Creditors of a bankrupt conglomerate have sued Skadden, Arps, Slate, Meagher & Flom in New York state court, after allegations that Skadden acted unethically in failing to disclose or obtain waivers for multiple conflicts. The plaintiffs are lenders and private equity funds owed over $90 million, who forced a company, Evergreen International Aviation Inc., to file for Chapter 7 protection in Delaware state court in late 2013. Jay Goffman, Esq. was also named as a Defendant, who heads Skadden’s corporate restructuring group.

The suit was filed after a Bankruptcy judge in Delaware granted the creditors derivative standing to sue Mr. Goffman and the firm. The suit specifically alleges that Skadden provided a broad scope of legal services to help operate various companies, all of which were controlled by               Delford Smith, a principal of Evergreen International Aviation, Inc., who operated his business empire out of Oregon.

The suit claims that Goffman gave priority attention to Smith’s personal interests at the expense of unrelated creditors. Smith died in 2014. According to the complaint, Smith was “the source of much of Goffman’s success as a business originator.”

The complaint details two “likely fraudulent transfers” in 2013, diverting cash and other assets, which would have been part of the bankrupt estate. First, there was a transfer of two aircraft, valued at $10.6 million, to Evergreen Vintage Aircraft, a non-profit controlled by Smith, apparently without consideration.

Second, in May, 2013, Evergreen International agreed to sell stock of its helicopter subsidiary to Erickson Air-Crane Inc. for $250 million in cash and other consideration. The complaint alleges that Skadden represented five different companies in the sale, including Evergreen International, its helicopter subsidiary, a separate holding company, and Smith.

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The Court of Appeals of the Seventh Circuit of the state of Illinois has affirmed a judgment in Estate of Stanley Cora v. John C. Jahrling. Attorney John Jahrling had represented Stanley Cora in a home sale with knowledge that there was a language barrier. Cora sold his home for $35,000, in spite of an approval showing fair market value was $106,000, and Jahrling also failed to include a requested life estate for Cora, which would have allowed him to reside in the upstairs apartment of the house rent-free for the rest of his life.

During the negations and sale, Jahrling could not communicate directly with Cora because Cora only spoke Polish. Jahrling relied on opposing counsel to communicate with his client. Following an attempt by the buyers to evict Cora from the upstairs apartment, he sued Jahrling for legal malpractice. Cora died in 2006 before trial, but his estate continued to pursue the case.

The Appeals Court ruled that Jahrling had acted as Cora’s attorney, relying on evidence Jahrling had received a payment from another attorney at the closing on the sale of his home. The closing documents also identified Jahrling as Cora’s attorney.

The Appeals Court also determined that Jahrling’s inability to communicate with his client, coupled with his reliance on opposing counsel for all communications was “unreasonable per se” and that the lower court had correctly relied on the discrepancy between the fair market value of the home and the sale price.

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ISSUE:

I was an investor in a ponzi scheme. I lost six figure numbers when the head of the scheme was arrested and jailed and has stated that he spent all his investor’s money playing in high stakes commodities trading. I was referred to this man by my accountant. Do I have any potential claims against this accountant?

INSIGHT:

On March 21, 2016, the Illinois First District Appellate Court upheld the ruling of an Illinois county judge, who stayed a civil legal malpractice case, because a parallel criminal case was still ongoing against the alleged perpetrator of a fraudulent investment scheme. The malpractice claim was against the firm, Chuhak & Tecson, whose attorney, Gary Stern, allegedly misled investors by convincing them to invest in fuel tax credit partnerships.

The appeal involved the question whether the lower court properly granted a stay of the malpractice case, while the federal criminal case was still ongoing in the tax court, and notwithstanding the fact that Stern was not personally named as a defendant in the malpractice case.

The civil action had been filed in 2012 by 21 investors, who were clients of an accountant familiar to the law firm. Stern solicited their interest in the gas partnerships, seeking tax credits for non-conventional source fuels, geared toward reuse of methane gas from landfills.

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The Connecticut Attorney’s Grievance Committee has rejected a settlement based on a lawyer’s failure to document legal transactions between the law firm and their former client.

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The Iowa Supreme Court has recently made a decision permitting a criminal defendant to sue his attorney for legal malpractice, without having to prove that he was innocent of the criminal charges. The Defendant was Robert Baker, who sued his attorney after claiming the attorney advised him to enter a plea agreement on a solicitation charge, so that other charges would be dismissed.

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The Texas Court of Appeals has recently dismissed a legal malpractice claim against a Florida attorney for lack of jurisdiction.  In Rolnick v. Sight’s My Line, Inc., the owner of a Florida corporation filed a legal malpractice claim against several Texas law firms, alleging that they had failed to properly perfect a security interest on behalf of the corporation.

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The Fourth District Court of Appeals of California recently reversed a decision of the trial court dismissing a legal malpractice claim based on a lapsed one-year statute of limitations.  In Kelly v. Orr, a grantor created a trust agreement that named a successor trustee upon the resignation of the current trustee.  However, when the current trustee resigned, the daughter of the grantor seized control of the trust and became trustee.  She then retained a law firm using trust assets and followed their advice on how to manage the trust.

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The Supreme Court of Rhode Island recently upheld the dismissal of a legal malpractice claim.  In Audette v. Poulin, the beneficiary of a trust sued an attorney, who represented the trustee in a dispute between the beneficiary and the trustee.  Continue reading

The Appellate Division of the Supreme Court of New York recently affirmed the decision of New York’s Supreme Court, dismissing a legal malpractice claim.  In McPhillips v. Bauman, a physician employed by the Department of Corrections sued an Assistant Attorney General who was assigned to represent him in a lawsuit brought by the estate of a deceased inmate.
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