Legal Malpractice – Financial Damages.
This case involved a small closely held company engaged in a niche telecommunication industry. The company specialized in identifying stranded assets and then acquiring those assets either with or without bankruptcy proceedings. In this particular case, the company sought to acquire stranded assets in a Chapter 11 bankruptcy proceeding. It became a DIP lender to the debtor with the Note secured by the rights, assets and opportunities of the debtor estate. The company hired a Massachusetts law firm that advertised its services as focusing in business and bankruptcy matters. The assets were heavily encumbered by trade and development debt and the company emerging from Chapter 11 would greatly compromise the creditor’s claims. The law firm accepted the case under the name of a senior partner with extensive experience in Chapter 11 bankruptcy proceedings and immediately assigned it to a one year associate with extremely limited experience and that experience being Chapter 7 bankruptcies. Within 60 days of accepting the case, the young attorney convinced the client to stop funding the Plan and force the debtor into a Chapter 7 with the intent of then proceeding with a Motion for Relief from Automatic Stay and sale of the stranded assets. The assets were primarily executory contracts and/or leases with certain options, rights and opportunities. All were at various stages of development, some with existing cell towers and others awaiting ZBA variances or building permits. Under the bankruptcy code, contracts and executory leases associated with the debtor estate must be affirmed, rejected or deferred within 60 days of the conversion from Chapter 11 to Chapter 7. The young associate was unaware of this statutory requirement and neglected to make certain the assets were affirmed by the trustee or otherwise protected within the 60 days. As a result, the assets were not able to be sold by the trustee and instead remained encumbered by creditors in any subsequent transfer. The value of the assets were estimated to be between $1 million and $24 million. Plaintiff alleged that it was denied the ability to acquire the rights, assets, and opportunities of the debtor in bankruptcy.  The first breach occurred when the young associate counseled the client to abandon the Chapter 11 Plan and attempt to acquire the assets under a Motion for Relief.  The second breach occurred when the assets were essentially abandoned by the trustee without counsel ensuring their protection.  Between the year when the plaintiff would have first been able to acquire the rights, assets and opportunities of the debtor in bankruptcy and the anticipated trial date, the market demonstrated that the stranded assets increased in value by over 25%.  In addition, once developed the assets enjoyed long term leases (20 years) with tenants such as AT&T, Nextel, T-Mobil, Verizon Wireless, etc.  The “built out” assets had the potential to generate profits in excess of $24 million over 15 years. There were many legal issues relating to causation and valuation. The case settled after suit but prior to trial in a confidential amount.