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A Philadelphia law firm was hit with a verdict of more than $4.4 million in a legal malpractice case after a Philadelphia Common Pleas judge concluded that the firm had provided a false opinion letter to a bank prior to the closing of a $7.3 million loan. At the close of a non-jury trial on Friday, Judge Gene D. Cohen ruled that Abrahams Lowenstein & Bushman should also be hit with punitive damages because the conduct of its lawyers was “reckless” and “outrageous.” Cohen ordered that the plaintiff, Republic First Bank of Philadelphia, is now entitled to discovery on issues relating to punitive damages and scheduled an Aug. 3 hearing to assess the punitive award. In a verdict delivered from the bench, Cohen said he was “particularly disturbed” that the firm had supplied the bank with an opinion letter that was “false at the time it was signed” and that the lawyers “knew it to be false.” “This is the same thing as a certified public accountant certifying a bank statement or a financial statement … knowing that the information contained in that is false,” Cohen said. “It goes to the very heart of the banking industry because the importance of such opinion letters is well known,” Cohen said. The verdict is a victory for plaintiffs attorneys Paul R. Rosen, Daniel J. Dugan and Ralph R. Smith III of Spector Gadon & Rosen. In his closing argument, Rosen urged Cohen to award punitive damages “to make every lawyer in this city and in this state understand [that] the callous disregard of the rights of their client in favor of another client will not be tolerated by this court.” Rosen told the judge that the evidence at trial showed that the Abrahams Lowenstein lawyers knew before the loan was funded that a portion of that loan that was to be secured by a $4.2 million leasehold mortgage was not enforceable and was void. Attorney Jeffrey B. Albert of McKissock & Hoffman, who defended the Abrahams Lowenstein firm at trial, issued a statement Tuesday that said: “Our clients obviously disagree with the verdict. We intend to pursue post-verdict relief. Due to the ongoing nature of this litigation, we will have no further comment at this time.” According to court records, Republic First Bank agreed in early 2000 to loan more than $7.3 million to William Rowland and his company, American Appliance Corp. The loan was to be secured by three properties, and the bank retained the Abrahams Lowenstein firm to represent it. Cohen found that the Abrahams Lowenstein firm had “a longstanding relationship” with Rowland. As a result, Cohen said, the firm secured a waiver letter from both the bank and Rowland that said the firm would represent only the bank in the loan. Prior to closing on the loan, Cohen found that an issue arose about one of the three properties being used to secure the loan. Although Rowland was the lease-holder for the Concord, Del., property, Cohen found that the Abrahams Lowenstein lawyers never obtained a consent from the property’s landlord, David Shah. When the loan was closed on July 10, 2000, Cohen found that Rowland “signed a purported first mortgage lien on the leasehold without having obtained the consent of the landlord.” Nine months after the closing, when Rowland and his company declared bankruptcy, Cohen found that the bank was unable to collect on the defaulted loan because, without the landlord’s consent, a “leasehold interest” was never obtained. Cohen found that the bank “never knew the import of the issue of consent on the property.” But the Abrahams Lowenstein lawyers were aware of the problem at the time of the closing and said nothing, Cohen found. “The defendants knew that a mortgage to a leasehold was void without consent,” Cohen said in his verdict. “The defendants never told the bank that the leasehold mortgage was void. The loan would not have been funded without a valid leasehold mortgage. The bank could have secured its loan and suffered no damages other than the cost of recovery if a default had been ordered,” Cohen said in his verdict. Cohen concluded that the Abrahams Lowenstein firm was at fault for failing to provide the bank with proper advice. “The defendants in this case never advised the bank to postpone settlement … nor did they ever advise the bank to call a default,” Cohen said. Instead, Cohen found that an opinion letter from the Abrahams Lowenstein firm, authored by attorney Allen Sanders, “was false at the time it was signed and the defendants knew it to be false.” In his remarks from the bench, Cohen said the case was “very difficult” because “this is a prominent Philadelphia law firm with a good reputation and the court must somehow come to grips with what has occurred here.” Cohen then offered a lesson that could be drawn from the case. “It is the job of the lawyers in representing a client to protect the client, not to please the client,” Cohen said. “It’s a job of the lawyer to think about the worst thing that could possibly happen because it’s almost standard in law that if it can’t happen it will happen.”

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