Legal Malpractice Trial Against McCarter & English: Accountability For $21.3 Million Losses

A legal malpractice trial is set to commence on June 29 in Hartford Superior Court, scrutinizing whether McCarter & English is accountable for approximately $21.3 million in losses connected to two decade-old loans from New York. The plaintiffs, PHL Variable Insurance Co. and Phoenix Life Insurance Co. (now Nassau Life Insurance Co.), contend that the firm and one of its attorneys, James Scantling, failed to secure a legally binding guarantee from a Long Island municipality, impairing the insurers' capacity to recover funds after borrower defaults.

This case gains prominence as PHL has been under state-supervised rehabilitation since May 2024 due to a significant $900 million capital deficit, now overseen by Connecticut’s insurance commissioner. The Connecticut Insurance Department has indicated that successful recoveries from this litigation could bolster the PHL estate, potentially aiding in the settlement of policyholder claims. PHL's claim in the lawsuit amounts to $8.9 million.

Unlike PHL, Phoenix Life, now rebranded as Nassau Life, remains privately held and has not entered rehabilitation. The loans were facilitated in 2011 and 2012 via NDH Capital Corp. to ventures led by restaurateur Harendra Singh, who managed concessions at Town of Oyster Bay properties in New York. The insurers' willingness to extend these loans relied heavily on the town's repayment assurance, necessitating an unequivocal guarantee through a documented town-board resolution as required by New York law.

In 2015, defaults prompted Oyster Bay to refuse loan repayment, with courts ruling the town's commitments as unenforceable. This led to a corruption scandal, culminating in bribery convictions of several Oyster Bay officials linked to Singh. The insurers are now seeking accountability from the attorney involved, alleging McCarter & English failed to secure the town guarantee, neglecting due diligence in assessing New York municipal law, thus resulting in nullified guarantees.

McCarter & English disputes these claims, stating that attorney Scantling, though adept in Connecticut transactions, was not licensed to practice in New York, and the town's legal pledges were beyond his jurisdiction. The firm highlights that the insurers mandated legal opinions from Oyster Bay attorneys to ascertain proper authorization and enforceability. Furthermore, the firm challenges the validity of the claims, citing the statute of limitations and asserting that reported losses were overstated and arose from Oyster Bay officials' misconduct.

Previously, Judge Cesar Noble rejected a dismissal attempt, identifying unresolved factual issues warranting trial deliberations. The insurers seek nearly $21.3 million, representing both the unpaid loans and their anticipated income potential. The trial, presided by Judge John Farley, will continue through July 10. Representing the insurers are David Golub and Jonathan Levine of Silver Golub & Teitell, while Timothy Diemand and Joshua Taylor of Wiggin and Dana defend McCarter & English and Scantling. No comments have been issued by either firm on the ongoing litigation.