FILED: NEW YORK COUNTY CLERK 01/08/ :00 PM INDEX NO /2018 NYSCEF DOC. NO. 1 RECEIVED NYSCEF: 01/08/2018

Transcription

1 SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK THE RENCO GROUP, INC. 29th One Rockefeller Plaza, Floor Index No. New York, New York Plaintiff, -against- SUMMONS KAYE SCHOLER LLP 55th 250 West Street New York, New York 10019, Date Index No. Purchased: January 8, 2018 PETER HAVELES, JR. 52*¹ 424 East St. New York, New York 10022, -and- -and- ARNOLD & PORTER KAYE SCHOLER LLP c/o Arthur Brown, Registered Agent 55th 250 W. Street New York, New York 10019, Defendants. TO THE ABOVE-NAMED DEFENDANTS: YOU ARE HEREBY SUMMONED to answer the complaint in this action and to serve a copy of your answer upon Plaintiff's Attorneys within 20 days after service of this Summons, exclusive of the day of service itself, or within 30 days after the service is complete if this Summons is not personally delivered to you within the State of New York. In case of your failure to answer, judgment will be taken against you by default for the relief demanded in the complaint. 1 of 32

2 The basis of the venue designated is the principal office of the Plaintiff (One Rockefeller Plaza, New York, NY 10020); and the principal office of Defendant Kaye Scholer LLP (250 West 55* Street, New York, NY 10019), Defendant Arnold & Porter Kaye Scholer LLP (250 West 55* Street, New York, NY 10019), and the residential address of Defendant Peter Haveles, Jr. (424 East 52nd Street, New York, NY 10022), which lie within New York County. See N.Y.C.P.L.R Dated: New York, New York Respectfully submitted, January 8, 2018 KAUFMAN & COMPANY, PLLC /s/ Steven S. Kaufman Steven S. Kaufman (NY Bar # ) Katherine M. Poldneff (NY Bar # ) 420 Lexington Avenue Suite 1440 New York, NY Phone: Fax: Steve.Kaufman@Kaufman-Company.com Kathy.Poldneff@Kaufman-Company.com KAUFMAN, SCHWARTZ & COMPANY, PLLC Christopher Kip Schwartz (NY Bar # ) 1010 Wisconsin Avenue NW, Suite 540 Washington, DC Telephone: (202) Facsimile: (202) Kip.Schwartz@Kaufman-Company.com Counsel to Plaintiff The Renco Group, Inc of 32

3 TO: Defendant Kaye Scholer LLP c/o Arthur Brown 55* 250 West Street New York, New York Defendant Kaye Scholer LLP c/o New York Department of State One Commerce Plaza 99 Washington Avenue Albany, NY Defendant Arnold & Porter Kaye Scholer LLP c/o Arthur Brown 55* 250 West 55 Street New York, New York Defendant Arnold & Porter Kaye Scholer LLP c/o New York Department of State One Commerce Plaza 99 Washington Avenue Albany, NY Defendant Peter Haveles, Jr. 52nd 424 East St. New York, New York and- -and- -and- -and- -and of 32

4 Defendant Peter Haveles, Jr. c/o Pe per Hamilton LLP 8t 37th 620 Avenue, PlOOr New York, New York of 32

5 SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK THE RENCO GROUP, INC. 29th One Rockefeller Plaza, New York, New York FlOOr Index No. Plaintiff, -against- COMPLAINT KAYE SCHOLER LLP 55th 250 West Street (JURY DEMAND ENDORSED HEREON) New York, New York 10019, PETER HAVELES, JR. 52nd 424 East St. New York, New York 10022, -and- -and- ARNOLD & PORTER KAYE SCHOLER LLP c/o Arthur Brown, Registered Agent 55th 250 W. Street New York, New York 10019, Defendants. COMES NOW Plaintiff The Renco Group, Inc. ("Renco" "Plaintiff' or "Plaintiff"), for its complaint against Defendants Kaye Scholer LLP ("Kaye Scholer"), Peter Haveles, Jr. ("Haveles"), and Arnold & Porter Kaye Scholer LLP ("A&PKS", and collectively with Kaye "Defendants" Scholer and Haveles, "Defendants"), hereby states and alleges as follows: NATURE OF THE ACTION 1. This is a legal malpractice action arising from repeated failure to exercise the ordinary reasonable skill and knowledge commonly possessed by a member of the 5 of 32

6 legal profession. Kaye Scholer and Haveles represented Renco in an adversary action in the United States Bankruptcy Court for the Southern District of New York, styled Lee E. Buchwald, as Chapter 7 Trustee for Magnesium Corporation of America and Related Debtor, Renco Metals, Inc., v. The Renco Group, Inc., et al., Adversary Proceeding No , arising from an underlying bankruptcy proceeding in In re Magnesium Corporation of America, et al., Action" Chapter 7 Case No. 01 B (REG) (the "Adversary Action"). On or about December 11, 2013, after the bankruptcy trustee moved to withdraw the reference from the bankruptcy court and such motion was granted, the Adversary Action was then transferred to the United States District Court for the Southern District of New York, No. 13 Civ. 948 (AJN) (the "District Court Action" "Litigation" and, together with the Adversary Action, the "Litigation"). During the course of the Litigation and immediately prior to and after trial, made a series of careless and negligent errors that constituted breaches of the duty of professional care they owed to Renco and ultimately resulted in a finding of liability and an enormous verdict against Renco and its owner and Chairman, Ira Rennert ("Rennert"). "Trustee" 2. Lee Buchwald, as Ch. 7 bankruptcy trustee (the "Trustee"), asserted numerous claims against Renco and Rennert in the Litigation, but, at its core, the Litigation involved fraudulent transfer claims under federal bankruptcy law and fraudulent conveyance claims under New York state law. The Litigation boiled down to one issue: whether two of Renco's subsidiaries-magnesium Corporation of America ("MagCorp") and Renco Metals, Inc. (" "Subsidiaries" â ("Metals", and together with MagCorp, the "Subsidiaries")-were solvent when certain alleged transfers were made. If they were, those transfers of funds were not fraudulent transfers and/or conveyances and the Trustee could not claw them back of 32

7 3. The verdict was inexplicably inconsistent: it declared the subsidiary, from which the funds in question were transferred, solvent under federal fraudulent transfer law but imposed over $117 million in damages (excluding any applicable pre- and post-judgment interest) against Renco and Rennert, under state fraudulent conveyance law that also required a finding of insolvency. More specifically, Interrogatory Nos. 1-3 on the verdict form related to fraudulent transfer under federal law asked three questions directed at whether the Subsidiaries were insolvent at various key points in time. The jury answered "NO" to each question for each of the nine relevant transfer dates, unanimously confirming 27 times that the Subsidiaries were solvent throughout the relevant time period. Accordingly, by law, the transfers were not fraudulent, and the jury awarded no damages on the Trustee's federal fraudulent transfer claims. 4. However, the jury found Renco and Rennert liable for fraudulent conveyances under New York law, even though such claims require the exact same findings of insolvency as under federal law. The Subsidiaries could not be solvent for purposes of the federal fraudulent transfer claims but somehow insolvent for purposes of the New York fraudulent conveyance claims. Yet, that is precisely the inconsistent result the jury found. 5. The jury was able to make such inconsistent findings due to negligence and otherwise careless conduct. Specifically, this inexplicably inconsistent verdict was the result of failure to advocate for proper jury instructions and jury interrogatories contained on the verdict form, and failure to object to the jury instructions and verdict form that allowed for such inconsistent verdicts. Had Defendants not negligently agreed and/or failed to object to the jury instructions and verdict form that allowed for this inconsistent verdict, the jury in the Litigation would have found no liability on both the federal fraudulent transfer claims and the New York fraudulent conveyance claims of 32

8 6. Additionally, Defendants had a chance to allow the jury to correct the inconsistent verdict by raising an objection before the jury was dismissed pursuant to Fed. R. Civ. P. 49(b)(3). After the verdict was read, the Judge repeatedly asked counsel whether they had any objections or issues to raise before the jury was dismissed. Rather than raising an appropriate objection at that time, Defendants, and, specifically, Haveles, responded that counsel saw no reason why the jury should not be dismissed, which resulted in a waiver of the Rule 49(b)(3) objection. Defendants attempted to raise a Rule 49(b)(3) objection after the jury was dismissed in both the courtroom and in post-trial letters and briefing to the Court, but, consistent with controlling law, the Court ruled that Defendants had failed to raise the objection at the appropriate time and, therefore, waived the objection. 7. As a direct result of legal malpractice, Renco suffered damages of over $214 million as more specifically detailed below. PARTIES 8. Plaintiff The Renco Group, Inc. is, and at all relevant times was, a corporation organized under the laws of the State of New York, with its principal office at One Rockefeller Plaza, 29d' Floor, New York, New York Defendant Kaye Scholer LLP is a law firm which manages and conducts business and has its lawyers engage in the practice of law through a limited liability partnership. Kaye Scholer is, and at all relevant times was, a limited liability partnership organized and existing under the laws of the state of Delaware, and registered and authorized to do business in New York. Kaye Scholer's principal executive office is located at 250 W. 55d' Street, New York, New York of 32

9 10. Defendant Peter Haveles, Jr. is an individual residing at 424 East 52nd Street, New York, New York Haveles is licensed to practice law in the state of New York. At all relevant times while Kaye Scholer and Haveles were providing legal services to Renco in connection with the Litigation, Haveles was a partner in Kaye Scholer's New York office. Upon information and belief, Haveles is no longer associated with Kaye Scholer. 11. Defendant Arnold & Porter Kaye Scholer LLP is a law firm which manages and conducts business and has its lawyers engage in the practice of law through a limited liability partnership. A&PKS is a limited liability partnership organized and existing under the laws of the state of Delaware, and registered and authorized to do business in New York. A&PKS was created as a new entity on or about January 12, 2017 through a merger of Kaye Scholer and Arnold & Porter LLP, which was also a law firm which managed and conducted business and had its lawyers engage in the practice of law through a limited liability partnership, but became inactive in New York on or about January 12, 2017, at or about the time of the merger. A&PKS's principal executive office is located at 250 W. 55* St., New York, New York 10019, the same location as Kaye Scholer's New York office. JURISDICTION AND VENUE 12. This Court has jurisdiction over Defendants under N.Y. C.P.L.R. 301 and 302(a) because Defendants are domiciliaries of the State of New York; transact business in the State of New York; and/or otherwise committed tortious acts giving rise to personal jurisdiction over them in New York. Moreover, the Commercial Division has jurisdiction over this action pursuant to 22 NYCRR (a) and (b) because the amount in controversy exceeds $500,000 and the principal claims involve claims of legal malpractice arising out of representation in commercial matters of 32

10 13. Venue is proper in this Court pursuant to N.Y. C.P.L.R. 503 because (i) the principal office of Plaintiff is located in New York County; and (ii) the principal offices and/or residences of Defendants are located in New York County. FACTUALBACKGROUND The Underlying Litigation and Claims at Issue 14. On or about November 2003, the Trustee filed an Amended Complaint against Renco and other corporate and individual defendants, including Rennert, in the Adversary Action. In the Amended Complaint, the Trustee's claims against Renco and Rennert included the following: (1) Fraudulent Transfer under federal bankruptcy law against Renco and Rennert; (2) Fraudulent Conveyance under New York law against Renco and Rennert; (3) Aiding and Abetting Fraudulent Conveyance against Rennert; (4) Breach of Fiduciary Duty against Rennert; and (5) Aiding and Abetting Breach of Fiduciary Duty against Renco and Rennert. 15. The claims set forth in Paragraph 14 above all were based on underlying allegations that fraudulent transfers or conveyances were made from Renco's subsidiaries, Metals and MagCorp, and that Renco and Rennert either made or otherwise aided and abetted such transfers. 16. Kaye Scholer and Haveles represented Renco and Rennert, and provided legal services to Renco and Rennert, in connection with the Litigation. Renco paid Kaye Scholer over $11 million for the legal services Kaye Scholer and its attorneys, including Haveles, provided to Renco in connection with the Litigation. 17. On or about December 11, 2013, the Trustee moved to withdraw the reference from the bankruptcy court, which was granted, and the case was transferred to the United States District Court for the Southern District of New York, and styled In re: Magnesium Corp. of of 32

11 America, No. 13 Civ. 948 (AJN). Haveles advised that it would be frivolous to oppose the motion and, potentially, sanctionable. Insolvency Was the Key Element of the Claims Against Renco and Rennert 18. Insolvency is an element of both the federal claim for fraudulent transfer, defined previously, and the New York claim for fraudulent conveyance, defined previously, alleged by the Trustee against Renco and Rennert in the Litigation. In other words, before Renco or Rennert could be found liable for either the federal or the state claim, the jury had to find that the Subsidiaries, from which the funds were allegedly transferred, were insolvent at the time of the alleged fraudulent transfers or conveyances. 19. There was no dispute among the parties in the underlying Litigation that the solvency standards under both federal bankruptcy law and New York state law were effectively the same for purposes of the Litigation. In other words, the parties agreed that the Subsidiaries could not be found solvent under federal bankruptcy law but insolvent under New York law under the relevant facts. Counsel for the Trustee, as well as Renco and Rennert, represented to the Court multiple times that the solvency standards under both federal bankruptcy law and New York state law were effectively the same for purposes of the Litigation. 20. Specifically, Haveles, on behalf of Renco, represented to the Court in the District Court Action multiple times that there could not be a finding of solvency under the federal fraudulent transfer standard and not the New York fraudulent conveyance standard. The Breach of Fiduciary Duty Claims Also Were Premised on Fraudulent Transfer/Conveyance and, Therefore, on a Finding of Insolvency 21. There was no dispute among the parties in the Litigation that the breach of fiduciary duty claim against Renco and Rennert was predicated on the existence of fraudulent transfers and/or conveyances. In other words, if there was no fraudulent transfer and/or of 32

12 conveyance, there could be no breach of fiduciary duty. Likewise, if there was no finding that the Subsidiaries were insolvent-an â element of the fiaudulent transfer and/or conveyance claims-there could be no breach of fiduciary duty. 22. Both the final jury instructions and verdict form in the District Court Action reflected the parties' agreement that the breach of fiduciary duty claim against Renco and Rennert was predicated on fraudulent transfers and/or conveyances. Specifically, Jury Interrogatory No. 11 on the final verdict form asked the jury whether it found breaches of fiduciary duty only "with respect to any transfer for which you found MagCorp or Renco Metals insolvent or inadequately capitalized...," confirming that breaches of fiduciary duty could only be found if the Subsidiaries were insolvent. 23. Similarly, Jury Instruction No. 16, regarding duties of care and loyalty in connection with the breach of fiduciary duty claim, instructed the jury that "[y]ou will reach this claim only if you conclude that MagCorp or Renco Metals was insolvent or was inadequately capitalized as to a particular transfer." Failure to Object to the Jury Instructions and Verdict Form in the District Court Action 24. In or about December 2014, prior to trial in the District Court Action, the parties each submitted to the Court one set of unified jury instructions for the fraudulent transfer and/or conveyance claims at issue. Likewise, in or about January 12, 2015, the parties in the District Court Action jointly submitted proposed jury instructions, which, again, contained a single set of proposed jury instructions for the fraudulent transfer and/or conveyance claims at issue. 25. On or about January 26, 2015, the Court in the District Court Action provided the parties with the Court's draft set of jury instructions which included separate instructions for the federal fraudulent transfer claim and the New York fraudulent conveyance claim of 32

13 26. Defendants failed to object or provide any additional proposals in response to the Court's proposal for separate jury instructions on the federal fraudulent transfer claim and the New York fraudulent conveyance claim. 27. On or about February 20, 2015, counsel for the parties in the District Court Action, including Haveles, participated in a charging conference with the Court during which the Court asked counsel for the parties whether the Court could give a single instruction for both the federal fraudulent transfer claim and the New York fraudulent conveyance claim, and not separately as to each claim, and urged the parties to simplify the jury instructions by agreeing to a unified instruction. The Court stated: "Make this judge's day and tell me that I only need to instruct the jury for both the state and the bankruptcy law claims on only the bankruptcy law claim." 28. At the charging conference, the Court further asked counsel for the parties whether there was any conflict in the law that would prevent a unified instruction on both the federal fraudulent transfer claim and the New York fraudulent conveyance claim. The Trustee's counsel represented that there was not, stating, "There is no conflict that has any bearing upon the issues in this case." Similarly, Haveles represented that there was no difference that affected the issues in the District Court Action. 29. During the charging conference, the Court also asked counsel for the parties whether a "rational jury" could conclude that "there was a fraudulent conveyance under New York law but not a fraudulent transfer under the bankruptcy code". The Trustee's counsel responded in the negative, confirming that such a split verdict was irrational: "No, your honor...if there was a fraudulent conveyance under New York law, there is a fraudulent transfer under Section 544 of the bankruptcy code for the trustee to recover." of 32

14 30. During the charging conference, the Court proposed multiple times that there should be unified jury instructions on both the federal fraudulent transfer claim and the New York fraudulent conveyance claim so that the jury would only be instructed once. Nevertheless, at the charging conference, Haveles failed to agree to, advocate for, or propose a single, unified set of jury instructions on the fraudulent transfer and/or conveyance claims. Haveles also failed to propose using the same definition(s) of insolvency for both the federal fraudulent transfer claim and the New York fraudulent conveyance claim. Haveles further failed to raise the possibility of potentially inconsistent verdicts with respect to the federal fraudulent transfer claim and the New York fraudulent conveyance claim if the jury was instructed separately on both claims. 31. On or about February 23, 2015, the Court proposed draft jury instructions in which it set forth separate instructions for both the federal fraudulent transfer claim and the New York fraudulent conveyance claim. Defendants, through their counsel Haveles, failed to object to these proposed instructions, including but not limited to at the subsequent February 23, 2015 charging conference; failed to advocate for a single unified set of instructions for both the federal fraudulent transfer claim and the New York fraudulent conveyance claim; and failed to raise the issue that the proposed instructions provided for the possibility of an inconsistent verdict with respect to the federal fraudulent transfer claim and the New York fraudulent conveyance claim. 32. On or about February 25, 2015, the court issued a final set of jury instructions, which, again set forth separate instructions for both the federal fraudulent transfer claim and the New York fraudulent conveyance claim. Defendants, through their counsel Haveles, again failed to object to the final jury instructions; failed to advocate for a single unified set of instructions for both the federal fraudulent transfer claim and the New York fraudulent conveyance claim; of 32

15 and failed to raise the issue that the proposed instructions provided for the possibility of an inconsistent verdict with respect to the federal fraudulent transfer claim and the New York fraudulent conveyance claim. 33. On or about February 23, 2015, the Court proposed a draft verdict form with jury interrogatories. Therein, with respect to the federal fraudulent transfer claim, the verdict form included twenty-seven (27) different jury interrogatories asking the jury whether the Trustee had proven that either of the Subsidiaries were insolvent at various points in time under the applicable definitions of insolvency. However, the proposed verdict form did not include these or any other jury interrogatories regarding insolvency with respect to the New York fraudulent conveyance claim even though insolvency is an element of that claim as well. Additionally, the proposed verdict form also did not cross-reference or link in any way the insolvency interrogatories for the federal fraudulent transfer claim with questions regarding finding liability for the New York fraudulent conveyance claim. 34. Because the proposed verdict form allowed for a finding of solvency in the jury interrogatories on the federal fraudulent transfer claim and, at the same time, a finding of liability for the New York fraudulent conveyance claim, which requires a finding of insolvency as an element of the claim, the proposed verdict form created a possibility of the inconsistent verdict which both parties' counsel represented to the Court was not permitted under applicable law. 35. Defendants, through their counsel Haveles, failed to object to the proposed verdict form, including during the February 23, 2015 charging conference where the verdict form was discussed; failed to propose revisions to the proposed verdict form to account for a potentially inconsistent verdict, such as, for example, any cross-referencing or link between the solvency interrogatories on the federal fraudulent transfer claim and a finding of liability on the New York of 32

16 fraudulent conveyance claim; and failed to raise with the Court the issue that the proposed verdict form provided for the possibility of an inconsistent verdict with respect to the federal fraudulent transfer claim and the New York fraudulent conveyance claim. 36. On or about Feb. 25, 2015, the Court issued a final verdict form with jury interrogatories. Again, therein, with respect to the federal fraudulent transfer claim, the verdict form included twenty-seven (27) different jury interrogatories asking the jury whether the plaintiff had proven that either of the Subsidiaries were insolvent at various points in time under the applicable definitions of insolvency. However, the final verdict form did not include these or any other jury interrogatories regarding insolvency with respect to the New York fraudulent conveyance claim even though insolvency is an element of that claim as well. Additionally, the final verdict form also did not cross-reference or link in any way the insolvency interrogatories for the federal fraudulent transfer claim with questions regarding finding liability for the New York fraudulent conveyance claim. 37. Because the final verdict form allowed for a finding of solvency in the jury interrogatories on the federal fraudulent transfer claim and, at the same time, a finding of liability for the New York fraudulent conveyance claim, which requires a finding of insolvency as an element of the claim, the final verdict form potentially allowed for the inconsistent verdict both parties' counsel represented to the Court was not permitted under applicable law. 38. Again, Defendants, through their counsel Haveles, failed to object to the final verdict form; failed to propose revisions to the final verdict form to account for a potentially inconsistent verdict, such as, for example, any cross-referencing or link between the solvency interrogatories on the federal fraudulent transfer claim and a finding of liability on the New York fraudulent conveyance claim; and failed to raise with the Court the issue that the final verdict of 32

17 form provided for the possibility of an inconsistent verdict with respect to the federal fraudulent transfer claim and the New York fraudulent conveyance claim. The Jury Returned an Inconsistent Verdict 39. On or about February 27, 2015, the jury returned a clearly inconsistent verdict against Renco and Rennert, which included the following findings: (1) No liability against either Renco or Rennert on the federal fraudulent transfer claim; (2) a finding of liability on the New York fraudulent conveyance claims against Renco in the amount of $101,000,000, and against Rennert in the amount of $16,222,000; (3) a finding of liability against Rennert for aiding and abetting fraudulent conveyance in the amount of $16,222,000; (4) a finding of liability against Rennert for both breach of fiduciary duty and aiding and abetting breach of fiduciary duty in the amount of $16,222,000; and (5) a finding of liability against Renco for aiding and abetting breach of fiduciary duty in the amount of $101,000,000, with an additional $1,000,000 in punitive damages. 40. Importantly, with respect to the jury interrogatories regarding insolvency, in the first 27 interrogatories it answered, the jury found twenty-seven -seven (27) separate times that the Subsidiaries were not insolvent at the time of the various transfers at issue. The jury also found that Renco and Rennert were not liable on the federal fraudulent transfer claim because the Subsidiaries were not insolvent at the time of the alleged transfers. Yet, at the same time, the jury inexplicably found that both Renco and Rennert were liable for fraudulent conveyance under New York law even though the state fraudulent conveyance claims also required a finding of insolvency, which the jury explicitly did not find. Additionally, because the final verdict form did not include any jury interrogatories regarding insolvency with respect to the finding of of 32

18 liability on the New York fraudulent conveyance claim, the jury did not explicitly make any insolvency findings with respect to that claim. 41. The jury's verdict was irreconcilable and inconsistent. The Subsidiaries could not be solvent for purposes of the federal fraudulent transfer claim and, at the same time, insolvent for purposes of the New York fraudulent conveyance claim. 42. Additionally, because the breach of fiduciary duty claims were predicated on fraudulent transfers, Renco and Rennert could not have been liable for any claims related to breach of fiduciary duty if the Subsidiaries were found to be solvent and, thus, there were no fraudulent transfers and/or conveyances. In fact, Instruction No. 16 of the final jury instructions explicitly instructed the jury that it should only reach the claim for breach of fiduciary duty "if you conclude that there has been a fraudulent transfer or fraudulent conveyance." 43. Notably, the jury's verdict constituted the result that, at the February 20, 2015 charging conference, both parties' counsel expressly represented to the Court was not possible under applicable law-for â there to be a finding of liability on the New York fraudulent conveyance claim, but no finding of liability on the federal fraudulent transfer claim. 44. But for repeated failure to object or propose revisions to the proposed and final jury instructions and verdict forms, the jury would not have rendered an irreconcilable and inconsistent verdict, and Renco and Rennert would not have been found liable for over $118 million, excluding applicable pre- and post-judgment interest, and over $214 million including such applicable interest. 45. But for repeated failure to raise with the Court the issue that both the proposed and final jury instructions and verdict forms provided for the possibility of an inconsistent verdict with respect to the federal fraudulent transfer claim and the New York of 32

19 fraudulent conveyance claim, the jury would not have rendered an irreconcilable and inconsistent verdict, and Renco and Rennert would not have been found liable for over $118 million, excluding applicable pre- and post-judgment interest, and over $214 million including applicable interest. Failure to Timely Object to the Inconsistent Verdict 46. On or about February 27, 2015, after the verdict in the District Court Action was read at the trial, Haveles represented to Renco that Renco and Rennert had, in essence, won the case because there was a "ninety-five percent (95%)" chance that the inconsistent verdict would be thrown out. However, Haveles never disclosed to Renco or Rennert that under Federal Rule of Civil Procedure 49(b)(3) and applicable law, a party must object to an inconsistent verdict before the jury is discharged, or the objection is waived thus indicating he was unfamiliar with the applicable law. 47. On or about February 27, 2015, after the reading of the verdict, the Judge in the District Court Action asked counsel for the parties three (3) separate times whether there was any reason that the jury could not be discharged. In response to the Judge's questions, Haveles expressly stated, "Not until after you dismiss the jury, your Honor." Indeed, Defendants never objected to or raised any issues with the verdict. As a result, the jury was discharged. Haveles never advised Renco or Rennert that a failure to object prior to dismissal of the jury would waive a Rule 49(b)(3) objection. 48. Immediately after the jury was discharged, Haveles objected to the verdict based on a "dramatic inconsistency" and moved for a mistrial. Haveles stated that the basis of the motion was that the jury's findings in Renco and Rennert's favor on solvency set forth in Interrogatory Nos. 1-3 on the verdict form presented a "radical and irreconcilable inconsistency" of 32

20 in the verdict. The Judge orally denied the motion for a mistrial, noting that just moments earlier the parties had consented to dismiss the jury. Haveles' objection, on its face, was an admission of his lack of understanding of the law requiring such an objection to be made before the jury was discharged. 49. Subsequently, on or about March 3, 2015, Haveles filed a letter with the Court requesting that the Court delay entry of judgment until the parties have had an opportunity to submit briefs addressing the issue of the jury's inconsistent verdict pursuant to Rule 49(b)(3). In the letter, Haveles explained that, as a matter of law, the jury's answers to Interrogatory Nos. 1-3 on the verdict form, in which they found the Subsidiaries solvent under different definitions of solvency under the federal bankruptcy law, "are fundamentally irreconcilable" with the jury's findings of liability against Renco and Rennert on the New York fraudulent conveyance claim (and the related aiding and abetting fraudulent conveyance, breach of fiduciary, and aiding and abetting breach of fiduciary duty claims, which are all predicated on fraudulent transfers and/or conveyances and, therefore, findings of insolvency). Haveles also explained that the instructions given to the jury regarding the federal fraudulent transfer and New York fraudulent conveyance claims would not permit a jury to find insolvency under New York law but not under federal bankruptcy law. 50. On or about March 4, 2015, the Court issued an order, finding that argument for a mistrial on the grounds of an inconsistent verdict under Rule 49(b)(3) was "effectively waived three times over" because Defendants failed to object to the allegedly inconsistent verdict prior to the dismissal of the jury even though the Court provided Defendants with three (3) express opportunities to do so. The Court also found that Defendants consented to both the jury instructions and verdict form that required the jury to consider fraudulent of 32

21 conveyance defined differently under New York law even if they did not find insolvency under federal law and, in fact, argued at the charging conference that there were material differences between federal bankruptcy law and New York law such that the Court was correct to charge the jury separately on the elements of both claims. Importantly, when explaining its findings, the Court stated that to preserve objections to the verdict form itself, "a party must object before the jury has retired to deliberate." 51. Subsequently, on or about April 20, 2015, Defendants, on behalf of Renco and Rennert, filed a Memorandum of Law in Support of a Motion for Judgment as a Matter of Law or New Trial Under Federal Rules 50 and 59. In that Memorandum, Defendants again raised the issue of the inconsistent verdict, arguing that it was a "compromise verdict" and requesting that the Court order a new trial. Defendants again argued that the applicable solvency definitions under federal bankruptcy and New York law are "materially identical" and "identical in substance," and that "at no point did anyone suggest...that the Debtors could meet one definition but not the other." 52. On or about August 19, 2015, the Court issue a post-trial order, rejecting "compromise verdict" argument as a mere attempt to sneak their prior argument pursuant to Rule 49(b)(3), which had already been waived, "through the back door." The Court further found that (a) Defendants agreed to the jury instructions and verdict form that required the jury to consider the fraudulent transfer claim under federal bankruptcy law and the fraudulent conveyance claim under New York law separately; (b) Defendants intentionally forewent raising the possibility of inconsistent verdicts until immediately after the jury had been dismissed, â making it impossible to allow the jury to resolve any alleged inconsistency-"a task that the Court has every confidence the jury could readily have performed"; and (c) to allow Defendants of 32

22 to entertain their objection to the inconsistent verdict under the guise of alleging a "compromise verdict" would "undermine the Second Circuit's clear waiver rule for inconsistent verdict claims." 53. As a result of waiver of the proper inconsistent verdict objection pursuant to Rule 49(b)(3), Renco and Rennert were not permitted to appeal the District Court's ruling regarding the inconsistent verdict. Renco and Rennert ultimately filed an appeal with the United States Court of Appeals for the Second Circuit, arguing, inter alia, under a separate legal theory, that the jury had reached an improper "compromise verdict." In an opinion issued on or about March 8, 2017, the Second Circuit rejected Renco and Rennert's argument regarding the "compromise verdict" and concurred with the trial court, finding that the true issue was that of an inconsistent verdict under Rule 49(b)(3) which Defendants had waived by failing to timely object prior to dismissal of the jury as required by clear, governing Second Circuit law. The Second Circuit explicitly found that Renco and Rennert "concede that they failed to raise a timely inconsistency challenge," and concurred with the trial court that "defendants cannot pursue a compromise-verdict claim because that would 'sneak [a waived inconsistency claim] in through the back door.'" (Quoting the trial court). 54. As a direct result of waiver, Renco did not have the opportunity to go back to the jury to allow it to fix the inconsistency in the verdict based on further instructions from the Judge on solvency and how the predicate solvency findings reflected in the jury interrogatories must be applied to the subsequent claims of fraudulent conveyance under New York law (and aiding and abetting fraudulent conveyance), as well as breach of fiduciary duty (and aiding and abetting breach of fiduciary duty) of 32

23 55. An attorney acting in accordance with the requisite standard of care would not have made the decision not to challenge a clearly inconsistent verdict prior to dismissal of the jury, thereby waiving such a challenge, especially in light of a jury verdict in excess of $118 million, exclusive of pre- and post-judgment interest. 56. But for failure to timely object to the inconsistent verdict, Renco and Rennert would not have been found liable on any claims in the District Court Action because the jury would have been sent back to eliminate the inconsistency in the verdict, which they would ' ' ' '«hh»' «' have done by making it consistent with the 27 interrogatories it answered finding twenty-seven %' b'ch«' ' (27) separate times that the Subsidiaries were not insolvent or inadequately capitalized at the times of the transfers. 57. But for failure to timely object to the inconsistent verdict, Renco and Rennert would not have been found liable in excess of $118 million, excluding applicable preand post-judgment interest, and over $214 million including such interest. Renco and Rennert Appealed the Inconsistent and Illogical Verdict to Attempt to Mitigate Their Damages 58. As a result of failures and their providing negligent legal services to Renco and Rennert as set forth herein, in or about October 2015, Renco and Rennert appealed to the United States Court of Appeals for the Second Circuit in order to attempt to mitigate their damages and to have the inconsistent and illogical verdict rendered against them in the District Court Action overturned. On or about March 8, 2017, the United States Court of Appeals for the Second Circuit rejected Renco and Rennert's appeal, affirming the District Court's judgment. 59. Subsequently, on or about August 9, 2017, Renco and Rennert filed a Petition for Certiorari with the Supreme Court of the United States, in order to attempt to mitigate their damages and to have the inconsistent and illogical verdict rendered against them in the District of 32

24 Court Action overturned. On or about October 10, 2017, Renco and Rennert's Petition for Certiorari to the Supreme Court of the United States was denied. 60. But for failures and their providing negligent legal services as set forth herein, which caused the inconsistent and illogical verdict against Renco and Rennert, Renco and Rennert would not have had to incur the significant expenses, including attorneys' fees and costs, associated with either their appeal to the United States Court of Appeals for the Second Circuit, or their Petition for Certiorari to the Supreme Court of the United States. Kaye Scholer and Haveles Withdrew as Counsel for Renco and Rennert 61. Renco, through undersigned counsel, notified Kaye Scholer regarding the potential assertion of legal malpractice claims against it on or about October 2, 2015, by letter. 62. Kaye Scholer responded in a letter dated October 8, 2015, in which it resigned from the representation of Renco in the underlying litigation "[i]n light of [Renco's] position as set forth in the October 2nd letter"; advised Renco of its intent to formally withdraw as counsel in the proceedings; and further stated that it had retained counsel. Kaye Scholer and Its Attorneys' s' Attorne Pattern of Careless Conduct and Errors During the Course of the Underlying Litigation 63. Throughout the course of the Litigation, Kaye Scholer attorneys, including but not Attorneys" limited to Haveles ("Kaye Scholer Attorneys"), repeatedly failed to exercise the ordinary reasonable skill and knowledge commonly possessed by members of the legal profession. These failures constituted a pattern of reckless and careless and negligent behavior and poor judgment that put its client in legal jeopardy. Kaye Scholer Attorneys' failure to protect Renco's and Rennert's interests during the course of the Litigation included failing to: (1) move for a directed verdict during trial or otherwise seek dismissal of the fraudulent transfer or conveyance claims on the basis of insufficient evidence to support a finding of insolvency as to any of the transfers of 32

25 that occurred prior to July 31, 1996; (2) timely raise statute of limitation defenses so that they could be considered on their merits by the Court; (3) raise the affirmative defense of ratification in connection with claims of fraudulent transfer/conveyance; (4) move for a directed verdict in Rennert's favor as to the fraudulent conveyance claims where it was clear that no transfers were made to Rennert such that he could be considered a transferee; and (5) object to a jury trial on all issues in the Litigation when certain claims should not have been submitted to a jury for determination. COUNT ONE (against all Defendants) LEGAL MALPRACTICE - JURY INSTRUCTIONS AND VERDICT FORM 64. All preceding paragraphs of this Complaint are incorporated herein by reference. 65. Defendants had an attorney-client relationship with Renco and Rennert. Defendants represented Renco and Rennert in the District Court Action. 66. In the District Court Action, Defendants repeatedly failed to: (a) advocate for or propose proper jury instructions; (b) advocate for or propose a unified set of jury instructions for both the federal fraudulent transfer claim and the New York fraudulent conveyance claim, even when the Court proposed such a unified set of instructions; (c) seek a uniform instruction on insolvency for both the federal fraudulent transfer claim and the New York fraudulent conveyance claim; (d) object to both the proposed and final jury instructions on the federal fraudulent transfer and New York fraudulent conveyance claim, including because the proposed and final jury instructions allowed for the possibility of an improper, inconsistent verdict; and (e) raise the issue with the Court that both the proposed and the final jury instructions provided for of 32

26 the possibility of an inconsistent verdict with respect to the federal fraudulent transfer claim and the New York fraudulent conveyance claim. 67. In the District Court Action, Defendants repeatedly failed to: (a) object or propose revisions to the proposed and final verdict forms, including because the proposed and final verdict forms did not cross-reference or link in any way the insolvency interrogatories for the federal fraudulent transfer claim with questions regarding the finding of liability for the New York fraudulent conveyance claim; (b) propose or advocate for a verdict form that did not allow for an inconsistent verdict on the federal fraudulent transfer claim and the New York fraudulent conveyance claim; and (c) raise the issue with the Court that both the proposed and the final verdict forms provided for the possibility of an inconsistent verdict with respect to the federal fraudulent transfer claim and the New York fraudulent conveyance claim. 68. By engaging in the conduct set forth above in Paragraphs 66 and 67, Defendants failed to exercise the ordinary reasonable skill and knowledge commonly possessed by a member of the legal profession, and otherwise fell below the standard of care owed to Renco and Rennert. 69. But for negligent legal services as described herein, the final jury instructions and verdict form would not have permitted a finding of liability against Renco and Rennert for fraudulent conveyance under New York law after the jury had already found the Subsidiaries solvent 27 separate times. 70. But for negligent legal services as described herein, Renco and Rennert would not, therefore, have been found liable at trial in the District Court Action on the federal fraudulent transfer claim, the New York fraudulent conveyance claim, aiding and abetting the New York fraudulent conveyance claim, the breach of fiduciary duty claim, or the aiding and abetting breach of fiduciary duty claim, for a total damages award of over $ of 32

27 million, excluding pre- and post-judgment interest. All of these claims required a factual finding that the Subsidiaries were insolvent or inadequately capitalized as to a particular transfer, but the jury explicitly found that the Subsidiaries were solvent and adequately capitalized as to all relevant transfers at issue. 71. negligent legal services as described herein proximately caused Renco and Rennert to sustain actual and ascertainable damages in the amount of over $214 million, including pre- and post-judgment interest. COUNT TWO (against all Defendants) LEGAL MALPRACTICE - FAILURE TO OBJECT TO INCONSISTENT VERDICT 72. All preceding paragraphs of this Complaint are incorporated herein by reference. 73. Defendants had an attorney-client relationship with Renco and Rennert. Defendants represented Renco and Rennert in the District Court Action. 74. On or about February 27, 2015, the jury returned an inconsistent verdict against Renco and Rennert, which included the following findings: (1) No liability against either Renco or Rennert on the federal fraudulent transfer claim; (2) a finding of liability on the New York fraudulent conveyance claims against Renco in the amount of $101,000,000, and against Rennert in the amount of $16,222,000; (3) a finding of liability against Rennert for aiding and abetting fraudulent conveyance in the amount of $16,222,000; (4) a finding of liability against Rennett for both breach of fiduciary duty, which required a finding that MagCorp or Renco Metals was insolvent or inadequately capitalized, and aiding and abetting breach of fiduciary duty in the amount of $16,222,000; and (5) a finding of liability against Renco for aiding and abetting of 32

28 breach of fiduciary duty in the amount of $101,000,000, with an additional $1,000,000 in punitive damages. 75. With respect to the jury interrogatories regarding insolvency, in the first 27 interrogatories it answered, the jury found twenty-seven -seven (27) separate times that the Subsidiaries were not insolvent or inadequately capitalized at the time of the various transfers at issue. Accordingly, the jury could not find Renco and Rennert liable on the federal fraudulent transfer claim. Yet, at the same time, the jury inexplicably found that both Renco and Rennert were liable for fraudulent conveyance under New York law even though the state fraudulent conveyance claims also required a finding of insolvency or inadequate capitalization, which the jury explicitly did not find. 76. In the District Court Action, Defendants failed to object to the inconsistent verdict rendered by the jury after the reading of the verdict but prior to the dismissal of the jury. 77. failure to object to the inconsistent verdict prior to the dismissal of the jury constituted a waiver of the objection. As a result of this waiver, the trial court found that the jury could not remedy the inconsistent verdict, nor could Renco and Rennert appeal on the basis of the inconsistent verdict. 78. failure to object to the inconsistent verdict prior to the dismissal of the jury constituted a failure to exercise the ordinary reasonable skill and knowledge commonly possessed by a member of the legal profession, and otherwise fell below the standard of care Defendants owed to Renco and Rennert. 79. But for negligent failure to object to the inconsistent verdict prior to dismissal of the jury, Renco and Rennert would not have been found liable at trial in the District Court Action on the federal fraudulent transfer claim, the New York fraudulent conveyance of 32

29 claim, aiding and abetting the New York fraudulent conveyance claim, the breach of fiduciary duty claim, or the aiding and abetting breach of fiduciary duty claim, for a total damages award of over $118 million, excluding pre- and post-judgment interest. All of these claims required a factual finding that the Subsidiaries were insolvent or inadequately capitalized as to a particular transfer, but the jury explicitly found that the Subsidiaries were solvent and adequately capitalized as to all relevant transfers at issue, thereby reaching an inconsistent verdict. 80. negligent failure to object to the inconsistent verdict prior to dismissal of the jury proximately caused Renco and Rennert to sustain actual and ascertainable damages in the amount of over $214 million, including pre- and post-judgment interest. COUNT THREE (against all Defendants) FORFEITURE 81. All preceding paragraphs of this Complaint are incorporated herein by reference. 82. Defendants had an attorney-client relationship with Renco and Rennert. 83. Defendants repeatedly failed to exercise the ordinary reasonable skill and knowledge commonly possessed by a member of the legal profession, including by, but not limited to, failure to: (a) advocate for proper jury instructions and verdict form; (b) object to the proposed and final jury instructions and verdict forms; and (c) raise an objection to the inconsistent verdict before the jury was dismissed pursuant to Federal Rule of Civil Procedure 49(b)(3) (even after the Judge repeatedly asked counsel whether they had any objections or issues to raise before the jury was dismissed) and, thereby, waived the Rule 49(b)(3) objection of 32