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The Beasley Firm and its lead partner, James E. Beasley Jr., have been sued by former partner Keith S. Erbstein, who claims he was forced out of the firm and cheated out of his fair share of the firm’s value when he was ousted.

Erbstein – now a partner at Young Ricchiuti Caldwell & Heller – claims in the suit that since the September 2004 death of firm founder James E. Beasley Sr., the firm has been run by Beasley’s son in a way that violates the rights of firm shareholders.

“This case presents a paradigm example of a closely held law firm being operated by its majority owner without regard for the law,” the suit alleges in its opening paragraph.

But The Beasley Firm’s lawyer, John M. Elliott of Elliott Greenleaf & Siedzikowski, called the suit a “desperately contrived creative fiction,” and said he will be moving immediately to have the case sent to arbitration.

Elliott said Erbstein’s dispute with The Beasley Firm “never should have gone public” because the firm’s operating agreement explicitly calls for all disputes to go to binding arbitration.

Erbstein’s suit, filed by attorneys Alan B. Epstein and Jennifer Myers Chalal of Spector Gadon & Rosen, accuses The Beasley Firm of breaching its duties of “loyalty” and “care” to Erbstein, and of “minority member oppression.”

Filed in the Philadelphia Court of Common Pleas, the suit demands a full accounting of The Beasley Firm’s finances as well as the establishment of a collective trust and the appointment of a custodian.

For The Beasley Firm, the suit is the second ugly court battle with a former partner since the death of its legendary founder.

In January 2005, attorney Andrew J. Stern’s decision to leave the firm to join Kline & Specter sparked a trio of lawsuits in which both sides had lodged serious allegations of wrongdoing.

Stern claimed in court papers that James Beasley Jr. had single-handedly overhauled the way lawyers are compensated at The Beasley Firm so that the most successful lawyers who rake in the largest settlements and verdicts are no longer recognized for their strengths.

A suit filed by Stern and his new firm, Kline & Specter, was especially critical of James Beasley Jr., saying he “shared his father’s name, but neither his father’s abilities nor his father’s accomplishments.”

“Unlike his father,” the suit said, “Mr. Beasley Jr. was neither a skillful trial lawyer nor a generator of lucrative cases.”

In response, Beasley Jr. accused Stern of violating a provision in the partnership agreement that requires lawyers to give six-months’ notice before leaving. Beasley Jr. alleged that Stern had plotted for months to leave the firm and stalled progress on a case worth $35 million so that he could take it with him to Kline & Specter.

But when the lawsuits over Stern’s departure settled just one week later, both sides issued a statement in which they apologized for “the statements in their court filings and legal proceedings” and said they wanted to “withdraw those statements.”

Erbstein’s suit also focuses on the way the firm has been run since the death of Beasley Sr.

In the section of the suit alleging minority member oppression, Erbstein claims that Beasley Jr. has refused to allow firm members to have access to “the books and records of the firm,” and has “run the firm as a family business without regard for the rights and interests of Class B equity owners.”

Included in the suit is a breakdown of the firm’s shares as of January 2004:

Class A Voting Shares:

James E. Beasley, 51

James E. Beasley Jr.,49

Class B Equity Shares:

James E. Beasley, 45

James E. Beasley Jr., 19

Keith S. Erbstein, 6

Paul A. Lauricella, 6

James J. McHugh, 6

Slade McLaughlin, 6

Andrew J. Stern, 6

David A. Yanoff, 6

According to the suit, James Beasley Jr. now holds all of the firm’s Class A voting shares. Among the Class B shareholders, the suit says, three have left – Erbstein, Stern and McHugh.

The suit alleges that, after Beasley Sr.’s death, firm members urged Beasley Jr. to form a “management committee,” and that Erbstein, McHugh and Beasley Jr. were elected as its members for three-year terms.

Erbstein’s suit also alleges some of what happened behind closed doors at The Beasley Firm at the time of the settlement of Stern’s suit.

The suit alleges that firm members were informed of a “proposed” settlement with Stern, but that Beasley Jr. later signed off on a “substantially different” settlement that was “less beneficial” to The Beasley Firm.

According to Erbstein’s suit, the Stern settlement sparked a series of e-mails in which firm members complained that the settlement was done without the advice and consent of the management committee.

Erbstein claims that Beasley Jr. responded to the criticism by discharging Erbstein and McHugh from the management committee, leaving himself as the only member of the committee.

Soon after, the suit alleges, the firm’s members held a meeting and discussed restructuring the firm to “give all of the members equality in Class A voting shares.”

Erbstein claims that Beasley Jr. agreed at the time to rescind his decision to discharge McHugh and Erbstein from the management committee, and also agreed “that it would be in the long-term best interest of the firm if all of the members were given comparable Class A voting rights.”

But the very next day, the suit says, Beasley Jr. changed his mind and told firm members in an e-mail that giving Class A voting shares to the other members would compromise his ability to run “this family business.”

Erbstein says in the suit that The Beasley Firm “was not, and is not, a family business,” but instead is a “limited liability company to which Beasley Jr. owes a fiduciary duty.”

The suit says that if Beasley Jr.’s father had wanted his son to run the firm as a family business, “he would not have formed a limited liability company in which designated attorneys in the firm provided consideration for equity units.”

Erbstein’s departure from The Beasley Firm was, according to the suit, “involuntary,” and came on the heels of his repeated demands to get access to the firm’s financial records.

The suit alleges that Beasley Jr. “wasted valuable firm assets by purchasing questionable and unnecessary goods and services” and had “surcharged the members’ capital accounts without good reason other than to create a fund for his own interests and to solidify his power within the firm.”

Erbstein claims that in a “direct response” to his continued expressions of concern, Beasley Jr. notified Erbstein on Nov. 17, 2005, that he was “requiring his withdrawal from the firm.”

At the time, the suit says, Erbstein had been with the firm for 35 years, and Beasley Jr. consulted with none of the other firm members before demanding Erbstein’s withdrawal.

In an interview, Elliott said Beasley Jr. “has no recollection” of referring to the firm as a family-run business.

Elliott also said Erbstein’s demand for access to the firm’s financial records is baseless because the firm’s operating agreement – which Erbstein signed – specifically states that Class B shareholders are not entitled to such information.

“Attorney A doesn’t get the right to see what Attorney B is getting,” Elliott said.

Elliott was harshly critical of Erbstein’s claim that he is entitled to an accounting, saying Erbstein was “a marginally productive lawyer at best and he was extremely generously compensated.”

As for Erbstein’s claim that Beasley Jr. unilaterally settled the Stern suit on terms that were different from those presented to the firm’s members, Elliott said that he was personally involved in the discussions and knows that The Beasley Firm members were aware of the terms.

“Whatever he’s trying to crack up there is a lot of baloney,” Elliott said.

Epstein, in an interview, said he did not want to respond to Elliott’s comments “except to say that those comments are inappropriate and untrue.”

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