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.
Skadden has moved to dismiss the claim, arguing that the claim is time-barred under a two-year statute of limitations in Oregon. The motion also claims the lenders “do not allege facts suggesting that a better outcome would have occurred absent defendants’ malpractice”, or that Smith would have structured the transactions differently with other counsel. The motion also argues that the creditors in the present suit were the controlling shareholders of the acquiring company at the time, and orchestrated the sale.
The motion also claims that dismissal is warranted under the doctrine known as ‘in pari delicto’, on the basis that the Evergreen International, not Skadden, was the true wrongdoer, leaving Skadden at most secondarily liable. The case is known as Centre Lane v. Skadden, New York Supreme Court, case number 651721/2016.