CHICAGO -- An Oakland County, Mich., judge yesterday awarded $25.6 million in damages to the Pontiac School District in its legal malpractice lawsuit against bond counsel Miller, Canfield, Paddock & Stone.

Judge John J. McDonald also entered a judgment for interest on the award, which Pontiac's attorney, Dennis Pollard, said could amount to another $10 million by the time all appeals of the case are exhausted.

Meanwhile, a negotiated settlement of the case remains a possibility as "very preliminary discussions" are taking place, according to Pollard.

Thomas Linn, a partner at Miller Canfield, said the law firm will now file post-judgment motions with the Oakland County Circuit Court asking the judge to reduce the amount of the award. The deadline for filing the motions is Aug. 24. Once the firm exhausts its ability to file motions with the Circuit Court, Linn said an appeal of the lower court decision will be made to the Michigan Court of Appeals.

Miller Canfield's attorneys failed in their argument that the formula for calculating the award, which the judge devised this month, was "skewed," and that the award should be reduced to about $22.6 million, according to Linn.

The $25.6 million award -- the largest ever in Oakland County -- came after a jury in late May found Miller Canfield, the district's bond counsel on a 1991 issue, liable on three counts of legal malpractice, including conflict of interest, and awarded the school district damages of $22 million to $28 million.

The district charged that the law firm served as bond counsel on the $54.6 million bond issue at the same time as it represented Kemper Securities Inc., the senior manager, without the district's consent.

The district also charged that Miller Canfield omitted language in the ballot proposal for the bond issue that would have allowed the district to use bond proceeds to purchase land for a bus service and storage facility as the district had intended. In addition, the district claimed that the law firm misinterpreted to the district's detriment the Michigan State School Act of 1979 when the firm helped structure the bond issue.

After McDonald devised the formula for calculating the award, he ordered both sides to submit their proposed awards to the court, based on the formula.

Pollard said the judgment entered in court yesterday allows for interest, currently calculated at 9.1%, on the amount of the award. He said the rate, which will be adjusted every six months and compounded annually, is based on the average interest rate on five-year Treasury notes over that time period, plus two additional percentage points.

Pollard said the two extra points are allowed under Michigan law if a previously offered settlement by the plaintiff is within 110% of the final award in a lawsuit. In the Pontiac case, a settlement of $20 million was offered to and rejected by Miller Canfield before the trial, he said.

However, the settlement issue is not dead. Pollard said that while nothing is "imminent," attorneys for both sides are talking.

Linn declined to comment on the possibility of a settlement. He said, though, that the law firm previously offered a settlement to the district, which rejected the offer. Miller Canfield does not believe the judgment in the case is fair or is supported "by facts of law," he said.

The $25.6 million award,, which Miller Canfield officials have said would be largely covered by insurance, will not be put into the district's hands unless the lawsuit is ultimately resolved in the district's favor, attorneys for both sides said. And that could take years, they said.

Linn said the appeals process could take two to three years.

The case has caught the attention of bond lawyers across the nation.

"Clearly the entire bond community is concerned with this case, particularly because of the magnitude of the awards" said Neil Arkuss, a bond attorney at Palmer & Dodge in Boston and president of the National Association of Bond Lawyers.

Arkuss said attorneys are concerned not only from a monetary standpoint but from the standpoint that they might be engaged in practices alleged in the Pontiac district's lawsuit, such as representing both the issuer and the underwriter in a bond deal.

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