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One of the United States’ largest law firms has settled a legal malpractice case in which Fruit of the Loom Ltd. was asking for more than $80 million in damages for the firm’s alleged negligence in handling a fraud and antitrust case in the 1990s. The settlement agreement between New York-based Fried, Frank, Harris, Shriver & Jacobson and Fruit was signed by U.S. Bankruptcy Judge Peter Walsh in Wilmington, Del., on Oct. 3. The amount that Fried Frank has agreed to pay the apparel maker was redacted from the agreement. Although the malpractice suit was brought in Los Angeles Superior Court, it had to be approved by the bankruptcy court because Fruit of the Loom has been in a Chapter 11 reorganization proceeding in Delaware since 1999. The money will become part of Fruit of the Loom’s estate. News of the settlement has alarmed attorneys familiar with the bankruptcy and the malpractice case. The suit named 135 Fried Frank partners as defendants and deemed them “legally responsible” for the damages. Neither Fried Frank partner Sheldon Rabb, who was designated by his firm as the spokesman on the case, nor any of the attorneys involved in the case, including Fruit of the Loom’s bankruptcy counsel, Luc A. Despins of New York-based Milbank, Tweed, Hadley & McCloy, or Fruit of the Loom’s general counsel, John J. Ray III, would comment, citing the confidential settlement agreement. “It was settled in bankruptcy court. The judge approved it,” was all Rabb would say. The lawsuit involved the inventor of the “Clapper,” a handclap-activated device, well known from TV commercials, that turns lights on and off. According to legal documents, lawyers and newspaper accounts, in 1981 inventor Carlisle Stevens and his business partner licensed their patents for an energy-saving fluorescent-lighting technology to Fruit of the Loom’s former subsidiary Universal Manufacturing Corp. The licensing agreement allowed for the inventor at his business, LMP Corp., to receive a percentage of future royalties from 1982 to 1986. LMP sued in California’s Alameda County Superior Court claiming that Universal fraudulently induced it to enter into a sales agreement and then suppressed the development of the product. After a seven-month trial in 1989-90, a jury returned a judgment of $25.8 million against Universal. On appeal, the judgment was reversed and the case remanded for retrial. Fruit of the Loom hired Fried Frank to handle the second trial, which began in March 1994. This time the plaintiffs asserted new and larger damages claims based on developments in the electronics market after the first trial, according to papers filed in Delaware bankruptcy court. In October of that year, the jury rendered a judgment of $96 million against Universal. The verdict was upheld on appeal in 1997, and Fruit of the Loom eventually paid $126 million, including interest, to the plaintiffs in 1998. Eugene Crew of Townsend and Townsend and Crew in San Francisco, who represented LMP, said that during the entire 13-year litigation Fruit of the Loom hired seven different law firms. In the malpractice lawsuit filed in October 2000, Fruit of the Loom said Fried Frank was negligent and breached its fiduciary duty in its representation in both the trial and the second appeal. “This negligence included Fried Frank’s failure to keep plaintiff advised of the status of the case, settlement discussions and offers, the risk of proceeding to trial a second time and the progress and status of the second trial,” the complaint says. DENIES NEGLIGENCE Fried Frank denied that it was negligent or breached any duties to Fruit of the Loom. The firm’s defense is based on “purported oral communications” between Fried Frank attorneys and the late Kenneth Greenbaum, according to papers in bankruptcy court. Greenbaum, who was general counsel at Fruit of the Loom, died before the legal malpractice case was brought. According to court documents, Fried Frank partner Allen Kezsbom contends that he discussed with Greenbaum jury studies which showed some mock juries were inclined to award a verdict for the plaintiffs of more than $100 million. Both Kezsbom and partner Peter L. Simmons said they had told Greenbaum about a new damage study that showed the plaintiffs suffered damages of $137 million. “Messrs. Kezsbom and Simmons contend that they had discussions with Mr. Greenbaum about the potential settlement of the LMP Litigation,” documents filed in bankruptcy court said. “They also assert that during these discussions Mr. Greenbaum indicated that, in his opinion, the case was ‘just not settleable’ and that Fried Frank would simply have to try the case.” Crew said he never saw Fried Frank attorneys engage in any conduct that he perceived as negligent or detrimental to its client, Fruit of the Loom. In the past year, Fruit of the Loom has sought discovery from Fried Frank, asking for all the files related to work done by the firm that involved the litigation. Fruit of the Loom also took depositions from Fried Frank partners who had primary responsibility for representing Fruit of the Loom in the LMP case. As part of the settlement, no wrongdoing was admitted. Once Fruit of the Loom receives the settlement payment, it will dismiss the malpractice suit with prejudice.

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