Bernard Eizen's Web site bills him as a "renaissance" lawyer, but the tax and estates attorney may have exceeded his erudition when he ventured into the realm of intellectual property.
That's the nub of a malpractice suit by former clients, the owners of a pretzel business who say the Philadelphia lawyer's inexperience cost them lots of dough -- $100 million's worth.
Eizen represented Warren and Sara Wilson, a Pennington, N.J., couple with a thriving business called The Snack Factory, for their personal estate and tax planning concerns. But when he learned of a deal in the offing between Wilsons' company and Pepperidge Farms Inc., he "leveraged his position of trust to become the family's one-stop shop for all personal and corporate needs," the Wilsons allege in The Snack Factory v. Eizen, Fineburg & McCarthy, 3:09-cv-6482, filed in federal court in Trenton on Dec 24.
As a result of getting in over his head, especially with experienced IP counsel sitting across the table, Eizen dealt such a blow to the company's worth that negotiations to sell it for as much as $100 million fell through, the Wilsons say.
The Snack Factory owns the patent on Pretzel Crisps, a flat, crunchy, baked pretzel chip sold in delicatessens and supermarkets nationwide, and the Wilsons wanted to license the rights to Pepperidge Farms. They were no strangers to the snack industry. In 1992, they sold their New York Style Bagel Chip Co. to Nabisco.
But Eizen had never served as lead counsel for a licensor of key technology in an intellectual property licensing agreement, the suit states. He is a CPA, and his Web site says he concentrates in the fields of taxation and estate planning.
Pepperidge Farms approached Snack Factory in August 2006, and the contemplated transaction was complex. Baptista's Bakery Inc., the Wisconsin firm that manufactures Pretzel Crisps, was also a party. Pepperidge Farms wanted to sell a similar product under its own name, but the Wilsons told Eizen they wanted the licensing agreement to safeguard their existing business.
The Wilsons wanted veto power over any new flavors or package sizes Pepperidge Farms might propose and sought to keep Pepperidge Farms out of certain distribution channels, including warehouse stores such as Costco and Sam's Club, and wanted a pricing advantage over Pepperidge Farms.
But during negotiations with Pepperidge Farms, Eizen began to represent both Snack Factory and Baptista's, even though Baptista's was already represented by experienced intellectual property counsel from Boston's Foley and Lardner. As a result, the Wilsons claim, Snack Factory's confidential communications with its counsel were shared with Baptista's, an adverse party.
In October 2006, Pepperidge Farms and Snack Factory entered into a product development agreement that the Wilsons call one-sided. They say it gave Pepperidge the right to patent pretzel crackers that were slight variations on products made with Snack Factory's intellectual property, and provided Snack Factory no "meaningful" compensation for the use of its intellectual property.
In September 2007, Snack Factory, Baptista's and Pepperidge Farms entered into a manufacturing agreement that the Wilsons call ambiguous about channels of distribution, pricing and development of new product lines. "No reasonable counsel would have advised a similarly situated client to accept the agreement. To the contrary, competent counsel would have explained that Snack Factory had no business reason to license its valuable intellectual property to Pepperidge on such terms," they allege.
Snack Factory took the position that the agreement allowed Pepperidge Farms to make its pretzel crackers only in original and white cheddar flavors and in six-ounce packages. But after executing the agreement, Pepperidge Farms filed several patent applications for pretzel crackers that were slight variations on the ones patented by Snack Factory.
Pepperidge Farms also began negotiating with Baptista's to produce its product in single-serve pouches and in larger packages for sale at Costco and Sam's Club. Such moves would place Pepperidge Farms' pretzel crackers in direct competition with Snack Factory's own Pretzel Crisps.
In its suit, Snack Factory says that in 2008, it received a $100 million buyout offer from an unidentified food conglomerate that later backed out because of the dispute with Pepperidge Farms.
Later in 2008, a private equity company, also unidentified, offered to buy Snack Factory for $90 million, the plaintiffs say. But on Sept. 22, just a few days before the deal was set to close, Pepperidge Farms filed suit against Snack Factory in federal court in Camden, asking for $20 million in damages and a declaratory judgment that Pepperidge Farms was allowed to produce additional product varieties and package sizes under the contract manufacturing agreement. The buyer then reduced its offer and the deal fell apart, though the suit was later withdrawn.
In July 2009, a third suitor bought a portion of Snack Factory for "a value far less than what Snack Factory would have been purchased for, but for defendants' negligence," the plaintiffs allege.
Eizen says in response to the suit that Snack Factory "at all times" had "separate counsel at a firm specializing in intellectual property law," though he declines to elaborate, and he calls the suit's allegations "baseless."
The complaint makes no reference to any other firm representing Snack Factory in the licensing negotiations. Snack Factory's local counsel, William Pinilis of Pinilis Halpern in Morristown, says of Eizen's claim, "I can't say either way whether there was any other lawyer. We sued all the people that we believe have responsibility. The defendant billed for providing IP services and the client was relying on them to provide IP services. They were billed hundreds of thousands of dollars."
Eizen is free to name any other party he feels shares liability, Pinilis adds.
The plaintiff's lead counsel, J. Noah Hagey of Braun Hagey in San Francisco, says of the complaint, "We think it tells the full and proper story," agreeing with Pinilis that the Eizen firm had been retained in the patent licensing transaction.
