Law Firm Accused of Legal Malpractice

Saipan, MARIANAS ISLANDSIt's not often that a legal firm is sued for legal malpractice—yet on March 3, a collection of three families filed a lawsuit in Northern Marianas Superior Court against the law firm of Carlsmith Ball for alleged conflict of interest.


According to the 3/5/10 edition of Pacific Business News, published out of Honolulu, the allegation of legal malpractice stems from the 2004 sale of the Hafadai, a Saipan hotel.

According to the lawsuit, the Tenorio, Guerrero and Borja families—all from Saipan—were minority shareholders in the facility and had been represented over a long period by attorneys with Carlsmith Ball, one of the oldest and largest law firms in Hawaii. Carlsmith Ball also represented Kinki Nippon Tourist Ltd. of Japan, the majority shareholders of the hotel.

While representing both the majority and the minority shareholders, Carlsmith Ball allegedly worked on a reorganization of the hotel that involved selling the shares for less than they were worth.

The international investment firm of Morgan Stanley was negotiating with Kinki Nippon to purchase the property, with Mitsubishi Securities acting as agent for Kinki Nippon for the transaction. The plaintiffs claim that Carlsmith Ball sold them out in an effort to benefit and further the interests of the firm's larger client.

The plaintiffs also claim that Carlsmith's lawyers "pushed through the transaction over the objection of minority shareholders, who they also represented, without disclosing the true facts and circumstances, knowing that the minority shareholders' holdings would be rendered almost worthless by the transaction," according to the terms of the lawsuit.

Carlsmith Ball is accused of legal malpractice, including breach of fiduciary duty, conflict of interest, fraud and professional negligence. The plaintiffs are seeking $25 million in damages.

Carlsmith Ball's managing partners responded to the allegations with a statement published in the Pacific Daily News of Guam. The firm "strongly denies" any wrongdoing, intends to aggressively litigate the claims and expects to prevail at trial.

This isn't the first time the issue has been litigated. An initial lawsuit filed against Kinki Nippon Tourist was dismissed in 2009.

Saipan is the largest island of the United States Commonwealth of the Northern Mariana Islands.