Legal News

Cerberus Sues Paul Hastings Over Alleged Bad Advice, Seeks $55M

By Ashby Jones

It’s never good for a law firm to get sued by one of its clients. But when the client is a deep-pocketed heavyweight like private-equity giant Cerberus, the news is probably especially unwelcome.

Such, however, is the situation being faced by Paul Hastings. The firm was recently sued by a financing unit of Cerberus, Ableco Finance, which alleges the firm gave it bad advice in connection with a loan Ableco made last year to a company looking to lift Steve & Barry’s out of bankruptcy. Click here for the story, from the New York Law Journal.

The suit, filed in New York state court in Manhattan, seeks more than $55 million it said it lost from the $125 million loan. Ableco claims it would never have made the loan last year if it understood the buyer would not have rights to all of Steve & Barry’s inventory, which Ableco understood would back the loan.

“No competent, diligent finance lawyer would have put his client in such a vulnerable position,” reads Ableco’s suit.

A spokesman for Paul Hastings said the firm looked forward to defending itself in court.

“Paul Hastings adheres to the highest standards of professionalism and integrity in the representation of its clients, and its representation of Ableco in this matter was no exception,” the spokesman said. “It’s unfortunate that Ableco has chosen to sue its longtime legal adviser to recoup business losses caused by the economic downturn.”

Both a spokeswoman for Cerberus and Ableco’s lawyer, Stuart Shapiro at Shapiro Forman Allen & Sava, declined to comment.

Regardless of whether Paul Hastings ends up repaying any of the requested $55 million, this much is clear: the relationship between the firm and Cerberus is over. The decision to sue marked the end of what the company said in court papers was a 14-year relationship with John F. Hilson, a Los Angeles-based corporate partner. Hilson had represented Ableco in “hundreds” of transactions.

Paul Hastings is represented by Davis Polk’s Paul Spangoletti. Cerberus and Abelco are repped by Stuart Shapiro at Shapiro Forman Allen & Sava.

Full post as published by Law Blog - WSJ.com on December 15, 2009 (boomark / email).