Katten Faces $950 Million Malpractice Liability Lawsuit

Katten Faces $950 Million Malpractice Liability Lawsuit

Katten Muchin Rosenman LLP is facing a $950 million malpractice lawsuit as a California trial judge ruled against the law firm in its plea to apply Washington, District of Columbia’s defense-friendly contributory negligence law to the case. The judge ruled that the California compensatory negligence law will now apply to the case ahead of the trial on August 16.

Orange County Superior Court Judge William D. Claster ruled last week that California’s plaintiff-friendly contributory negligence law would apply and reversed the tentative ruling that he issued last month. As a brief history of the case, CashCall had sued Katten in April 2017 and claimed that the law firm had urged the company to make an online lending program. It was based on the idea that the lender’s high-interest, short-term loans would not violate state and federal laws.

However, CashCall claims that the law firm avoided the responsibility for its own advice and stated that the firm’s reckless work caused further damage. It is also alleged that the firm’s malpractice, breach of fiduciary duties, and breach of contract has cost CashCall millions and millions of dollars in legal fees, court judgments, lost interest, regulatory fines and penalties, unrecoverable loans, reduction of the value of its business, and lost business opportunities. It was also argued that Katten’s advice left CashCall legally vulnerable to numerous lawsuits starting in 2013.

It was argued by the defense attorneys from Munger, Tolles & Olson that the Washington, District of Columbia law should apply to the case as the partner named in the case, Claudia Callaway, works at the firm’s District of Columbia office. However, the Judge drew a distinction between the place where the work was performed and the place where the tort and the injury occurred. The court found that even though most of the work was performed in Katten’s District of Columbia office, the alleged bad advice, that constituted the alleged tortious conduct, was given in the plaintiff’s Orange County headquarters.

Judge Claster stated, “CashCall was injured in California. CashCall allegedly sold its businesses at a loss in California, the [U.S. Consumer Financial Protection Bureau] action took place in California, and CashCall incurred legal expenses related to the Western Sky program in California.”

If the District of Columbia negligence law had been applied to the case, Katten may not have been required to pay damages if the jury determined that CashCall had also contributed to the negligence and the subsequent losses caused. However, according to California’s negligence law, the plaintiff can still receive 90% of the damages even if the jury found it to be 10% at fault.

Reuben Camper Cahn, counsel for CashCall said, “California courts have unanimously rejected the doctrine as fundamentally unjust. And as Judge Claster noted, there is really no justification for an Illinois law firm with offices across the country and around the world to hide behind the District’s antiquated rule.”

Katten’s spokesperson said that the claim is speculative, not supported with reliable evidence, and a way to draw negative media attention towards the firm.