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Company Goes Bankrupt, Sues Paul Weiss for $140 Million
The American Lawyer
June 22, 2009
A North Carolina media company went bankrupt Thursday and on the same day filed a $140 million malpractice suit against their former go-to corporate counsel at Paul, Weiss, Rifkind, Wharton & Garrison, alleging that a mistake in an offering document written in the late 1990s ended up costing the company about $136 million a decade later.
Brad Karp, the chair of Paul Weiss, calls the claim "stale and frivolous" and says the firm looks forward to "a swift and favorable resolution."
Aaron Richard Golub, a lawyer for the company, MIG Inc., did not immediately return calls. (If you think you've heard of Golub, it's likely because you have. He was once married to the actress Marisa Berenson, has been a regular in the New York Post's Page Six and has served as counsel in several high-profile divorce cases, including that of Marc and Denise Rich. He also once had a "giggling Sikh manservant," according to this New York Times profile.)
MIG, which invests in media and communications businesses in Eastern Europe, hired Paul Weiss on retainer in the mid-1990s as its lead corporate counsel. In 1997, the company had Paul Weiss write up documents for the issuance of preferred stock. The lawsuit claims Paul Weiss attorneys mistakenly wrote the documents in such a way that any holder of a preferred share could demand (in certain circumstances) a cash payment equivalent to all accrued dividends. But MIG believed that such shareholders would only be able to convert their preferred shares to common shares, the complaint states.
When MIG merged with another media company in 2007, preferred shareholders demanded the dividend-based pay outs, which ended up costing the company about $136 million more than they had anticipated, the complaint states. The offering document Paul Weiss drew up "contains numerous mistakes and errors in draftmanship, coherence and professionalism," the complaint says.
The preferred shareholders and MIG eventually battled in Delaware's Court of the Chancery, and the court twice sided with the shareholders in ruling that MIG was indeed required to make the dividend-based payments based on the paperwork Paul Weiss drafted. The last Chancery ruling was on May 28 of this year, and the company filed for bankruptcy Thursday, citing the litigation as a major cause, according to court filings in the Chapter 11 case. (Greenberg Traurig is representing MIG in that case; attorneys on the case did not return messages seeking comment.)
MIG's complaint cites a 2004 memo from Paul Weiss in which firm lawyers cited an "inconsistency" in the offering document that "may" give shareholders a chance to argue for a "double-dip" of common stock and cash pay outs. MIG claims the memo shows the firm knew about its alleged mistake and should have refrained from any further representation of the company.
This article first appeared on The Am Law Daily blog on AmericanLawyer.com.
