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 nosedive.
The case, which is being tried in West Palm Beach according to report on Law 360, had webcast coverage provided by Courtroom View Network.
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.
“In eight days, a company that took 28 years to build was destroyed,” Katzman told jurors.
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to halt its trading on the American Stock Exchange, announce that the company’s current financial statements were no longer valid and call on its CEO to step aside pending a financial investigation.
“This is a case, essentially, that Greenberg is being sued for having done the right thing,” Singer said at the trial.
Eventually, the company was delisted from the Stock Exchange.
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.
“Greenberg 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.
“It 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 said.
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 is growing.
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.