Bryan Cave wants Estate Financial case dismissed

July 27, 2011

A request by Bryan Cave attorneys to have a $184.7 million malpractice suit filed by Estate Financial Inc. (EFI) bankruptcy trustees dismissed is headed to federal court in Los Angeles. [PacificCoastBusinessTimes]

On April 29, Thomas Jeremiassen, one of the EFI bankruptcy trustees, filed a complaint that claims Bryan Cave LLP, an internationally renowned law firm with 1,000 plus lawyers, and one of its attorneys, Katherine Windler, discovered in 2006 that EFI was breaking “countless real estate, securities and corporate laws, rules and regulations” but failed to advise her client to conform to California and federal laws in an attempt to garner huge legal fees.

Windler’s advice allegedly led directly to the swindling of more than $180 million from more than 1,500 San Luis Obispo County investors.

Bryan Cave attorneys argued that California law prevents a bankruptcy trustee from successfully suing a company’s attorneys for misdeeds of the clients. At a July 15 hearing, the defendants asked bankruptcy Judge Robin Riblet to dismiss the case.

But a U.S. Supreme Court decision hot off the presses prompted Riblet to leave the decision of where the case should be heard to a federal district court judge in Los Angeles because of a June 23 ruling by the U.S. Supreme Court in the case of Stern vs. Marshall.

The case involved Anna Nicole Smith — who died in 2007 — and her estate’s claim for $89 million in damages from the $1.6 billion estate of a much-older oil tycoon whom she married and who died while Smith was still alive.

Chief Justice John Roberts said that bankruptcy judges can’t rule on matters of state law because bankruptcy judges don’t have as much constitutional authority as federal district court judges.

However, when a company is in bankruptcy such as Estate Financial is, all lawsuits are put on hold though complaints can be made through the bankruptcy court.

Bryan Cave attorneys wants its case heard in district courts instead of the bankruptcy court which is charged with recovering money for debtors.

Riblet has given a federal district court in Los Angeles 60 days to decide where pre-trial motions in the case against Bryan Cave should be heard.

Bryan Cave also moved to withdraw a claim against EFI for charges not received.

Riblet denied the motion calling it a move “to get rid of the jurisdictional hook” that could have the case heard before the bankruptcy court rather than a district court.

“There are things in your proof of claims that the trustee could use as admissions,” Riblet said during the July 15 hearing. “If you’ve made admissions in a court filing, I don’t see any reason to allow you to say, ‘Oops, we didn’t mean to say that.’ ”

EFI made short-term “bridge” loans to contractors. Investors, during good times, were promised 12 percent on their money in monthly interest payments, with their entire principal returned upon maturation of the loan.

At the onset of the bankruptcy in 2008, EFI’s portfolio consisted of 500 active loans and more than $317 million in unpaid principle. Only $21,000 was held free and clear, according to court documents.