$6.3M Settlement Wired to Marc Dreier Is Toast, Bankruptcy Judge Tells Ex-Lawyer's Ex-Client

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A former client has lost a legal battle to recoup a $6.3 million settlement stolen by his then-legal counsel Marc Dreier after it was wired to his attorney trust account.

Technology investor Paul Gardi and his company, Alix Interactive Media, are bound by the purported Gardi signature Dreier forged on a settlement document with JANA Partners and the payment instructions Dreier provided, on which JANA Partners reasonably relied, Bankruptcy Judge Stewart Bernstein ruled yesterday (PDF) in the Southern District of New York case.

JANA Partners argued, and the judge agreed, that the settlement would be void only if the parties were involved in fraud or Dreier had lacked authority to settle the matter, reports the New York Law Journal in an article reprinted in New York Lawyer (reg. req.).

Since neither of those exceptions applies in this case, the judge writes, “the Gardi Parties must bear the loss.

“The Gardi Parties retained Dreier and authorized him to negotiate a resolution with JANA. Dreier served as the conduit for all of the communications between his clients and JANA; there is no evidence that Gardi dealt directly with JANA. JANA was justified in believing that the JANA Version that Dreier sent contained Gardi’s signature. As a result of Dreier’s fraud, JANA paid over $6.3 million, and should not be compelled to pay a second time. As between the Gardi Parties and JANA, the injury caused by Dreier’s fraud must be allocated to the Gardi Parties, Dreier’s principals.

“If this seems harsh to the Gardi Parties,” the judge continues, “the sting is lessened somewhat by the recourse they have but JANA lacks. The plaintiffs have been slow to repudiate the JANA settlement and have asserted rights as the injured victims of Dreier’s fraud. … Thus, the Gardi Parties may be able to recoup some of their losses.”

Dreier is serving a 20-year sentence for selling some $700 million in fake promissory notes to sophisticated investors and stealing client funds.

Related coverage: “Attorney Marc Dreier Says Midlife Crisis, Sense of Failure Drove Massive Fraud”

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