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Court vacates $10.6 million malpractice judgment against Bryan Cave

Jury verdict in case involving arbitration was wrong, appeals court says

A New York appeals court has vacated a verdict in which a jury found that the law firm Bryan Cave must pay $10.6 million for malpractice.

The reversal is the latest development in a long, twisted legal scuffle between two former business partners, Herbert Feinberg and Norman Katz, who co-owned a women’s apparel company.

In 1996, Feinberg decided to buy out Katz’s share of the business. The deal was partly based on accounting firm Mahoney Cohen Rashbart & Pockart’s 1995 audit of the company’s financial statements. But Mahoney Cohen found that the company’s documents had overstated the value of the company by $10 million.

Feinberg initiated arbitration against Katz, seeking to cancel his buyout offer due to the flawed financial statements. But an arbitrator—Bryan Cave Partner Jerome Boros, who now is of counsel at Jaspan Schlesinger—found that Feinberg hadn’t relied on the 1995 financial statements when he decided to buy Katz out.

Feinberg then sued Mahoney Cohen for the faulty audit. Mahoney Cohen moved for summary judgment on the grounds that collateral estoppel, which prevents parties from relitigating issues that already have been arbitrated, barred any lawsuit against it because the arbitrator had already found that Feinberg didn’t rely on its audit. Feinberg’s suit was tossed.

Next, Feinberg sued Boros and Bryan Cave for malpractice and failing to advise him that he could’ve entered into a post-arbitration agreement with Katz that would have blocked Mahoney Cohen’s collateral estoppel defense. A jury sided with Feinberg and ordered Bryan Cave to pay him $10.6 million in damages.

But yesterday, the Appellate Division, First Department, said the jury’s verdict against Bryan Cave was wrong. The court decided 3-2 that parties in an arbitration can only sign agreements limiting estoppel in cases in which the issues haven’t been fully litigated.

Read Thomson Reuters for more about the appeals court’s decision.

Read more InsideCounsel stories about law firms facing lawsuits:

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Former client sure Ropes & Gray for professional negligence

CFPB sues Los Angeles law firm

3M sues former law firm for its role in a lawsuit against the company

Watts Water sues Sidley Austin over FCPA error

Crowell & Moring settles Arntsen embezzlement suits

Court reinstates $500 million lawsuit against K&L Gates

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