Law Firm Hit With $45 Million Malpractice Suit

Businesses Hit Firm With $45 Million Malpractice Suit 
The New York Law Journal by Christine Simmons  -  April 23, 2012

Six business owners are suing Morrison Cohen and one of its partners for $45 million in damages, claiming in a malpractice suit that they overlooked critical language in a transaction. The plaintiffs suing Morrison Cohen and Brian Snarr, chair of the firm's compensation, benefits and employment department, are small to mid-sized business owners who sold shares of their businesses through employee stock ownership plan transactions, according to the lawsuit filed last week in Manhattan Supreme Court. Read the complaint. The plaintiffs sought to defer capital gains and capital gains taxes on the sales by reinvesting the proceeds in U.S. corporate bonds. The bonds were insured against default by certain financial guaranty insurers. Morrison Cohen represented and advised the plaintiffs during the transaction, the suit says. Shortly before the closing of the transaction, the language in related documents was altered, creating a new default event tied to the ratings of the polices issued to insure the bonds, not simply the bonds themselves, according to the suit. The change in the documents "created a fundamental risk" in the reinvestment transaction that the plaintiffs didn't agree to and the law firm should not have allowed it to be inserted, the suit said. David Rose, a partner at Pryor Cashman who represents the plaintiffs, declined to comment. Morrison Cohen managing partner David Scherl said his firm will not comment on pending litigation "other than to confirm that we will vigorously defend against the claims made."

CLICK HERE TO READ THE COMPLAINT