The 75-page complaint, filed on Monday (14 April) in Manhattan Supreme Court by trustee Richard Gray, alleges that McDermott put off a much-needed Chapter 11 filing to facilitate self-dealing by two other members of the hospital group's restructuring team. As a result of the delay, the trustee claims, St Vincent's incurred greater operating losses, paid more professional fees and took longer to emerge from bankruptcy after it finally did file.
The suit is requesting around $200m (£101.4m) in damages for legal malpractice, fraud and breach of fiduciary duty, among other claims, as well as disgorgement of $4.5m (£2.3m) in previously paid legal fees. In addition to the firm itself, partners William Smith, Stephen Selbst and David Cleary are individually named as defendants.
In a statement, McDermott said it would not comment on the case because it is a pending matter.
The other members of the restructuring team cited in the suit are financial advisory firm Huron Consulting and turnaround boutique Speltz & Weis, whose principals David Speltz and Timothy Weis respectively stepped into the roles of chief executive officer and chief financial officer at
According to the trustee, Huron offered to acquire Speltz & Weis for $17m and a share of the latter firm's future revenue, much of which was expected to come from work for
The suit claims McDermott helped facilitate the deal by concealing it from the
Gray, who declined to comment, is being represented by Alfredo Mendez of Abrams Fensterman Fensterman Eisman Greenberg Formato & Einiger.
Suits by bankruptcy trustee have become a major hazard for law firms representing companies facing financial distress, with Clifford Chance and Mayer Brown also facing trustee litigation.