The firm cites a mandatory arbitration agreement in its objections to a legal malpractice suit surrounding its negotiation of a $20.5 million property insurance settlement.
Plaintiff Jerald Batoff attempted to pre-empt that argument in his complaint, noting such mandatory arbitration provisions violate public policy. Batoff said the arbitration clause was unenforceable because he was not represented by independent counsel when he signed the engagement letter with Reed Smith and partner Douglas Widin, also a defendant in the suit.
But in its preliminary objections in Batoff v. Widin filed this week, Reed Smith countered that Batoff is a lawyer and sophisticated businessman who no one could argue did not fully understand the fee agreement and arbitration clause. Batoff was admitted to the Pennsylvania bar in 1987 but is listed as being on administrative suspension, the firm said.
Reed Smith argued Pennsylvania does not preclude mandatory arbitration agreements, noting Rules of Professional Conduct expressly allow for such agreements. The firm further took issue with Batoff’s claim that the agreement was void because he was not represented by independent counsel. Reed Smith said he was advised of his right to do so but chose not to.
“There is no Pennsylvania statutory or case law which imposes on an attorney a duty to require his client to retain separate counsel before an arbitration agreement can be deemed enforceable,” Reed Smith said in its filing in the Philadelphia Court of Common Pleas case.
Jack A. Meyerson of Meyerson & O’Neill represents Batoff and was not immediately available for comment. Nicholas Centrella of Conrad O’Brien represents Reed Smith and was also not immediately available.
Batoff, the former owner of the Villanova mansion Bloomfield, which burned to the ground in 2012, sued Reed Smith for
legal malpractice regarding the firm’s negotiation of a $20.5 million insurance settlement that was disputed by the tenants of the home.
Batoff was looking to sell the property and in 2011 entered a lease agreement with Canadians Dean Topolinski and Julie Charbonneau that included the option to buy the property.
The lease provided that if the home was damaged in excess of $1 million, the tenants may exercise the option to purchase and obtain the rights to insurance proceeds Batoff had with Chartis Property Casualty Co. for nearly $22.4 million.
The mansion was completely destroyed in an April 2012 fire.
After the fire, Batoff and the tenants disputed the rights to the insurance proceeds and Batoff, on the advice of counsel, filed a declaratory judgment action seeking a determination as to who had rights to the insurance proceeds, according to Batoff’s complaint against Reed Smith.
“While that action was pending and prior to any judicial determination of the parties’ respective rights to the Chartis insurance proceeds, [Reed Smith and counsel Widin] negligently made demands upon Chartis stating that only [Batoff] had the legal right to receive any insurance proceeds under the Chartis policy,” Batoff said in the complaint. “Defendants negligently negotiated a settlement of the insurance claim between [Batoff] and Chartis for $20.5 million without any notice to the tenants and without the participation of the tenants.”
Batoff said that, upon the advice of counsel, he entered into the settlement with Chartis, which contained terms requiring him to indemnify Chartis if the tenants sued the insurer.
Batoff said Topolinski and Charbonneau successfully got a federal court to freeze the insurance proceeds pending resolution of their dispute over who had rights to the money. That matter ultimately settled in 2013 with Topolinski and Charbonneau receiving $11 million and Batoff receiving $6.4 million. Topolinski and Charbonneau separately filed an action against Chartis for breach of contract and bad faith, which is ongoing and has caused Batoff to spend $500,000 in legal fees and face liability for any judgment the tenants may obtain against Chartis, according to the opinion.
Batoff’s Chartis policy on the home contained an anti-assignment clause that did not allow him to turn over any right to the policy to anyone else without Chartis’ consent. Batoff’s insurance adjuster reached out to Widin for his advice on whether Batoff could assign his policy to Charbonneau and Topolinski. Widin allegedly advised that the clause was likely invalid and the rights could be assigned, according to the complaint.
Batoff hired Reed Smith as counsel as the dispute over rights to the money heated up. He said he ended up paying the firm more than $200,000 in legal fees, according to the complaint.
Widin had advised Batoff that the option for Charbonneau and Topolinski to buy the home was not exercised because Charbonneau did not pay him the $900,000 payment to trigger the option. Batoff noted, however, that Charbonneau paid $900,000, but through separate payments from companies owned by Topolinski, according to the complaint.
Charbonneau and Topolinski have been represented in the related matters by Robert C. Heim of Dechert. Widin informed Dechert that its clients were in default of the lease and Dechert disputed the assertion.
Lawyers at Dechert sought a “standstill agreement” until the parties could agree on a procedure for any adjustment or settlement of the claim amount, Batoff alleged in the complaint. But, according to the complaint, Widin suggested Batoff continue negotiating a settlement with Chartis and reject Dechert’s standstill offer. A few days later, a $20.5 million settlement was reached with Chartis.
Batoff said Widin and Reed Smith informed Batoff that Topolinski and Charbonneau had no rights to the money or to participate in the settlement negotiations. They also informed him, according to the complaint, that Batoff could retain the insurance proceeds without any interference from his former tenants and that the indemnification provision in the Chartis release posed no risk to Batoff.
Originally posted by on Gina Passarella on TheLegalIntelligencer.com.
Legal Malpractice Suit – Ball & Bonholtzer Trial Attorney – Los Angeles