In this NY Lawyer’s blurb, we see th outcome of a new variety of legal malpractice action:  a sort of secondary liability suit in a transactional setting.

"A New York appeals court has thrown out a lawsuit against Seward & Kissel over the law firm’s representation of failed hedge fund Wood River Partners.

A group of institutional investors had charged that the law firm shared blame for an alleged fraudulent scheme in which investors were misled about the fund’s holdings, 60 percent of which turned out to be in one small technology company named EndWave Corp. That company’s stock collapsed in July 2005, triggering the investors’ claimed $200 million in losses.

But the Appellate Division, First Department, ruled yesterday in Eurycleia Partners v. Seward & Kissel, 600704/06, that the law firm’s preparation of Wood River’s offering memo did not constitute a representation, fraudulent or otherwise, to the investors.

The court noted that Seward & Kissel’s work for the fund was focused on the fund’s formation and its taxes and not its investment strategy. The appellate panel also found that the investors had no relationship with Seward & Kissel as Wood River’s counsel that would impose a duty on the firm to investors.

The court dismissed claims against Wood River’s auditor, American Express Business & Tax Services, on similar grounds. "