Last week we mentioned the uncommon occurrence of a law firm suing its client. Today brings news of the more common malpractice suit, but it’s a big one.
A financing unit of private-equity giant Cerberus Capital Management is suing Paul Hastings for more than $55 million over what it said is bad advice about a loan to retailer Steve & Barry’s. The loan was part of a plan to bring the retailer out of bankruptcy.
Nate Raymond with The New York Law Journal has the full story here.
NYLJ: Ableco Finance LLC, a unit of Cerberus with more than $6 billion under management, filed an amended complaint Friday in Manhattan Supreme Court against its former lawyers seeking more than $55 million it said it lost because of the $125 million loan. Ableco claims it would never have made the loan last year if the Paul Hastings team had advised it that the buyer would not have rights to all of Steve & Barry’s inventory, which Ableco understood would back the loan.
“No competent, diligent finance lawyer would have put his client in such a vulnerable position,” Ableco’s complaint reads in part.
Davis Polk is representing Paul Hastings. “Paul Hastings adheres to the highest standards of professionalism and integrity in the representation of its clients, and its representation of Ableco in this matter was no exception,” the spokesman said. “It’s unfortunate that Ableco has chosen to sue its longtime legal adviser to recoup business losses caused by the economic downturn,” a Paul Hastings spokesperson said.
The Steve & Barry deal was nowhere near the first the first deal with Ableco — the court documents say it marked the end of a 14-year relationship with Paul Hastings parnter John Hilson.
At the heart of the complaint is Paul Hastings’ alleged failure to inform Ableco about an agreement between Steve & Barry’s and a company called Bay Harbour that prevented Ableco from taking over all of Steve & Barry’s inventory.
Paul Hastings has filed a motion to dismiss, saying its former clients are trying to hold it responsible for a bad economy and a poor business decision.
The suit is filed in state court in Manhattan.
Raymond’s full report is here.
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