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A long-threatened legal blow finally fell Thursday on the law firm Gunster, Yoakley & Stewart and one of its Miami-based shareholders, Mark Scheer. E.S. Bankest L.C., a bankrupt factoring firm once co-owned by Miami’s Espirito Santo Bank and Eduardo and Hector Orlansky, filed a legal malpractice suit in U.S. Bankruptcy Court in Miami against the West Palm Beach, Fla.-based law firm and Scheer. The suit contends that the defendants breached their fiduciary duties to Bankest. It asks for compensatory damages of $170 million. Scheer, who said he had not yet seen the lawsuit, declined to comment. Gunster’s president, Donald Beuttenmuller Jr., angrily denied any wrongdoing and assailed the plaintiffs for suing at all. He said his firm had yet to be served with the lawsuit. “It’s outrageous that they’ve sued us,” he said. “We’re the victims here. The corporation and people who ran it lied to us as they did to their accountants. They went through a massive effort to do it.” The 25-page complaint, filed by Steven W. Thomas of Sullivan & Cromwell in Los Angeles and Paul Singerman of Berger Singerman in Miami, details dozens of alleged instances of wrongdoing by Scheer and his law firm. The suit accuses Scheer and Gunster Yoakley of indefensible and illegal conflicts of interest. While serving as counsel for Bankest, the plaintiffs allege, Scheer and Gunster also acted as lawyers for at least 16 other individuals and business entities whose interests — often as Bankest borrowers and customers — were directly opposed. Scheer and Gunster Yoakley counseled their other clients on “how to take advantage of Bankest to startling effect — its demise,” the complaint states. The plaintiff contends that Gunster permitted Scheer to draw the firm into these alleged conflicts because its Miami office was suffering financial problems and needed the fees generated from representing the Orlansky brothers. “Not wanting to poison the well, Gunster’s senior management apparently chose to ignore the fact that its representation of the Orlanskys and their affiliate companies and Bankest and Bankest’s factor clients and the Bank was impossibly conflicted,” the complaint states. “Indeed, there appears to have been little or no supervision or oversight of Scheer’s representation of these clients whatsoever.” Bankest was organized in 1998 as a factoring firm — a finance company that buys accounts receivable from other companies at a discount and then seeks to collect the bills to turn a profit. The firm was thrown into receivership in August 2003 when it could not make good on promissory notes it had sold to investors. Espirito Santo Bank, which had sold out its half interest to the Orlansky brothers in November 2002, reimbursed the investors and absorbed the losses it now seeks to recoup. According to Lewis Freeman, the court-appointed receiver, Bankest has only about $20 million in assets, far short of the $200 million in claims against the company. Unsecured creditors in the bankruptcy case, including Espirito Santo Bank, have been looking for other potential defendants with pockets deep enough to cover some of their losses. BDO Seidman, Bankest’s outside accounting firm, was sued in May and accused of “rubber-stamping” fraudulent financial reports. Beuttenmuller, whose firm represented Bankest until August of last year, noted that the Orlankys have been indicted and that BDO Seidman filed its own countersuit. “They darn well ought to have,” he said. The Orlanskys and their associates allegedly swindled investors by selling them worthless promissory notes collateralized by fake or inflated assets between 1994 and 2003. They allegedly used five companies to operate the scheme — Bankest Capital, E.S. Bankest, Bankest Receivables USA, Bankest International and Bankest Finance. All of these firms are among those represented by Scheer and Gunster Yoakley. The Bankest failure was followed by a series of criminal charges and civil lawsuits growing out of the case. In December, nine people involved in the case, including the Orlanskys, were indicted on federal bank fraud charges. In May, four pleaded guilty. The other defendants, including the Orlanskys, are scheduled to be tried next April. Although some of the criminal defendants were given legal advice by Scheer, Thomas said that his clients are not alleging that Gunster or Scheer were involved in the alleged fraud. Thomas said Bankest’s four outside directors could not be blamed for failing to be aware of Gunster’s alleged conflicts. “Gunster’s representation of these other companies is categorically not the kind of information that would be available to those directors,” he said.

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