A Manhattan judge has refused to dismiss a legal malpractice suit against Cullen and Dykman which asserts the firm had a conflict of interest by representing two parties in a dispute among siblings which resulted in damages to the plaintiffs.
The parties will now move to discovery.
The siblings are descendants of Hugh Hirshon, who founded W.S. Wilson Corp., a Long Island-based distributor of plane parts. When Hirshon died in 1955, he left his entire interest in the company to a trust.
The lifetime income beneficiaries of the trust were his wife, who died about 18 years later, and his daughter, Phebe Baugher, who died in 2008. Her eight children were then presumptive beneficiaries of the trust.
One of her children, Jeffrey, was appointed by his mother as a trustee and served in that position without official appointment by the Surrogate’s Court. He was also a director of the company’s board and was appointed as its president in 2007.
The suit, brought by five of Phebe’s other children, three grandchildren and the company, alleges that Cullen and Dykman, a 160-attorney Brooklyn firm, provided simultaneous representation of the company and Phebe’s sons Jeffrey and Kirk Baugher.
The plaintiffs, represented by Katten Muchin Rosenman, claim the law firm aided and abetted Jeffrey Baugher in breaching his fiduciary duties as an officer and director of W.S. Wilson, and as a trustee of the trust that owned the company.
Specifically, they claimed the law firm worked with Jeffrey or Kirk to develop a strategy to exclude the other family members from the company’s management to ensure a claim of more than $22 million in its retained earnings would be preserved for Phebe or her estate. Jeffrey and Kirk became the primary beneficiaries of her estate under a will Cullen drafted and had Phebe execute, Katten said.
The plaintiffs claimed Cullen’s conflict of interest caused the family members to become embroiled in litigation and incur legal fees. In all, the conflict resulted in 11 proceedings, Katten said.
Claiming more than $3.6 million in damages, the company and the Baugher plaintiffs are seeking disgorgement of all money paid to Cullen during conflict representation, legal fees incurred in litigation allegedly resulting from representing Jeffrey and Kirk against the interest of the company, and punitive damages.
In response to the suit, the law firm sought a change of venue to Nassau County for the convenience of witnesses and alternatively to dismiss the complaint.
Cullen said in court papers that after years of litigating against their now-deceased mother and their brothers, “the Baugher Plaintiffs … have now sought to assert a claim against C&D, the attorneys for Phebe and then the company, essentially seeking to recoup the millions of dollars in attorney fees the plaintiffs purportedly paid their current counsel Katten Muchin Rosenman.”
“The complaint is nothing more than the most recent manifestation of the ongoing barrage of litigation spawned by the disputes plaguing the Baugher family and its interest in the company going back to 1961,” Cullen said.
In her ruling, Friedman denied the change of venue request, finding Cullen failed to support its claim that Jeffrey, who suffers from a physical disability, cannot travel to Manhattan.
She maintained the company’s legal malpractice and breach of fiduciary duty claims against Cullen, but dismissed these claims by the individual family members. “They did not retain Cullen and were not in privity with the company for purposes of the retention,” she said.
The judge said a conflict of interest as a result of dual representation of clients in violation of professional responsibility rules, does not alone support a legal malpractice claim. But liability can follow when the client proves actual damages as a result of the conflict.
The plaintiffs allege damages in the form of attorney fees incurred by the company.
The documentary evidence “does not demonstrate that the conflict did not result in damage to the company,” the judge said.
The judge cited examples of underlying litigation arguably involving a conflict. For instance, one month before Cullen withdrew as counsel for the company, it filed a petition on behalf of Kirk, as preliminary executor of Phebe’s estate, seeking the company’s retained earnings from the trust.
“While the lawsuit was brought against the trust rather than the company, the estate and the company arguably had differing interests” over the retained earnings, Friedman said.
She declined to review each of the past lawsuits to see if they involved a conflict and would thus provide a basis for a malpractice claim. Rather, the judge said, “the court holds that Cullen has not demonstrated that none of the lawsuits involved a conflict that damaged the company by causing it to incur legal fees.”
Cullen argued its conduct was not the proximate cause of the litigation. But Friedman said this issue couldn’t be determined on the record.
She also maintained both the company and the Baugher plaintiffs’ aiding and abetting claims.
“The aiding and abetting causes of action plead sufficient allegations that Cullen knowingly gave Jeffrey advice not to hold Board meetings and assisted him in opposing the Baugher plaintiffs’ litigation, ” Friedman said.
Friedman dismissed the tortious interference with contract claim and found the complaint’s allegations don’t warrant punitive damages.
Michael Verde, a Katten partner representing the company and the Baugher plaintiffs, said he was pleased with the decision. Katten special counsel James Tampellini also represents the plaintiffs.
Marian Rice, a partner at L’Abbate, Balkan, Colavita & Contini, which represents Cullen, did not return a message seeking comment.