Judge Dismisses Millionaire's Malpractice Claim Against Schnader Harrison Over Trust Agreements

A Philadelphia judge has dismissed the legal malpractice claim brought by a Philadelphia multimillionaire businessman against Schnader Harrison Segal & Lewis because the statute of limitations bars the claim.

Plaintiff Raymond G. Perelman, who has made a fortune selling 30 to 50 businesses and building up his interests in manufacturing, mining and finance, sued Schnader Harrison and former Schnader Harrison attorney Vickie J. Waitsman regarding the handling of a business transaction, Philadelphia Common Pleas Senior Judge Albert W. Sheppard Jr. said in an Oct. 4 opinion in Perelman v. Schnader Harrison Segal & Lewis .

In a lawsuit filed in December, Perelman alleges that Schnader Harrison committed legal malpractice in the creation of legal documents on Jan. 24, 1990, that transferred some of his business interests into a trust created on behalf of his son, Jeffrey Perelman, and granddaughter, Alison Perelman, Sheppard said. Schnader Harrison attorney Arlin Adams, the former judge on the 3rd U.S. Circuit Court of Appeals and a family friend, was retained to create the documents, Sheppard said. Waitsman prepared drafts of stock purchase agreements, asset purchase agreements and other legal documents under the direction of other attorneys, Sheppard said. Under the agreements, Jeffrey Perelman and Adams served as trustees.

The elder Perelman argued that the businesses would be transferred to his son's control on the requirements that the father would incur no tax liability, that 50 percent of the business would be placed in a trust so the sole beneficiary would be Jeffrey Perelman's children, and that Jeffrey's wife, Martha Perelman, would renounce all interests in the businesses, Sheppard said.

According to Raymond Perelman's complaint, the trust agreements did not match his intentions, including that Jeffrey Perelman is the primary beneficiary of the trust, that the trust allows for the payment of the trust's principal to Jeffrey during Jeffrey's lifetime, that the trust gives Jeffrey the power to give the trust's principal to his children or to charity upon his death, and that Jeffrey's wife retains some interest in the businesses related to the trust.

Sheppard dismissed Raymond Perelman's legal malpractice claims against Schnader Harrison, as well as against Waitsman, on the pleadings. The judge said the statute of limitations exceptions -- including the discovery rule, which applies when a plaintiff is unable to know of the cause of an injury despite exercising due diligence, and the doctrine of fraudulent concealment, which applies when a plaintiff can obtain an exception to the statute of limitations because a defendant has caused a plaintiff to deviate from his or her right to inquiry -- do not save Raymond Perelman's claims.

His allegations of deficiencies in the legal document appear clearly on the face of the documents, including the identity of the beneficiary of the trust, disposition of the trust's principal and the extent to which Jeffrey Perelman's wife had to renounce her interests, Sheppard said. The legal documents were provided ready to Raymond Perelman in August 1989 and in September 2007, the judge said.

"Raymond is a sophisticated businessman with many years of transaction experience," Sheppard said. "Raymond was capable of reading the documents to determine whether his conditions were set forth within the documents drafted by Schnader. Raymond possessed sufficient critical facts to put him on notice that a wrong had been committed and that he needed to investigate to determine whether he was entitled to redress."

The judge also dismissed Raymond Perelman's claim of breach of fiduciary duty against Waitsman. Waitsman was an associate with Schnader Harrison at the time of the drafting of the legal documents, and in 1994 she became general counsel for JEP Management Inc., the Delaware corporation controlled by Jeffrey Perelman and used to consummate the transfer, Sheppard said.

Schnader Harrison, including Waitsman, obtained a waiver of conflicts of interest from Jeffrey and Raymond Perelman during the transaction that led to the elder's interests being transferred and during the firm's representation of father and son, Sheppard said.

Schnader Harrison's counsel, Abraham C. Reich of Fox Rothschild, said "this was a transaction that occurred decades ago. I think the judge got it right."

Waitsman's counsel, John G. Harkins Jr. of Harkins Cunningham, said that "there is no mystery about the circumstances that existed. He correctly, I believe, ruled that there could be no cause of action."

The legal malpractice counsel for Raymond Perelman, James J. Binns of the Law Offices of James J. Binns, said he does not comment on pending litigation. Counsel for Jeffrey Perelman at Blank Rome could not be reached immediately Monday for comment.

In a related case in which Raymond Perelman sued his son, Jeffrey, Sheppard also ruled last week in Perelman v. Perelman that the father's claims against Jeffrey Perelman are barred because the 12 agreements transferring business interests between the father and the son represent the "'entire contract between the parties'" and are fully integrated agreements. Pennsylvania's strict parol evidence rule bars any other oral representations or written agreements previously made by Raymond or Jeffrey Perelman, Sheppard said.

Raymond Perelman is a 1940 graduate of the University of Pennsylvania's Wharton School of Business, and is the chairman and chief executive officer of Belmont Holdings Corp. and RGP Holdings Inc., Sheppard said.

Both of Sheppard's opinions are being appealed to the state Superior Court.

Other litigation is pending in the U.S. District Court for the Eastern District of Pennsylvania between father and son.

Jeffrey Perelman, of Wynnewood, Pa., sued his father, of Palm Beach, Fla., as well as his brother, Ronald Perelman, of New York, for defamation and for a declaratory judgment last fall.

In Jeffrey Perelman's complaint, he said his father and brother have falsely accused him of fraud related to the transfer of business interests.

Perelman said in the complaint that he was an officer in his father's companies in the 1980s but he left the family companies because of escalating conflicts with his father. The transfer of business interests was negotiated by Adams to "restore tranquility to the family business," the complaint said.

The complaint also said Jeffrey Perelman agreed to pay $27 million to purchase the companies, borrowed $25 million to pay the purchase price, paid off the debt and has grown the value of the companies.

He said that while his father argues the trust was supposed to be established only with Jeffrey Perelman's daughter as the sole beneficiary, such a setup would have triggered the risk of large gift and transfer taxes. Jeffrey Perelman also argued it was never the agreement that his wife was to renounce more than the 50 percent transferred into the trust after its creation.

"Raymond persists ... in claiming that he has the right to dictate -- nearly two decades later, and after he and his retained companies have derived the full benefit of the stock and asset transfers -- a fundamental alteration in the parties' agreements," Jeffrey Perelman's complaint said.

In Raymond Perelman's answer to the complaint, he said he was misled and defrauded by Marsha and Jeffrey Perelman in connection with Marsha's renunciation. The only relief Raymond Perelman says he is seeking is for the establishment of a trust in favor of his granddaughter and the reduction by his daughter-in-law of any interest in those assets.

"Because of his desire to ensure that the wealth that he worked so diligently to accumulate stayed within the Perelman bloodlines, he gave discrete and plain instructions to his son, daughter-in-law, and his law firm regarding the specific goals that he wished to be achieved," Raymond Perelman's answer said. "He relied on their promises that they would properly implement those goals."