$12 Million Claim|for Legal Malpractice

MANHATTAN (CN) - A law firm's failure to respond to a lawsuit filed against an investment banker led to an $11.9 million default judgment against him, the banker claims in court.

Edwin H. Yeo III says he hired attorney Aaron Marks, of Kasowitz, Benson, Torres & Friedman LLP, after his former business partner, Frederick B. Whittemore, sued him for breach of contract in 2010.

In the late 1990s, Yeo and Whittemore, who used to work together at Morgan Stanley, formed Van Buren Management Co., a private equity fund to buy small and midsize banks and sell them to larger banks.

The name was changed to Endurance Capital Management LP in 2001.

Yeo was to do the work, while Whittemore provided the funding, Yeo says in his Aug. 18 complaint in Federal Court.

Whittemore cut weekly checks to Yeo to pay staff and cover office expenses.

Leftover money was to be paid to Yeo, but for tax reasons Yeo was to take the pay through loans from Endurance.

Yeo says he also was to be paid a bonus by obtaining a letter of credit based on Whittemore's stock holdings, which he could use to get a $1.1 million loan from the Northern Trust Co. That fund drew down on the line of credit when the loan was not repaid.

The company eventually stopped doing business because of a downturn in the market.

A second fund, known as Endurance II, was formed in 2007.

Yeo says Whittemore unexpectedly stopped making his weekly contributions in April 2009.

Yeo tried to keep the second fund going, but without capital, he was forced to liquidate. Lever Point Management, the fund's former accountant, sued for unpaid accounting services.

Endurance II ultimately shut down when investors backed out.

On March 23, 2010, Whittemore sued Yeo for breach of contract, seeking to recover the $1.1 million in connection with the letter of credit guaranteeing Yeo's loan from Northern Trust. Whittemore maintained that he was only a limited partner and that Yeo was the managing partner.

A summons and complaint was served a week later, and Yeo says he informed Marks of the lawsuit and asked the law firm to undertake the defense.

Several phone calls were exchanged, Yeo says. He says Marks told him "not to worry" about the complaint and said everything would be "taken care of," in the fall of 2010.

But the firm never answered the complaint, never asked about it, and never sought an extension, Yeo says.

A motion for default was filed, and Marks prepared opposition papers.

"Troublingly, the affidavit contained a massive number of errors or false statements, and it further contained statements that Marks knew to be untrue," Yeo says in his complaint.

He claims the affidavit falsely stated that Yeo was formerly Chairman of the Board of Governors of the Federal Reserve, that Endurance was not represented by counsel, and that Kasowitz knew nothing of the lawsuit until the motion of default was filed.

"Each of those assertions, which were demonstrably false, tended to cast doubt on plaintiff's veracity," Yeo says.

Whittemore was granted default judgment, with damages to be determined.

An inquest was ordered, which gave the firm the opportunity to make arguments on damages, but it could not offer defenses.

"Nevertheless, there were significant arguments that still could be made relating to damages," Yeo claims. But he says, "no sufficient arguments were made."

An $11.9 million judgment was granted against Yeo; an appeal was unsuccessful.

"Marks attempted to shift blame from himself and the law firm over to Yeo. The firm's refusal to accept blame and explain its law office failure succeeded in shifting blame to Yeo," he says.

Had Marks admitted his failure, "it is most likely that the claim of law office failure would have been sufficient to avoid an inquest," Yeo claims. "It is certain that Yeo would have not have been personally liable."

Yeo also claims that the firm did not bill him for its representation, which is "circumstantial evidence of the culpability and acknowledgement by defendants of their breach of fiduciary duty."

He seeks damages for malpractice and breach of fiduciary duty.

He is represented by Andrew Lavoott Bluestone.

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