Summary: A group of investors from American Energy-Utica have sued the law firm Duane Morris for hiding a litigation letter from them and then representing them without their consent.
International law firm Duane Morris is being sued for $150 million by a group of institutional energy investors. The investors, Ascent Resources, claim that the firm concealed a litigation demand letter and then pretended to represent the plaintiffs in another case. The outside counsel of the 700-strong law firm denies the allegations.
The background of the case goes as follows. Aubrey McClendon was the co-founder and former CEO of Chesapeake Energy Corporation. He left that company to start American Energy-Utica (AEU) in 2013. For awhile, McClendon was the only member of AEU until a group of investors bought the company from him for $1.7 billion. He was replaced as CEO and the investors controlled 92 percent ownership.
Less than a month after the investors bought the company, McClendon received a letter from Chesapeake, informing him that they were investigating his misappropriation of Chesapeake information. McClendon did not tell AEU about this.
Soon after, one of McClendonâ€™s companies received a demand letter from Chesapeake stating that McClendon has misappropriated trade secrets to benefit himself and his investors. The investors were not notified of this letter by McClendon or his lawyers at Duane Morris. Duane Morris met with Chesapeake, claiming that they were representing McClendon and the investors, which the investors were unaware of. Chesapeakeâ€™s outside counsel requested a list of investors which Duane Morris denied and threatened with litigation if they contacted the investors.
During all this time McClendon was still chairman of the board at AEU. He requested $154 million from the investors for AEUâ€™s operations, which the investors supplied. A month later, Chesapeake sued McClendon and the investors for theft of trade secrets.
The investorsâ€™ attorney, Tony Buzbee, argues that they should have been told of the Chesapeake issue because, had they known, they would not have provided the $154 million. The investors were able to discuss the issue with Chesapeake and were removed from the lawsuit but the damage was already done. The lawsuit had affected AEUâ€™s debt terms and caused problems for them when trying to raise added equity obligations.