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10 May 2018

Biglaw firms sued for 'dereliction of duty' after licensing deal goes sour

A client has launched a malpractice suit claiming lawyers failed to advise the company of changes made to contract terms by Morgan Stanley.

Morgan Stanley lawyers changed terms Shutterstock

Biglaw firms Perkins Coie and Bracewell have found themselves facing a malpractice suit alleging that they failed to properly advise their mutual client Electron Trading LLC. The firms were involved in the negotiations of a technology licensing agreement in a deal that went bad with Morgan Stanley.

Terms reversed
Electron Trading negotiated a license of its technology for spread trading to Morgan Stanley. Electron alleges that two key terms of the proposed deal were to limit Electron’s liability for third-party intellectual property claims, and, to reserve the right to sue Morgan Stanley in the event of a contract breach. However, the terms were not in the signed agreement. The complaint alleges that instead Morgan Stanley lawyers had added provisions to the agreement giving the opposite effect. This included terms that made Electron’s potential liability to indemnify Morgan Stanley against third party claims unlimited, and capped Morgan Stanley’s liability to Electron for willful breach of the license agreement. Liability was capped at the amount it had already paid Electron.

Dereliction of duty
Shortly after signing, Morgan Stanley allegedly breached the contract and when Electron pursued Morgan Stanley, the suit states: 'Electron was left negotiating against one of the most sophisticated financial entities in the world without receiving the basic and necessary legal advice that any reasonable and competent lawyer would have provided.' Electron claims the firms’ failure to inform them of the changes made by Morgan Stanley was a dereliction of their duties. Electron also alleged that the two law firms caused damages that include lost royalties under the licensing pact and the costs of unsuccessfully litigating against Morgan Stanley.

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