Duane Morris has agreed to pay an undisclosed sum to settle a legal malpractice suit brought by a former corporate executive who claimed the firm hid a serious conflict of interest from him and that he was forced into bankruptcy, where he had to sell his home and his stock interests in the company that had fired him.
The settlement keeps John J. Edwards’ suit from going to trial in U.S. District Court. However, a Hofstra University law professor concluded in an expert report prepared for trial that Duane Morris and attorney Donald R. Auten “committed serious, multiple breaches of their ethical and contractual obligations to Edwards relating to conflicts of interest … loyalty, diligence and zeal … [and] by engaging in conduct involving dishonesty, fraud, deceit or misrepresentation.” The expert report was included in the litigation’s case file at the federal courthouse.
In briefs filed by Duane Morris’ lawyers — Stephen D. Brown and Patricia A. McCausland of Dechert — the defense was sharply critical of Edwards for rejecting a very good settlement offer, and exonerated Auten and Duane Morris for handling his case properly at every step.
Edwards is the former president and one-third owner of Pilot Air Freight Corp. His lawsuit is captioned Edwards v. Duane Morris.
In 1995, Edwards hired Duane Morris to negotiate his exit from PAF — a matter that focused mostly on Edwards’ sale of his stock interest.
But Edwards claimed Auten never fully informed him of a serious conflict of interest that stemmed from Duane Morris’ representation of Mellon Bank, which had loaned $8 million to PAF — a loan that had been personally guaranteed by Edwards.
Edwards’ lawyers — L. Oliver Frey and Jonathan M. Petrakis of Frey Petrakis Deeb Blum Briggs & Mitts — argued in court papers that Duane Morris hid the conflict from Edwards and secretly agreed to honor Mellon’s request to avoid filing a lawsuit on behalf of Edwards against PAF.
When Mellon moved to foreclose on Edwards’ home, the suit said, Auten promised to “take care of” the issue.
But instead of filing an answer to the foreclosure action, the suit alleged that Auten instead tried to find an outside lawyer to take it on because Duane Morris could not litigate against Mellon. When the outside lawyer declined, Auten did nothing, the suit said, and Edwards was hit with a default judgment.
Edwards claimed Duane Morris then advised him to file for bankruptcy, but was unable to represent him.
Duane Morris, in its court papers, argued that Auten engaged in “extraordinary efforts” to work out a favorable deal for Edwards in his departure from PAF that included $10,000 monthly payments on two mortgages and $5,000 weekly paychecks, as well as a $6 million offer for his stock holdings.
But Duane Morris said Edwards “continued to maintain an unrealistic view of the value of his interest in PAF and could not resist picking a fight with his successor.”
As a result, Auten’s efforts “were for naught” and Edwards was fired from PAF and found himself with no income and huge expenses, the firm’s brief said. But in the bankruptcy, Duane Morris said, Edwards walked away with about $7 million after his house and stock were sold.