In a story reported by Katrina Dewey on Oct. 2, 2020, Jones Day has been sued for $750 million for its alleged role as counsel in the fraudulent sale of a German specialized pipe manufacturer by its client Schulz Holding GmbH & Co. KG to Berkshire Hathaway subsidiary Precision Castparts Corp.

The Southern District of New York recently confirmed an arbitration award against Schulz Holding, finding that Schulz Holding and related entities fraudulently induced Precision to purchase Wilhelm Schulz GmbH and other Schulz Holding subsidiaries. The arbitrators held that there was such overwhelming evidence of fraud that it was "not a close case."

The lawsuit against Jones Day, filed in Houston state court on Sept. 25 by Reid Collins, alleges that Jones Day was Schulz Holding's "co-conspirator and aider and abettor" and "thus jointly and severally liable with the Schulz Group for the full amount of damages suffered by Precision."

The lawsuit, however, offers a mere glimpse of the allegations against Jones Day because it is heavily redacted. What can be gleaned from the suit itself, as well as from the April arbitration award against Schulz Holding, is that companies purchased by Precision in 2017 were, in reality, foundering and on the brink of bank foreclosure. And that as the sale to Precision approached, Schulz Holding and its executives concealed the dire financial condition of the companies. The arbitration panel found that Schulz officials had become "progressively more bold" leading up to the transaction, when the company faced a "severe risk" of bankruptcy. The panel also found Precision Castparts had "amply demonstrated" that Schulz's representatives had misled them, according to a Reuters report on the decision.

According to the lawsuit against Jones Day, which served as counsel to Schulz Holding, "the fraudulent transaction would never have occurred without Jones Day's substantial assistance."

Reid Collins was contacted by the general counsel of Precision due to the firm's success taking on large, institutional, professional firms for claims of legal malpractice, accounting malfeasance, and the like, said Bill Reid. The claims against Jones Day, however, are not legal malpractice. Rather, "my client, Precision Castparts, was tricked or induced into purchasing a company for €800 million that turned out to be a total fraud," he said.

"The only way you can have a malpractice claim is if your own lawyer makes a mistake or does something wrong," said Reid. "Here, we allege that the wrongdoing was made by the seller's counsel in assisting the seller to consummate its fraud."

Suits against major firms are rare — perhaps because many are resolved outside of court, as Reid explained has been his experience in handling dozens of professional liability lawsuits since founding Reid Collins in 2009. However, two legal malpractice suits brought by the Reid Collins firm have recently surfaced, including a massive lawsuit against Reed Smith for missing a statute of limitations in a case related to the collapse of Bear Stearns; and a $300 million claim against Brown Rudnick arising out of Brown Rudnick's loss of a $300 million preference claim for the litigation trust for Lyondell Chemical Co.

Reid Collins has gained a reputation for successfully pursuing claims against even the biggest, most powerful firms. Case in point is its recent pursuit of Skadden, detailed in the New York Times. While Reid Collins was unable to comment on the Skadden case, it was able to confirm that it did represent former Ukranian Prime Minister Yulia Tymoshenko in the reported circumstances.

Reid explained that it is his firm's philosophy to give firms an opportunity to resolve claims without publicity. To accomplish this, it is standard operating practice to provide adversaries a draft complaint along with an opportunity to engage in a settlement dialogue. This approach, according to Reid, also benefits his clients because it frequently results in a quicker settlement with overall often a better net recovery for the client.

Reid estimated that somewhere between two-thirds to 80 percent of claims against law firms he works on are resolved before a lawsuit is ever filed. "Sometimes, however, defendants choose to be sued and we have them all listed on our website," Reid said.

According to Reid, when he presented Jones Day with a draft complaint for the Schulz debacle, the firm, unlike most other firms, outright rejected any settlement dialogue. "In the pre-suit process, Jones Day asserted that a lot — or all — of the allegations and proof that we have fall within the attorney-client privilege. Therefore, according to Jones Day, we are not permitted to even make the allegations."

While Reid Collins has filed redacted suits before, this one is unique because — thanks to the arbitration in which the underlying fraud was proved — any privilege there may have been is gone because of the crime-fraud exception, Reid said. "So it's perplexing that Jones Day is nonetheless contending that it retains a privilege with its client after the client was adjudged to have committed fraud, because one of the most prominent exceptions to the attorney-client privilege is the crime-fraud exception.

"In my mind, this is pretty garden-variety crime-fraud exception territory — where the communications at issue are part of the fraud. That means there is no privilege."

Reid Collins explains its decision to preemptively redact the complaint in footnote 2: "Precision has redacted this filed petition in response to an assertion by Jones Day that it contains privileged information of the Schulz Group, the entities already found liable for fraudulently inducing Precision to purchase the Schulz Subsidiaries. Precision has provided Jones Day with the unredacted petition and has provided Jones Day with 10 days to file a motion to seal the unredacted petition. If Jones Day does not act to seal the unredacted petition provided to it, Precision will file the unredacted petition."

"We wanted the court to make the determination that we're right before we let the cow out of the barn by filing a fully unredacted complaint," said Reid.

Jones Day declined to comment on the filing. For more information please visit www.lawdragon.com.