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O’Melveny Notches Win in Long-Running Legal Malpractice Suit (1)

Nov. 5, 2019, 9:56 AMUpdated: Nov. 5, 2019, 2:25 PM

A federal judge in Los Angeles ruled in favor of O’Melveny & Myers in a case alleging the Big Law firm was conflicted in its representation a decade ago of a now-defunct investment firm Aletheia Research and Management.

Judge Christina A. Snyder Oct. 31 refused to toss an arbitrator’s August finding that O’Melveny didn’t commit legal malpractice, noting that “only in very unusual circumstances” does this occur and the investment firm’s trustee didn’t meet this standard.

A Chapter 7 estate trustee for Aletheia, Jeffrey I. Golden, argued that the arbitration award should be vacated pursuant to the Federal Arbitration Act because it violates public policy prohibiting “an attorney contract that has as its object conduct constituting a violation of the Rules of Professional Conduct.”

Golden had alleged that O’Melveny’s joint representation of Aletheia and its founders from 2009 to 2012 in a breach of contract suit brought by Proctor Investment Managers violated conflict of interest rules. The trustee said the firm failed to advise Aletheia to hire independent counsel to review “and if appropriate bring claims, without limitation,” against the founders for “corporate mismanagement and waste.”

The firm’s failure contributed to Aletheia’s ultimate downfall, Golden said. In a settlement of the breach of contract suit, Aletheia agreed to pay more than $21 million, and it sought bankruptcy protection in 2012. The case then was converted to Chapter 7.

Golden sued O’Melveny in 2014, alleging legal malpractice and a number of bankruptcy claims. The lawsuit sought to recover the “losses and damages” caused by the law firm.

But the chances of recovery are slim after the court’s most recent ruling.

For Golden to prevail on his public-policy argument, he has to show that a well-defined policy exists that prohibits enforcing the award, the court said.

California professional conduct rules prohibit attorneys from representing clients whose interests are adverse to one another, it said. And because the rules are “an expression of public policy,” Golden prevails on that point, the court ruled.

But Golden also argued that O’Melveny shouldn’t be allowed to keep any fees it earned during its allegedly conflicted representation of Aletheia. And California law doesn’t “categorically bar” such a scenario so it doesn’t necessarily violate public policy, the court said.

More importantly, the court said, the public policy challenges to the arbitrator’s findings are “impermissible challenges to the Arbitrator’s findings of fact and conclusions of law as erroneous.”

With the given facts, the arbitrator didn’t reach any conclusions that were erroneous, the court found. And it didn’t err when it found that O’Melveny met its duty to advise and alert Aletheia.

The court also shot down Golden’s argument that the arbitrator was biased against him. It noted that the standard for proving arbitrators are biased is more stringent than the standard for judges.

Golden’s non-arbitrable bankruptcy claims were stayed during the pendency of the arbitration and remain to be addressed. However, Snyder previously stated in an order that the factual findings in the arbitration final award may dispose of the those claims as well.

Lead trial counsel for O’Melveny, Kevin S. Rosen, said his client was"gratified by the federal court’s order confirming the conclusion of the arbitrator that all of the trustee’s allegations against O’Melveny and its lawyers were meritless.”

Rosen is chairman of Gibson Dunn & Crutcher’s law firm defense practice group.

Attorneys for Golden didn’t immediately return a request for comment.

The case is Golden v. O’Melveny & Myers, C.D. Cal., No. 2:14-cv-08725, decided 10/31/19.

To contact the reporter on this story: Melissa Heelan Stanzione in Washington at mstanzione@bloomberglaw.com

To contact the editors responsible for this story: Jessie Kokrda Kamens at jkamens@bloomberglaw.com; Rebekah Mintzer at rmintzer@bloomberglaw.com