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Sullivan & Cromwell has agreed to pay $25.5 million to settle a legal malpractice suit that claimed the New York firm provided faulty advice to a health care company in a 1998 spinoff transaction. Louisville, Ky.-based Ventas Inc. disclosed the settlement of its suit against Sullivan & Cromwell in its third-quarter earnings announcement, released Thursday. The matter had been set for a Jan. 23 trial in Washington, D.C., Superior Court. The suit, first filed in 2002, stemmed from Sullivan & Cromwell’s representation of Ventas in its spinoff of Kindred Healthcare, an operator of hospitals and nursing homes. Ventas became a real estate investment trust and was Kindred’s landlord. Ventas claimed the law firm failed to advise it that it could have transferred $750 million in outstanding bonds to its new corporate entity. Instead, the firm allegedly advised the company to redeem the bonds, incurring prepayment penalties of $100 million. The company also claimed Sullivan & Cromwell neglected a conflict of interest in representing both companies during and after the spinoff. In its complaint, Ventas said the firm’s “dual representation” left contentious issues between the two companies unaddressed. Shortly after the spinoff, Kindred accused Ventas of fraudulently apportioning it an unfair share of debt in the spinoff. Kindred filed for Chapter 11 bankruptcy in 1999, asserting fraud claims against Ventas. Ventas claimed Sullivan & Cromwell acknowledged its conflict of interest in refusing to turn over documents to Ventas without Kindred’s consent. Ventas said it was then forced to provide rent concessions to Kindred worth $80 million. Ventas had sought $186 million in damages from Sullivan & Cromwell. The figure included the $6 million in legal fees the company had paid the firm. Sullivan & Cromwell’s representation of Ventas was led by Donald Walkovik, a veteran transactional lawyer and former managing partner in Hong Kong. A spokesman for the firm said Friday that the firm was prevented from commenting on the matter by the terms of the settlement. Ventas’ lawyer, Chicago’s Myron Cherry, also declined comment beyond confirming the financial terms of the settlement. Ventas will receive around $16 million in the settlement, with most of the rest going to Cherry, whose five-lawyer firm represented Ventas on a contingent-fee basis. Sullivan & Cromwell was represented by Theodore Wells of Paul, Weiss, Rifkind, Wharton & Garrison. One of the nation’s most profitable and prestigious law firms, Sullivan & Cromwell is among a handful of elite New York firms that dominates representations in complex corporate transactions. Ventas said in its suit it had retained the firm because of its reputation and had heavily relied on its “proposed expertise” in such matters. The settlement by Sullivan & Cromwell follows large payouts by Sidley Austin Brown & Wood and Jenkens & Gilchrist over tax shelter advice provided by their partners. Last year, Simpson Thacher & Bartlett, another elite New York firm, agreed to pay close to $20 million to settle potential civil claims that it inadequately investigated a whistleblower’s allegations of accounting fraud at telecommunications network operator Global Crossing, Ltd. Law firms generally settle major claims brought against them, fearing unsympathetic juries and damage to their reputations from prolonged litigation. Sullivan & Cromwell represented a number of firms, including Paul Weiss, that were sued in the early 1990s over their representation of failed savings & loans. Sullivan & Cromwell chairman H. Rodgin Cohen has been an outspoken critic of plaintiffs lawyers’ targeting of law firms. He told the New York Law Journal last year that he felt such lawyers often took advantage of large firm’s perceived vulnerability. “It’s dismaying because you’re almost dragooned” into settling, he said.

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