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March 18, 2010 6:01 PM

Former Client Sues Gibson Dunn

Posted by Drew Combs

A California venture capitalist who has admitted to bribing New York state pension officials has sued Gibson, Dunn & Crutcher over $1.3 million in fees the firm seeks for representing him during the investigation that precipitated that admission.

Elliott Broidy's lawsuit--filed Monday in Los Angeles Superior Court--comes in response to a Gibson Dunn motion to have an arbitrator in New York resolve the fee dispute between the two parties. Broidy wants the disagreement handled in California.

The clash stems from work done by Gibson Dunn on behalf of Broidy and his Markstone Capital Group private equity firm while both were targets of an investigation into "pay-to-play" investments made by the New York State Common Retirement Fund.

As a result of that probe, Broidy pled guilty in December to a felony count of rewarding official misconduct. In doing so, he admitted to arranging a $250 million investment--including $18 million in fees--in Markstone by the New York state retirement fund. Broidy said he orchestrated the investment by lavishing state officials and people connected to them with trips and gifts worth nearly $1 million. As part of the plea, Broidy, who resigned from his management role at Markstone days before entering it, agreed to forfeit $18 million in connection with the plea.

Am Law Daily sibling publication the New York Law Journal reported last month on Gibson Dunn's efforts to collect the legal fees from Broidy and Markstone via a New York arbitration proceeding. The firm represented Broidy and Markstone in connection with the pension probe from May 2007 until November 2009, when Broidy replaced the firm with Dewey & LeBeouf.

In his suit (available below for download), Broidy claims that any fee dispute should be handled in California, where his relationship with Gibson Dunn was initiated. Wherever the matter is ultimately decided, Broidy also claims in his complaint that Gibson Dunn is not entitled to any legal fees because it committed fraud by failing to obtain appropriate conflicts waivers while representing him.

Broidy seeks an order compelling Gibson Dunn to dismiss the New York arbitration proceedings as well as orders preventing the firm from any further efforts to collect the $1.3 million in legal fees it claims it's owed. On Tuesday a California judge denied a motion by Broidy's lawyers for a temporary restraining order to halt the arbitration proceedings. Broidy's lawyer, Sanford Michelman at California-based Michelman & Robinson, declined to comment. (Markstone, represented by Zuckerman Spaeder, has also filed, in New York, a motion to stay the arbitration. A New York judge has yet to rule on the matter.)

In a written statement provided to The Am Law Daily, Gibson Dunn responded to the latest twist in the case by saying, "It is unfortunate that Mr. Broidy is making these false allegations in an attempt to avoid his outstanding fee obligations to our firm and to block the private arbitration in which he agreed to participate. Gibson Dunn looks forward to successfully defending itself against these spurious allegations and ultimately prevailing in this fee dispute."

At the heart of the dispute, according to Broidy’s complaint, are two retainer agreements and an engagement letter prepared by Gibson Dunn in connection with the pension probe.

Under terms of the first retainer agreement, Broidy's complaint maintains, any dispute that might arise between the investor and the law firm would be submitted to arbitration in Los Angeles and California law would govern.

Broidy alleges that in April 2009, New York-based Gibson Dunn partner Randy Mastro "demanded" that Broidy sign a new retainer with the firm on his own behalf. Broidy says in his complaint that Mastro allegedly assured him that the terms of the two were otherwise the same, and acknowledges signing the new agreement.

But, according to the complaint, "These representations concerning the retainer agreements being the same were false, and Mastro knew they were false when he made them." One difference, according to Broidy: the new retainer called for New York-based arbitration of any dispute between the parties.

Broidy's complaint also attacks the substance of Gibson Dunn's demand for legal fees, asserting that it isn't owed any money because it did not receive conflict waivers to represent both Broidy and Markstone Capital.

"Upon representation of Broidy and Markstone, [Gibson Dunn] had immediate conflicts which required conflicts waivers for such representation to continue," the complaint reads, “and failure to obtain effective waivers prohibits the collection of any fees for that representation."

The complaint further alleges that in October 2009 Gibson Dunn attempted to obtain only Broidy's signature on an engagement letter on behalf of Markstone, and advised Broidy not to tell the other Markstone partners about the engagement.

And, according to the suit, Mastro allegedly demanded that Broidy sign an agreement releasing the firm from prospective liability with respect to Markstone. Broidy claims Mastro told him that if he failed to sign that agreement the firm would not show up and represent him at a Securities and Exchange Commission proceeding that was days away. "Shortly thereafter,” the complaint states, “[Gibson Dunn] was terminated."

For its part, Gibson Dunn says in court papers submitted in the New York matter that when Broidy told the firm that it was being replaced he "...assured [the firm] that its outstanding bills would be paid."

The firm declined to comment beyond the statement it provided.

Download Broidy Complaint

Contact Drew Combs at [email protected].

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I certainly do not intend to compare myself to these big city slickers, but it would have been a simple matter to bill as they went along...

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