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Did 1 contract clause cause Proskauer client's $636M loss? Judge refuses to toss malpractice suit

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A Massachusetts judge has refused to toss a $636 million malpractice lawsuit contending that a botched contract drafted by Proskauer Rose caused its client’s loss of a minority interest in a hedge fund.

Judge Kenneth W. Salinger of the Suffolk County Superior Court in Massachusetts ruled for former Proskauer Rose client Robert Adelman in a May 16 opinion.

Law360 and Reuters have coverage.

Adelman alleges that Proskauer Rose mistakenly copied a provision from a prior contract and pasted it into a contract governing his spinoff hedge fund. The “strategic transactions” clause allowed the manager and majority owner of the hedge fund, Behzad Aghazadeh, to engage in a financing, acquisition or asset sale without the consent of a minority partner and without appraisal rights.

The clause included a provision that allowed Aghazadeh to redeem Adelman’s minority interest in connection with the strategic transaction, causing Adelman to lose his share of the profits, according to the suit.

As evidence of negligence, Adelman pointed to a document produced in discovery in which a Proskauer Rose partner circled the provision at issue and wrote the F-word in the margin with two underlines.

Proskauer Rose had argued that the hedge fund manager violated his fiduciary duty to Adelman and breached other contractual provisions, which “severs the chain of causation” between the alleged negligence and Adelman’s injury. Salinger disagreed.

“The summary judgment record suggest that Aghazadeh would not have been able to redeem Adelman’s interests and put him in the position of having to try to enforce these provisions but for Proskauer’s alleged negligence,” Salinger wrote.

Salinger said the plain language of the agreement made clear that Aghazadeh would not be breaching his fiduciary duty by invoking the clause at issue to strip Adelman of his economic interests. And the clause expressly gave Aghazadeh the right to ignore to redeem Adelman’s interest notwithstanding the other contract provisions, Salinger said.

“Other arguments by Proskauer suggest at most that the hedge fund manager may also be liable to Adelman; Proskauer has not shown that the manager’s alleged malfeasance was an unforeseeable superseding cause that absolves Proskauer of potential liability,” Salinger said.

Aghazadeh is not a defendant in the suit. His lawyer, Randy Mastro of King & Spalding, previously told Reuters that Aghazadeh acted properly when he followed the agreement negotiated by Proskauer Rose.

A Proskauer Rose spokesperson did not immediately reply to the ABA Journal’s request for comment.

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