On October 10, 2008, Simpson Thacher obtained the decision of the Appellate Division, Fourth Department, reversing the decision of the New York Supreme Court and dismissing in its entirety an ERISA malpractice case against Syracuse-headquartered Bond Schoeneck & King PLLC.
The plaintiffs were the majority shareholders of Azon Corporation, a now defunct firm that at one time had been a leading maker of specialty papers and films used in the reprographics industry. In September 1999, the shareholders sold their Azon stock for $25 million to the Azon Employee Stock Ownership Plan. In 2002, Azon went bankrupt and a group of Azon employees filed a class action lawsuit alleging that the shareholders breached their fiduciary duties by selling their shares at an inflated price in violation of ERISA. Bond Schoeneck, which represented the ESOP in the transaction, was not sued in that class action. However, the shareholders, after settling the class action, filed an action against Bond Schoeneck, claiming that they settled because they faced huge potential liability – potentially almost three times what they had been paid – because the ESOP transaction was prohibited under ERISA by reason of certain “commissions” allegedly paid in connection with the transaction. The shareholders alleged that they were exposed to this liability as a result of Bond Schoeneck’s malpractice in failing to advise against payment of the alleged commissions.
Bond Schoeneck filed a motion to dismiss, which the New York Supreme Court granted in part and denied in part. The Appellate Division reversed the portion of the order appealed from and dismissed the amended complaint in its entirety. Accepting each of the Firm’s arguments on appeal, the court held that the plaintiffs could not seek indemnification based on a theory of liability that was never asserted in the underlying action; that the plaintiffs’ claim was in reality one for contribution rather than indemnity and was thus barred by N.Y. General Obligations Law § 15-108(c); and that the alleged “commissions” were in any event not unlawful under ERISA, and therefore did not provide a basis for liability in connection with the ESOP transaction.
The Simpson Thacher team included Tom Rice, Paul Gluckow, Emily Kimball, Daniel Stujenske, and paralegal Jennifer Avila.
Click on the Download button below for a copy of the decision.