Kirschner v. K & L Gates LLP
46 A.3d 737
| Pa. | 2012Background
- Trustee appeals after trial court sustained preliminary objections to Trustee’s Amended Complaint.
- Le-Nature’s board created a Special Committee of independent directors to investigate resignations of senior financial managers amid fraud concerns.
- K&L Gates represented the Special Committee; P&W assisted as financial consultants under retention letters.
- Amended Complaint alleges extensive misrepresentations and failures in K&L Gates’ investigation and a report that misled the Board.
- Chancery-derived events led to massive undiscovered fraud by Podlucky and insiders; later bankruptcy and liquidation triggered the Trust’s ownership of claims.
- Trustee asserts multiple tort and contract claims against Defendants for alleged professional negligence, breach of contract, fiduciary breach, negligent misrepresentation, vicarious liability, and third-party beneficiary theories; court remanded.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether K&L Gates owed a duty to Le-Nature’s. | Trustee alleges an attorney-client relationship by retention letters. | K&L Gates argues duty was owed only to Special Committee. | Yes; duty to Le-Nature’s established. |
| Whether Trustee stated a cognizable damages theory. | Damages arise from increased liabilities and loss of asset value due to malpractice. | Insolvency and timing undermine damages theory. | Damages cognizable; not barred by insolvency. |
| Whether there was a breach of contract by K&L Gates. | Retention Letter and acknowledged scope created a contract with Le-Nature’s. | Contract limited to Special Committee interests. | Count II viable; breach of contract alleged. |
| Whether K&L Gates breached fiduciary duties to Le-Nature’s. | Attorney-client relationship created fiduciary duties to Le-Nature’s. | Duty limited to Special Committee/Minority Shareholders. | Count III viable; fiduciary breach shown. |
| Whether negligent misrepresentation claim was viable. | P&W/ K&L Gates supplied information relied upon by Le-Nature’s. | No client reliance without attorney-client relationship. | Count IV viable; negligent misrepresentation supported. |
Key Cases Cited
- Cost v. Cost, 450 Pa.Super. 685, 677 A.2d 1250 (Pa. Super. 1996) (implied attorney-client relationships may arise when advice sought within competence)
- Epstein v. Saul Ewing LLP, 7 A.3d 303, 313 (Pa. Super. 2010) (Pa. Super. 2010) (legal malpractice elements and duty analysis)
- Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc., 506 A.2d 173, 179 (Del. 1986) (Del. 1986) (directors’ fiduciary duties to corporation and shareholders)
- Allegheny Health Educ. & Research Found. v. PricewaterhouseCoopers, LLP, 989 A.2d 313, 333 (Pa. 2010) (Pa. 2010) (imputation of agent’s fraud to principal; adverse-interest exception)
- CitX Corp. (In re CitX Corp.), 448 F.3d 672 (3d Cir. 2006) (traditional tort damages valid even when insolvency present)
- Thabault v. Chait, 541 F.3d 512, 523 (3d Cir. 2008) (3d Cir. 2008) (recognition of cognizable traditional tort damages when insolvent)