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LeNature's Collapse Results in $23 Million Legal Malpractice Settlement

The bar to mount a successful legal malpractice lawsuit can seem high, but the outcomes can be quite significant, in this case a settlement of over $23 million dollars.

Financial collapse legal malpractice lawsuit settled for more than $23.7M

Jan. 28, 2014. By Richard Gazarik for triblive.com, Pittsburgh.

A prominent Pittsburgh law firm and one of its leading attorneys agreed to pay $23.7 million to settle a malpractice lawsuit involving the financial collapse of LeNature's Inc. in Latrobe, according to federal court records.

K&L Gates and attorney Sanford Ferguson reached the settlement with bankruptcy trustee Marc Kirschner of New York on Friday, according to a filing on Tuesday. Kirschner was in charge of recovering $666.1 million in creditors' claims against LeNature's.

K&L Gates did not admit any wrongdoing as part of the settlement.

Michael J. Rick, a spokesman for the law firm, said neither the firm nor Ferguson would comment on the settlement.

Kirschner told the court that he spent $5 million pursuing claims against the law firm and likely would have spent much more if the case had continued.

A trial would have been “enormously complex,” he said, according to court records.

John M. Burkoff, who teaches corporate governance and legal ethics at the University of Pittsburgh Law School, said such malpractice cases are not common.

“It's not a unique setting, but it is an unusual setting,” he said. “My sense is this is pretty unusual.”

Though the civil case has been settled, the state Disciplinary Board could investigate once it reviews the lawsuit, Burkoff said. Malpractice claims are civil matters, while disciplinary action is administrative and subject to confidentiality.

Whether Ferguson or the law firm could face disciplinary action “is a firm maybe,” Burkoff said. “Certain types of failures by lawyers may be addressed in both settings.”

Ferguson and his firm were hired by three members of LeNature's board of directors, who suspected then-CEO Gregory Podlucky of Ligonier was involved in fraud and theft of funds from the company, which produced flavored teas, fruit juices and bottled water, and sold bulk tea. Three LeNature's financial executives resigned in 2003 because of suspicions that Podlucky was stealing money.

Ferguson's job was to conduct an internal investigation. But Kirschner alleged in his lawsuit that Ferguson briefed Podlucky about the progress of the probe and allowed the former CEO to review and edit drafts of his report, according to court records.

Ferguson joined K&L Gates in 1981 but left in 2000. He rejoined the firm in 2002 and the next year led the investigation into LeNature's.

In September 2006, nearly three years after Ferguson finished his investigation, Podlucky hired him to handle the initial public stock offering for the company.

Podlucky intended to take LeNature's public in Europe. However, an injunction prevented him from having any involvement in the company, and the end was near.

By November of that year, LeNature's was in bankruptcy and federal agents began a criminal investigation. That probe led to charges that Podlucky stole more than $800 million from banks and other financial institutions.

Podlucky, his wife, son and brother, along with three business associates, are serving federal prison terms for their roles in the fraud.

Kirschner contended that Ferguson lacked experience in corporate fraud investigations and left the work to less experienced attorneys, according to court records.

Furthermore, Kirschner alleged, Ferguson overlooked evidence that would have caught Podlucky's illegal activities and prevented him from further looting the company before it was forced into bankruptcy, court records show.

Read more: http://bit.ly/1aIa89r

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