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A Manhattan judge has permitted a suit to proceed alleging breach of fiduciary duty and conflict of interest against Kaye Scholer. At the behest and with the financial guarantee of its former client William Samuels, the law firm had represented the National Arts Club, a private establishment located across from Gramercy Park, in a civil rights suit against trustees of the park. Samuels and the club are now claiming Kaye Scholer lawyers first oversold their ability to handle the case, then overbilled and overstaffed the case, all the while ignoring substantial conflicts of interest. Manhattan Supreme Court Justice Sherry Klein Heitler denied Kaye Scholer’s motion to dismiss the suit. In a Jan. 6 decision in National Arts Club v. Kaye Scholer, 600239/04, the judge said the plaintiffs had adequately pleaded their claims. She also denied a summary judgment motion by the firm in a separate action to recover $179,786 in unpaid legal fees from Samuels, who claims he has already paid more than provided for in the guaranty agreement he signed. “In light of the detailed and specific allegations by Samuels as to the alleged discrepancies in the law firm’s billing records, and the law firm’s alleged improper application of payments, questions of fact are raised, including the amount, if any, owed by Samuels under the agreement,” Heitler wrote in Kaye Scholer v. Samuels, 602968. The dispute between the firm and its former clients arose from an April 2000 incident in which 55 students from Washington Irving High School were invited by the National Arts Club to visit Gramercy Park on a field trip. The park is private, with access restricted to lot-owners, key-holders and their guests. During the visit, Sharon Benenson, a trustee of the park, allegedly accosted the children, most of whom were members of racial minority groups, ordering them to leave and eventually calling the police, who declined to help her eject the children. According to the complaint, Samuels, a former dot-com executive who lives near Gramercy Park, agreed to finance a suit against Benenson and another park trustee, Arthur Abbey, a securities class-action lawyer who allegedly wrote to Arts Club president Alden James, accusing him of breaking the park’s rules. Samuels contacted his personal lawyer at the time, Kaye Scholer’s Sanford Schlesinger, and discussed legal action. Schlesinger referred Samuels first to Kerry Scanlon, a partner in the firm’s Washington, D.C., office, and then to Pamela Harbour, a partner in New York. (Schlesinger is now with Schlesinger, Gannon & Lazetera; Harbour is now a commissioner at the Federal Trade Commission). The club signed a retainer agreement with Kaye Scholer in December 2000 and Samuels signed a guaranty agreement in which he agreed to pay the firm’s fees and expenses subject to his approval. The suit was filed in the Southern District in January 2001. Samuels eventually paid more than $950,000 to Kaye Scholer. OVERSOLD EXPERIENCE The club and Samuels claim the firm oversold Harbour’s experience in the civil rights area. A former deputy to New York Attorney General Eliot Spitzer, she had primarily been an antitrust litigator. The plaintiffs charge that the continued involvement of Scanlon, a more experienced civil rights lawyer, increased the bills because he needed to travel from Washington. The plaintiffs also claim that Kaye Scholer failed to pursue the litigation goals its clients had set. The club and Samuels claim their primary goal was to overturn the 1831 trust creating Gramercy Park on the grounds that it violated the Rule Against Perpetuities. They felt overturning the trust would permit the removal of Benenson as a trustee and prevent any future discrimination in park admission. Kaye Scholer, they argue, brought this claim but failed to name any of the lot-owners or key-holders as defendants. If the trust had been invalidated, the lot-owners and key-holders would have needed to create a non-profit organization or another charitable trust to run the park. CONFLICT ALLEGED In their complaint, the club and Samuels allege that the law firm was averse to naming lot-owners or key-holders because some of them were also clients of the firm, creating a conflict which the firm never addressed. Richard H. Maidman, a lot-owner who was a client of Kaye Scholer, wrote to Harbour and Scanlon in January 2001 expressing doubt about the necessity of the lawsuit and asking to be kept abreast of developments in the matter. Kaye Scholer withdrew from the case in April 2002. Taken over by civil rights attorney Elizabeth Fink, the case against Benenson and Abbey settled last year for an undisclosed amount in compensatory damages. But Richard Emery of Emery Celli Cuti Brinckerhoff & Abady, who is representing Samuels and the National Arts Club in their suit against Kaye Scholer, said the rules governing admission to the park are more restrictive than ever. He also noted that Benenson is still a park trustee. Emery said in an interview that Kaye Scholer regarded Samuels as a “cash cow” and a chance to build up their civil rights practice. He claimed that at least half of Kaye Scholer’s billings came well after the firm should have been aware of potential conflicts. A RED HERRING But John Howley, the Kaye Scholer partner representing his firm in the matter, said the conflicts issue was a red herring. “A decision was made that the lot-owners and key-holders should not be sued and to sue them would be counter to the overall strategy in the case,” Howley said in an interview. “The NAC and Samuels wanted the lot-owners and key-holders on their side.” Noting that many of the Gramercy Park lot-owners and key-holders were sympathetic to the civil rights suit, Howley also said the expense of suing so many parties was also a factor. Howley said the club and Samuels were merely looking to avoid paying their legal bill. “This is a garden variety bill collection,” he said. “Neither [Samuels] nor the NAC had any problem with our representation until we said ‘pay us what you owe us’.” “We’re confident that in due course we’re going to prove that their allegations are not true and they will have to pay our fees,” he said.

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