Beginning Next Week: InsideCounsel will become part of Corporate Counsel. Bringing these two industry-leading websites together will now give you comprehensive coverage of the full spectrum of issues affecting today's General Counsel at companies of all sizes. You will continue to receive expert analysis on key issues including corporate litigation, labor developments, tech initiatives and intellectual property, as well as Women, Influence & Power in Law (WIPL) professional development content. Plus we'll be serving all ALM legal publications from one interconnected platform, powered by Law.com, giving you easy access to additional relevant content from other InsideCounsel sister publications.

To prevent a disruption in service, you will be automatically redirected to the new site next week. Thank you for being a valued InsideCounsel reader!

X

More On

Court reinstates $500 million lawsuit against K&L Gates

The suit accuses the firm of mishandling an internal investigation into Le-Nature Inc.

A Pennsylvania appeals court reinstated a $500 million lawsuit that charges law firm K&L Gates with mishandling an internal investigation into now-bankrupt drink maker Le-Nature Inc. Bankruptcy trustee Marc Kirschner filed the suit in September 2009, alleging that the firm’s failure to uncover fraud at the company contributed to hefty financial losses.

Le-Nature’s board of directors enlisted K&L Gates to lead an internal investigation into the company following the 2003 resignation of several executives, who cited concerns about co-founder Greg Podlucky in their resignation letters.

The suit alleges that K&L Gates eventually turned control of the investigation over to Podlucky, who, at the time, was busy running a $685 million loan-fraud pyramid scheme and stashing more than $1 million worth of jewels and gold watches in a secret room at Le-Nature’s Pennsylvania plant. He is currently serving a 20-year prison term for fraud, tax evasion and money laundering.

A trial court dismissed the original case in 2010, saying that the firm had not been negligent because it was hired to protect the interests of Le-Nature investors, not those of the company itself. The judge added that Kirschner failed to prove financial harm, as Le-Nature was insolvent at the time of the firm’s report. A three-judge panel reversed that decision this week, ruling that “the fact of Le-Nature's insolvency does not negate the harm allegedly resulting from K&L Gates's professional negligence.”

Kirschner lauded the court’s ruling in a statement, saying "The court made clear that when a law firm holds itself out as an expert in corporate fraud investigations, it owes a fiduciary duty as well as contractual duties to the full board for the benefit of the corporation as a whole.”

Read more at Reuters.

Alanna Byrne

Bio and more articles

Join the Conversation

Advertisement. Closing in 15 seconds.