Tony Buzbee (Tom Callins)
Plaintiffs in a 2-year-old Houston state court lawsuit against Philadelphia’s Duane Morris filed an amended petition on Aug. 8 that ups potential damages in the case to about $764 million, according to Tony Buzbee, who represents the investor group behind the suit.
“A case like this could bankrupt that firm,” Buzbee said of Duane Morris, which ranks 71st among the Am Law 100 with $454 million in gross revenues last year.
The investors’ chief allegations are tied to the actions of the late Aubrey McClendon, a fracking pioneer and serial entrepreneur who was CEO of Chesapeake Energy Corp. and then of American Energy-Utica (AEU). McClendon was indicted on bid-rigging allegations in March 2016, and he died the following day in a single-vehicle collision.
The plaintiffs are oil and gas investors in AEU who claim Duane Morris lawyers failed to inform them of a claim Chesapeake intended to pursue against them, negotiated with Chesapeake about that claim without consulting them and failed to stop Chesapeake from filing a lawsuit against them.
The investors claim Duane Morris, which represented McClendon and—the investors allege—them as well, had knowledge of a January 2015 demand letter sent by Chesapeake to them and McClendon. In that demand letter, Chesapeake alleged the investors and McClendon engaged in theft of trade secrets, according to the petition.
“That demand letter asserted that McClendon had misappropriated Chesapeake’s trade secrets and used those secrets to acquire, among other things, certain assets owned at that time by AEU—specifically, the mineral leases which were the subject of the 2013 investment by the investor plaintiffs,” the petition states. “Chesapeake made clear that it believed that McClendon had effectively stolen information to acquire the AEU assets, sold those assets to the investor plaintiffs, and that Chesapeake intended to file suit to recover all of those assets.”
Without telling the plaintiffs about Chesapeake’s demand letter, Duane Morris lawyers attempted to negotiate on their behalf with Chesapeake, a publicly traded company, which ultimately filed an underlying lawsuit that led to a settlement, according to the investors’ petition.
The investors previously sought $150 million in damages from Duane Morris in the suit. In their most recent petition, they rely on a damages model that includes losses due to failing to attract additional investors because of Chesapeake’s allegations, increasing that amount to more than $440 million.
Altogether, the claims support a demand for damages as high as $764 million, Buzbee said.
For its defense, Duane Morris has tapped David Beck of Beck Redden in Houston. A Duane Morris representative referred questions about the litigation to Beck, who declined to comment.
Duane Morris has repeatedly denied the claims, including in an amended answer filed in June. Through expert witness reports, the firm has suggested that the targets of Chesapeake’s demand letter were not AEU or the investors but rather McClendon and his other company. Moreover, as McClendon’s counsel, Duane Morris was bound by a confidentiality pact he had agreed on with Chesapeake, the firm’s experts have said.
By informing McClendon and his management company’s lawyer about Chesapeake’s demand letter, Duane Morris met any disclosure obligations it had to AEU and its investors, the firm argued.
Duane Morris has tapped as an expert witness former Texas Supreme Court Justice Wallace Jefferson, now of Austin’s Alexander Dubose Jefferson & Townsend.
The firm had no attorney-client relationship with the investors in the matter pertaining to the Chesapeake litigation, Jefferson wrote in an expert report filed in the case.
Duane Morris had “no duty” to inform the investors who sat on the AEU board because they were third parties and were owed “no duty of disclosure,” Jefferson wrote.
Duane Morris has also tapped as an expert on damage calculations David Fuller, a financial adviser. Fuller argued in court papers that any losses that AEU and its investors suffered stemmed from their risky bet that oil prices would rise, at a time when energy prices instead plummeted.