Hillblom estate administrator sues for malpractice, negligence

Four years after his death, the controversy surrounding the multi-million estate left behind by businessman Larry Hillblom continues as Diego Mendiola, special administrator for the Hillblom estate, accused one of the world’s biggest law firms, Morrison & Foerster, of malpractice in the administration of the late business tycoon’s properties.

Mendiola, who has filed a suit on behalf of the Hillblom estate, is seeking damages for the alleged negligence of the parties involved. He asked the court to determine how much damages the estate must receive.

Also named respondents in the case filed before the Superior Court are Bank of Saipan, law firm Calvo & Clark, LLP and Rodney J. Jacob, attorney and partner within the Calvo & Clark, local counsel for Morrison & Foerster.

According to the complaint, the negligence of Morrison & Foerster firm begun when it delayed the filing of a malpractice claim, which the Hillblom estate had sought against Carlsmith, another law firm.

The complaint added the defendants failed to exercise care, skill and diligence in representing the estate when they did not take any action against Carlsmith.

Had they filed the case against Carlsmith, the estate would have recovered judgment on claims amounting to over $200 million. But due to the defendants’ negligence, the estate is now barred from taking any action, making its claim worthless.

Furthermore, Morrison & Foerster withheld estate documents and records from the estate’s new counsel. To get hold of the documents, the estate sought a court order directing Morrison & Foerster to turn over the records. Still, the law firm refused.

On the other hand, the Bank of Saipan neglected its duty to oversee Morrison & Foerster when it did not warn the estate about any irregularities committed by the law firm.

In 1998, Morrison & Foerster’s conduct became clear to the Bank of Saipan but still failed to either properly oversee Morrison & Foerster and inform the estate about the problems with the law firm, the complaint added.

“The Bank of Saipan failed to carry out its fiduciary duties to the estate because of its desire to develop a business relationship with Morrison & Foerster. Bank of Saipan developed a pattern of putting its interests before the interest of the estate,” the complaint said.

How it happened

The Morrison & Foerster firm began representing the estate on Oct. 5, 1996 through the Bank of Saipan, which was then suspended by the court as executor of the estate on Feb. 29, 1996. During the bank’s suspension, the court appointed a special administrator to act in place of the executor.

Carlsmith firm was removed as counsel for the executor on August 20, 1996 by the court based on the investigation made by Rexford C. Kosack, the court appointed Special Master.

Kosack at that time was tasked to look into the accusations of mismanagement made by the heir claimants.

The Special Master’s report gave a detailed account of the gross conflicts of interest committed by Carlsmith and pattern of misrepresentation to the estate and the court.

When the Morrison & Foerster firm became counsel to the executor, it reviewed and evaluated the actions taken by Carlsmith as it represented the Bank of Saipan. Immediately, it concluded and advised the Bank of Saipan that the estate had a viable claim against Carlsmith for legal malpractice.

Between October 1997 and November 1998, the Morrison & Foerster firm billed the executor over $200,000 for work performed in connection with the Carlsmith claim. On top of this, over $38,000 was charged by Morrison & Foerster for legal research and over $55,000 for work related to the complaint.

The Morrison & Foerster firm informed Carlsmith that the estate had a valid legal malpractice claim against the law firm. On June 12, 1997, the Morrison &Foerster firm entered into a tolling agreement with Carlsmith which contained a mandatory selection clause and any litigation required to be instituted in the CNMI.

By entering into a tolling agreement, the Morrison & Foerster firm agreed that the estate would not institute an action against the Carlsmith firm, until at the earliest, 60 days from the termination of the agreement.

On July 9, 1998, the Morrison & Foerster firm terminated the tolling agreement. Two months after, a complaint for damages was filed against Carlsmith and its managing partner, David Nevitt. The accusations include attorney malpractice, attorney malpractice based on representation of adverse interests and breach of fiduciary duty.

However, Carlsmith argued before the court that the case must be dismissed because a two-year statute limitation prohibited the estate’s claim against the law firm.

On Feb. 25, 1999, the US District Court in the CNMI ruled that the tolling agreement executed by Carlsmith and Morrison & Foerster firms was unforceable and void under the law. The federal court said the two-year or six-year statute of limitations applied to legal practice was a matter to be determined by the Supreme Court.