Years after a lawyer handles a client’s securities filing, he learns that a third-party left out a key provision. In the interim, the attorney has jumped firms. Is the attorney’s new law firm liable?
Not according to U.S. District Judge Mariana Pfaelzer, who dismissed with prejudice a lawsuit filed by Impac Secured Assets Corp. against SNR Denton. The company alleged that the law firm violated securities laws in 2010 when it delayed correcting a mistake in a 2007 SEC filing.
The judge determined that because the law firm did not make or create the faulty 2007 SEC filing, it could not be held liable for any delay three years later in fixing it. The judge also declined to consider Impac’s state law claims against the law firm, since the federal law claim failed.
Following the decision, the judge closed the case on February 25, according to court records.
The lawsuit against SNR Denton alleged that in 2007, Impac hired attorney Richard Simonds, who at the time practiced at now-dissolved Thacher Proffitt & Wood, to submit to the SEC documents pertaining to its mortgage-backed securities. An error in those filings, Impac alleged, was discovered in 2010, after the company had asked Simonds, who by then had moved to SNR Denton, to look into a filing in an unrelated matter.
The 2007 filing error, allegedly committed by a third-party but supervised by Simonds at that time, was failure to include in the SEC documents a provision outlining how a purchase of mortgage-backed securities ultimately would be paid out, Impac alleged.
In March 2010, Simonds and SNR Denton informed Impac about the missing provision, Impac’s lawsuit alleged. A month later, SNR Denton and Simonds advised Impac to amend the filing, which it did at that time, according to the suit.
However, in the meantime,Citigroup Inc. had purchased about $7 million in Impac’s mortgage-backed securities—which, because of the faulty SEC filings, allegedly resulted in a loss of millions of dollars for Citigroup.
Citigroup then sued Impac, and the two settled for $3.1 million. Impac sought a contribution from SNR Denton under federal securities law toward the settlement payment. Simonds was not named as a defendant in the lawsuit.
In dismissing Impac’s lawsuit, the judge determined that SNR Denton did not "make or cause to be made" the 2007 mistake and therefore could not be held liable for any delay in correcting the mistake in 2010. The judge found that SNR Denton’s "duty to correct" did not extend to the mistakes the third party, allegedly supervised by Simonds, made in the 2007 filing.
"SNR Denton did not ‘cause’ the false statements to exist, since they did not ‘bring about or effect’ the incorrect filing," Pfaelzer wrote.
Representing Impac was Mark Eisenhut, a partner at Call & Jensen in Newport Beach, Calif. He said his client plans to proceed with the state law claims either in federal or state court.
A spokesman for SNR Denton issued a statement from the firm.
"We have long stood behind the advice and counsel provided in this matter, and we are pleased that the court resolved this straightforward legal issue in our favor."
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