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Cadwalader Hit With $70 Million Malpractice Suit

Cadwalader Wickersham Taft 2 CWT bed bugs bedbugs Abovethelaw Above the Law legal tabloid blog.JPGGood things about Cadwalader, Wickersham & Taft: profits per partner of $2.9 million, third behind Wachtell and Cravath. Visits from Cameron Diaz.
Bad things about Cadwalader: bed bugs. And $70 million malpractice lawsuits.
The indefatigable Anthony Lin has this report, in the New York Law Journal:

As the global slowdown in the market for mortgage-backed securities threatens a core practice area of Cadwalader, Wickersham & Taft, the New York law firm is also wrestling with a $70 million legal malpractice suit brought by a major issuer of such securities….

Nomura Asset Capital Corp., a U.S. division of Japan’s largest securities firm, filed suit against Cadwalader last October in Manhattan Supreme Court over documents the law firm drafted for a 1997 securitization transaction in which Nomura pooled 156 commercial mortgages worth around $1.8 billion.

We’ll spare you the details of the suit, since they’re boring and kinda hard to follow. CWT is represented by Cravath, and they’re moving to dismiss.
More discussion — including talk about associate layoffs, triggered by the generally grim climate for mortgage-backed securities work — after the jump.

Here is what’s worrisome, beyond the walls of Cadwalader:

Investors in mortgage-backed securities and other structured finance products have been hit hard by a wave of defaults among subprime mortgages. Some heavily exposed hedge funds have closed and most of the major investment banks have reported losses from structured finance units. Nomura announced in July it was pulling out of the U.S. residential mortgage-backed securities business due to losses in the subprime sector. Other banks have taken similar steps.

The situation is worrisome to those law firms that have large securitization practices. Aside from Cadwalader, these include Cleary Gottlieb Steen & Hamilton, Sidley Austin, McKee Nelson and Thacher Proffitt & Wood.

“Things are really at a standstill now,” said Paul D. Tvetenstrand, the managing partner of Thacher Proffitt. “We’re all waiting to see what happens next.”

You can say that again. A tipster tells us:

“Thacher had a meeting the other day to assure the associates that there would be no layoffs, because many felt like rats aboard a sinking ship. Tvetenstrand admitted that things were bad, but told them that there would be no layoffs or paycuts. He said that the partners would take a hit before they ever did that.”

That’s quite noble. And our source views Tvetenstrand’s statement as sincere.
But will partners at other firms be so selfless? Or will they haul out the axes, as soon as they see plateauing (or plunging) profit per partner?
$70M Suit Against Cadwalader Reflects Risks of Practice in Mortgage-Backed Securities [New York Law Journal]

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