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Keywords

attorneynegligenceappealsummary judgmentmalpracticecorporationlegal malpracticeduty of care
attorneynegligenceappealsummary judgmentmalpracticepartnershipcorporationlegal malpracticeduty of care

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F.D.I.C. v. O’Melveny & Myers, 969 F.2d 744, 61 USLW 2033

Facts

American Diversified Savings Bank (ADSB) was acquired in 1983 and engaged O'Melveny & Myers to assist with real estate syndications. The law firm prepared Private Placement Memoranda (PPMs) to attract investors, but the bank's officers were involved in fraudulent activities that misrepresented the bank's financial health. After the bank was deemed insolvent, the FDIC took over and later sued O'Melveny for professional negligence, alleging that the firm failed to conduct due diligence and misled investors.

ADSB was acquired in 1983 by Ranbir Sahni and Lester Day. Sahni served as Chairman and Chief Executive Officer of ADSB, and Day was its President. ADSB's principal activity was the purchase, development and sale of real estate through limited partnerships sponsored by ADSB and its subsidiaries. These activities were funded by ADSB's insured deposits, which totaled $958 million by December, 1985.

Issue

Did the FDIC, as receiver for ADSB, have standing to sue O'Melveny & Myers for legal malpractice, given the wrongdoing of ADSB's officers?

Did the FDIC, as receiver for ADSB, have standing to sue O'Melveny & Myers for legal malpractice, given the wrongdoing of ADSB's officers?

Rule

An attorney has a duty to protect their client and must perform legal services with skill, prudence, and diligence. The misconduct of corporate officers is not automatically attributed to the corporation if they act adversely to the corporation's interests.

An attorney has a duty to protect their client and must perform legal services with skill, prudence, and diligence. The misconduct of corporate officers is not automatically attributed to the corporation if they act adversely to the corporation's interests.

Analysis

The court found that O'Melveny owed a duty of care to ADSB and that the firm's failure to conduct a reasonable investigation into the bank's financial condition constituted a potential breach of that duty. The court emphasized that the wrongdoing of ADSB's officers could not be imputed to the bank, allowing the FDIC to pursue its claims against the law firm.

The court found that O'Melveny owed a duty of care to ADSB and that the firm's failure to conduct a reasonable investigation into the bank's financial condition constituted a potential breach of that duty.

Conclusion

The Court of Appeals reversed the district court's summary judgment in favor of O'Melveny, allowing the FDIC's claims to proceed.

The Court of Appeals reversed the district court's summary judgment in favor of O'Melveny, allowing the FDIC's claims to proceed.

Who won?

FDIC prevailed in the appeal because the court found that genuine issues of material fact existed regarding O'Melveny's duty of care and potential negligence.

FDIC prevailed in the appeal because the court found that genuine issues of material fact existed regarding O'Melveny's duty of care and potential negligence.

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