Law Firms Seen as Potential Cash Cows in Bankruptcy Cases

Updated: The worsening economy may bring more malpractice lawsuits against law firms by bankruptcy trustees who consider them potential cash cows.

David Parker of Parker Mills in Los Angeles told the Daily Journal (sub. req.) that the burgeoning area of litigation is attracting some plaintiffs lawyers who are actively searching for bankruptcy trustees to represent.

A number of recent cases illustrate the trend, according to the story. The publication lists these examples:

• Pillsbury Winthrop Shaw Pittman paid $10 million to settle a suit over the firm’s failure to disclose an alleged conflict of interest in a bankruptcy case. Another firm, Levene, Neale, Bender, Rankin & Brill, paid $2.5 million to settle the trustee’s claim in the same case.

• A $200 million suit against McDermott Will & Emery by the bankruptcy trustee for Saint Vincent's Catholic Medical Centers of New York. The trustee claimed the law firm delayed a bankruptcy filing and failed to disclose a possible conflict between two financial advisers. The case settled for an undisclosed amount and was dismissed earlier this month, according to a docket entry unearthed by the Daily Journal.

• A suit against Snell & Wilmer by the trustee for Brea Community Hospital Corp. that claimed the law firm mishandled litigation and bankrupted the hospital. Snell & Wilmer won the case in a jury trial.

Bankruptcy lawyer and trustee Richard Marshack told the Daily Journal that more law firms with slowing business might be tempted to try bankruptcy litigation—and they may end up making mistakes that will expose them to malpractice litigation.

Updated at noon CT to include information that the McDermott case settled.