Ventas expects 2005 court date in $186m suit against law firm.

A 2005 court date is expected to be set for the trial between healthcare real estate trust Ventas Inc. and Sullivan & Cromwell, one of the nation's largest and most prominent law firms. The case is in the discovery phase.

In the suit, originally filed in June 2002 and discussed publicly during the company's second quarter 2004 earnings conference call in August, Ventas alleged acts of legal malpractice and conflicts of interest by the firm. Ventas alleged the firm's "incompetent and negligent" legal services cost the Louisville, Ky.-based company $80 million following the company's spin-off of Kindred Healthcare in 1998, as well as $100 million in related transactions before the deal and $6 million in allegedly unauthorized legal fees to Sullivan & Cromwell.

Debra Cafaro, Ventas's chair, president and chief executive officer, said the REIT asked for prejudgment interest and punitive damages in an amount to be determined by a jury in its suit filed in the Superior Court of the District of Columbia.

The D.C. Superior Court has denied all motions by Sullivan & Cromwell to dismiss the case, Cafaro said. She did not explain why the REIT waited two years to publicly discuss the suit, other than that all attempts at dismissal failed.

"We are aggressively pursuing our claims in the litigation, (but) we cannot give you any guidance whatsoever about how this matter will turn out, or when it will be fully and finally resolved," Cafaro said.

Sullivan & Cromwell's legal counsel, Ted Wells of Paul Weiss Rifkind Wharton and Garrison in New York City, said his client denies any wrong-doing in the case. "The legal services Sullivan & Cromwell provided in this matter were perfectly proper," Wells said. "The plaintiff's claims are totally groundless and without merit."

According to the lawsuit, Sullivan & Cromwell represented Ventas in 1998--then known as Vencor--during its plans to spin off its long term care business. But Sullivan & Cromwell also represented what would become Kindred Healthcare, creating a conflict of interest.

"Sullivan & Cromwell took on the role of counsel for both companies, essentially negotiating with itself regarding matters of the utmost importance to the future of both companies," the lawsuit stated.

This "clear violation of the applicable rules of professional conduct" prohibited the firm from charging Ventas $6 million in legal fees, yet the firm demanded--and received--payment anyway, according to the suit.

Sullivan & Cromwell also failed to properly advise Ventas on how to properly transfer $750 million in bonds required to ensure the Kindred spin off would be completed by May 1, 1998, according to the suit. This ultimately cost Ventas $100 million, according to the suit.

Kindred went into debt reorganization during 1999, alleging that Ventas had improperly burdened the LTC provider with too much debt during the spin-off deal. Ventas was unable to refute the claim because Sullivan & Cromwell would not provide necessary records, an action that ultimately cost Kindred $80 million, according to the suit.

Sullivan & Cromwell has an established reputation of being a well-regarded law firm. A 2004 survey by BTI Consulting Group ranked the firm in the top five for client service, including advising clients on business issues, keeping clients informed, handling clients' needs and dealing with unexpected changes.

But any group can end up in court no matter how solid its reputation is, according to Steven Krane, an attorney with Proskauer Rose, a New York City law firm that represents attorneys who are sued.

"This sounds like a fairly typical malpractice suit," Krane said of the Ventas-S&C case. "It's not unusual for former clients to sue their lawyers when deals go sour."