K&L Gates Aims to Settle Malpractice Case for $23.8 Mil.

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K&L GATES

Allegheny County Court of Common Pleas Senior Judge R. Stanton Wettick Jr. dismissed the claims against K&L Gates, finding the firm represented the special committee and not the company. He ruled that Kirschner, who is standing in the shoes of the company as trustee, had no standing to sue the law firm that never represented the company.

The Superior Court disagreed, finding the special committee and the company were essentially one and the same, and the court reinstated the suit. In April, the Pennsylvania Supreme Court denied K&L Gates' appeal of that ruling, bringing the case back to the trial court.

In its July answer, K&L Gates continued to argue that it had no duty to Kirschner or Le-Nature's because the engagement letter expressly noted the firm only represented the special committee and not the company. K&L Gates said the arrangement was set up that way to ensure the firm's investigation was as independent as possible.

K&L Gates further noted its investigation was bound by the parameters set by the special committee. The firm said Le-Nature's refused to allow certain interviews or provide certain documents and the special committee didn't compel their production.

K&L Gates listed 17 defenses to the suit, including the doctrine of unclean hands, a lack of privity, contributory negligence, statute of limitations, a lack of proximate cause and collateral estoppel.

One of those factors—the doctrine of collateral estoppel—played into Kirschner's decision to settle.

In dismissing Kirschner's arbitration claims against accounting firm Ernst & Young in June 2011, the panel cited the trial court's opinion in K&L Gates' case, noting the judge found K&L Gates couldn't be liable for "deepening insolvency" under Pennsylvania law, according to the arbitration panel's report. The panel found the E&Y case "could not be closer" to K&L Gates' case.

"The E&Y award against the trustee in favor of E&Y acts as collateral estoppel in this case and requires dismissal of all of the trustee's claims against K&L Gates," the firm had said in its answer.

In the motion for settlement approval, Kirschner said there were factual and legal uncertainties about its case against K&L Gates, including the risks posed by the E&Y arbitration panel's reasoning.

David B. White of Burns White in Pittsburgh and Craig D. Singer of Williams & Connolly in Washington, D.C., represent K&L Gates in the case. White referred a request for comment to Singer, who wasn't available by press time. A K&L Gates spokesman said the firm had no comment.

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