The Work

December 11, 2008 9:00 AM

The Am Law Litigation Daily: December 11, 2008

Posted by Ed Shanahan

Edited by Andrew Longstreth

Orrick Cleared in Malpractice Trial; Keker & Van Nest Leads Defense

When a firm's professional reputation is at stake, going to trial is a nerve-racking proposition. But Orrick Herrington & Sutcliffe's insistence that it provided proper counsel to a multimillionaire businesswoman was vindicated on Tuesday: A San Francisco superior court jury found Orrick and retired trusts and estates partner William Hoisington not liable for legal malpractice and breach of fiduciary duty, according to a statement from the firm's lawyers at Keker & Van Nest.

The case was brought in 2000 by Fritzi Benesch, the founder of a clothing company called Fritzi California. In the 1980s, through a series of estate planning transactions, Benesch passed control of her clothing business to her son-in-law and daughter, with whom she said she had "a perfect relationship." But when Benesch later discovered that her husband had been unfaithful, the family fell apart. In a malpractice suit filed in 2000, Benesch claimed that she had been duped by Orrick and Hoisington into signing away her company.

The six-week trial began in October. During opening statement's, Orrick's lawyer, Keker partner Elliot Peters, disputed that Benesch didn't know what she was doing. "Mrs. Benesch will try to have you believe that she was kept in the dark," Peters told the jury, according to The Recorder. "In fact, she is savvy and pays attention to detail." Peters told jurors that Orrick and Hoisington had been ensnared in the messy family fight that began after Benesch discovered her husband's affair.

Benesch's counsel, Jonathan Bass of Coblentz, Patch, Duffy & Bass, argued that Orrick was also representing Benesch's daughter and her husband when it worked on the estate planning deals that gave them control of the clothing business. "What this case is about is a law firm favoring one set of clients over another," he said.

Benesch originally sought $101 million in damages, but by the time the case reached the jury, the demand had dwindled to $17 million. "The jury got it right," said Peters in a statement. "Unfortunately this case was little more than a bitter family dispute brought to court."

Keker partner Wendy Thurm also represented Orrick and Hoisington at trial. "Orrick's case was strong and we're happy Bill Hoisington's character and reputation have been preserved," she said in a statement.

Benesch's lawyer was not immediately available for comment.

Princeton University Settles Suit over Endowment

Breaking up is not just hard to do. It's expensive. Princeton University and members of the Robertson family, heirs to the A&P supermarket fortune, announced Wednesday that they had concluded a six-year litigation battle over a $900 million endowment given by a member of the family to the university. The deal allows Princeton and the Robertsons to part ways, but Princeton will have to pay $40 million in legal costs incurred by the Robertsons--and that's on top of the more than $40 million the university spent on its defense. Princeton was represented by lawyers from Lowenstein Sandler and Simpson Thacher & Bartlett.

The suit, filed in New Jersey state court, centered on Princeton's use of the funds Marie Robertson gave to the university in 1961. Robertson established the endowment to benefit Princeton's Woodrow Wilson School of Public and International Affairs, but her family members--represented by Ronald Malone of Shartsis Friese--alleged that the money had been diverted to other schools at the university.

Under the terms of the agreement, Princeton will control the assets that were in dispute, according to a university statement. But the school will have to use $50 million of the funds to support a new foundation created by the Roberts family to prepare students for government. Those funds will not be spent at Princeton, Malone told us.

By agreeing to the settlement, the parties avoid a trial that was scheduled for January. In a statement, Princeton president Shirley Tilghman said that the university would have spent another estimated $20 million if the case had gone to trial.

Oracles of Delaware Speak! And the Litigation Daily Listens

Corporate lawyers and governance geeks on hand for the International Corporate Governance Network seminar must have felt like Trekkies at a Deep Space Nine convention. At least six members of the Delaware Supreme Court and the Delaware Chancery Court fielded questions about the state of the Business Judgment Rule; the future of Delaware courts; and what role, if any, Delaware courts played in creating the current financial crisis.

Thanks to Francis G.X. Pileggi of the Delaware Litigation Blog, we have their answers. Pileggi took copious notes on the judges' pronouncements (though he warns that his scribblings may not be perfect transcriptions). Some excerpts:

Vice Chancellor Leo Strine: "[The business judgment rule] will continue to be the foundation of our law, but that does not mean that there is lack of accountability, and as circumstances change, boards must adapt to those changes." Strine added that the business judgment rule offered "no free ride."

Chief Justice Myron Steele: "It is a mystery why some people think Delaware favors management. The Delaware judiciary takes [its] own fiduciary duties as judges very seriously and it is unfathomable that a member of the Delaware bench would favor [one] side or the other--or one group or another."

Vice Chancellor Donald Parsons, Jr.: "Delaware decisions like Caremark and Stone v. Ritter make it clear that the board has duties to monitor. That has two primary parts: First, there must be a monitoring system in place that is likely to detect problems. Second, that system must provide for a way to deal promptly with problems once detected. Whether [corporate boards] are liable for failure of the foregoing will depend on the specific factual details of the case. One issue that may arise is whether the board understood some of the more esoteric financial instruments that were at the root of some of the financial problems."

Round Two in Safavian Trial Under Way

With all the great legal dramas unfolding these days, the Jack Abramoff scandal seems a bit passé, kind of like big associate bonuses and the Cadillac Escalade. But the legal system grinds on, so this week a jury in Washington, D.C., federal district court heard opening statements in the retrial of David Safavian, the former chief of staff for the General Services Administration who famously went on a golf trip to Scotland with Abramoff. Legal Times, which was on hand for the openings, remarked that the scene "seemed to leave some in the audience with a case of déjà vu, and maybe a little fatigue."

Safavian's 2006 obstruction of justice conviction was overturned in June when the U.S. Court of Appeals for the D.C. Circuit concluded that he was not legally compelled to disclose his friendship with Abramoff to the GSA when he asked for an ethics opinion on accepting favors from the lobbyist. The retrial will again consider the question of whether Safavian lied when he said Abramoff "had no business before the GSA" at the time of the Scottish trip.

This time around, Safavian is represented by Richard Sauber of Robbins, Russell, Englert, Orseck, Untereiner & Sauber--the firm that won the appeal of his original conviction. (Safavian’s lead lawyer at the first trial was Barbara Van Gelder of Morgan, Lewis & Bockius.) Sauber, according to Legal Times, will be permitted to call a witness to probe the technical meaning of "having no business before the GSA." The Justice Department, on the other hand, has added a couple more charges to its indictment, but the overall prosecution strategy seems to be mostly the same. According to Legal Times, assistant U.S. attorney Nathaniel Edmunds got a lot of use out his formulation that Safavian "lied, denied, and misled" during his opening. 

Sauber made sure the jurors did not confuse his client with Abramoff. "He's not on trial here," Sauber said about the disgraced lobbyist.

Kirkland Client Sues Hedge Fund Manager for Fraud

Thanks to Marc Dreier and Illinois governor Rod Blagojevich, this has been quite a week for allegations of fraud. And the hits keep coming. In a complaint first reported by Courthouse News, an educational foundation for children is alleging in New York state supreme court that "purported hedge fund manager" Mark Evan Bloom stole millions from the foundation to support his lavish lifestyle.

The Alexander Dawson Foundation, which supports schools in Nevada and Colorado, and its investment arm claim that they gave $13.5 million to Bloom to invest in his North Hills Fund. Bloom was supposed to make prudent investments to generate moderate returns, but the foundation alleges that instead, he bought a 6,200-square-foot, three-story "luxury maisonette" at 10 Grace Square on Manhattan's Upper East Side for $5.2 million. (The address, according to the complaint, was shared by the late Brooke Astor.) The complaint further alleges that Bloom "concealed this theft for years by issuing false account statements that showed positive returns, by lying about the health of the fund, and through other self-dealing transactions designed to line Bloom's pockets at investors' expense."

Bloom also invested some of North Hills's assets into the Philadelphia Alternative Asset Fund. But according to the complaint, Bloom was paid a "lucrative" commission from PAAF--which he didn't tell the foundation about. When PAAF's assets were subsequently placed in receivership after it was revealed that the fund had defrauded its investors, Bloom misappropriated the funds distributed by the receiver, according to the complaint.

Kirkland & Ellis partner Maria Ginzburg, who filed the suit for the foundation, declined to comment.

Bloom's lawyer, Judd Burstein of Judd Burstein, P.C., told us he will contest the case. Burstein said the foundation was informed that Bloom had borrowed money from North Hills, and that Bloom is  "endeavoring" to pay it back.

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