Judge deals Ronald Perelman another blow

FORTUNE -- In a rare and stinging rebuke, a New Jersey judge has sanctioned two respected law firms for improper conduct on behalf of their client, billionaire Ronald Perelman.

Last week, Judge Ellen Koblitz, presiding judge of the Chancery Division for Bergen County, sanctioned Paul, Weiss, Rifkind, Wharton & Garrison and Lowenstein Sandler for filing a "frivolous" and "ridiculous" action against Perelman's in-laws, Robert and James Cohen, the Hudson News magazine and newspaper distribution moguls.

"No competent attorney could have missed the frivolous nature" of this claim, Koblitz wrote. The judge accused Paul, Weiss and Lowenstein of having "crossed the boundary of appropriate litigation tactics."

The firms will likely be ordered to pay an undetermined portion of the Cohens' legal fees, a figure which could be in the millions. The judge said she also might impose additional penalties to "discourage plaintiffs' counsel from engaging in this type of frivolous litigation in the future."

The loss is the eighth in a row for Perelman's camp, which has been defeated in actions before three judges in New Jersey state and federal courts. But Perelman is undeterred. Last week his lawyers filed a similar case in New York surrogate court.

The legal war was initiated in April 2008 by Perelman, acting as his daughter Samantha Perelman's guardian and as executor of the estate of his late ex-wife, Claudia Cohen. Perelman sought to control over half of Robert Cohen's estate, alleging that the Hudson News mogul had more than three decades earlier verbally promised that his daughter, Claudia, and her brother, James, would receive equal shares of his estate. Perelman argued that with Claudia now dead, their only child, Samantha, was entitled to the money. (See also: How Ronald Perelman met his match)

Both Lowenstein and Paul, Weiss plan to appeal.

Brad S. Karp, chairman of Paul, Weiss, defended the firm's conduct. "We firmly believe that the representation we provided our clients throughout this case was appropriate in all respects," Mr. Karp said in a statement to Fortune. Paul, Weiss, one of the nation's preeminent litigation firms, represents Time Warner, which owns this magazine's publisher, Time Inc.

Allen B. Levithan, general counsel for Lowenstein said, "Our only comment is we are obviously disappointed with the court's ruling."

Perelman, the owner of MacAndrews & Forbes Holdings Inc., is the 35th wealthiest man on the planet, according to Forbes, with an estimated net worth of $11 billion. All four of his marriages have ended in divorce. He patched relations with his second wife Claudia Cohen, who died of ovarian cancer in 2007.

Her father, Robert Cohen, suffers from a debilitating neurological disease. He had three children -- two of whom are now deceased -- and has six grandchildren.

Perelman's war against his in-laws was touched off by an attempt by his brother-in-law, James, to buy out his late sister's share of a Florida mansion in 2007. Perelman was aggrieved by the timing of the buyout, coming so soon after Claudia's funeral, and by the price, which he felt was woefully low. (A New Jersey judge later found the price reasonable.)

Family dirty laundry

The squabble quickly turned ugly. In litigation on behalf of his ex-wife's estate, Perelman unsuccessfully attempted to have Robert Cohen declared incompetent, hiring a squadron of medical experts to test his mental capacity.

Judge Koblitz, who found Cohen competent, took aim at the methods of Paul, Weiss litigator, Martin Flumenbaum. Mr. Flumenbaum's examination of Robert Cohen was "harsh and painful," Koblitz wrote. "Flumenbaum's questioning was intended to emphasize Robert's deficiency, disregarding the suffering the questioning caused." (In a legal brief, Paul, Weiss defended Flumenbaum's conduct, noting that even Cohen's lawyer had called Flumenbaum's "table-side" manner "appropriate at all times.")

The judge noted that the suit, which was filed when Perelman's daughter, Samantha, was still a minor, ran counter to Claudia Cohen's wishes that Perelman protect their daughter's relationship with the Cohens.

"The litigation was extremely disruptive to Samantha's relationship with her maternal relatives, including her terminally ill grandfather," Koblitz wrote. Samantha Perelman joined as a party in the suit when she turned 18.

There was some good news last week for Perelman, who was not personally sanctioned. The judge found that there was not sufficient proof that he acted in bad faith, noting that he'd relied on lawyers' advice.

"In her decision, the judge found that Ronald Perelman acted in good faith," said Christine Taylor, a spokeswoman for Perelman, in a statement. "He has always acted in the best interest of the estate and his daughter. Which is why Claudia named him executor."

Robert Cohen was represented by Robert Gold and Mitchell Epner of Wilson Sonsini Goodrich & Rosati. His co-counsel was Christopher Weiss of Ferro Labella & Zucker. James Cohen was represented by Benjamin Clarke of DeCotiis, FitzPatrick & Cole.