Lawyers duel with bankrupt ex-client in $54M malpractice fight

A law firm is accused of mishandling an ex-client's legal battle, including claims of professional negligence, conflict of interest and breach of fiduciary duty.

O’Melveny & Myers and its lawyers at Gibson, Dunn & Crutcher are set to square off in court over claims that O’Melveny mishandled a client’s case. (Photo: Shutterstock)

A Los Angeles-based firm and its lawyers are set to square off in federal court next month over claims that it bungled its nearly decade-old representation of a now-bankrupt client.

At stake is a $54 million claim from Jeffrey Golden, a partner at Weiland Golden Goodrich, who is the Chapter 7 trustee overseeing the estate of Aletheia Research and Management. Golden claims that O’Melveny & Myers and its lawyers at Gibson, Dunn & Crutcher mishandled a legal battle Aletheia had with Proctor Investment Managers, another investment firm, that began in late 2009. 

O’Melveny is hoping to convince U.S. District Judge Christina Snyder in Los Angeles that she should confirm a June arbitration award absolving the law firm of any malpractice claims by the Chapter 7 trustee. The trustee, meanwhile, claims that the arbitrator was biased, asserting he blamed Golden for his son’s failure to secure summer associate positions at both O’Melveny and Gibson Dunn.

Snyder will hear both O’Melveny and Golden’s motions on Oct. 21.

Golden alleged both legal malpractice and bankruptcy-related claims against O’Melveny, but the 130-page arbitrator award covers only the legal malpractice claims — professional negligence, conflict of interest and breach of fiduciary duty.

The other three bankruptcy-related claims were stayed. O’Melveny, in a motion filed recently, noted that Snyder might dismiss the bankruptcy claims if she upholds the arbitrator award.

Gary Feess, a retired federal judge who is now at Phillips ADR Enterprises, found that O’Melveny and its two attorneys conducted “themselves properly and in compliance with their ethical obligations throughout their representation of Aletheia and [Peter Eichler, the firm's principal founder and majority shareholder].”

“In other words, the trustee has no evidence that anything O’Melveny did or failed to do caused any injury to Aletheia,” Feess wrote.

O’Melveny’s defense team, led by Gibson Dunn partner Kevin Rosen, frequently cited Feess’ findings in the firm’s motion to confirm the award. In a statement, Rosen said the lawyers “agree with the arbitrator’s findings and conclusions as reflected in the detailed, 137-page final award completely vindicating O’Melveny and the other defendants.”

Golden argued, among other points, that Feess was personally biased against him as he blamed Golden for his son’s inability to get a job at either O’Melveny or Gibson Dunn, yet the arbitrator refused to recuse himself.

“During the course of the trustee’s initial summary judgment motion, the arbitrator’s son was actively seeking employment with both O’Melveny and Gibson. When the trustee protested and sought the arbitrator’s recusal, O’Melveny and Gibson advised the arbitrator they would never extend an offer to his son, blaming the trustee for his son’s loss of employment,” Golden asserted.

Rosen in his statement said they would “respond in due course to the trustee’s attacks on the award, which rely on misstatements of fact and law, disregard the actual evidence, and descend into a shameless attempt to impugn the integrity of the arbitrator.”

The litigation has roots in a seller’s agreement that was reached by Aletheia and Proctor in 2006; Proctor would market and sell Aletheia’s investment products in return for an equity stake in the investment firm.

Relations collapsed between the two firms a year later, and O’Melveny first got involved in the dispute in late 2009. O’Melveny was already representing Aletheia in other litigation matters, including an investigation by the U.S. Securities and Exchange Commission. Olson and deNeve in 2011 left the law firm to join Aletheia “to help steer it through this difficult period,” Feess wrote.

O’Melveny withdrew from representing Aletheia and another firm took over in early 2012 after multiple attempts to settle the litigation. Aletheia filed for bankruptcy in 2012. Shortly thereafter, Aletheia settled the lawsuit with Proctor by giving up its position and agreeing to give Proctor almost $21.8 million.

As the Chapter 7 trustee, Golden sued O’Melveny in November 2014, alleging that the firm should not have jointly represented Aletheia and Eichler in the Proctor litigation. In its motion seeking to vacate Feess’ arbitration award, Golden’s attorneys frequently refer to Eichler as a “looter.”

This piece first appeared on law.com

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