After a client of Skadden, Arps, Slate, Meagher & Flom landed in bankruptcy court, creditors have brought suit against the law firm for legal malpractice, alleging that the firm turned a blind eye to multiple conflicts because it had a lucrative relationship with the company's founder, the New York Law Journal reported today. Fighting back against the suit, Skadden, represented by Cooley, contends the claims are purely speculative. 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 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 debtor's estate, to pursue, prosecute and settle claims against the firm. The malpractice lawsuit alleges that 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.
