Nixon Peabody Faces $8.8 Million Legal Malpractice Lawsuit Brought by New York County's Sewer District

Nixon Peabody recently was hit with a legal malpractice suit arising from its handling of eminent domain litigation while representing New York’s Rockford County Sewer District.

In the underlying case, Nixon Peabody represented Rockford County’s Sewer District against a group called the Split Rock Partnership in a valuation case with respect to land that was seized.  Split Rock previously owned a piece of property that was steep and rocky.  Nevertheless, a portion of the property was deemed suitable for commercial construction and Split Rock found a development company that entered into a contract with it for $10 million for the sale of the property for development purposes.  However, the contract contained a contingency clause that stated the contract would be deemed void in the event the county (for its Sewer District) asserted eminent domain for the property. 

After the contract was executed, the county asserted eminent domain and the development group backed out of the $10 million contract.  Eventually, the land was acquired by the county for $250,000 which led to the underlying case brought by Split Rock against the Sewer District (which was defended by Nixon Peabody) that resulted in a loss to the Sewer District.

The subsequent legal malpractice suit was brought against Nixon Peabody for its negligent handling of the eminent domain case.    For example, the Sewer District asserts that Nixon Peabody failed to obtain evidence relating to the true value of the property to rebut Split Rock. It also asserts that Nixon Peabody failed to adhere to the rules of civil procedure which led to an expert witness in the fields of engineering and site planning to be barred from testifying.  Lastly, the firm failed to disclose environmental reports during discovery which led the trial judge to make a negative inference against the Sewer District.

Alex Passo and the Patterson Law Firm, LLC handle legal malpractice actions throughout Illinois and Indiana.  If you have a matter that you would like to discuss with Alex you may reach him at (312) 750-1820 or apasso@pattersonlawfirm.com.

 

 

Receiver's Accounting Malpractice Claim Not Barred by in Pari Delicto Doctrine

The in pari delicto doctrine is a rather rare defense to see asserted in a case.  The doctrine bars a plaintiff from recovering damages when they are a participant in the wrongdoing that creates the damages.  In Nicholson v. Shapiro & Associates, LLC, the First District Appellate Court examined whether the doctrine should be applied to bar claims brought by a court-appointed receiver of a company (that was appointed because of illegal acts by the company’s owner) against the company’s outside auditor for failing to detect the fraudulent and illegal acts.  2017 IL App (1st) 162551 (2017).

In this case, the Illinois Stock Transfer Co. (“IST”) hired Shapiro & Associates, LLC (“Shapiro”) to assist it with its tax returns and annual audits as required by the SEC Act.  However, the SEC discovered that IST’s sole-owner was converting client funds.  After this discovery, the SEC filed an action in the Northern District of Illinois and a court-appointed receiver was appointed for IST’s and the sole-owner’s estates.

After her appointment, the receiver filed an accounting malpractice action against Shapiro for failing to detect the fraudulent and illegal acts.  In response, Shapiro filed a motion to dismiss arguing, in part, that the doctrine of in pari delicto should be imputed to the receiver by arguing that the sole-owner’s actions are what caused the damages.

But, the Court disagreed reasoning that any award to the estate of the company would benefit the investors and creditors of IST rather than the actual wrongdoer – the owner – who had been removed.  (citing Albers v. Continental Illinois Bank & Trust Co., 296 Ill. App. 592 (1938); McRaith v. BDO Seidman, LLP, 391 Ill. App. 3d 565 (2009)). Therefore, the doctrine was inapplicable.

Nicholson v. Shapiro & Associates, LLC, 2017 IL App (1st) 162551 (2017).

Alex Passo and the Patterson Law Firm, LLC handle accounting malpractice actions throughout Illinois and Indiana.  If you have a matter that you would like to discuss with Alex, you can reach him at (312) 750-1820 or apasso@pattersonlawfirm.com.

Hamilton County Adoption Attorney Receives Public Reprimand For Several Violations of Rules of Professional Conduct

A Hamilton County Indiana adoption attorney was recently publicly reprimanded by the Indiana Supreme Court for violating Professional Rules of Conduct 1.7 (Conflicts of Interest), 1.8 (Conflicts of Interest), and 8.4 (General Misconduct).  Here, the attorney was hired by a couple to represent them in the adoption of a child.  Before the attorney’s retention, the couple had previously already reached an agreement with the birth mother to allow them to adopt the child.

However, when the attorney contacted the birth mother, she expressed concerns with his current clients and asked the attorney for profiles of other prospective adoptive parents.  Despite representing the couple, the attorney nevertheless showed the birth mother the profiles of other potential adoptive parents.  Eventually the birth mother selected a different couple than the attorney’s original clients. 

The attorney never informed his original clients that the adoptive mother had concerns with them or that he showed her different options until after the decision was made.  Thereafter, the attorney sat down with them to discuss reimbursement of fees the couple advanced to him.  The couple and the attorney appeared to have resolved the issue at this meeting, however, at the conclusion of the meeting, the attorney presented them with a release purporting to bar them from filing a “claim” to the Indiana Supreme Court disciplinary commission.

The attorney erred in this circumstance by failing to disclose to his clients that the birth mother had concerns with selecting them as adoptive parents.  But, the most critical error was then representing the birth mother in her selection of an alternative set of adoptive parents without obtaining consent from the original clients.

Alex Passo and the Patterson Law Firm, LLC handle legal malpractice actions throughout Illinois and Indiana.  If you have a matter that you would like to discuss with Alex, you may reach him at (312) 750-1820 or apasso@pattersonlawfirm.com.

Legal Malpractice Claim against Corporate Law Firm of Commodity Pool Operator and Trading Firm Survives Motion to Dismiss

In 2013, the U.S. Commodity Futures Trading Commission initiated an action against Alphametrix, LLC (AML), a CFTC registered commodity pool operator and trading advisor, along with its parent company, for injunctive relief, disgorgement of misappropriated funds, and penalties.  This action was due to AML failing to reinvest $2.8 million in rebates back into commodity pools in accordance with rebate agreements.  Rather than reinvesting the funds, AML had transferred the funds into accounts held by its parent company which had never been registered with the CFTC.  Due to the lawsuit, a receiver was appointed for AML and its parent.  Eventually, the lawsuit against the officers was settled.

The receiver then brought a legal malpractice claim against the corporate law firm of AML for its failure to properly advise it of risks relating to amendments of promissory notes between the corporation and its managing member.  From 2006 to 2012, the managing member of AML made numerous undocumented loans to himself which totaled over $1,000,000.00.  However, in 2012, AML’s auditor became concerned over the amount of the receivable and that it was undocumented.  To accommodate the auditor, the managing member had AML’s corporate attorney prepare a promissory note which required him to pay monthly installments of over $7,000 on the loan with a balloon payment in 2015.

 

Despite the loan repayments, the auditor became increasingly concerned with AML’s cash flow problems in subsequent audits and made the officers aware.  The problems did not dissipate though and in February 2013, AML’s primary lender claimed it was in violation of certain loan covenants and it therefore received additional guaranties from AMG and its other related entities.  AML’s corporate attorney was aware of the auditor’s apprehension to the situation as well as the re-negotiated financial terms with the primary lender.  Nevertheless, when AML’s managing member requested that the law firm amend the promissory note terms, he obliged him.  Critically, the amended notes eliminated the monthly payments to AML and also extended the due dates for the balloon payment to 2023.  Furthermore, the amended notes also eliminated AML’s protection against default in the event that the managing member was subject to bankruptcy proceedings.

 

After the receiver was appointed, he brought a legal malpractice action against the corporate attorney for preparing the amended notes without first advising AML that the amendments would eliminate its ability to immediately demand payment of the loans in the event of a default.  The corporate law firm then filed a motion to dismiss with its best arguments being standing and duty. 

First, the firm argued that the receiver lacked standing because in the CFTC Action an order was entered stating that the primary lender’s security interest had priority over other general unsecured creditors.  However, this argument was disposed of by the Court which noted that the order only related to the CFTC action and not the claims in the instant case.  Further, it acknowledged that the primary lender entered into a settlement agreement with the primary lender which set out terms of what the primary lender would recover in the event the instant suit had a successful recovery.  Lastly, it recognized that the claim could not be assigned to the creditor because it is well-established in Illinois that legal malpractice claims are unassignable.

With respect to lack of duty, the Court also swiftly struck down the law firm’s arguments.  The Court noted that the law firm represented AMG and its subsidiaries from 2005 through 2013, and thus owed a duty to the entities and not the managing member.  Citing Peterson v. Katten Muchin Rosenman, LLP, 792 F.3d 789, 790 (7th Cir. 2015), the Court further noted that the law firm had a duty to advise the corporation of the various risks in amending the notes. 

The case is styled Driscoll v. Kins, 16-c-9359, (N.D. Ill. Sept. 18, 2017).

Alex and the Patterson Law Firm, LLC handle legal malpractice actions throughout Illinois and Indiana.  If you have a matter you would like to discuss, you can contact him at (312) 750-1820 or apasso@pattersonlawfirm.com.

Investors' Amended Legal Malpractice Complaint Seeks $764 Million in Damages from Duane Morris

The stakes have been raised in the ongoing 2-year battle between a group of oil and gas investors of American Energy-Utica (“AEU”) and the company’s former counsel, Duane Morris.  The Investors filed their complaint in Texas principally due to the actions of Chesapeake’s (and later AEU’s) past CEO, Aubrey McClendon.  In 2016, McClendon was indicted for bid-rigging and died the subsequent day in a one-vehicle accident.

The plaintiffs, who are investors in American Energy-Utica (“AEU”), claim that Duane Morris committed malpractice due to a conflict of interest between them and McClendon, and also failing to advise them about claims Chesapeake was going to bring against them.  The investors claim that they were represented by Duane Morris at the same time as the firm represented McClendon; but, failed to disclose that their interests were materially adverse. 

The investors allege that Chesapeake issued a demand letter to McClendon in January 2015 claiming that the investors and McClendon stole its trade secrets.  Duane Morris allegedly never informed the investors and attempted to negotiate on McClendon’s and their behalf.  Their efforts failed however and Chesapeake ultimately filed a lawsuit which was eventually settled.

The investors are seeking the recovery of the settlement amount.  But, now claim that they have lost profits and business as a result of Chesapeake’s allegations in the underlying suit which should have been prevented. 

The case is styled Ascent Resources – Utica, LLC, et. al v. Duane Morris, LLP, No. 2015-46550 and is pending in the District Court of Harris County, Texas.

Alex Passo and the Patterson Law Firm, LLC handle legal malpractice actions throughout Illinois and Indiana.  If you have a legal malpractice claim that you would like to discuss with Alex, you may reach him at (312) 750-1820 or apasso@pattersonlawfirm.com.

NY Court Reverses Dismissal of Legal Malpractice Claim Against Willkie Farr

A securities broker prevailed in his bid to reverse the dismissal of a legal malpractice claim he brought against Willkie Farr.  In this matter, the securities broker, Palmeri Jr., was a client of Willkie, but his representation was terminated by the firm when his former employer, Ramius Securities, LLC, was being investigated by FINRA.  Willkie cut ties with Palmeri, Jr. due to a conflict that emerged when his interests diverged from Ramius.  Ramius was investigated by FINRA due to its suspicion that it was using stock finders.  Stock finders locate securities for lending and borrowing in exchange for a fee from the lenders.  Stock finders must be registered because they can create unjustifiable increases in the costs of the loan to the detriment of the borrower.  Palmeri Jr.’s father had previously been convicted for orchestrating illegal stock loan functions, and FINRA believed that he may have influenced Ramius to use unauthorized stock finders.    Palmeri Jr. was eventually cleared by FINRA; but, expended over $700,000 in legal fees defending the allegations brought against him.

Initially, the trial court dismissed the suit finding that it was filed after New York’s three year statute of limitations.  However, the Court of appeals reversed finding that the alleged wrongful conduct continued beyond the date considered by the trial court.

The case is Palmeri v. Willkie Farr & Gallagher, LLP, case number 2016-1473, in the Supreme Court of the State of New York.

Alex Passo and Patterson Law Firm, LLC handle legal malpractice matters throughout Illinois and Indiana.  If you have a matter that you would like to discuss with Alex, you may reach him at (312) 750-1820 or apasso@pattersonlawfirm.com.

Pokemon Go Creator Faces Lawsuit by Unhappy Festival Attendees

Niantic, the creator of the popular mobile game, Pokemon Go, recently hosted the first-ever Pokemon Go Festival in Chicago’s Grant Park this July.  Niantic advertised that attendees of the festival would have unique opportunities to capture and battle new Pokémon.  Ticket sales for the festival were originally sold by Niantic for $20; but, they quickly sold out and were being exchanged for 5-7 times the face value.  Many patrons of the game and festival travelled from out of state for the opportunity to attend the festival.

Unfortunately, on the day of the event, attendees experienced difficulty using the application while at the festival.  The mobile application uses large amounts of data and due to the increased concentration of individuals in Grant Park attending the festival, there was a strain on the networks that Niantic allegedly should have foreseen.  Following the event, a California man filed a putative class action lawsuit in Cook County Circuit Court, Norton v. Niantic, 2017-CH-10281, alleging that he and the other 20,000 attendees were victims of false advertising.  

 

Indianapolis Attorney Suspended for Practicing without a License and Renegotiating Fees

In the Matter of Douglas Krasnoff, Krasnoff was automatically suspended for noncompliance with CLE requirements in Indiana and reciprocal discipline was imposed by the U.S. District Court for the Southern District of Indiana. In 2002, Krasnoff agreed to represent an individual in a claim against their employer.  In exchange, the client agreed to pay Krasnoff a $5,000 retainer fee and would also provide him between 33 to 40 percent of any recovery in the matter as a contingency fee.  The following month after retention, Krasnoff was suspended for noncompliance with CLE requirements.  However, he nevertheless then proceeded to file the lawsuit in the U.S. District Court for the Southern District of Indiana on the behalf of the client.

During the litigation, Krasnoff subsequently charged the client an additional $10,000 “appeal fee” and also charged him $8,000 to add claims to the lawsuit (which were never added).  The lawsuit ultimately settled for $30,000 and the settlement agreement stipulated that Krasnoff receive $20,000 in attorney fees, but the $5,000 retainer was not applied as a credit.  The client never received the $10,000 and subsequently filed a grievance against Krasnoff.

Krasnoff was found in violation of Rule 1.8(a) for renegotiating his fee agreement without advising his client that they should consult with independent counsel. He was also found to have violated rule 5.5(a) for practicing law with a suspended license. As a result of his actions, he was suspended for at least 180 days without automatic reinstatement.

In the Matter of:  Douglas Krasnoff, No. 49S00-1308-DI-517 (Ind. 2017).

Alex Passo and the Patterson Law Firm, LLC handle legal malpractice actions throughout Illinois and Indiana.  If you have a legal malpractice case that you would like to discuss with Alex, you can reach him at (312) 750-1820 or apasso@pattersonlawfirm.com.

ARDC Panel Recommends Suspension of Attorney who Mishandled Clients' Property

An Illinois ARDC Hearing Board Panel slapped a Springfield attorney with a recommendation that she be suspended for at least one year due to her mishandling of client funds.  Specifically, this Springfield attorney was retained in 2016 by a client to help modify a child custody order and was provided a $1,500 retainer.  The attorney deposited these funds in her business account instead of a separate client trust account.  The client asked the attorney on several occasions for a detailed billing statement and update on the case. But, the attorney failed to respond to these requests.  Ultimately, the attorney was fired and failed to return the retainer to the client. 

Similarly, in another matter, the attorney was retained to help modify a visitation and custody order and was paid an advanced fee of $1,500.  The attorney deposited these funds in her business account opposed to a client trust account again.  The panel commented in its report, “[i]t is disturbing that an attorney who has practiced law for more than 30 years and has represented ‘many clients’ has never recognized her need for a client trust account or recognized that the advance payment for fees, such as those made by [these clients] must be deposited into a trust account.”

The hearing board panel also found that the attorney violated Rule 8.4(c) because she lied under oath that she returned the $1,500 retainer to the client in the 2016 matter.  The matter is In re Babette Pauline Salus, 16 PR 127.

Alex Passo and the Paterson Law Firm, LLC handle legal malpractice actions throughout Illinois and Indiana.  If you have a legal malpractice case that you would like to discuss with Alex, you can reach him at (312) 750-1820 or apasso@pattersonlawfirm.com.

Crowe Horwath Tagged with Accounting Malpractice Claim by FDIC

The FDIC has recently filed an accounting malpractice suit against Crowe Horwath in the Northern District of Illinois.  The FDIC is suing Crowe as a result of its alleged malpractice in auditing the financial statements of a failed bank that the FDIC took over and later shuttered.  Crowe was retained to audit the failed bank’s financial statements; but, failed to discover, and later failed to disclose, that its CEO had developed a scheme to hide its deteriorating financial condition.

Alex Passo and the Patterson Law Firm, LLC handle accounting malpractice actions throughout Illinois and Indiana.  If you have an accounting malpractice case that you would like to discuss with Alex, you can reach him at (312) 750-1820 or apasso@pattersonlawfirm.com.