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Writing an opinion letter could cost Andrews Kurth more than $90 million. Four stock purchasers allege that Andrews Kurth assured them that a stock sale by Motient Corp., a wireless service provider, did not violate the corporation’s governing documents, when in fact the certificate of incorporation prohibited the sale. Ross Rommel, Andrews Kurth’s general counsel, says the firm intends to defend itself against the plaintiffs’ allegations. Rommel says the firm has retained Fletcher L. Yarbrough Jr., a partner in Carrington, Coleman, Sloman & Blumenthal in Dallas. Yarbrough did not return a telephone call seeking comment before press time on Sept. 1. Dallas-based investment manager Highland Capital Management and three entities it manages (the Highland entities) sued Houston-based Andrews Kurth on Aug. 22 in Dallas’ 101st District Court. In their original petition in Highland Crusader Offshore Partners, et al. v. Andrews Kurth, the plaintiffs allege they relied on an April 15 opinion letter provided by Andrews Kurth when they bought about $90 million worth of stock from Motient in April. According to the opinion letter, Andrews Kurth acted as special counsel to Motient, a Delaware corporation, in connection with the issuance and sale of 408,500 shares of the company’s stock. “That opinion letter indicated, among other things, that the company had the power to issue the stock and that the stock was properly issued. However, since that time plaintiffs discovered that the stock was void because it was issued in violation of Motient’s certificate of incorporation,” the plaintiffs allege in the petition. According to the petition, the plaintiffs agreed to purchase stock with no voting rights but later learned that, at the time of the stock sale, Motient’s certificate of incorporation — issued by Delaware — prohibited stock sales without granting voting rights. Andrews Kurth asserted in the opinion letter that the firm had examined the certificate of incorporation that the company had certified as being current. The stock purchasers had asked that an opinion letter be written as part of their agreement to buy the stock, says Paul B. Lackey, attorney for the Highland entities in Andrews Kurth and managing partner of Lackey Hershman in Dallas. Because Motient issued the stock in violation of its certificate of incorporation, the stock is void, the plaintiffs allege in the petition. “That is not the kind of thing that can be fixed afterward,” Lackey says. In a related suit, Highland Crusader Offshore Partners, et al. v. Motient, also filed in Dallas’ 101st District Court, the same plaintiffs allege that the certificate of correction that Motient filed on July 29 is “defective” and can’t change the nature of the stock. Among other things, the plaintiffs allege in Motient that the corporation violated the Texas Securities Act by making false statements and misleading omissions about the stock and the voting rights issue. Brian Hail, a partner in Haynes and Boone in New York City and one of the attorneys representing the plaintiffs in Motient, says the firm is not authorized to speak for the plaintiffs and refers calls to a spokesman for Highland. Two representatives of Highland Capital refer questions to a spokesman, who did not comment before press time on Sept. 1. “We believe Highland’s suit against Motient is without merit, and we intend to vigorously defend against that action,” says Robert Macklin, Motient Corp’s general counsel. Lackey says the plaintiffs did not retain their own counsel to provide an opinion, because Andrews Kurth had represented them previously in other matters. Andrews Kurth was special counsel for Motient in the stock purchase deal, however, and did not represent the Highland entities. “We will deny the allegations and defend the suit in due course,” Rommel, Andrews Kurth’s general counsel, says, but he declines further comment. DOCUMENT REVIEW In their petition in Andrews Kurth, the plaintiffs assert causes of action for fraudulent and negligent misrepresentation, aiding and abetting, and conspiracy. They also allege in the petition that Andrews Kurth and Motient “entered into a common plan, scheme or design to defraud investors” in the corporation by issuing the opinion letter. The plaintiffs further assert in the petition that Andrews Kurth is civilly liable under Texas Revised Civil Statutes Article 581-33(F)(2) “as an aider of fraud in the sale of a security.” But they don’t specify in the petition the amount of damages they seek. “We are seeking to get the $90 million we paid back,” Lackey says. “We haven’t reached a decision about what would be proper damages.” The plaintiffs have asked for punitive damages in connection with their conspiracy allegations against Andrews Kurth. The opinion letter sent to the Highland entities and other purchasers of the Motient stock is signed “Very truly yours, Andrews Kurth LLP” without a signature of an individual attorney. Austin attorney Michael Shaunessy, a partner in Shaunessy & Burnett, says some firms choose to sign opinion letters that way. “It is the legal opinion of the firm, not of the lawyer,” says Shaunessy, who represents plaintiffs in legal malpractice and securities law cases but is not involved in the suit filed against Andrews Kurth. Speaking in general terms, Shaunessy says most firms have some kind of oversight process in place for opinion letters to make sure the issues are well-thought-out and analyzed. Typically, firms have someone other than the lawyers who write the opinion letter review it, and some firms have opinion committees that do such reviews, he says. Notes Shaunessy: “Opinion letters represent a very real risk of malpractice for firms.”

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