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A Manhattan appeals court has reinstated a legal malpractice claim against Weil, Gotshal & Manges, finding that, except for the law firm’s alleged conflict of interest, one of its former clients might not have suffered economic harm. A unanimous panel of the Appellate Division, 1st Department, also held that the evidentiary standards for legal malpractice and breach of fiduciary duty were the same. Manhattan Supreme Court Justice Richard B. Lowe had dismissed the malpractice claim but permitted a breach of fiduciary duty claim to proceed. He ruled that the latter claim required only a showing that the alleged conflict was a substantial factor in the injured party’s losses, while a malpractice claim required a showing of “but for” proximate causation. The appellate panel, which included justices Eugene L. Nardelli, David B. Saxe, Joseph P. Sullivan and Luis Gonzalez, dismissed the fiduciary duty claim as redundant. “We have never differentiated between the standard of causation requested for a claim of legal malpractice and one for breach of fiduciary duty in the context of attorney liability. They are co-extensive,” the panel wrote in Weil, Gotshal & Manges v. Fashion Boutique of Short Hills, 3482. The case arose from Weil Gotshal’s representation of Annette and Randi Fischer, owners and operators of a boutique in New Jersey’s Short Hills Mall that sold goods of the Italian fashion house Fendi. The Fischers sued the U.S. subsidiary of Fendi in Manhattan federal court in 1993, alleging the company had destroyed their business in violation of the Lanham Act and state law by engaging in a policy of disparaging the boutique to customers phoning or visiting Fendi’s own store in Manhattan. According to the Fischers, Weil Gotshal became conflicted in late 1999, when the firm began representing the U.S. subsidiary of Prada, another Italian fashion company, in trademark litigation. Around that same time, Prada acquired a controlling interest in Fendi. Weil Gotshal partners Helene D. Jaffe, currently co-chairwoman of the firm’s trade and regulatory practice, and Robert G. Sugarman served as trial counsel. Both were also sued personally by Fashion Boutique. U.S. COURT DISMISSAL Southern District Judge Miriam Goldman Cedarbaum dismissed the boutique’s Lanham Act claim in 1996 for lack of evidence that disparagement of Fashion Boutique constituted company policy at Fendi. Weil Gotshal moved to withdraw from the case in May 1999, but Judge Cedarbaum denied the motion because the trial on the state law issues was scheduled to start soon. In March 2000, Fendi offered the Fischers $1.4 million plus costs to settle the remaining claims. The Fischers rejected the offer against the advice of the Weil Gotshal lawyers. A jury found Fendi liable but awarded Fashion Boutique only $110,000 in compensatory and punitive damages. The Fischers sued Weil Gotshal for $15.6 million in a counterclaim after the firm sued them for $2.7 million in legal fees. In their malpractice suit, the Fischers argued that, because of Weil Gotshal’s relationship with Prada, the firm failed to make use of new testimony by Caroline Clarke, a former executive director of operations at Fendi. They claimed the new testimony could have led to the reinstatement of the Lanham Act claims or substantially higher damages for the state law claims. Citing an e-mail Clarke sent to Jaffe following her deposition, the Fischers claimed Clarke could have testified “about hundreds of interactions with customers of Fashion Boutique in which managers of [Fendi] had made disparaging remarks about Fashion Boutique.” FIRM’S POSITION Weil Gotshal argued that no conflict of interest existed because its trademark cases for Prada were wholly unrelated to the Fashion Boutique litigation. The firm also argued — and Justice Lowe agreed — that Clarke’s testimony would not have changed the outcome. The judge said that nothing in Clarke’s e-mail suggested she would have testified about an ongoing campaign or company policy to disparage Fashion Boutique. The appeals court criticized Lowe for basing his dismissal on his review of the e-mail along with deposition and trial testimony. The panel said the judge “clearly departed” from the standard of granting dismissal only when the evidence submitted conclusively establishes a defense as a matter of law to the claim asserted. “[T]he motion court disregarded the fact that Ms. Clarke’s e-mail was only an overview of her testimony and viewed it as the whole of her testimony,” the appellate court wrote. “Nor did the court take into account the many ways Ms. Clarke indicated she could testify with personal knowledge about Fendi’s campaign of disparagement.” SUBTLE EFFECT In preserving the fiduciary duty claim, Justice Lowe had written that Weil Gotshal’s representation of Prada, even if not an obvious conflict, might “operate upon [Weil Gotshal lawyers] subtly in a manner likely to diminish the quality of their work.” But the appeals court said Fashion Boutique would have to establish the same elements for malpractice as breach of fiduciary duty. “[T]he client must meet the ‘case within a case’ requirement, demonstrating that ‘but for’ the attorney’s conduct the client would have prevailed in the underlying matter or would not have sustained any ascertainable damages,” the court wrote. Fashion Boutique was represented by Jeffrey Slade of Slade & Associates. Weil Gotshal was represented by Michael Feldberg of Allen & Overy.

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