Judge Imposes $1.96 Million in Sanctions Against Big NYC Lawfirm

N.J. Judge Imposes $1.96 Million in Sanctions Against Paul Weiss, Lowenstein for Frivolous Claims
The American Lawyer by Andrew Longstreth - August 26, 2010

Rebuffing arguments for leniency from Paul, Weiss, Rifkind, Wharton & Garrison and Lowenstein Sandler, a Bergen County, N.J., judge has ordered the two firms to pay $1.96 million in sanctions to defendants in a suit they filed on behalf of billionaire Ronald Perelman in a family dispute over hundreds of millions of dollars. "Paul Weiss and Lowenstein Sandler argue that since they are both such important, well-regarded law firms, the mere finding that they engaged in frivolous litigation is deterrence enough," Superior Court Judge Ellen Koblitz wrote in Estate of Claudia Cohen v. Robert Cohen. "They argue that this court's finding of frivolous litigation has been widely publicized and besmirches their reputation, which will cost them untold, unspecified damages. A monetary sanction, however, is clearly appropriate here." At the same time, she suggested that the dispute had been so complex, lengthy and hard-fought that even after paying the sanction, the firms might still take home a profit for their efforts. The sanctions order and the monetary award stem from a 2008 suit filed by Mr. Perelman, acting as executor of the estate of his ex-wife, Claudia Cohen, and their daughter, Samantha Perelman. The Perelmans claimed that Robert Cohen—Claudia's father, Samantha's grandfather, and the former CEO and chairman of the Hudson Group—made an oral promise to Claudia before 1978 to leave her or her children as large a share of his estate as Claudia's brother, James Cohen. The Perelmans also alleged that James Cohen had exerted undue influence over Robert in an effort to obtain a transfer of $500 million from his father. It was a bitterly fought case in which the Perelmans' lawyers contested the competence of Robert Cohen, who is 84 years old and suffering from a Parkinson's-related disorder. Last year, after 11 weeks of trial, Ronald and Samantha Perelman came up empty on their claims. In August 2009, Judge Koblitz dismissed what was left of their case. On June 9, the judge ruled that the defendants were entitled to sanctions (NYLJ, June 16). They requested $4.5 million in attorney fees for the part of the litigation the judge found to be frivolous. On Friday, she ordered payments of $554,766 for James Cohen and $1,406,215 for Robert Cohen. Even though Judge Koblitz had permitted the case to proceed to a trial, she nonetheless found in her latest ruling that the Perelman attorneys received plenty of warning that the suit was frivolous. She said, for instance, that in March 2009 she reminded the firms of the evidentiary hurdle they would have to clear. At that point, she said, the Paul Weiss and Lowenstein lawyers should have recognized that the available evidence did not support their assertion of an oral promise from Robert Cohen to Claudia. From that point, the attorneys' continued efforts to press the suit were frivolous, she concluded.

Lack of Remorse

Moreover, Judge Koblitz found that the firms were not sufficiently repentant for their conduct. She noted that both have said they plan to appeal her sanctions ruling and neither has acknowledged any wrongdoing. "Without remorse, or any acknowledgement of wrongdoing, how can [the firms] reassure the court that the behavior will not reoccur," Judge Kobler asked. "How will they recognize frivolous litigation and avoid it next time?" While Lowenstein has established an internal system to prevent the filing of future frivolous litigation, she noted, Paul Weiss has not taken any action. "[Paul Weiss lawyers] claim never to have been found to have engaged in frivolous litigation in the one hundred year history of the firm," the judge wrote. "They argue that it will not happen again because it did not happen before. Of course, firms change lawyers and practices. Without recognizing and addressing a problem, it is hard to be sure that it will not resurface. A sufficient monetary sanction is necessary to impress upon counsel the need to make greater efforts to avoid frivolous litigation in the future." The judge noted that defendants reported that their attorneys' fees for the entire case had been close to $15 million and that the fees for the Perelmans' counsel had probably been higher, "given that they utilized the services of approximately twice as many lawyers and a higher percentage of New York (higher billing) counsel." Thus, the judge observed, "Given the extraordinary legal efforts put into this case and consequent extraordinary billing, as well as the deep pockets of the parties, this court strongly suspects that plaintiffs' firms will indeed profit, at least in the overall litigation, if not the frivolous portion, even after paying the $1,960,981.00 here imposed." Paul Weiss chairman Brad Karp said in statement: "We believe the lower court's decision and monetary award are unjustified. We firmly believe that the representation we provided our client was proper and appropriate and we will appeal the judge's decision." Lowenstein Sandler managing director Gary Wingens also issued a statement. "Lowenstein Sandler acted properly at all times in representing its client in this matter," he said. "We believe that this decision is contrary to established law and may have the unfortunate consequence of chilling effective advocacy in this jurisdiction. We fully intend to appeal the court's ruling." Robert Cohen was represented by Wilson, Sonsini, Goodrich & Rosati. Decotiis, FitzPatrick & Cole represented James Cohen. Paul Weiss represented itself. Orloff, Lowenbach, Stifelman & Siegel represented Lowenstein.

Andrew Longstreth is a reporter for The American Lawyer. He can be reached at alongstreth@alm.com.