Cadwalader Sued for Mortgage Transaction
Posted Sep 26, 2007 5:49 AM CDT
By Debra Cassens Weiss
Cadwalader, Wickersham & Taft is facing a $70 million malpractice suit for helping a client package mortgages for sale to investors.
The suit is not tied to the current mortgage meltdown since it involves a 1997 securitization transaction for Nomura Asset Capital Corp., the New York Law Journal reports. However it foreshadows problems that could surface in law firms that help create tradeable securities tied to mortgages.
Cadwalader helped Nomura group 156 commercial mortgages worth about $1.8 billion for sale to investors. Nomura claims Cadwalader should not have issued a warranty promising that its mortgages were secured by properties worth at least 80 percent of the mortgage amounts.
After several of the mortgages in the pool went into default, LaSalle Bank, which held the mortgages in trust, sued Nomura. The bank alleged that one large mortgage was backed by property worth only about 60 percent of the loan. It won a judgment for $67.5 million and a federal appeals court affirmed. Nomura then sued Cadwalader.
The law firm seeks dismissal of the suit, claiming its warranties were the industry standard and it could not have predicted the appeals court decision.
Cadwalader chairman Robert Link did not comment on the suit. But he told the legal publication in an e-mail that the law firm, which is known for its securitization practice, has expanded into other practice areas and will be able to weather the mortgage slowdown.
"We have worked for many years to ensure that Cadwalader has a well-balanced mix of practices so that we are not as vulnerable as some other firms to inevitable economic fluctuations," he said.