Proskauer Rose Must Stand Trial in $636 Million Malpractice Suit

Proskauer Rose LLP must defend at trial a life sciences venture capital and hedge fund co-founder’s claims the firm negligently drafted documents, costing his ownership interest, a Massachusetts state judge ruled.

Suffolk County Superior Court Justice Kenneth W. Salinger denied the firm’s summary judgment motion in a malpractice lawsuit Dr. Robert Adelman brought, which seeks $636 million in damages from the firm.

Adelman helped found venBio Partners LLC, originally as a venture capital firm and later spun off a hedge fund. Adelman claims that Proskauer Rose negligently drafted legal documents, which allowed the new hedge fund manager to force Adelman to sell his ownership interest in that fund.

“The summary judgment record supports a finding that Proskauer’s alleged negligence caused the loss of Adelman’s share of future hedge fund profits,” Salinger said, holding that Adelman has standing to sue Proskauer for the loss of his right to share in those profits.

Salinger rejected Proskauer’s arguments it was entitled to summary judgment. Though the firm concedes there is a triable issue as to whether it breached the standard of care by adding the “Strategic Transactions” provision, the judge noted, Proskauer contends that the hedge fund manager breached other contract provisions and his fiduciary duty to Adelman, and that each of these breaches “severs the chain of causation between Proskauer’s alleged conduct and Adelman’s injury.”

“Two of the contract provisions that Proskauer invokes are irrelevant, because the contracts expressly gave the hedge fund manager the right to engage in the transactions notwithstanding those provisions,” Sullivan wrote in an order Tuesday.

“Proskauer has not shown that the manager’s alleged malfeasance was an unforeseeable superseding cause that absolves Proskauer of potential liability,” the court said.

A Proskauer representative didn’t immediately respond to a voice mail Wednesday seeking comment.

Adelman contends that Proskauer mistakenly copied and pasted the strategic transactions provision from a prior contract and it remained in the final executed version of the amended limited partnership agreement. The provision authorized the general partner to engage in a financing, acquisition or asset sale without the limited partner’s consent.

Another provision provides that the limited partners, including Adelman, “‘shall not have any appraisal rights in connection with any Strategic Transaction,’” the court noted.

Proskauer denies Adelman’s allegations, contending the transaction that the hedge fund used to redeem Adelman’s ownership interest violated the agreements that it prepared as well as Delaware fiduciary duty common law that it contends was preserved in those agreements, court documents said.

A final pretrial conference is scheduled July 25 to discuss trial scheduling and pretrial events.

Arrowood LLP represents Adelman. Goulston and Storrs PC and Williams & Connolly LLP represent Proskauer Rose.

The case is Adelman v. Proskauer Rose LLP, Mass. Super. Ct., No. 2084CV00735-BLS2, order 5/16/23.