By Samson Habte
A New York appellate court on July 25 revived a lawsuit that accuses Willkie Farr & Gallagher LLP of betraying a stockbroker it represented in a regulatory probe by dropping him as a client and then helping his employer—a securities brokerage that Willkie also represented—point the finger at him.
A trial court previously dismissed the lawsuit as untimely because it was filed more than three years after Willkie Farr ended its representation of the plaintiff.
But an appellate panel—applying a rarely-analyzed tolling principle known as the “continuing wrong doctrine"—said the plaintiff could go forward with his breach of fiduciary duty claim because it was based on Willkie’s actions after the representation ended, when the firm allegedly helped the jointly-represented employer scapegoat its former employee ( Palmeri v. Wilkie Farr & Gallagher LLP , 2017 BL 256486, N.Y. App. Div. 1st Dep’t, No. 3357, 7/25/17 ).
The decision, issued by the New York Appellate Division, First Department, was a reversal of fortunes for Willkie, a storied Wall Street firm that now has to defend itself against explosive allegations of disloyalty in a case that highlights the perils of jointly representing corporate entities and their employees in regulatory or criminal probes.
The plaintiff, Dennis T. Palmeri Jr., was a manager at the now-defunct stock brokerage Ramius Securities LLC. In 2007, that company came under scrutiny from the Financial Industry Regulatory Authority (FINRA), which began a probe into improper “finder’s fee” payments made in stock lending transactions, which Palmeri oversaw for Ramius.
Palmeri left Ramius in 2008, while the FINRA probe was pending, and soon thereafter asked Willkie to represent him. Gregory Burch, a Willkie partner at the time, then reached out to Ramius—which was also a Willkie client—to see if the brokerage would object to the firm representing Palmeri.
Burch subsequently e-mailed Palmeri to report that Ramius’s general counsel not only consented to the representation, but also agreed to cover Palmeri’s legal fees, even though she “did not believe there was a contractual obligation” to do so.
In court papers, Palmeri said that agreement to cover his legal fees was part of a collusive “ploy” between Willkie and Ramius. The law firm, Palmeri said, “intended to scapegoat Palmeri so as to exonerate its more important and profitable client, Ramius.”
Burch did tell Palmeri that his former employer’s consent to Willkie’s representation was conditional—specifically, that the brokerage did “not consent to Willkie being adverse to Ramius in any litigation or other formal proceeding.”
But Burch went on to state, “I don’t see a set of circumstances likely where you will be adverse to your former employer, and it is usually a good idea to stay as close as possible to the former employer.” He also told Palmeri that his former employer wanted “periodic updates on the progress” of the FINRA probe against him.
Palmeri said the engagement letter Willkie gave him “suspiciously failed to advise him of the conflict of interest arising from [the firm’s] representation of both Ramius and Palmeri, or what rights Palmeri had should his and Ramius’s interests further prove adverse.”
Palmeri said that omission stood “in stark contrast to the engagement letters” Willkie executed with Ramius and its other employees. Those letters, the plaintiff said, were “identical to the Palmeri letter” in all respects except one: they “affirmatively disclosed the joint representation and conflict, and obtained an express waiver.”
Five months later, Willkie dropped Palmeri as a client. The firm’s termination letter didn’t mention any conflicts of interest arising out of the firm’s joint representation of Palmeri and Ramius, but it did state that Willkie would continue to represent the company and some of its employees.
Willkie then negotiated an agreement with FINRA that resulted in a censure and $200,000 monetary fine for Ramius. But FINRA proceeded with a disciplinary action against Palmeri, alleging that he lied to Ramius executives about finder’s fees paid in transactions he handled. Ramius employees provided testimony against Palmeri in that proceeding.
Palmeri was ultimately absolved of liability in the FINRA probe, and he subsequently filed this lawsuit.
The complaint said Willkie used confidential information acquired from Palmeri to assist FINRA regulators in their prosecution of the stockbroker, and that the firm also identified and “coached” Ramius employees who wound up testifying against Palmeri in an effort to protect Ramius.
A hearing panel dismissed the FINRA case against Palmeri in 2011. That decision was upheld by an adjudicatory council on Feb. 15, 2013—the same date Palmeri filed this lawsuit against Willkie.
The complaint asserted six causes of action, but the trial court merged duplicative counts, leaving Palmeri with causes of action for legal malpractice and breach of fiduciary duty.
The trial judge then dismissed the malpractice and fiduciary breach claims as untimely. She said the claims were subject to a three-year statute of limitations, and they accrued when Willkie dropped Palmeri as a client, in June 2009.
The appellate panel affirmed the dismissal of the malpractice claim but revived the breach of fiduciary duty claim.
“Claims for legal malpractice are subject to a three-year statute of limitations and accrue when the malpractice is committed, not when the client learns of it,” the panel said in the opinion, which was signed by Justices John Sweeny, Angela Mazzarelli, Karla Moskowitz and Marcy Kahn.
But the court said that although breach of fiduciary duty claims also have a three-year statute of limitations, they are subject to the “continuing wrong doctrine,” which “tolls the limitation period until the date of the commission of the last wrongful act.”
That doctrine applied here, the panel said, because Palmeri “alleges not only that [Willkie] breached its fiduciary duty when it terminated its professional relationship with him, but also when, until at least June 2011, it acted in a manner directly adverse to his interests.”
Those acts adverse to Palmeri’s interests included evidence that Willkie “helped Raimus identify witnesses who would testify against plaintiff at his FINRA disciplinary hearing,” the panel said. “This evidence is sufficient for a fact-finder to determine that defendant breached its duty of loyalty to plaintiff, a former client.”
Ansell Grimm & Aaron P.C. represented Palmeri. Lupkin & Associates PLLC represented Willkie Farr & Gallagher LLP.
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