Playboy Sues Sheppard Mullin for $7.6M

           LOS ANGELES (CN) – Playboy filed a $7.6 million malpractice lawsuit claiming its attorneys negligently failed to settle an employee whistleblower case out of court.
     Playboy Enterprises sued Sheppard, Mullin, Richter & Hampton on Friday in Superior Court.
     It claims the attorneys lost the case against former Playboy controller Catherine Zulfer in “spectacular fashion,” after she claimed she was fired in retaliation for exposing a scheme to give executives $1 million bonuses without board approval. “On March 5, 2014, the jury returned a verdict of $6 million in compensatory damages and a finding of malice, oppression or fraud after deliberating only 1 hour and 45 minutes,” Playboy’s 8-page lawsuit states.
     Before trial, Playboy claims, Sheppard Mullin gave it a 75 percent chance of prevailing in the case. The attorneys estimated wage losses of between $1,489,766 and $3,235,104 if Zulfer emerged victorious, the complaint states.
     In a mock jury trial conducted by the firm, Playboy claims, only one-third of the jurors ruled for Zulfer, awarding her on average compensatory damages of $2 million, emotional distress damages of $380,000 and punitive damages of $540,000.
     Playboy’s complaint claims that that was well within its $5 million employment practices policy with Starr Indemnity and Liability.
     “In its Jan. 29, 2014 pretrial report, Sheppard evaluated the worst case wage loss scenario as presenting an exposure below policy limits, but failed to evaluate the exposure to emotional distress and punitive damages in reaching that conclusion,” Playboy says in the lawsuit.
     A more thorough analysis would have revealed that Playboy could be liable for an award beyond its $5 million policy limit, Playboy claims.
     It claims that an “attorney of ordinary skill and capacity” would have advised it to settle the case and “demand that Starr settle within policy limits to protect its insured from both an excess and a potentially uncovered compensatory and punitive damage exposure.”
     Playboy reduced the attorney fees after settlement talks with Zulfer, but was left with “liability well in excess of the policy limit,” it says.
     Sheppard Mullin spokesman Ralph Richardson denied the claims.
     “In the end, we expect vindication and collection of our unpaid fees,” Richardson told Courthouse News in an email.
     He did not immediately respond to a request to specify how much the firm is owed.
     Playboy seeks $7,603,000 in compensatory damages.
     It is represented by Walter Lack with Engstrom, Lipscomb & Lack.

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