Firm Sued for Working Against Client
Sullivan & Cromwell is being sued for doing a client wrong as it faced asbestos litigation � at the behest of the parent company, which the firm also represented.
By Matthew Hirsch | May 30, 2006 at 12:00 AM
When a plaintiff's attorney starts using words like "fraud" and "negligence," you don't ordinarily hear the phrase "distinguished and venerable" in reference to the defendant. Such is the curious nature of a recent complaint filed in San Francisco Superior Court against Sullivan & Cromwell. Given the Wall Street firm's size and clout, it's unclear which allegation looks worse: the claim that it helped a leading tobacco company cheat victims of asbestos exposure out of a huge pile of cash, or the idea that the firm would squabble with a former client over some files and a measly $100,000. Of course, attorney Stephen Snyder intends to prove them both. At the heart of this dispute is Flintkote Co., which manufactured and sold vinyl floor tiles, cement pipes and other asbestos-laden products. Two years ago, Flintkote collapsedunder the weight of more than 157,000 personal injury and wrongful death claims and wound up in bankruptcy court, where it remains. Its principal creditors � asbestos claimants now represented by Snyder � say that about 20 years ago Flintkote's parent siphoned at least $500 million in funds that should have gone to pay victims. And they say Sullivan & Cromwell orchestrated the raid while serving as Flintkote's counsel. Much like the story of Enron Corp.'s demise, this one has two competing theories. Snyder alleges that the actions of Flintkote's one-time parent company, Imperial Tobacco Canada Ltd., makers of du Maurier cigarettes, left Flintkote with personal injury liabilities in excess of $2.2 billion when Imperial cast it off in 2003. "From the beginning to the end, [Sullivan & Cromwell] rendered advice to Flintkote and [Imperial Tobacco] concerning how to structure Flintkote's affairs in such a way that [Imperial Tobacco] could realize the value of Flintkote's assets and retain dividends � against potential claims of improper dividend declarations, fraudulent transfer, veil piercing and alter ego liability," Flintkote's lawyers wrote in a complaint filed May 24 in Flintkote v. Sullivan& Cromwell, CGC-06-452568. Snyder said Sullivan & Cromwell provided legal advice to Imperial Tobacco and Flintkote simultaneously, while its true loyalty lay with the parent company. "Our view of the case is that Sullivan & Cromwell was Imperial Tobacco's Trojan Horse inside Flintkote," he said. Snyder and his firm, Snyder Miller & Orton, typically represent defendants in asbestos cases. They're representing the claimants along with Novato's Brayton Purcell, an asbestos plaintiffs shop. Snyder noted Sullivan's sterling reputation. But, he said, "I think because of its long and established relationship with [Imperial Tobacco], it got pushed over the line in this case," he said. A much different version of Flintkote's downfall comes from Munger, Tolles & Olson's Rohit Singla, who is representing Sullivan & Cromwell. Flintkote's "financial collapse was the result of its asbestos-related liabilities and had nothing to do with [Sullivan & Cromwell's] advice," said a statement Singla issued on the firm's behalf. The statement labeled the Flintkote complaint as "purely tactical" and called the company's claims "wholly meritless." Most of Flintkote's claims first emerged in a complaint filed last month in San Francisco Superior Court, Hopkins v. Plant Insulation Co.,CGC-06-450944. Sullivan & Cromwell attorneys promptly removed that case to federal court, where it awaits a venue hearing on June 19. In its May 24 complaint, Flintkote is seeking all of its files held by Sullivan & Cromwell, including those related to the law firm's representation of former parent company Imperial Tobacco. The suit says Sullivan & Cromwell refused to turn over work product and other materials requested by Flintkote, first demanding $100,000 to locate, review and copy the documents. Sullivan & Cromwell partner Robert Sacks said this latest complaint should be removed from the state court in San Francisco, along with the rest of the Flintkote litigation.