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Blank Rome Settles Malpractice Claim for $20 MillionBlank Rome has entered into a $20 million agreement with the trustee of a former client now in bankruptcy, American Business Financial Services, to settle a complaint alleging breach of fiduciary duty, professional malpractice and breach of contract. The settlement was approved by a U.S. bankruptcy judge for the District of Delaware on July 28. Blank Rome does not admit any liability or wrongdoing in agreeing to the settlement, according to the agreement.
The Legal Intelligencer2009-08-10 12:00:00 AM
Blank Rome has entered into a $20 million agreement with the trustee of a former client that is now in bankruptcy to settle a complaint that alleged breach of fiduciary duty, professional malpractice and breach of contract claims against the firm.
The settlement, reached in the Philadelphia Common Pleas Court case Miller v. Blank Rome, was approved by U.S. Bankruptcy Judge Mary F. Walrath for the District of Delaware on July 28.
Walrath is overseeing the bankruptcy of American Business Financial Services, which is involved in a string of litigation in both state and federal court stemming from its bankruptcy and business dealings.
Blank Rome does not admit any liability or wrongdoing in agreeing to the settlement, according to the agreement.
"Blank Rome has expressly denied and continues to deny all allegations of any wrongdoing or liability against it whatsoever arising out of any of the conduct, statements, acts or omissions alleged, or that could have been alleged by the Trustee," the settlement agreement reads.
"Nonetheless, Blank Rome has concluded that further conduct of the Blank Rome Litigation would be protracted, expensive and distracting and that it is desirable that the Blank Rome Litigation be settled. Blank Rome has also taken into account the uncertainty and risks inherent in any litigation, especially in complex cases such as the Blank Rome Litigation."
Blank Rome represented ABFS in a variety of legal matters prior to the company's January 2005 Chapter 11 bankruptcy filing and acted as debtors' counsel in the Chapter 11 proceeding. The bankruptcy was converted to a Chapter 7 in May 2005 and George L. Miller was named trustee of the ABFS estate, according to the agreement.
Miller filed suit -- Miller v. Santilli -- in Philadelphia Common Pleas Court against former officers and directors of ABFS in July 2006 as well as a number of financial institutions. Those financial institutions joined accounting firm BDO Seidman.
Miller sued Blank Rome in February 2008 in Common Pleas Court under the caption Miller v. Blank Rome. He asserted breach of contract, professional malpractice and breach of fiduciary duty claims, according to the settlement agreement.
Miller and Blank Rome held mediation sessions before Daniel Weinstein of JAMS in California over three days in early June 2009. A settlement was reached and it required approval by the bankruptcy court, according to the agreement. Carl M. Buchholz, managing partner of Blank Rome, signed the settlement agreement on behalf of the firm and Miller signed on behalf of the estate.
John G. Harkins Jr. of Harkins Cunningham represented Blank Rome in the case. He said the trustee was seeking $700 million from the defendants and that was a big number for any defendant with the possibility of joint and several liability attaching.
Blank Rome had represented ABFS since 1995 in a number of matters, Harkins said.
"And they were obviously involved in many of the matters with which ABFS was involved," Harkins said when asked why Blank Rome was brought into the suit. "Therefore I guess one says to themselves, in this day and age," that the attorneys and accountants should be included in these types of lawsuits.
Harkins said he thought it was fair to say that the firm had strong witnesses and experts. "They frankly wanted us out of the case," he said, "so they made an offer" and Blank Rome accepted.
Steven M. Coren of Kaufman Coren & Ress represented Miller along with attorneys from Obermayer Rebmann Maxwell & Hippel. They didn't immediately return calls for comment.
According to the complaint in Miller v. Blank Rome Miller alleged that the other defendants in Miller v. Santilli were able to record more than $500 million of fictitious gains and more than $500 million of fictitious assets that created the illusion ABFS was a viable subprime mortgage lender, all with the "active participation and substantial assistance of Blank Rome."
Among several claims, Miller alleged that Blank Rome knowingly assisted ABFS officers in perpetrating a Ponzi scheme, misled the U.S. Securities and Exchange Commission about the financial health of ABFS and assisting the officers in "perpetrating a fraud on the bankruptcy court" during the firm's representation of ABFS in its "short-lived" Chapter 11 filing. According to the complaint, Miller was seeking in excess of $750 million against Blank Rome in compensatory damages along with punitive damages and attorney fees and costs.
In a lengthy response adamantly denying any liability-creating conduct, Blank Rome said Miller improperly imposed through the complaint obligations on the firm that weren't part of its engagement or counsel.
"[A]nd, more specifically, [Miller] inappropriately tries to hold Blank Rome liable for accounting and financial services or advice and for business decisions for which it was not retained and which were not its responsibility or within its area of expertise," Blank Rome said in its answer to the complaint.
Blank Rome argued that while it was the primary outside counsel to ABFS, it was not the only firm used during the period in question. It also said all decisions were made by ABFS representatives. The firm said the alleged misrepresented or omitted information came from ABFS and that is what Blank Rome relied upon in advising the company.
As part of the settlement agreement, Blank Rome maintains its ability to collect on fees it was owed through its representation of ABFS. Those fees are now under the control of the bankruptcy proceedings. Through the settlement agreement, Blank Rome agreed to cut its claims to those fees by 40 percent and cut its deferred compensation portion of the fee claim by 40 percent, according to the agreement.
The $20 million settlement will be paid to the trustee by Blank Rome's insurers 10 days after whichever of the following happens last; the execution of the agreement, the approval of the agreement or the receipt by Blank Rome insurers of payment instructions, according to the agreement.
Miller settled with the ABFS defendants in June 2008, for what attorneys involved with the cases said was worth $16.7 million. A second settlement by the ABFS defendants for an equal amount was reached on behalf of a group of investors, the attorneys said. Harkins said those two settlements represent the splitting of just about all that was left in ABFS' insurance coverage.