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A legal battle over a bungled finance deal for an Indian casino in upstate New York has Dorsey & Whitney scrambling to deflect a multimillion-dollar hit for legal malpractice. Dorsey & Whitney already has filed an appeal to a judgment of about $1 million from a decision in Minnesota bankruptcy court. At the same time, it is fighting a recommendation from the same bankruptcy court that calls for the firm to pay $2.8 million for its part in the failed casino deal. By the time it is all over, the law firm could be forced to pay up to $4 million in damages. The malpractice matter stems from a $28 million financing arrangement for the Akwesasne Mohawk casino, which opened in Hogansburg, N.Y., in 1999. Dorsey & Whitney served as outside counsel for Minnesota investment bank Miller & Schroeder, which helped secure financing for the project and administered loans provided by 31 banks to the casino’s owner. The project, however, was plagued by two fundamental flaws. First, the casino never made a profit during its first year of operation, which prompted Miller & Schroeder to accelerate payments on the loans made to the casino owner. But more significant to Dorsey & Whitney’s situation was that, in the firm’s zeal to seal the transaction, it did not obtain approval for the development from the National Indian Gaming Commission (NIGC) prior to orchestrating the closing. Without such approval, the casino owner, St. Regis Mohawk Tribe, asserted that the financing agreement, also known as a pledge agreement, was unenforceable and that it was not liable to the lenders for the loans. The Dorsey & Whitney lawyers involved in the casino transaction were partner Mark Jarboe, of counsel Paula Rindels, and two attorneys formerly with the firm, Christopher Karns and Virginia Boylan. An ‘embarrassing situation’ The unraveling of the casino finance project resulted in a barrage of lawsuits in Minnesota and New York involving a variety of players in the deal. At one point, Dorsey & Whitney was defending a state court action brought by 31 investors. Those investors asserted that the firm had represented their interests and committed malpractice when it plowed ahead with the closing and when it tried to negotiate payment from the casino owner without telling the lenders that it had not secured NIGC approval. The Hennepin County district court determined that the lenders did not not have standing to sue. They have appealed that case. The actions for malpractice against Dorsey & Whitney in federal court involve one brought by lender Bremer Business Finance Corp. and another brought by the trustee of the now bankrupt Miller & Schroeder. Bremer and Miller & Schroeder argue that Dorsey had a conflict of interest by defending Miller & Schroeder in a third-party action brought by Bremer and by representing the lenders in trying to negotiate repayment without revealing the lack of NIGC approval. In August, U.S. Bankruptcy Judge Nancy C. Dreher issued a scathing 150-page decision pertaining to both cases in which she lambasted Dorsey & Whitney for putting itself in an “embarrassing situation.” Bremer Business Finance Corp. v. Dorsey & Whitney, No. 0:06-CV-03962. She wrote, “In a nutshell, this is a story about what happens when a lawyer makes a mistake, learns he has done so, and then, without disclosing the problem to the client, tries to repair the problem on his own.” The effect of Dreher’s decision was twofold. As to the claims brought by the trustee of Miller & Schroeder, her decision constituted an order for judgment, which means that Dorsey & Whitney must appeal it to the U.S. district court. Regarding Bremer Business Finance Corp.’s action, her decision is a recommendation to the U.S. district court in Minnesota. Dorsey & Whitney has filed objections to those recommendations. In its recently filed opposition papers, Dorsey & Whitney argues that its only client was Miller & Schroeder. It also argues that its representation was appropriate. “The pledge agreement financing did not need to be approved by the national gaming commission,” said Richard Mark, an attorney representing Dorsey & Whitney. Mark is president of Briggs & Morgan, a law firm in Minneapolis. But the plaintiffs, among other things, point to a six-page memorandum written by Dorsey & Whitney after the deal’s closing. The firm designated it as “Privileged Document Subject to Attorney-Client Privilege” and addressed it to Miller & Schroeder and to the other banks. Bremer Financial’s attorney, Paul Ratelle of Fabyanske Westra Hart & Thomson in Minneapolis, did not respond to messages for comment. The trustee for Miller & Schroeder, Brian Leonard, a partner at Leonard, O’Brien, Spencer, Gayle & Sayre in Minneapolis, declined to comment.

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