" to Proskauer that the parties to the credit agreements never intended that OIN guarantee OSG's obligations, the firm said in its complaint.
For example, OSG had a document that "plainly indicates that both OSG and its counsel Clifford Chance understood and intended that OIN be a guarantor of OSG's debts under that agreement via the 'joint and several' structure."
"Had Proskauer been aware of these documents prior to drafting the Memorandum, it would have materially altered its conclusion," the firm said. In the end, the firm refused to provide a formal tax opinion.
Also in October 2012, OSG informed the firm that Proskauer would be replaced with new restructuring counsel, and OSG revoked the firm's access to its offices.
The following month, OSG and 180 of its affiliates, including OIN and OBS, filed for Chapter 11 relief in Delaware bankruptcy court." Read on for more at: http://www.newyorklawjournal.com/id=1202644791712/Proskauer-Sues-Ex-Client-Accusing-Firm-of-Malpractice#ixzz2ucUkb9Qs