Sidley Austin Must Defend Claims It Helped Clients Avoid Suit

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By Jacob Rund

Sidley Austin LLP failed to convince a federal judge to throw out a former shareholder’s claims that it tried to help two former directors of a Florida company duck liability for alleged self-dealing.

The firm will now have to defend claims of civil conspiracy and aiding breaches of fiduciary duty.

Sidley is caught up in a securities class action surrounding Linkwell Corp.'s 2014 go-private merger. The complaint says the merger was designed to eliminate shareholder allegations brought in a related case by extinguishing their shares.

Sidley agreed to represent Linkwell and two former directors who were defendants in a suit brought by shareholders, while advising the company on its 2014 go-private merger, wrote U.S. District Court for the Southern District of Florida Judge Federico Moreno in an April 2 opinion. Sidley is accused of orchestrating this so-called freeze-out merger to force the sale of shares, thus ensuring the shareholders had no standing to pursue claims against the directors.

A Sidley spokesperson didn’t return a request for comment on the allegations.

The former investor behind the class action, Frederick Siegmund, previously filed a derivative action against two Chinese directors that had controlling stakes in Linkwell, a producer of disinfectants sold primarily to Chinese companies. Siegmund’s lawsuit stemmed from a questionable reverse merger in 2012, which gave most of Linkwell’s equity to two companies in exchange for ownership in a business that purportedly had no employees or assets. He said the 2014 go-private merger was then intended to stop him from suing about the previous transaction.

Moreno denied dismissal for two of the three claims faced by Sidley. He tossed claims of securities fraud against the firm for alleged “deceptive” conduct, but he refused to dismiss one count of aiding and abetting breaches of fiduciary duties and one count of civil conspiracy.

Moreno said the court has jurisdiction over the law firm with respect to the claims laid out in the complaint, despite Sidley’s argument to the contrary. He also said Siegmund “sufficiently pled his claim against Sidley” for aiding breaches of fiduciary duty.

The case is Siegmund v. Bian , S.D. Fla., 16-62506-CIV-MORENO, 4/2/18 .

To contact the reporter on this story: Jacob Rund in Washington at jrund@bloomberglaw.com

To contact the editor responsible for this story: Fawn Johnson at fjohnson@bloomberglaw.com

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