Bankruptcy Expert Discusses Law Firm Usurping Corporate Authority

This commercial law case involves a claim of legal malpractice against a major law firm in Texas. The firm previously provided legal counsel to the plaintiff, who had been operating a bond-financed copper mining company in Arizona worth at least two hundred million dollars. The plaintiff developed an interest in extracting any gold found while mining copper and selling it. His legal counsel advised that because his venture was bond-financed and therefore a single purpose entity, that he should establish a separate firm to complete the extraction of the gold. The copper mining company ultimately became insolvent and filed for bankruptcy; the bank alleges that the formation of the gold extraction company by the plaintiff constituted an attempt to usurp corporate opportunity. The plaintiff’s legal counsel asked the plaintiff to step down from his position as CEO of the copper mining company and took control of the plaintiff’s gold extraction company, bringing in outside consultants to manage what was left. The law firm then sold off the plaintiff’s assets to pay the creditors and their own legal fees. No property has been remitted to the plaintiff and the bankruptcy was called off. It is suspected that the previous firm did not fulfill their duty to the plaintiff during the bankruptcy of his copper mining company.

Question(s) For Expert Witness

1. Please briefly describe your experience advising clients on large corporate bankruptcies.

2. Describe your experience in dealing with other, similar cases.

Expert Witness Response E-073728

A claim of usurpation of corporate authority is not an atypical claim to be brought by a bankruptcy trustee. However, if the bankruptcy has been dismissed, then the creditor could sue the firm through a derivative suit. The defendant should have been advised on how to offer the opportunity to the original company and have it turn it down correctly and then proceed, after appropriately documenting all that.