Paul Weiss and Lowenstein ordered to pay $1.96 million for filing frivolous suit against Ron Perelman´s in-laws

Bergen County, N.J., Superior Court Judge Ellen Koblitz doesn´t seem too worried about sparing the reputations of Paul, Weiss, Rifkind, Wharton & Garrison and Lowenstein Sandler. In June, you´ll recall, she found that the two firms had filed a frivolous suit on behalf of billionaire Ronald Perelman in a family dispute over hundreds of millions of dollars. On Friday she issued a final opinion, rejecting the firms´ arguments for mercy and ordering them to pay $1.96 million in legal fees to the defendants, Perelman´s former father-in-law and brother-in-law.

"Paul Weiss and Lowenstein Sandler argue that since they are both such important, well-regarded law firms, the mere finding that they engaged in frivolous litigation is deterrence enough," Koblitz wrote. "They argue that this court´s finding of frivolous litigation has been widely publicized and besmirches their reputation, which will cost them untold, unspecified damages. A monetary sanction, however, is clearly appropriate here."

The sanctions order and the monetary award stem from a 2008 suit filed by Ron Perelman, acting as executor of the estate of his ex-wife, Claudia Cohen, and Ron and Claudia´s daughter, Samantha Perelman. The Perelmans claimed that Robert Cohen -- Claudia´s father, Samantha´s grandfather, and the former CEO and chairman of the Hudson Group -- made an oral promise to Claudia before 1978 to leave her or her children as large a share of his estate as Claudia´s brother, James Cohen. The Perelmans also alleged that James Cohen had exerted undue influence over Robert in an effort to obtain a transfer of $500 million from his father.

It was a bitterly fought case in which the Perelmans´ lawyers contested the competence of Robert Cohen, who is 84 years old and suffering from a Parkinson´s-related disorder. (Here´s Fortune´s take on the litigation.) Last year, after 11 weeks of trial, Ron and Samantha Perelman came up empty on their claims. In August 2009 Koblitz dismissed what was left of their case.

Even though Koblitz permitted the case to proceed to a trial, she nonetheless found in her latest ruling that the Perelman attorneys received plenty of warning that the suit was frivolous. She said, for instance, that in March 2009 she reminded the firms of the evidentiary hurdle they´d have to clear. At that point, she said, the Paul Weiss and Lowenstein lawyers should have recognized that the available evidence did not support their assertion of an oral promise from Robert Cohen to Claudia.

Koblitz found that the firms were not sufficiently repentant for their conduct. She noted that both have said they plan to appeal her sanctions ruling and neither has acknowledged any wrongdoing. And while Lowenstein has established an internal system to prevent the filing of future frivolous litigation, she noted, Paul Weiss has not taken any action.

"[Paul Weiss lawyers] claim never to have been found to have engaged in frivolous litigation in the one hundred year history of the firm," the judge wrote. "They argue that it will not happen again because it did not happen before. Of course, firms change lawyers and practices. Without recognizing and addressing a problem, it is hard to be sure that it will not resurface. A sufficient monetary sanction is necessary to impress upon counsel the need to make greater efforts to avoid frivolous litigation in the future."

Paul Weiss Chairman Brad Karp gave us the following statement: "We believe the lower court´s decision and monetary award are unjustified. We firmly believe that the representation we provided our client was proper and appropriate and we will appeal the judge´s decision."

Lowenstein Sandler managing director Gary Wingens also issued a statement: "Lowenstein Sandler acted properly at all times in representing its client in this matter," Wingens said. "We believe that this decision is contrary to established law and may have the unfortunate consequence of chilling effective advocacy in this jurisdiction. We fully intend to appeal the court´s ruling."

(Published by Law - August 26, 2010)

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