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Skadden Counters Legal Malpractice Suit for 35 Million

Skadden Counters Legal Malpractice Suit in bankruptcy court.

Creditors bring suit against law firm for legal malpractice, alleging the firm turned a blind eye to issues because it had a lucrative deal with the company's founder. 

The Skadden law firm counters legal malpractice Suit, represented by Cooley, while contending the claims are purely speculative.

In court papers filed last week, Skadden said the creditors don't explain why the founder "who allegedly controlled all of these entities at the time would have done things any differently had he employed a different attorney."

The plaintiffs suing Skadden for $35 million in alleged damages are lenders and private equity funds Centre Lane Partners, 10th Lane Finance Co., ZM Private Equity Fund I and ZM Private Equity Fund II.

The funds are creditors of aviation company Evergreen International Aviation, which Delford Smith founded. It filed Chapter 7 papers in Delaware in late 2013.

The business included an airline carrier and cargo air freight company that operated a fleet of more than 200 aircrafts before the bankruptcy filing.

Jay Goffman, who heads Skadden's corporate restructuring group, is also named as a defendant in the malpractice suit, filed in Manhattan Supreme Court, Centre Lane v. Skadden, 651721/2016.

The creditors, represented by Steven Kaufman, of Kaufman & Co., said Skadden, for more than 20 years, "enjoyed the fruits of a multi-million dollar lucrative continuous representation" of Smith and his business empire operated out of Oregon.

Skadden provided a broad scope of counsel to help operate all of the entities in Smith's empire, "all while giving priority attention to the interests of Smith personally," the malpractice suit said.

Smith, who died in 2014, was "the source of much of Goffman's success as a business originator," the suit also alleges. "Goffman himself has stated that he was 'like a consigliere for Del Smith.'"

The creditors sued Skadden in March after Delaware Bankruptcy Judge Mary Walrath granted them derivative standing to sue the firm. The order said the lenders are authorized, on behalf of the debtors estate, to pursue, prosecute and settle claims against the firm.

The malpractice lawsuit alleges Skadden freely represented multiple parties, with differing and conflicting interests, on a wide scope of legal work, and this conflicted representation was not disclosed or waived.

In particular, the lawsuit alleges Skadden had conflicts at the time of two "likely fraudulent transfers" that closed in 2013 and that resulted in cash being diverted from the now-bankrupt entity.

In April 2013, Evergreen Vintage Aircraft, a company operated separately from Evergreen International, transferred two airplanes to a nonprofit overseeing a museum that Smith built.

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