SANTA CLARA, Calif.--(BUSINESS WIRE)--Judge Mark H. Pierce of the Santa Clara County Superior Court has rejected a request from the accused law firm Simpson, Thacher & Bartlett, LLP to dismiss claims for malpractice, breach of fiduciary duty, fraudulent concealment, and unfair competition against the law firm by its former client, PrediWave Corporation. This is the second time in the last month the defendants have unsuccessfully tried to dismiss the case filed by PrediWave.
PrediWave, a California technology company, alleges that Simpson Thacher lawyers concealed a massive fraud from the company’s board of directors which allowed PrediWave’s former CEO to abscond with tens of millions of dollars in ill-gotten funds.
“We are pleased with Judge Pierce’s decision today denying the defendants’ second attempt in the past month to dismiss the case,” said Steve Owens, an attorney for PrediWave. “It’s clear that Simpson Thacher is desperately trying to avoid a trial in which the law firm’s truly shocking misconduct will be exposed in full.”
Simpson Thacher had asked the Court to dismiss the case in early August, but was rebuffed by Judge Mary Jo Levinger of the Santa Clara Superior Court. The defendants renewed that request today before a different judge, but were again rebuffed. During this morning’s hearing, Judge Pierce stated that PrediWave had stated viable claims for fraud, as well as malpractice, breach of fiduciary duty and unfair competition against Simpson Thacher and two of the partners in the firm.
PrediWave’s complaint outlines how the law firm hired investigators who uncovered a massive fraud scheme being perpetrated by former PrediWave chief executive officer, Jianping “Tony” Qu. But rather than disclose their findings to the company’s board of directors, Simpson Thacher attorneys chose to conceal that information and even obstructed the investigation into Qu’s actions by certain members of PrediWave’s board of directors.
Mr. Qu fled the United States in 2006 after transferring more than $40 million in corporate funds to a bank account in Japan. As a result of Qu’s fraudulent conduct, PrediWave was ruined by a $2.8 billion judgment against it. Mr. Qu remains an international fugitive to this day.
The allegations contained in the amended complaint filed include:
Simpson Thacher attorneys became aware by December 1, 2004 that Mr. Qu was directing PrediWave’s purchase of tens of millions of dollars of memory chips from a shell corporation whose profits were pocketed by Mr. Qu.
Simpson Thacher uncovered evidence showing that delivery records and price quotes from a non-existent Chinese company were falsified, while the memory chips themselves were purchased from a tech firm operating only a few miles from PrediWave’s Fremont headquarters.
Mr. Qu was paid a $25 million bonus in January 2005 while Simpson Thacher sat on the evidence it had gathered regarding his activities.
Simpson Thacher filed a lawsuit in May 2004 preventing two PrediWave directors from reviewing company documents and pursuing an investigation that would have revealed Mr. Qu’s misconduct.
In 2005, Simpson Thacher chose to hire a private investigation firm, not for the purpose of exposing Mr. Qu’s actions, but to determine the probability of the fraud going public. Simpson Thacher never disclosed the results of that investigation to PrediWave’s board of directors.
While serving as PrediWave’s counsel for only little over a year, Simpson Thacher was paid more than $16 million in legal fees. At the same time, Mr. Qu received approximately $25 million in annual bonuses from a company that had recorded no profits.
PrediWave is seeking over $100 million in damages and disgorgement of all legal fees paid by PrediWave to Simpson Thacher.
With the latest demurrer request denied, the case will move to trial. The next scheduled court hearing is on October 1, 2010.