Dechert LLP won an appeal dismissing a suit by Fortress Investment Group LLC (FIG) that claimed the law firm issued a false opinion letter endorsing a transaction with Marc Dreier, the lawyer later convicted of fraud.
Fortress claimed that the 2008 letter caused it to lend $50 million to what it believed was the firm of Sheldon Solow, a New York developer and a client of Dreier’s defunct law firm, Dreier LLP. Dreier, 61, is serving a 20-year sentence in federal prison after pleading guilty to selling more than $400 million in phony notes to hedge funds.
A state appeals court in Manhattan today reversed a ruling in which a lower-court judge had declined to dismiss New York- based Fortress’s claims.
“As Dreier was Solow Realty’s attorney and the guarantor of the loan, defendant had no reason to suspect that Solow Realty was not in fact a party to the loan transaction or that Dreier forged the signatures of its principal and CEO,” a unanimous five-judge appeals panel said.
“This decision is of tremendous importance to the lawyers and law firms who give closing legal opinions, a fundamental aspect of many financial transactions,” said Joel Miller, lead counsel for Philadelphia-based Dechert.
Miller said Fortress tried to use the Dechert letter as an “insurance policy against anything going wrong with the transaction, including Fortress’s own lack of due diligence, which allowed it be defrauded by Marc Dreier.”
Dreier’s firm, which had 250 attorneys, filed for bankruptcy protection in December 2008.
“Dechert told Fortress that it was acting as ‘special corporate counsel’ to Solow Realty in the transaction -- a statement that Fortress relied on in entering into the transaction and that proved to be utterly false,” Marc Kasowitz, who represents Fortress in the case, said in a statement today.
The ruling “would permit law firms to provide legal opinions without so much as knowing who they represent, and would put parties at their peril in relying on legal opinions in corporate transactions,” he said.
Fortress is deciding whether to appeal, Kasowitz said.
The case is Fortress Credit Corp. v. Dechert, 603819/2009, New York State Supreme Court, Appellate Division, First Department (Manhattan).
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