Legal Malpractice

Pillsbury Winthrop Shaw Pittman and a $10 Million Legal Malpractice Settlement

By (Andrew Lavoott Bluestone)

We have noted the trend towards legal malpractice cases issuing out of Bankruptcy proceedings.  We believe the trend arises from the greater number of large bankruptcy filings in the corporate world, and the smaller pool of assets available to the creditors.  In this case, Law Com reports that Pillsbury Winthrop will re-pay and forego $ 10 million for violating Bankruptcy rules and being an interested creditor while representing debtor.

"Pillsbury Winthrop Shaw Pittman has reached a $10 million settlement in a malpractice dispute with bankrupt client SonicBlue, a court filing Tuesday shows.

The firm will pay $7.6 million and forgo $2.4 million in outstanding fees to SonicBlue's estate, according to the filing, which awaits approval by a bankruptcy judge at a hearing slated for March 31.

SonicBlue's estate had sued Pillsbury for malpractice and breach of fiduciary duty, demanding the firm return $4.2 million in fees and pay $11 million in damages.

"The creditors committee is pleased with the terms of the settlement," said Ron Oliner, a partner at Duane Morris who represents the creditors committee in the bankruptcy.

Pillsbury General Counsel Ronald Van Buskirk declined to comment beyond pointing at language in the settlement saying the deal had been reached to the parties' mutual satisfaction. Pillsbury represented the SonicBlue estate from the filing of its bankruptcy petition in 2003 until 2007 when it came to light that the firm had failed to disclose to the court a 2002 pre-bankruptcy promise to creditors. The firm promised in a letter to three hedge funds, which had invested in a $75 million bond issue, that they would be repaid in full should SonicBlue enter bankruptcy protection.

Pillsbury attorneys later described the letter as a "scrivener's error." The hedge funds threatened to sue for repayment in September 2006.

In a 2005 internal e-mail sent by Pillsbury partner William Freeman about the retainer SonicBlue had paid, he told partner Craig Barbarosh that the firm had "major exposure here."

Citing the potential conflicts, the bankruptcy judge removed Pillsbury from the case in March 2007. "

Full post as published by New York Attorney Malpractice Blog on March 11, 2009 (boomark / email).