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A Manhattan appellate court has allowed a legal malpractice suit to proceed against Shearman & Sterling over the New York law firm’s alleged failure to perfect a priority security interest for a private investor. James Garten of Bedford Hills, N.Y., claims he retained Shearman in 2004 to advise him on a $750,000 loan he agreed to make to Pacific Jet Inc., a Las Vegas air charter company, on the condition that his security interest be deemed superior to those of another group of creditors. But Shearman allegedly failed to prepare or procure the necessary documents to secure Garten’s superior interest, and he found his debt subordinated when Pacific Jet filed for bankruptcy in 2005. The New York Appellate Division, 1st Department, ruled Tuesday that Garten had adequately pleaded a legal malpractice claim, as “defendant was obligated not only to prepare the loan documents, but also to protect plaintiff’s expectation that the agreement that he would hold a senior security interest was effective.” The court further noted that neither “the borrower’s failure to repay the loan nor the senior creditors’ eventual failure to act honorably and adhere to the understanding that their liens were to be junior to plaintiff’s relieves defendant of potential liability for its negligence.” The decision by Presiding Justice Jonathan Lippman and Justices Angela Mazzarelli, Milton Williams, John Sweeny and Rolando Acosta affirmed the December 2007 decision of Judicial Hearing Officer Ira Gammerman denying Shearman’s motion to dismiss. The firm appeared pro se. Garten was represented by Donald Pearce of New York. The case is Garten v. Shearman & Sterling, 112114.

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