Paul Hastings Sued by Ex-Client Accusing Lawyers’ Negligence

Paul Hastings is facing malpractice claims in a new lawsuit by a California biotechnology company alleging the firm’s lawyers botched the company board’s attempt to oust its founder.

Redwood Liquidating Co. lost $300 million in value and ultimately went bankrupt because of the mistakes by Paul Hastings lawyers, it said in a June 30 complaint filed in Los Angeles.

The company, formerly known as GenapSys, Inc., said it hired Paul Hastings in early 2021 to implement corporate governance reforms to “sideline” the company’s founder, Hesaam Esfandyarpour, so it could “continue commercialization” under new leadership.

That new leadership included appointment of a new CEO and three independent directors to the board, pursuant to written consents drafted by Paul Hastings, the complaint said.

The Delaware Chancery Court later ruled that the consents were invalid, after Esfandyarpour sued. That meant the new directors were “not been validly appointed.”

Redwood said that litigation over the improper consents drained the company’s remaining cash, led to investor concern about the board, and derailed its financing that resulted in it having to close its doors and file for bankruptcy in July 2022 and liquidate its assets.

Paul Hastings said via email that the suit is “without merit.”

“Paul Hastings rejects Redwood’s attempt to shift the blame for its bankruptcy and GenapSys’s failure as a company onto its former counsel,” the firm said. “The Firm looks forward to defending itself in court.”

Paul Hastings is also facing conflict of interest claims from another client, The Coca-Cola Co., in a lawsuit in federal court in Orlando, Florida. Coca-Cola is looking to disqualify the firm from representing a beverage cooling company suing Coke for more than $100 million over an alleged breach of contract.

California’s Lesnick Prince & Pappas and Binder & Schwartz is representing Redwood in the suit against Paul Hastings. The company is being represented by Willkie Farr & Gallagher and Richards, Layton & Finger in its ongoing bankruptcy proceedings in Delaware.

The case is: Redwood Liquidating Co. vs Paul Hastings, Cal. Super. Ct., No. 23ST-CV-15242, complaint filed 6/30/23.