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A dead dot-com company is suing San Francisco-based Heller Ehrman White & McAuliffe, alleging that the firm let an unlicensed attorney represent it during the heady days of the Internet boom and produced shoddy legal work that led to the company’s demise. The suit, filed in San Francisco Superior Court in November, seeks $200 million (the purported value of the defunct company) for claims including professional negligence, breach of contract and fraud. Malpractice suits against law firms are not uncommon, of course, especially when they’re filed by dot-coms that didn’t survive. But E-Compare v. Heller, Ehrman, White & McAuliffe, 415100, stands out because it could provide an intriguing glimpse into how law firms ran their businesses during the frenzied years of the dot-com boom. The allegations paint a picture of a firm in which a first-year associate was able to assume a lead role in major client matters, seemingly free of any supervision from the firm’s senior partners or management. According to the suit, Deborah Wagner, a first-year Heller Ehrman associate just a few months out of law school, represented herself to E-Compare as an experienced startup specialist. Between September and November 1998, despite not yet being admitted to the California Bar, Wagner allegedly acted as E-Compare’s “lead attorney,” signing a fee contract letter as well as preparing and signing the company’s articles of incorporation. The suit says she also advised the Internet shopping technology company to hire her husband as its chief financial officer, a job that included 1.4 million shares of stock. The fee contract letter notes that Heller Ehrman cut its standard billing rates by 15 percent because of the startup nature of E-Compare and waived the first $10,000 in legal fees in exchange for a 1 percent stake in the company. According to the complaint, flaws that Heller Ehrman made in the company’s records of capitalization and corporate governance prevented a third party from investing in the company, resulting in E-Compare’s ultimate downfall. Robert Hubbell, Heller Ehrman’s firmwide managing shareholder, said the firm does not comment on ongoing litigation, apart from the statement: “We acted properly at all times, the suit is groundless and we’re going to defend it vigorously.” In fact, Heller Ehrman has countersued E-Compare for roughly $52,000 in unpaid legal fees and costs. According to its counterclaim, Heller Ehrman stopped representing E-Compare in December 2000 as a result of the outstanding bills. Wagner, meanwhile, is no longer listed as an attorney on Heller Ehrman’s Web site. For Melvin Honowitz, a San Francisco lawyer representing E-Compare, the suit is a sign of the times. “We view this case as another window into the activities of even the most respectable counsel during the initial boom of the Internet era,” said Honowitz. The late ’90s were a period of great change in the legal industry. Faced with a glut of work, San Francisco Bay Area firms hired associate attorneys in bulk, and numerous firms adopted the practice of taking equity in their clients. “There’s definitely some ways in which the big Silicon Valley boom resulted in a kind of five-second-chess version, not only of ethics and conflicts procedures, but also intake procedures, client screening and other things when cases were streaming through the door,” said Richard Zitrin, director of the University of San Francisco School of Law’s Center for Applied Legal Ethics, as well as an attorney who represents plaintiffs in legal malpractice cases. According to legal experts, the fact that Wagner’s husband was hired as E-Compare’s CFO is not an inherent conflict of interest so long as the firm obtained the proper written consent from the client (the suit claims Heller Ehrman did not). The allegation that Heller Ehrman allowed an unlicensed attorney to represent a client could prove more tricky. Virtually every major law firm employs first-year associates who temporarily work without a license until they’re admitted to the Bar in November. According to Farella Braun & Martel Executive Committee Chair William Schlinkert, unlicensed first-year associates at his firm function similarly to paralegals and summer clerks: While they don’t actually practice law and offer legal advice, they assist senior attorneys with things like research. Also, any correspondence to a client that might be sent out by the associate clearly notes that the associate is not yet licensed to practice in California, he said. While there is no sign of such a disclaimer on Wagner’s fee contract letter, the letter does mention the Heller Ehrman partner who was also representing the client, along with his hourly rate. And just because Wagner signed the fee contract letter does not necessarily imply that she represented herself as the client’s lead attorney. “I suspect she was doing what a lot of young lawyers do in law firms, and that is assisting a senior attorney,” said James McManis, a San Jose, Calif., attorney who represents both plaintiffs and law firms in legal malpractice cases. “That these people actually thought she was in charge of this case, and that somehow everything was in her hands … I can’t believe that anyone would be that naive.”

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