Cooley Sued for Malpractice After Representing Carbon IQ (1)

Cooley LLP and several of its attorneys are being accused of committing legal malpractice and fraud in a suit filed in federal court Thursday.

Jason Gould and Gould Ventures LLC are suing Cooley and its attorneys after investing in Carbon IQ Inc. and after Gould became a board member of the startup—both based on information Gould received from Cooley’s attorneys, who represented Carbon IQ at the time.

Carbon IQ started by developing human resources software and then pivoted to developing Rumby, which is a program that allows people to place online orders for dry cleaning services. The company is currently mired in more than one lawsuit, including a bankruptcy proceeding in the US District Court for the Southern District of Ohio.

Gould alleges that the attorneys knew that Carbon IQ and its chief executive officer, Benjamin Cantey, were being sued for fraud in Texas and didn’t reveal that information.

The defendants “deliberately and/or recklessly concealed from Plaintiffs critical information regarding fraud allegations being asserted against Cantey,” the complaint says. “These included both Cantey’s fraudulent activities related to Carbon IQ and an active investigation by the Texas State Securities Board into securities fraud violations tied to Cantey’s previous involvement with another company in Texas.”

Because the defendants didn’t disclose the fraud allegation against Cantey, the plaintiffs invested another $140,000 in Carbon IQ, the complaint says.

Gould further alleges that he asked the defendants if Carbon IQ had directors and officers insurance. “Although Cooley Defendants knew Mr. Gould’s acceptance of a Board position was contingent upon the existence” of adequate insurance, they failed to disclose to Gould that they “never actually received any evidence confirming the existence of such insurance,” the complaint says.

After Gould took the position on the Carbon IQ board, he was personally named in a lawsuit by another Carbon IQ investor, the complaint says.

Cooley eventually withdrew from representing Carbon IQ, according to the complaint.

The plaintiffs allege securities fraud; common law fraud; legal malpractice; aiding and abetting fraud; negligent misrepresentation; and breach of fiduciary duty.

They seek compensatory, consequential, and punitive damages; pre- and post-judgment interest; fees and costs; and full indemnification for any expenses and liability associated with the lawsuit against Gould.

Cooley didn’t immediately respond to a request for comment.

Kathleen M. DalCortivo of Toms River, N.J., represents the plaintiffs.

The case is Gould Ventures LLC v. Cooley LLP, D.N.J., No. 3:24-cv-09485, complaint filed 9/26/24.