Law firm facing federal malpractice suit

Spokesmen at a prominent law firm, which represents three of the four cities in Henry County, as well as other major government entities, have little comment about a federal lawsuit charging a partner in the firm with malpractice. The suit alleges that the action contributed to the failure of an area bank.

The Federal Deposit Insurance Corporation (FDIC) has sued the firm, and a partner, in the Smith Welch & Brittain law firm over the failure of Neighborhood Community Bank (NCB).

The suit accuses the firm, and one of its partners, J. Mark Brittain, of malpractice in Brittain's handling of loans made NCB to a developer from 2005 to 2007.

The suit claims "the bank hired Brittain to process loan documents for land purchases developer Jeff Grant, and that Brittain had served as a lawyer for Grant. The FDIC is seeking damages of more than $6 million," according to the legal action filed in the U.S. District Court for the Northern District of Georgia, Atlanta Division.

It charges that Smith Welch & Brittain engaged in "professional negligence," while representing NCB in four commercial loan transactions from 2005 to 2007.

"Each of the transactions involved an acquisition and development loan made NCB, to a limited-liability company controlled and owned ... Grant," the suit states. "Each of the loans was used to purchase and develop specific tracts of real property. Grant intended to install streets, utilities and other infrastructure required to develop the land into single-family residential building lots on each property, which he planned to sell to home builders and others."

The suit argues that the law firm committed a breach of its fiduciary duty to the bank. Neighborhood Community failed in 2009, according to the lawsuit.

"The fact that [the] defendants represented Grant and his companies in other matters, did not lessen the standard of care or the fiduciary duty [they] owed NCB, nor did it permit [the] defendants to cut corners with providing protection for NCB," the lawsuit states.

The subject of the suit surfaced in one of the cities represented the firm –– the City of Stockbridge. Smith Welch & Brittain also represents the city governments of Locust Grove and Hampton, as well as the Henry County Water and Sewerage Authority, according to a senior partner, John Webb.

During a special called meeting of the Stockbridge City Council on Feb. 10, the law firm's continued representation of the city was called into question. Stockbridge resident, Richard Steinberg, said Smith Welch & Brittain should not be allowed to represent the city until the FDIC matter is put to rest.

"As long as there is a cloud over the legal firm that represents the city, the law firm should either exclude themselves, or city council should exclude it from doing any city business, until this cloud is removed," Steinberg said.

Stockbridge Councilman Mark Alarcon acknowledged Steinberg's comments, but added that the firm will continue to represent the city –– for now. "To my knowledge, there are no plans to address Smith Welch & Brittain's representation of the city," Alarcon said.

Mayor Lee Stuart added that he is unaware of any official effort to change legal representation.

John Webb, of Smith Welch & Brittain, said he and the other leaders of the firm will address the FDIC complaint in court. "We believe strongly in the judicial system, and we believe in the people's right to have access to the courts to resolve disputes," said Webb. "We look forward to getting this particular dispute resolved, but we cannot discuss specifics under the advice of counsel."

Attorney Christine Mast, who is representing Smith Welch & Brittain in the lawsuit, said Neighborhood Community was to blame for its failure. Mast is confident the firm will be found faultless in the litigation.

"This lawsuit against lawyers who provided transactional services to Neighborhood Community Bank is one of what we believe will be many more actions FDIC, as it seeks to recoup from outside professionals losses resulting from many unwise lending decisions made such banks in the height of the real estate market," said Mast.

"We believe this case to be defensible on a number of levels, and we expect that discovery will reveal favorable evidence to support our defenses."

The lawsuit was filed in federal court Jan. 14, according to FDIC Spokesman Greg Hernandez. He said that since Feb. 7 of this year, the FDIC has authorized suits against 130 individuals for liability, with damage claims totaling approximately $2.6 billion.

"The FDIC also has authorized seven fidelity bond, attorney malpractice, and appraiser malpractice lawsuits," Hernandez said. "In addition, 218 residential malpractice and mortgage fraud lawsuits are pending, consisting of lawsuits filed and inherited."

Hernandez did not comment on the specifics of the suit against Smith Welch & Brittain.

— Staff writer Elaine Rackley contributed to this article.