Peterson v. Katten Muchin Rosenman LLP

Dist. Ct. erred in dismissing for failure to state viable claim plaintiff-Trustee’s action alleging that defendant-law firm committed legal malpractice by failing to advise now insolvent investment fund to seek additional protections when lending fund’s money to third-party, who used said funds for improper Ponzi scheme and by failing to advise fund of possibility that third-party was committing fraud. Dist. Ct. improperly analyzed motion to dismiss from viewpoint of defendant and failed to address plaintiff’s main contention that defendant failed to alert fund that there was increased risk in allowing third-party to repay loan through himself rather through direct payment from more secure entity. Ct. rejected proposition that transaction lawyer never needs to supply client with legal information that affects degree of business risk associated with particular transaction and instead found that said lawyer must tell clients which different legal forms are available to carry out client’s business, and how any risks of that business differ with different legal forms.