Free Speech, Malpractice, Munger Tolles & Olson

Malpractice Suit Against Simpson Thacher Reinstated on Appeal

Simpson Thacher Bartlett LLP Abovethelaw Above the Law blog.jpgGetting sued for malpractice, even if the claims lack merit, is never fun. Earlier this week, we wrote about Seyfarth Shaw, which is being sued by Tae Bo star Billy Blanks for malpractice (and being sued by a current partner for breach of fiduciary duty, among other claims).
Let’s declare this week “West Coast Malpractice Week” here at Above the Law. Yesterday a California appellate court reinstated a malpractice lawsuit against the super-prestigious firm of Simpson Thacher & Bartlett and two of its partners, George Newcombe and Alexis Coll-Very, based in STB’s Palo Alto office.
The underlying lawsuit is somewhat complex; here’s the gist of it. Simpson Thacher represented PrediWave Corporation, a (now-bankrupt) California technology company, and its former CEO and president, Jianping “Tony” Qu. Prediwave alleges that Tony Qu was essentially looting the company, siphoning away its assets, and that Simpson Thacher — which represented both the company and Qu, a claimed conflict of interest — didn’t adequately protect the company’s interests against Qu (and even made it more difficult for the company to investigate Qu and his alleged self-dealing).
In the trial court, Simpson Thacher — represented by another powerhouse firm, Munger, Tolles & Olson (aka West Coast magnet for SCOTUS clerks) — won dismissal of the lawsuit, pursuant to California’s “anti-SLAPP” statute. If you’re not familiar with anti-SLAPP statutes, one of a blogger’s best friends (along with Section 230), here’s a brief description:

SLAPPs are Strategic Lawsuits Against Public Participation. SLAPPs are lawsuits filed against people or organizations because they have exercised their right to petition the government or speak out on public issues. SLAPPs frequently contain claims for libel, slander, defamation, malicious prosecution, and/or abuse of process.

Can an anti-SLAPP law be used to secure swift dismissal of a malpractice action brought by a client against its former counsel? PrediWave, represented by Squire Sanders and California appellate boutique Horvitz & Levy (previously discussed here), argued that this is not a proper application of the statute. In its opinion (PDF), the California Court of Appeal (Sixth Appellate District) agreed, reinstating the suit against Simpson. (The court did not address the underlying merits of the case, leaving those to the trial court on remand.)
More discussion — including a statement from Simpson Thacher, which calls Prediwave’s claims “baseless” and declares that STB will “defend this claim vigorously” — after the jump.


Is the ruling in the PrediWave case bad news for law firms facing malpractice lawsuits, insofar as the opinion makes dismissing them more difficult? Horvitz & Levy partner Jeremy Rosen, who successfully argued the case for PrediWave, had this to say:

The anti-SLAPP statute is only a procedural device that allows for early termination of certain lawsuits before any discovery (generally those that seek to chill First Amendment activities). The Court of Appeal in this case simply held that attorney malpractice or breach of fiduciary duties are not the kinds of speech activities that are subject to an anti-SLAPP motion.

Thus, a law firm defendant is simply precluded from early termination of such a lawsuit on the merits. It does not mean they cannot file for summary judgment or prevail at trial if the complaint is meritless.

It seems to me that it is a much more radical concept to say that malpractice or breach of fiduciary duty is the type of petitioning conduct that we would want to provide special protection to by permitting early dismissal of such claims without allowing the plaintiff any discovery (which is what happens under the anti-SLAPP statute).

A fair point. Even if an action can’t be dismissed under the anti-SLAPP law, which allows for special and speedy procedures, it can be kicked to the curb later. As Simpson Thacher’s statement to Above the Law explains:

The state court of appeal’s ruling relates solely to whether the complaint should have been dismissed at the outset under California’s “anti-SLAPP” statute, and explicitly states that its conclusions “do not reflect any evaluation of the merits of PrediWave’s present lawsuit.” PrediWave’s claims are in fact baseless.

Let’s take a closer look at the opinion (PDF). Here are two paragraphs that do most of the analytical work (case citations omitted):

In determining the applicability of the anti-SLAPP statute, we think a distinction must be drawn between (1) clients’ causes of action against attorneys based upon the attorneys’ acts on behalf of those clients, (2) clients’ causes of action against attorneys based upon statements or conduct solely on behalf of different clients, and (3) non-clients’ causes of action against attorneys. In the first class, the alleged speech and petitioning activity was carried out by attorneys on behalf of the plaintiffs in the lawsuits now being attacked as SLAPPs, although the attorneys may have allegedly acted incompetently or in violation of Professional Rules of Conduct. The causes of action in this first class categorically are not being brought “primarily to chill the valid exercise of the constitutional rights of freedom of speech and petition . . . .”

We recognize that the statute makes “[a] cause of action against a person arising from any act of that person in furtherance of the person’s [constitutional] right of petition or free speech . . . in connection with a public issue . . . subject to a special motion to strike” (§ 425.16, subd. (b), italics added). Although this statutory language has been interpreted broadly to protect qualifying statements made or conduct undertaken by a person on another person’s behalf against a cause of action by a third person, it is unreasonable to interpret this language to include a client’s causes of action against the client’s own attorney arising from litigation-related activities undertaken for that client. “The cardinal rule of statutory construction is to ascertain and give effect to the intent of the Legislature.” Although a broad interpretation of the anti-SLAPP statute is statutorily mandated (see § 425.16, subd. (a)), an overly broad interpretation of section 425.16, subdivision (b), that includes such client lawsuits unreasonably expands the language beyond the clear legislative purpose and leads to absurd results….

Are there any legislation / statutory interpretation professors out there? We just gave you a possible exam question. Who doesn’t like some good old-fashioned tension between statutory text and purpose?
Now the case goes back to the trial court, where Simpson intends to “defend [against?] this claim vigorously.” Simpson has a number of arguments supporting dismissal, including a statute-of-limitations claim that the appeals court did not reach.
But PrediWave is ready to rumble too. From Jeremy Rosen:

We believe that there will likely be a new trial judge on remand and that we have the better arguments on the statute of limitations questions, especially given the fact that our amended complaint will now be the operative complaint rather than the initial complaint to which the anti-SLAPP motion was filed.

PrediWave believes that the internal Simpson memos referenced in the opinion and other evidence will show that PrediWave is entitled to prevail on its claims. PrediWave looks forward to finally having the chance to move forward to trial.

The complete Simpson Thacher statement about the Prediwave litigation appears below.
SIMPSON THACHER & BARTLETT — STATEMENT — PREDIWAVE V. SIMPSON THACHER
The state court of appeal’s ruling relates solely to whether the complaint should have been dismissed at the outset under California’s “anti-SLAPP” statute, and explicitly states that its conclusions “do not reflect any evaluation of the merits of PrediWave’s present lawsuit.” PrediWave’s claims are in fact baseless.
Simpson Thacher represented PrediWave Corporation and its then-CEO in commercial litigation for approximately one year. In 2005, Prediwave replaced Simpson Thacher with new counsel. Eventually, PrediWave suffered an adverse judgment while it was being represented by successor counsel. Thereafter, PrediWave’s adversary in that litigation, New World TMT, Limited, acquired ownership of PrediWave and filed this lawsuit in 2008 in PrediWave’s name, apparently without even reviewing the files that Simpson Thacher turned over to PrediWave and its successor counsel and without contacting anyone at Simpson Thacher.
The Firm intends to defend this claim vigorously.
Prediwave Corp. v. Simpson Thacher & Bartlett LLP [California Court of Appeal – Sixth Appellate District]

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