WEST PALM BEACH, Fla. — Attorneys
representing the biotechnology firm Dyadic International continued to
parade witnesses before a Florida jury recently as they built their
case that ruinous legal advice caused the company’s market value to
The case, which is being tried in West Palm Beach
according to report
on Law 360, had webcast coverage provided by Courtroom View
Dyadic attorney Steven Katzman argued in opening
statements at the trial that the company, which developed proprietary
enzyme technologies capable of producing everything from drugs to
fuels, saw its market value plummet from $235 million in 2007 to less
than $30 million. The cause, said Katzman, was bad legal advice from
panicked Greenberg lawyers.
“Dyadic was on the verge of
greatness with great value,” he said, but that came to the halt as
a result of a catastrophic chain of events in April 2007, when the
company’s chief executive officer, Mark Emalfarb, began receiving
anonymous whistleblower emails alleging that Dyadic’s Hong Kong
subsidiary, Puridet, was engaging in financial fraud.
days, a company that took 28 years to build was destroyed,” Katzman
Defense lawyer Stuart Singer, however, countered
that Greenberg’s advice in the wake of a growing financial scandal
at the Hong Kong subsidiary was prudent. To deal with possible
financial fallout at the time, Greenberg attorney Robert Schwimmer
advised Dyadic to halt its trading on the American Stock Exchange,
announce that the company’s current financial statements were no
longer valid and call on its CEO to step aside pending a financial
“This is a case, essentially, that Greenberg is
being sued for having done the right thing,” Singer said at the
Eventually, the company was delisted from the Stock
Singer portrayed Dyadic not as an up-and-coming biotech
firm, but as a company that was flying off rails as a result of
ongoing fraud and bribery at Puridet, internecine conflict among
company officials and a CEO who solicited sex and escort services
from his Florida office during work hours.
Emalfarb also hid key
whistleblower emails in previous years that might have allowed the
company’s auditing firm, Ernst and Young, to uncover financial
improprieties, Singer said. Instead, the auditing firm gave Dyadic
“clean audits” for multiple years in a row.
Traurig’s advice did not cause this problem,” he said. “Dyadic’s
mess and failing to deal to deal with it years earlier in China
caused this situation.”
The plaintiffs’ chart showing the
company value sinking by more than $180 million in market value was
fictitious, consisting of arbitrary points, Singer said. And he
pointed out that the company was losing tens of millions of dollars
annually in the early part of the 21st century.
But Katzman said
during the trial that the plaintiffs would argue that the jury should
find the company merits damages because the legal advice it was given
led the firm toward financial ruin. Those damages should either be
based on market value — a loss of $186 million — or on lost
business deals, worth about $730 million.
In an interview with
the Florida Record, Brian Faughnan, a Memphis, Tennessee
attorney who writes a blog
called “Faughnan on Ethics,” said he has seen an increase in such
cases involving legal malpractice issues at the corporate level.
does certainly look to me that there is a rise in cases against
larger firms and for what seems to be larger damages claims,” he
But Faughnan, whose practice focuses on commercial and
appellate litigation, also added the caveat that this increase may be
based on perception rather than reality. Many such cases are covered
by legal news outlets and online publications, resulting in so much
information being disseminated that readers perceive a rising tide of
legal malpractice cases — but in reality, only the media coverage
Meanwhile, federal regulations, such as the
Sarbanes-Oxley Act of 2002, have mandated better financial
disclosures from corporations to better inform investors and reduce
accounting fraud. Such laws have made life much more difficult for
attorneys as they advise publicly traded companies, he said.
Traditionally, attorneys have tried to maintain client
confidentiality in advising corporations, but new laws require
companies to disclose potentially negative financial information to
the public, adding more tension to the task of representing corporate
clients, Faughnan said.
“It has made it a much more complicated
world for attorneys,” he said.
Faughnan stressed that attorneys
facing legal-malpractice accusations do not have to show their advice
has been perfect — only their best professional judgments in what
can be tough situations. There is no requirement for attorneys to be
perfect, he said.