Sedgwick Trustee Files Suit Over Unpaid Legal Fees

By Emma Cueto

Law360 (June 30, 2020, 2:46 PM EDT) — Defunct law firm Sedgwick LLP has accused two California clients of failing to pay a combined $350,000 for legal services the firm provided, speculating that with interest, the firm could be due more than $1 million.

Sedgwick’s bankruptcy trustee filed an adversary proceeding against Laguna Dana Investments LLC and Avila Beach Realty Inc. on Monday as part of the firm’s bankruptcy, pursuing claims for unjust enrichment against both companies.

According to the trustee, the two companies share a principal, Patrick N. Smith, who retained Sedgwick’s legal services. Laguna Dana allegedly owes $305,000 and Avila allegedly owes $45,000, with some of the companies’ unpaid legal bills dating back to 2011, according to the trustee.

In correspondence with Laguna Dana and Avila’s attorney, Christopher E. Hahn, which was attached to the complaint, the firm also speculates that with unpaid interest, the amount due could surpass $1 million.

In that same email correspondence, however, Hahn alleges that Sedgwick bungled an $800,000 breach of contract case it handled for Laguna Dana, only recovering a $257,000 award that was later vacated. Hahn indicated in the email that Laguna would not pay Sedgwick unless the company eventually recovered its full $800,000 ask, plus interest.

He also suggested that instead of collecting on its allegedly outstanding invoices, Sedgwick should pay Laguna Dana $200,000 in exchange for the company signing away a potential legal malpractice claim.

Hahn and attorneys for the bankruptcy trustee did not immediately respond to request for comment Tuesday.

Sedgwick filed for bankruptcy in October 2018, after more than two dozen partners left the firm in January 2017, with some joining Drinker Biddle & Reath LLP in Texas and others starting their own firm. Sedgwick was then rocked by even more partner departures throughout the year, forcing it to close offices and impairing its ability to attract talent.

In its bankruptcy proceeding, Sedgwick sought to claw back payments it had made to its 66 equity partners after it became insolvent.

In January, the firm’s Chapter 11 plan — which includes a settlement clawing back $1.9 million from 47 former partners — was approved over the objections of one of the nonsettling former partners.

The bankruptcy trustee is represented by Steven T. Gubner, Jason B. Komorsky, Susan K. Seflin and Joseph Rothberg of Brutzkus Gubner.

Counsel information for Laguna Dana and Avila in the instant suit was not immediately available Tuesday.

The case is In re: Sedgwick LLP, case number 3:18-bk-31087, in the U.S. Bankruptcy Court for the Northern District of California.

–Additional reporting by Rick Archer, Dorothy Atkins, Cara Bayles and Sam Reisman. Editing by Stephen Berg.

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