Pikesville law firm wins over former adversaries

Ernst & Young hires team that led charge against accountant

Legal matters

March 14, 2000|By Mark Guidera | Mark Guidera,SUN STAFF

You would think the blood runs cold between Stephen L. Snyder and the global accounting giant Ernst & Young LLP.

After all, it was the small Pikesville firm of Snyder, Weiner, Weltchek, Vogelstein & Brown that wrestled a record $185 million settlement out of the Big Five accounting firm in April. The case: the high-profile fraud suit against it by the estate of bankrupt clothing chain Merry-Go-Round Enterprises Inc.

But, in another surprise twist in the saga of the collapsed clothier, Ernst & Young has hired Snyder and his 10-attorney firm to recover the $185 million from Swidler, Berlin, Shereff and Friedman LLP, a Washington law firm that served as the clothing chain's legal counsel in its efforts to reorganize under Chapter 11 of the bankruptcy code.

In a lawsuit filed yesterday in Baltimore Circuit Court, Ernst & Young contends that Swidler, Berlin placed the accounting giant at risk by failing to disclose that it served two masters in the failed reorganization effort of the company: namely Ernst & Young and Merry-Go-Round.

Legal experts say that Ernst & Young's selection of Snyder's firm is flattery at its zenith.

"In many ways, this is the highest compliment a lawyer can be paid," said Charles Wolfram, a national authority on legal ethics and civil law, and professor emeritus at Cornell University School of Law.

Other legal experts say it is not unheard of for an attorney to pick up a former adversary as a client as a result of litigation in which the adversarial party loses, and is impressed with the other side's legal counsel.

But often in high-profile corporate cases where large sums of money, reputations and credibility are at stake, emotions can run high. Lawyers representing suing parties can be viewed as demons. And sometimes, say legal experts, they get blacklisted for work by the opposing side. Instead, Snyder and his partners found themselves on the short list of candidates to handle Ernst & Young's action against Swidler, Berlin.

Swidler, Berlin was hired in 1993 by Merry-Go-Round to oversee its effort to restructure under a Chapter 11 bankruptcy proceeding.

According to the suit filed yesterday, the Washington law firm urged Merry-Go-Round to hire Ernst & Young without disclosing the potential conflict of interest it had in conducting legal work for both parties at the same time. In the suit, Ernst & Young argues that by failing to disclose to Merry-Go-Round and the U.S. Bankruptcy Court the potential conflict, Swidler, Berlin deceived the clothing company. Also, Swidler, Berlin didn't live up to its obligation of providing unbiased oversight of Ernst & Young's work for Merry-Go-Round out of fear of losing the accounting firm as a client.

Roger Frankel, managing partner at Swidler, Berlin, did not return phone calls yesterday seeking comment.

Snyder declined to disclose exactly how he and his firm came to be hired by Ernst & Young, which booked $11 billion in revenue last year.

Wolfram at Cornell said what likely occurred was that calm minds at the accounting firm looked beyond the big financial hit they took in the settlement and were impressed by Snyder, Weiner's skill in fashioning a strong case against them and hammering out a tough settlement. Tom Riesenberg, associate general counsel for Ernst & Young, said the firm decided to hire Snyder and his associates, in part, because the firm knows the intricacies of the complex Merry-Go-Round bankruptcy case better than any lawyers in the country.

"They know the case best and did a really good job," for the Merry-Go-Round estate, said Riensenberg.

A good job indeed. The estate now has more than $100 million to settle obligations with creditors in the bankruptcy.

In a January ruling approving Snyder, Weiner's contingency fee in the case -- $71.2 million -- U.S. Bankruptcy Court Judge E. Stephen Derby wrote: "The Ernst & Young litigation was imaginatively conceived, skillfully staged, thoroughly prepared, aggressively pursued, and timely and successfully resolved for the great benefit of MGRE's bankruptcy estate."

Snyder says the firm is ecstatic about landing the case and Ernst & Young as a client.

"It's sort of unusual for this to happen," said Snyder. "Normally this kind of litigation takes its toll and can become very adversarial. I look at it as an honor and a great reflection on the good job we did in the Merry-Go-Round case."

But with a $71 million bonanza in the bank, the obvious question hangs in the air: Why take on any new cases?

"Nothing gives us a greater thrill than high-stakes litigation," said Arnold M. Weiner, Snyder's law partner. "Here we have that with the added element of a very significant new client."

Snyder's record includes the largest medical and legal malpractice judgements in the state ($10.35 million and $12 million respectively) and a $100 million discrimination judgment against a Baltimore cable television provider.

"Its not the economics of it that gets me going," said Snyder.

"[The Merry-Go-Round] case has afforded us opportunities that may not have come to us otherwise," he said. "I don't want to miss out on them. I see myself working at least another 10 years at this."

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