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Mar 26, 2014

9th Circ. Revives $100M Bryan Cave Legal Malpractice Suits

Corey Weber, coming off his win with Steve Gubner and Larry Gabriel in Thomas P. Jeremiassen v. Bryan Cave LLP et al., was quoted in a Law360 article, which summarizes the recent victory.

 

9th Circ. Revives $100M Bryan Cave Legal Malpractice Suits

By David McAfee

Law360, Los Angeles (March 24, 2014, 9:08 PM ET) — The Ninth Circuit on Monday revived two legal malpractice suits brought against Bryan Cave LLP by trustees for a bankrupt real estate investment firm who want more than $100 million because Bryan Cave attorneys were allegedly aware of securities fraud that they failed to stop.

The two linked appeals, filed by Bradley D. Sharp and Thomas P. Jeremiassen, bankruptcy trustees of Estate Financial Inc. and its independent investment vehicle Estate Financial Mortgage Fund LLC, contend that Bryan Cave was retained to prevent and correct legal violations but failed to do so. Just last month during oral arguments in Pasadena, Calif., counsel for Sharp told the appeals court that a district court had improperly tossed the case under the doctrines of in pari delicto, and unclean hands — which hold that wrongdoers cannot sue over a wrong in which they participated.

But the three-judge appellate panel sided with the plaintiffs on Monday and, without expressing views on the merits of the claims, held that the district court erred by dismissing the complaints.

“For either of those affirmative defenses to apply, the plaintiff’s conduct must be so obviously wrongful that, notwithstanding the lawyer’s erroneous legal advice, no lay person could be confused about its illegality or impropriety,” the appeals court wrote in the brief unpublished opinion. “Construing the complaints’ factual allegations in the light most favorable to the trustees, as we must, we do not believe the complaints admit to that type of wrongdoing.”

Monday’s decision to revive the lawsuits — resulting from a finding that the trustees’ alleged misuse of investor funds could have reflected negligent accounting practices instead of outright fraud — is the most recent development in the ongoing legal malpractice battle.

Larry W. Gabriel and Corey R. Weber of Brutzkus Gubner LLP, counsel to Chapter 11 Trustee Jeremiassen, hailed the decision.

“We are very pleased with the decision by the Ninth Circuit today reinstating the trustees’ claims against Bryan Cave,” Gabriel and Weber told Law360 on Monday. “Although briefed and argued, the Ninth Circuit did not address whether the doctrine of in pari delicto applies to bankruptcy trustees. That issue will apparently be left for another day.”

EFI and EFMF filed for bankruptcy in 2008, after certain creditors had filed a petition of involuntary bankruptcy against EFI, a mortgage brokerage that lent money to California real estate developers.

EFI owners and directors Karen Guth and Joshua Yaguda were subsequently charged with fraud and embezzlement, and pled guilty to 26 counts of security law violations, receiving sentences of 12 and eight years in prison, respectively. Guth and Yaguda operated EFI firm as a Ponzi scheme, using new investors’ money to cover expenses and payments to other investors, according to court documents.

In April 2011, the bankruptcy trustees filed malpractice suits in bankruptcy court against Bryan Cave attorney Katherine M. Windler and the firm, which began representing EFI and EFMF in 2006, alleging Windler and the firm knew of Guth and Yaguda’s fraudulent actions but failed to advise them to stop the behavior. Sharp’s complaint alleged Bryan Cave’s malpractice led to $50 million in damages and Jeremiassen’s suit alleged more than $95 million in damages, both stemming from claims made by investors who lost their savings to EFI and EFMF.

The suits were dismissed by the bankruptcy judge, and were appealed to California federal court, where U.S. District Judge S. James Otera dismissed them with prejudice, ruling that the bankruptcy court had correctly ruled that EFI and EFMF couldn’t sue over their own illegal activity.

Representatives for Bryan Cave didn’t immediately return requests for comment Monday.

Circuit Judges Joseph Jerome Farris, Paul J. Watford and N. Randy Smith joined in the decision.

Sharp is represented by John P. Reitman and Aleksandra Zimonjic of Landau Gottfried & Berger LLP. Jeremiassen is represented by Larry W.Gabriel, Steven T. Gubner and Corey R. Weber of Brutzkus Gubner LLP.

Bryan Cave is represented by Kevin S. Rosen, Joshua A. Jessen and Alexander K. Mircheff of Gibson Dunn & Crutcher LLP. Windler is represented by James L. Sanders, Francisca M. Mok and Kasey J. Curtis of Reed Smith LLP.

The cases are Bradley D. Sharp v. Bryan Cave LLP et al., and Thomas P. Jeremiassen v. Bryan Cave LLP et al., case numbers 12-56009 and 12-56011 both in the U.S. Court of Appeals for the Ninth Circuit.

–Additional reporting by Daniel Siegal. Editing by Chris Yates. All Content © 2003-2014, Portfolio Media, Inc.

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