Objection to K&L Gates, Le-Nature's Accord Withdrawn

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K&L GATES

Less than 24 hours after the trustee for Le-Nature's said an accounting firm's objection to his $23.75 million settlement with K&L Gates was unfounded, the objection has been withdrawn.

Accounting firm Pascarella & Wiker filed last week objections to the settlement, arguing it didn't protect the firm's ability to offset certain potential damages levied against it by the amount for which co-defendant K&L Gates would jointly be responsible.

The settlement was reached in the state-court action Kirschner v. K&L Gates in the Allegheny County Court of Common Pleas, but needs to be approved by the judge overseeing Le-Nature's bankruptcy, U.S. Bankruptcy Judge Thomas P. Agresti of the Western District of Pennsylvania.

Trustee Marc Kirschner argued in a filing in bankruptcy court Tuesday that Pascarella & Wiker's objection was baseless because the firm lacked any right to indemnification by K&L Gates for potential contract claim damages, and, even if the accounting firm did have such a right, it was protected by the settlement in other ways, making its concerns moot. He further noted the accounting firm declined his offer to modify the settlement to address the firm's concerns.

Kirschner said in his Tuesday filing that he made a good-faith effort earlier this month to modify the settlement language to allay the firm's concerns. Pascarella & Wiker initially rejected that proposal and declined to provide its own suggested changes, Kirschner had said. He said the accounting firm argued there was no way to amend the order to fully protect Pascarella & Wiker's rights.

That appears to have changed literally overnight. In a filing Wednesday afternoon, Pascarella & Wiker has withdrawn its objection to the settlement, noting the parties had resolved their differences. The firm said it did not oppose approval of the settlement.

Patricia L. Dodge of Meyer, Unkovic & Scott in Pittsburgh represents Pascarella & Wiker and did not respond to a request for comment. Sigmund S. Wissner-Gross of Brown Rudnick in New York represents Kirschner and Craig D. Singer of Williams & Connolly in Washington, D.C., represents K&L Gates. They both declined comment.

As part of the settlement between K&L Gates and Kirschner reached last month, the parties said nonsettling defendant Pascarella & Wiker would have the benefit of a Griffin release. Such a release means the settling defendant, in this case, K&L Gates, would concede joint tortfeasor liability in order for the nonsettling defendants to have a right of setoff, Pascarella & Wiker said in its opposition to the settlement.

Pascarella & Wiker had argued a Griffin release only protects parties in actions that sound in negligence, not breach of contract actions, which is one of the remaining claims against the accounting firm.

Pascarella & Wiker argued in its memorandum that while the settling parties fashioned a remedy to protect the accounting firm from paying full damages on the tort-based claims, the settlement seeks the court's approval to bar Pascarella & Wiker from asserting any claims for contribution or indemnity, not just for those that sound in negligence. The firm said there was no case law to show such a release would apply to contract claims.

In his filing Tuesday, Kirschner had said the settlement agreement fully protected Pascarella & Wiker in the event that it was permitted under the law to assert a claim for contribution or indemnity against K&L Gates.

"The settlement and bar order would fully protect the P&W parties by affording them the same rights against the trustee, by means of a judgment reduction, that they would otherwise have had against the K&L parties in an action for contribution," Kirschner said.

Kirschner had also said that, under Pennsylvania law, "there is serious doubt as to whether the P&W parties would even have a right to contribution or indemnification by the K&L parties in connection with any contractual liability to the trustee."

Kirschner said the Griffin release was necessary to ensure K&L Gates receives "the full benefit of their bargain, and that they will not be forced to relitigate or be held liable a second time on account of settled liability."

Kirschner had said it isn't surprising that Pascarella & Wiker hadn't identified any case law discussing a Griffin release in the breach of contract context because it would appear modern Pennsylvania law does not provide for contribution or indemnity for contractual liability of the type alleged in this case.

"However, even if contribution and indemnity were available in the breach of contract context, the P&W parties' position would lead to the absurd conclusion that no bar order in a case involving more than one defendant could ever be approved if any contract-based claims remained pending against any nonsettling defendant," Kirschner had said. "Such a result would be inconsistent with the strong policy favoring settlement, and the reality that defendants 'buy little peace through settlement unless they are assured that they will be protected against co-defendants' efforts to shift their losses through cross-claims for indemnity, contribution, and other causes related to the underlying litigation.'"

K&L Gates hired Pascarella & Wiker to assist in an investigation K&L Gates had been hired to do in 2003 on behalf of a special committee of the board of trustees of Le-Nature's charged with looking into whether certain executives were mismanaging finances. Kirschner has argued in the state-court action that the firms' failure to detect any fraud allowed the fraudulent activity to continue for three more years until Le-Nature's went into bankruptcy in 2006.

Gina Passarella can be contacted at 215-557-2494 or at gpassarella@alm.com. Follow her on Twitter @GPassarellaTLI. •

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