October 19, 2020
A recent Law 360 story by Andrew Strickler, “Brown Rudnick Seeks Defense Bill ‘Advance’ From Trustee,” reports that facing a $300 million malpractice suit over its work for a bankrupt chemical company, Brown Rudnick LLP told a New York federal judge it is "unmistakably" entitled to having its legal bills covered by the trustee now suing the firm and a trust director. Rather than pursue "immunity" from the massive potential liability, Brown Rudnick told the court it only seeks an "advance" on its mounting bills under the terms of a trust agreement at issue in the case, which it said provides for the payment of legal costs for any agent sued over work for the trust.
Brown Rudnick also argued that if it ultimately loses the case, it would be required to return the money to the trustee. Therefore, the payment would not violate ethics rules or case law disfavoring lawyers securing blanket protections from a client's legal malpractice claims. "[T]here is no public policy concern with advancement of fees where a party commits to returning the fees if ultimately adjudicated to have committed malpractice for which it cannot receive indemnity," the firm said.
Brown's unusual stance in the case stems from work commenced nearly a decade ago for a litigation trust formed in the bankruptcy of Lyondell Chemical Company, of which a Brown Rudnick partner was the original trustee. After the bankruptcy declaration, trustee Edward Weisfelner of Brown Rudnick filed numerous claims against investor Leonard Blavatnik's company, Access Industries Holdings Inc. He also lost a trial three years ago in which he tried to recoup some $300 million in credit line repayments made by AIH.
A replacement trustee, Mark E. Holliday, then sued Brown Rudnick, saying the firm committed malpractice by failing to establish at trial that Lyondell had been insolvent, a finding that would have made the money available for clawback as avoidable preference payments. Brown has denied botching the trial, and insisted that a trust advisory board refused to give Weisfelner authority to settle before it decided to "roll the dice" at trial.
In counterclaims brought in August, Brown pointed the finger at a trust advisory board member, Paul Silverstein, as personally responsible for not settling, and for going after Brown Rudnick in court. As part of that personal liability claim, the firm accused Silverstein of breaching his duty regarding the "advance fee" portion of the trust agreement, and the board generally of "depleting whatever negligible [trust] funds remained" through their salaries and legal bills.
In the motion, which answers Holliday's own bid for a dismissal, the firm did not put a number on its legal expenses thus far. But the firm did say that, as of March of last year, the trust had a cash balance of $1.96 million, which it called insufficient to cover its bills. And at a September hearing, Judge Engelmayer encouraged the parties to reach a settlement, and suggested that a discovery "autopsy" on the bankruptcy court trial would be costly. He also noted that experts alone could cost the parties $1 million.
Silverstein "committed gross negligence by, among other things, directing the assertion of this malpractice suit against Brown Rudnick despite the fact that the Trust lacked adequate funds to pursue its claims and advance Brown Rudnick's defense costs," the firm said. The personal liability and counterclaims "clearly arise out of the same transaction/series of transactions, i.e., authorizing suit against Brown Rudnick without advancing funds, or having sufficient funds to advance, to Brown Rudnick for its defense," according to the filing.