Case

Holland & Knight pays $3 million to settle RTC malpractice lawsuit

In 1 on January 15, 2009 at 4:56 am
Holland & Knight defiantly rejected an offer from the federal government to settle malpractice claims against the law firm stemming from its representation of now-defunct CenTrust Bank.

"We can find no merit whatsoever in the RTC's (Resolution Trust Corp.'s) position. Therefore we will not settle," managing partner Bill McBride said in November 1992.

But last month, Holland & Knight quietly agreed to pay the RTC $3-million to settle a lawsuit the agency filed a week after the law firm rejected the proposed settlement that McBride said was less than $3-million. He did not return a call for comment Tuesday.

The settlement agreed to on Feb. 3 was less than the $10-million sought by the RTC, the federal agency responsible for managing the savings and loan bailout and resolving hundreds of failed thrifts.

"We have to do whatever is in the best interest of the taxpayer," said RTC spokeswoman Felisa Neuringer, who confirmed the settlement with Holland & Knight. "Our preference would be to settle with all the professional liability cases. . . . but we're not going to sign an agreement unless we think it is cost-effective."

The RTC charged Holland & Knight with malpractice and breach of fiduciary duty for legal work the firm did in 1989. Holland & Knight was not CenTrust's principal attorney nor did it represent the bank's flamboyant chairman, David Paul.

Rather, the firm represented a special committee of CenTrust's board of directors, which wanted independent legal advice on the value of assets David Paul had used as part of his takeover of CenTrust in 1983.

After "lengthy and tortured analysis" that cost the bank $670,000, Holland & Knight concluded Paul had no liability under the agreement, even though the value of his assets had plummeted, according to the RTC. That opinion exposed CenTrust to a $10-million loss, the RTC charged.

In February 1990, Miami-based CenTrust failed and was taken over by the RTC. The failure cost taxpayers more than $1.7-billion, making it the fourth-largest thrift failure in U.S. history.

When the RTC filed its suit, it banned Holland & Knight from doing any new business with the agency and reassigned many of the 500 legal matters Holland & Knight was handling for the agency. The suit cost Holland & Knight one of its biggest clients. The RTC's Neuringer said that when a firm settles with the RTC it typically is reinstated, but she did not know specifically what Holland & Knight's status was.

In September, the law firm of Paul, Weiss, Rifkind, Wharton & Garrison agreed to pay $45-million to the RTC in connection with its representation of CenTrust.

Last week, the accounting firm Deloitte & Touche agreed to pay $312-million to the RTC and the Federal Deposit Insurance Corp. to settle claims of accounting failures in its auditing of thrifts and their subsidiaries and holding companies. The settlement included a $250-million lawsuit filed last May against Deloitte for its failure to properly audit CenTrust.

Kim Norris St. Petersburg Times – St. Petersburg, Fla.: Link

Posted via email from HKLaw Investigation

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