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Davis Wright Faces $400 Million Suit From Sunwest Work
The American Lawyer
June 17, 2009
Seattle-based Davis Wright & Tremaine has been sued by the receiver for a former client, Sunwest Management, which developed a now-ailing empire of senior living facilities. The court-appointed receiver for the company and its affiliates, Michael Grassmueck, alleges that Davis Wright helped Sunwest engage in a Ponzi scheme, and is seeking more than $400 million in damages.
In May, Davis Wright was targeted as a defendant in a similar suit brought by Sunwest investors, as noted in a prior Am Law Daily article. Those investors also sued K&L Gates and Thompson & Knight, which are not named in the receiver's complaint. The SEC has also brought an action against the company, which led to the appointment of Grassmueck as the receiver to pursue claims against third parties on behalf of the companies' investors and creditors.
The complaint filed last week in federal court in Oregon alleges that Davis Wright "played a critical role in creating, sustaining and propping up the Sunwest Enterprise." The company fueled its rapid expansion by raising more than $400 million from investors, and borrowing more than $1.7 billion from lenders. In connection with those financings, the firm prepared more than 120 offering memos for investors, handled numerous loan agreements and wrote opinion letters for lenders, the complaint states. The firm's lawyers also attended board meetings where they "helped design and implement the overall business plan as it related to the selling of [property interests] to investors [and] communicated directly with investors to encourage them to invest ... despite their knowledge of [Sunwest's] serious financial problems," the complaint asserts. In return, the receiver alleges, Davis Wright receives "millions of dollars" in fees.
The firm is accused of professional negligence, breach of fiduciary duty and negligent misrepresentation. Receiver Grassmueck is represented by Stephen Walters, David Osias and David Zaro of San Francisco's Allen Matkins, and by William Larkins Jr. and Julie Vacura of Portland, Oregon's Larkins Vacura.
Davis Wright referred questions to Joseph Arellano of Portland, Oregon's Kennedy, Watts, Arellano & Ricks, who is defending the firm in this action and the investor suit. "The firm believes it provided excellent, appropriate and ethical lawyering. We don’t agree with the position that it was the lawyering that caused the business to fail -- it was the economic conditions in the real estate market. It’s miscasting blame to blame Davis Wright for the collapse of the Sunwest entities."
This article first appeared on The Am Law Litigation Daily blog on AmericanLawyer.com.
