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A Manhattan judge has upheld a legal malpractice claim against McDermott, Will & Emery based on an opinion letter the firm provided to the plaintiff, an investor in one of the firm’s clients. The Chicago-based law firm had moved to dismiss the malpractice claim for lack of privity with the plaintiff, an investment partnership headed by former lawyer Ilan K. Reich. But Manhattan Supreme Court Justice Sheila Abdus-Salaam rejected the firm’s argument in I. Reich Family L.P. v. McDermott, Will & Emery, 101921-03. In her ruling allowing the case to proceed to trial, Justice Abdus-Salaam cited prior decisions by the Court of Appeals and the Appellate Division, First Department, writing that the courts above had “clearly recognized � that under certain circumstances, an attorney can be liable to third parties, not in privity, for harm caused by professional negligence.” In 2001, one of the directors of SpectruMedix, a State College, Pa.-based manufacturer of equipment for genetic analysis, contacted Reich about providing financing to the company. Reich agreed to invest $1 million and take control of the company if Joseph Adlerstein, the chairman, chief executive and largest shareholder, were removed. McDermott Will, acting as counsel to SpectruMedix, negotiated the terms of the transaction and issued an opinion letter. The letter stated that the company had taken all steps necessary to effect the transaction and that it was unnecessary to inform Adlerstein of Reich’s proposal in advance of the July 9, 2002, board meeting at which the directors voted to oust Adlerstein. Adlerstein subsequently sued the board and SpectruMedix in Delaware Chancery Court. The court ruled in his favor, finding the board acted improperly by not giving Adlerstein advance notice of the Reich transaction. The Delaware court ordered the actions of the July 9 board meeting invalidated and re-installed Adlerstein as chairman and CEO. Following further litigation, the Reich partnership and SpectruMedix agreed to settle with Adlerstein for $1.9 million and a non-dilutable 15 percent stake in the company. In its complaint, Reich L.P. claimed its other expenses include $500,000 in legal fees it incurred defending against Adlerstein’s suit. To salvage its investment, the partnership also invested another $2.5 million in SpectruMedix. Abdus-Salaam relied heavily on the Court of Appeals’ 1992 decision in Prudential Ins. Co. v. Dewey, Ballantine, Bushby, Palmer & Wood, 80 NY2d 377, noting that the court in that case had found a third party “can assert a negligence claim against an attorney where there is an awareness that an attorney’s statement is to be used for a specific purpose, reliance on the statement, and some conduct linking the attorneys to the non-client evincing their understanding of the reliance.” “The allegations of this pleading include all three of these criteria,” Abdus-Salaam wrote. She upheld claims for breach of fiduciary duty and negligent misrepresentation as well as legal malpractice. The Reich partnership had also charged McDermott Will committed fraud by concealing partners’ ownership interests in SpectruMedix and conflicts of interest arising from the firm’s earlier representations of Adlerstein. The judge said the firm had a duty of disclosure to the plaintiff, but she dismissed the fraud claim on the grounds that the firm’s alleged acts of concealment were not sufficiently related to the injury suffered by the Reich partnership. The Reich partnership was represented by David M. Meisels of Herrick, Feinstein. McDermott Will was represented by Frank H. Wohl of Lankler, Siffert & Wohl. Reich is a former Wachtell, Lipton, Rosen & Katz partner who was jailed and disbarred for participating in the 1980s insider-trading ring led by former Drexel Burnham Lambert banker Dennis Levine. Reich, who served eight months of a 366-day sentence for insider trading, was reinstated to the New York bar in 1995 and briefly worked as a partner at Olshan, Grundman, Frome & Rosenzweig before becoming a private investor.

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