KB Home Hits K&L Gates With $9.4M Malpractice Suit

By Lana Birbrair

Law360, New York (May 7, 2012, 10:30 PM EDT)

Real estate developer KB Home on Friday slapped K&L Gates LLP with a $9.4 million legal malpractice and breach of contract suit in California, alleging the firm mishandled two cases accusing the developer of illegally charging service fees and failing to pay interest on home deposits.

KB Home, along with subsidiary KB Home Mortgage Co., accused K&L and partner Matthew Ball of misrepresenting their ability to handle class actions and failing to adequately represent the company in a suit that ended in a $7.1 million settlement the developer says was avoidable.

In 2008, a woman who had used KB Home's now-defunct subsidiary Homesafe Escrow Co. launched a class action against them in state court, alleging she and others were promised interest on house deposits that they never received and Homesafe had unlawfully provided and charged for escrow services. The company soon was hit with a federal class action as well.

KB Home hired K&L, along with Ball, for both suits based on the firm's assurances that it was especially qualified to handle class-action defense for the homebuilding and financial services industries, according to the complaint.

K&L assured KB Home that class certification in the state suit was likely to be defeated and that the company probably would win a motion for summary judgment, suggesting a reserve of $250,000 to handle the case and failing either to retain a damages expert or to conduct discovery on the plaintiffs' class damages theory, according to the complaint.

Contrary to the attorneys' expectations, the plaintiffs won class certification on most counts and KB Home's motion for summary judgment was denied in full, the suit says.

KB Home then retained Munger Tolles & Olson LLP as lead trial counsel, but by then it was too late, according to the complaint. Because of K&L's errors and omissions, KB Home was forced to pay a "highly inflated settlement" of $7.1 million, plus more than $1 million to Munger Tolles to avoid losing at trial. The company already had paid K&L $1.2 million as well, the complaint states.

KB Home then hired a Harvard Law School professor, as well as the former president of the California Bar, to analyze K&L's handling of the cases. Both concluded that K&L had bungled the cases, especially the state suit, failing to adequately respond to the motion for class certification or plead its motion for summary judgment, according to the complaint.

The suit alleges professional negligence and breach of contract and seeks approximately $9.4 million in damages plus interest.

Representatives for the parties were not immediately available to comment Monday.

KB Home is represented by Don Howarth, Suzelle M. Smith and Padraic Glaspy of Howarth & Smith.

Counsel information for the defendants was not immediately available.

The case is KB Home et al. v. K&L Gates LLP et al., case number BC484090, in the Superior Court of the State of California, Los Angeles County.