January 23, 2012 7:13 PM

New Year, New Law Firm Lawsuit-Palooza

Posted by Sara Randazzo

Less than a month old, 2012 has already seen a hefty dollop of litigation activity involving large law firms as parties rather than counsel. The latest round of suits finds angry ex-employees suing over allegedly unpaid severance, ex-clients asking judges to settle old scores, and one firm suing another over contingency fees racked up by former partners.

Among the more intriguing matters to land on The Am Law Daily's desk lately: a January 20 ruling (PDF) by the U.S. Court of Appeals for the Seventh Circuit that revives a malpractice suit brought against Chicago law firm Neal, Gerber and Eisenberg.

In its ruling, the Seventh Circuit reversed a lower court's decision dismissing the suit brought against Neal Gerber in 2009 by Mary Bucksbaum Scanlan, the daughter of the founding family of real estate investment trust General Growth Properties. (Scanlan amended her complaint in 2010.)

In the suit, Scanlan claims that Neal Gerber partners Marshall Eisenberg and Earl Melamed cost her more than $300 million by mismanaging her trust funds.

Specifically, Scanlan contends that Eisenberg and Melamed—who, in addition to at one point simultaneously representing her, the trust company that runs Scanlan's trusts, General Growth, and other members of the Bucksbaum family, also own stock in the real estate company and hold executive roles in the trust company—committed legal malpractice and breached their fiduciary duty in connection to the purchase of hundreds of millions of dollars in General Growth stock in 2007 and 2008 for Scanlan's trusts. General Growth went bankrupt in 2009, causing what the Seventh Court ruling describes as a $200 million loss in the trusts' value.

In October 2010, an Illinois district court found Scanlan, as the trusts' discretionary beneficiary, lacked Article III standing to bring the suit because she failed to show that the roughly $800 million trust would be unable to financially support her and her family. The Seventh Circuit disagreed, finding in its 19-page analysis that beneficiaries are permitted to bring suits "to redress a trustee's breach of trust," regardless of whether the trust has sufficient funds (the court added that even determing how much money would make a trust sufficiently funded is a near-impossible question to answer). The suit is now remanded to federal district court.

"The court's decision vindicates Ms. Scanlan's right to pursue her claims against the trustee of her trusts and her lawyers," says Schiff Hardin partner Frederick Sperling, who is representing Scanlan in the case. Stephen Novack, a name partner with Chicago litigation boutique Novack Macey who is representing Neal Gerber, told The Am Law Daily via e-mail that his clients "continue to deny any wrongdoing, and look forward to complete vindication," noting that the recent ruling did not touch the merits of the case.

Other law firms entangled in legal battles include:

Akin Gump Strauss Hauer & Feld: Sibling publication The Recorder reports on a lawsuit filed by Akin Gump against entertainment executive Mark Manuel (best known for 2010's Kevin Spacey flop "Father of Invention") that includes accusations of breach of contract and promissory fraud. According to The Recorder, lawyers in Akin Gump's Los Angeles office allege that they helped Manuel line up foreign investors for Hollywood studios in exchange for a finder's fee that never materialized. (The Recorder further notes that Manuel's alleged scheme involved what is known as immigration by investment, under which foreign nationals legitimately apply for an EB-5 visa, and obtain a green card, if they invest $1 million in an "employment area.") The firm seeks nearly $2 million.

Crowell & Moring: Former Crowell counsel Douglas Arnsten was arraigned Friday night on charges of grand larceny and held without bail, Thomson Reuters reports, and is being represented by white-collar defense attorney Alan Lewis of Carter Ledyard & Milburn. Crowell, meanwhile, still faces a pair of lawsuits in New York state court involving Arnsten's alleged theft of more than $7 million in real estate escrow funds held by the firm. As Reuters first reported, one of the suits was brought by Aristone Realty Capital in May and amended in October. The second, filed in November by BCN 16 St., seeks $1 million in funds Arnsten allegedly embezzled from a real estate deal. Crowell has not yet responded to the BCN complaint, according to the online court docket. As The Am Law Daily previously reported, the firm settled a third suit stemming from Arnsten's alleged crimes in December. Contacted for comment, a Crowell spokeswoman provided the following the statement: "Because the District Attorney's criminal investigation involving our former employee Douglas Arntsen is ongoing, Crowell & Moring has no comment on Mr. Arntsen's arraignment on criminal charges. For more than 30 years, Crowell & Moring has built a reputation of trust among our clients. We are cooperating fully with the District Attorney's Office in its investigation of Mr. Arntsen.  As we have mentioned previously, Crowell has engaged outside counsel to conduct a full investigation into Mr. Arntsen's activities while he was with the firm."

Dechert: A lawsuit brought against the firm in December 2010 became a bit weaker January 6, when a federal judge in Massachusets approved (PDF) Dechert's motion to dismiss one of the complaint's three remaining claims, sibling publication The National Law Journal reports. The suit, brought by former Dechert associate Ariel Ayanna, alleges that the firm illegally fired him after he used Family and Medical Leave Act time to care for his children and mentally ill wife. In his ruling, U.S. district court judge Nathaniel Gorton agreed with Dechert's motion to dismiss an allegation of handicap discrimination on the basis that simply being associated with a disabled individual does not give Ayanna standing to bring such a claim. Dechert still faces claims of violation of the Family and Medical Leave Act and sex discrimination.

Greenberg Traurig: The oft-sued firm faces another lawsuit (PDF), this one in Los Angeles superior court. On December 19 a group of former clients sued Greenberg, along with former firm partner Carol Perrin (who left in 2009), alleging the firm had a conflict in representing both sides in a 2003 real estate deal involving the purchase of an interest in the Higgins Building in downtown Los Angeles. The plaintiffs—who were on the acquiring side in the deal—seek at least $5 million and claims breach of contract, breach of fiduciary duty, and negligent misrepresentation. (The complaint could use a copy edit; typos including using "where" instead of "were" and saying "defendants failed miserable in that task.") In a statement, Greenberg asserts that, "We do not believe there is a basis for a claim."

Kirkland & Ellis: As first noted by Law360, the firm called a truce on January 10 with former client Magnetek, which sued Kirkland in March 2010 over what it said was Kirkland's failure to find prior art in a patent claim that resulted in Magnetek paying an arbitration award of more than $23 million. The two parties agreed to dismiss the Illinois federal suit with prejudice and pay cover their own legal fees, according to a court order (PDF).

Ropes & Gray: A malpractice suit brought against the firm and former partner Matthew Vincent in Boston federal court lives on, sibling publication The National Law Journal reports. Cold Spring Harbor Laboratory sued the firm in February 2010 claiming that it had mishandled patent applications at the Patent and Trademark Office. The firm and Vincent (who has since resigned from law practice) subsequently moved to dismiss the suit, but Judge Richard Stearns of the District of Massachusetts denied those motions January 13. Cold Spring Harbor seeks between $36.5 million and $82.5 million in punitive damages, attorneys fees, and costs.

Squire, Sanders & Dempsey: A New York state judge on January 3 refused to strike (PDF) several paragraphs of a lawsuit against Squire Sanders in which another law firm, Pavia & Harcourt, claims Squire Sanders owes it $1.6 million of a contingency fee the firm won from work it took over from Pavia & Harcourt (the onetime professional home of U.S. Supreme Court justice Sonia Sotomayor). The underlying litigation involved a dispute between Fendi and Burlington Coat Factory in which Pavia advised Fendi on until July 2007, when four of its lawyers moved to Squire Sanders. Justice Louis York ruled that Squires Sanders didn't prove the paragraphs in question to be "scandalous or prejudicial," as required. In court papers, Squire Sanders has said it offered to pay Pavia the some $520,000 it believes the firm is owed, but that Pavia has refused, insisting it is owed more. The court also denied a motion January 3 brought by Pavia seeking sanctions against Squire Sanders based on its motion to strike parts of the complaint.

Winston & Strawn: A pair of terminated employees have sued the firm in New York, claiming the firm's handbook entitles them to severance pay and bonuses they did not receive after they were terminated in January 2011. Winston argues in court papers the only potential severance from the firm falls under an employee welfare benefit plan governed by the federal Employee Retirement Income Security Act. Because of the claim's reliance on ERISA, Winston successfully requested (PDF) in early January that the case, filed in October in state court, be moved to federal court. Winston, represented by Schulte Roth & Zabel, filed a motion to dismiss the case January 10. In its motion, Winston argues the ex-employees' "meager, bare bones complaint" fails to provide enough factual allegations to state a claim for relief.

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