Memo to Texas: Conflicts of Interest Don't Exist in New York (MORE, CLICK HERE)

Top NY Firm, Two Partners Hit With Malpractice Suit
New York Lawyer - December 31, 2007
By John Council - Texas Lawyer

A Dallas businessman has sued Weil, Gotshal & Manges, alleging that the firm and two of its partners took advantage of him as a client by lessening his interest in a deal while he was undergoing treatment for cancer.

In David M. Radman, et al. v. Richard M. Boyd, et al., Radman -- individually and as trustee of the DMR Trust -- and CU Commercial Services LLC allege that the firm and two of its Dallas partners, Michael A. Saslaw and Robert C. Feldman, conspired with Radman's then-business partner and others to reduce Radman's interest in a proposed acquisition of a Dallas-based credit union subsidiary.

In his Dec. 12 petition filed in the 160th District Court in Dallas, Radman also names as defendants his business partner, Richard M. Boyd; Dallas-based Texans Credit Union; TCU's president and CEO, David Addison; Texans Commercial Capital LLC; and Credit Union Liquidity Services LLC.

Radman's petition also alleges the following against Weil, Saslaw and Feldman: breach of contract, breach of fiduciary duty, fraud, negligent misrepresentation, professional malpractice, violation of the Texas Deceptive Trade Practices Act, conversion, tortious interference with existing and prospective contracts and civil conspiracy to commit harm.

He asserts various other causes of action against the other defendants.

Glenn West, managing partner of Weil Gotshal's Dallas office, says the allegations in Radman's petition are without merit and the firm and its lawyers have done nothing wrong.

"The facts are simply not as alleged," West says. "We're confident when the actual facts are presented, it will be clear that the firm acted appropriately under the given circumstances."

In his original petition, Radman alleges the following: Radman entered into a business partnership, referred to as R&B, with Boyd in the summer of 2006 to pursue opportunities in the credit union industry. One of the proposed transactions was the acquisition of an 80.1 percent interest in Texans Commercial Capital, a commercial real estate finance subsidiary of Texans Credit Union.

Radman and Boyd approached Saslaw and Feldman about representing them in the proposed spinoff of TCC from TCU in the fall of 2006.

On Nov. 13, 2006, Feldman sent CU Commercial Services an engagement letter, to the attention of Radman and Boyd. The letter stated that Weil would represent CUCS with respect to the acquisition. The petition alleges Radman founded and ran CUCS, in addition to serving as trustee for the trust that owns CUCS.

In numerous documents Weil exchanged with Radman and Boyd, the firm referred to the men as partners and to their intention to share benefits of the partnership equally.

On behalf of CUCS, Radman, acting as president and CEO, signed the engagement letter on Nov. 28, 2006 -- an engagement he alleges no one sought to terminate. The petition claims that "[t]he Weil lawyers proposed various structures for the transaction that would allow the R&B partnership to acquire TCC in the spin-off from TCU and discussed the potential business structures that the R&B partnership might take if organized as a separate business entity." Weil advised and consulted with both men regarding the TCC transaction.

In the fall of 2006, Radman experienced a relapse and metastasis of melanoma, a form of cancer, with which he had been first diagnosed in 2004. Before undergoing treatment at the M.D. Anderson Cancer Center in Houston, Radman and Boyd instructed the Weil lawyers to organize an entity called "R&B Capital," which would be a partnership between the two men to carry on the business partnership in acquiring TCC. Radman alleges the Weil lawyers never completed the business partnership agreement.

When Radman was able to re-engage fully in his business affairs after recovering from cancer treatments in March 2007, he learned that the proposed structure of the TCC acquisition had been "radically" altered, he alleges in the petition. Instead of sharing equally in the TCC acquisition through R&B, Boyd, acting in concert with Weil and TCU's Addison, restructured the deal, proposing that Radman would receive a 5 percent ownership share of the company, options to receive another 2.5 percent and $250,000 as an arrangement fee "for brokering what the Defendants were characterizing as a deal between TCU and Boyd."

Boyd hired a different firm to organize two other businesses with Boyd as sole principal, promising to admit Radman to both but failing to do so, the petition continues.

Months later, when Radman rejected an offer from Boyd and TCU to accept the new proposal, "Addison, Boyd and the companies that they controlled" excluded Radman from the transaction entirely, Radman alleges.

"Our belief was that whatever their [Weil and Boyd's] motivations were, they took the opportunity when he was not able to focus on this to go another route," says Tom Melsheimer, a partner in the Dallas office of Fish & Richardson who represents Radman. "Certainly from looking at the facts objectively, he goes in for treatment in Houston, and he comes back to find a very different world."

The transaction was completed in October or November 2007, Melsheimer says. Had Radman received his equal share of the deal, his share of the company would have been worth $28.6 million, he alleges in his petition. Instead, Radman received nothing, Melsheimer says.

Radman's petition alleges that he requested his CUCS' client file, a request that went unfulfilled.

He further claims that, "the Weil defendants withheld the requested information because they have represented the interests of Boyd with respect to the TCC Transaction and related matters to the exclusion of, and in conflict with, the interests of their clients Radman and/or CUCS. ... Radman and/or CUCS have not consented, and do not consent, to the Weil Defendants' representation of Boyd's interests in conflict with, or to the exclusion of their interests in any way."

Saslaw and Feldman did not return telephone calls seeking comment. Neither did Boyd, Addison or Jeanine Cardena, Texans Credit Union's in-house counsel. No answer to the petition had been filed as of press time on Dec. 27.

West says Weil did not use Radman's illness as a way to take advantage of him. "It's my understanding that the first time we knew anything about that was when we read it in the petition," West says.

Additionally, West says that Radman ended his attorney-client relationship with Weil in April 2007 and hired another lawyer, David Rex, a partner in the Dallas office of Jackson Walker, to represent him before the transaction was completed. Rex did not return a telephone call seeking comment.

"The fact that Mr. Radman was separately represented at all relevant times is a pivotal fact," West says.

But Melsheimer says Radman retained Rex for advice on the tax implications that the proposed acquisition would have on Radman's family trust.

Melsheimer say Radman believed Weil represented him during the transaction.

"Then they turn around and represent a client who's adverse to another client. You just can't do that," Melsheimer alleges, citing Rule 1.06 of the Texas Disciplinary Rules of Professional Conduct.

Under that rule, a lawyer cannot represent a client in a substantially related matter in which the client's interests are directly adverse to the interests of another of the lawyer's clients.

"And No. 2, they can't represent another client adverse to his interest without his express wavier, which he never gave," Melsheimer says. "This is not complicated ethics law. This is pretty basic."

"We began representing Boyd alone after April," West says. "And we believe that we had all necessary consents to do that."

CONFLICTS RULES

Linda Eads, a law professor who teaches professional responsibility at Southern Methodist University's Dedman School of Law, says the case likely will boil down to a parsing of Rule 1.06, which governs conflicts of interest.

Under Section D of that rule, a lawyer representing multiple parties in a matter shall not "thereafter represent any of such parties in a dispute among the parties arising out of the matter, unless prior consent is obtained from all such parties to the dispute."

"If there's a falling out between the two, the lawyer can't pick between them, without permission from both of them," Eads says.

If a firm's lawyers learn anything from a former client that they could use against him in the course of representing a current client, the firm and its lawyers have a conflict, Eads says.

The information "doesn't even have to be secret. It is defined as anything you learn in the course of representation. It's wide-ranging," Eads says. "If you have that information and you would use it in the conflicting representation, then you have problems."