Bankruptcy threat was mistake, Southwestern says

After Southwestern Law School’s leadership signed off on an opposition brief, its attorneys made an addition to the document’s introduction, stating erroneously that even a fraction of the plaintiffs’ demands could lead to bankruptcy, a spokesman for the school said Tuesday.

A Notice of Errata was filed Monday morning deleting a reference to bankruptcy from the opposition brief.

However, plaintiffs’ counsel Grant K. Riley of Riley Ersoff wrote in response to questions about the situation Tuesday, “A Notice of Errata does not legally ‘delete’ or ‘erase’ a statement made in a previously filed pleading. Statements of fact in a pleading can and oftentimes constitute a judicial admission by the party filing the subject pleading.”

He said he doesn’t make a practice of reading such notices because they usually “correct typos, dates, and correct minor errors in pleadings.”

“The fact of the matter is that Southwestern’s attorneys concluded that it was necessary and appropriate to file a pleading which threatened bankruptcy on behalf of the school,” Riley wrote.

Steven Lopez, the school’s chief communications officer, wrote in an email earlier Tuesday, “Southwestern Law School is confident the current case will not culminate in bankruptcy. Even if a judgment were entered against Southwestern, the school has resources, including resources unrelated to our academic programs, that could be used to satisfy the judgment.”

“Our solid financial position, prudent management practices, and long-term planning underscore our resilience in the face of challenges. We want to assure our stakeholders, including students, faculty, staff, alumni, and donors, that we are and will remain financially stable,” Lopez wrote.

The statement — that a “even a fraction” of a $25 million judgment for plaintiffs in a personal injury lawsuit would cause the school to go bankrupt — was in the introduction to the law school’s opposition to the plaintiffs’ motion for preferential trial setting. It was signed by Justin H. Sanders of Sanders Roberts LLP and filed on Thursday, Nov. 30.

“We learned about the misstatement via media monitoring on Saturday. Southwestern leadership was shocked and immediately contacted counsel to submit a corrected filing,” Lopez said in an email Tuesday.

“Concerning the original, erroneous filing, our attorneys added the sentence regarding bankruptcy after Southwestern leadership had reviewed the document,” Lopez said in a separate email. “Upon learning of that statement, which was inaccurate, Southwestern worked with counsel to file an amended response early on Dec. 4.”

Sanders did not respond to emailed questions about the matter on Tuesday.

That amended response, filed by Sanders at 9:41 a.m. on Monday in Los Angeles County Superior Court, was a “Notice of Errata,” stating that the previous opposition “contained an error in the introduction.”

The error wasn’t specified. But in the new introduction, the reference to bankruptcy was replaced by a statement that a judgment for the plaintiffs would be appealed.

It now says: “The School is a non-profit educational institution, and Plaintiffs are seeking in excess of $25 million dollars in economic and noneconomic damages, plus attorneys’ fees and punitive damages. If Plaintiffs prevail at trial, the school will undoubtedly appeal and must be afforded a full and complete opportunity to develop its defenses both for trial and for any appeal, if necessary.”

Meanwhile, the plaintiffs’ firm, Riley Ersoff LLP in Beverly Hills, issued a news release bearing the headline: Southwestern Law School Threatens Bankruptcy in Response to Lead Poisoning case.”

It quoted from the original opposition brief: “The school is a nonprofit educational institution and plaintiffs are seeking in excess of $25 million dollars in damages. If a jury were to award plaintiffs even a fraction of that, the school would go bankrupt.”

“That is newsworthy and is an admission that Southwestern’s counsel made on Southwestern’s behalf,” Riley wrote Tuesday.

Several news media outlets, including this one, reported on the bankruptcy reference after checking the original opposition brief in court files, but did not report on the corrected sentence in the Notice of Errata filed early Monday.

“Southwestern may now attempt to disavow the statement but they cannot argue that it was not made on their behalf by a law firm they had approved as their outside counsel and which has been working on the defense of this matter for approximately six (6) months,” Riley wrote Tuesday. “In addition, I do not believe that Southwestern did not know what its attorneys were saying when they filed the opposition to my firm’s clients’ Motion for Trial Preference.”

His reasons, Riley said, were that Southwestern law Dean Darby Dickerson, and General Counsel Julie Xanders have “been intimately involved in the defense of this action.”

“It is common practice for in-house counsel such as Ms. Xanders to review and approve important pleadings filed in high-stakes litigation matters like this one,” Riley continued. “Southwestern had a month to vet the opposition and to approve or disapprove the content of the opposition.”

Riley Ersoff filed the original complaint in the case on behalf of a family of four former tenants of an apartment building owned by the law school. It claims that a toddler in the family had contracted lead poisoning and will need lifetime care. “Unfortunately, given the cost of medical care in this day and age, plaintiffs will be presenting a life care plan to the jury which will be equal to or exceed $25M,” Riley wrote.

The complaint also names property management companies Charles Dunn Real Estate Services and Beach Front Property Management Inc. Carina Castaneda et al. v. Southwestern Law School et al., 23STCV23325, (L.A. Super. Ct., filed Sept. 26, 2023).