Bressler Risk Blog

“Willkie Removal in Bankruptcy Case Is Lesson in Ethics’ Limits” —

• “Willkie Farr & Gallagher LLP’s disqualification as bankruptcy counsel for brand manager Franchise Group Inc. is a lesson for Big Law firms that ethical walls and conflicts counsel won’t always solve larger issues over impartiality.”
• “The ruling from Judge Laurie Selber Silverstein of the US Bankruptcy Court for the District of Delaware severing a large company from its preferred Chapter 11 counsel is rare, but it signals to other law firms that building in ethical walls much earlier is key to keeping their lucrative debtor counsel positions.”
• “Willkie’s prior work with Franchise Group’s ex-CEO Brian Kahn and investment adviser B. Riley Financial Inc. on various matters that have become central to the bankruptcy raised conflict concerns that ultimately doomed its role in the case. The heart of the bankruptcy surrounds claims related to a soured 2023 take-private transaction involving all three parties.”
• “Silverstein’s ruling shows that ethical walls are fine if they’re put in place before there’s a problem, said Nancy Rapoport, a University of Nevada, Las Vegas law professor. But not afterward.”
• “‘Law firms have to think proactively every time they take on a new matter whether there is a risk that representing one client will cause the firm to want to pull its punches on behalf of a different client,’ Rapoport said.”
• “Franchise Group, which operates companies like Pet Supplies Plus, Vitamin Shoppe, and Buddy’s Home Furnishings, filed for bankruptcy in November 2024. It siloed four separate groups of Willkie attorneys from one another as they handled interactions involving the company, Kahn, and B. Riley, but there were staffing overlaps, Silverstein noted.”
• “‘What I hope is that this case sends up a flare that warns large law firms that ethical walls need to be put up sooner rather than later,’ London said.”
• “The Justice Department’s bankruptcy watchdog and a lender group argued that Willkie’s prior work for Kahn and B. Riley rendered the firm too conflicted to represent the company in bankruptcy. Kahn led Franchise Group in the controversial take-private deal worth about $2.6 billion that also involved B. Riley, which acquired a stake of about 31%.”
• “Wood pellet maker Enviva Inc. faced a similar conflict situation last year. Vinson & Elkins LLP was prevented from becoming bankruptcy counsel by a judge in the US Bankruptcy Court for the Eastern District of Virginia despite saying it had built ethical walls for its attorneys.”
• “The ruling also highlights that even with conflicts counsel in place, big issues like negotiating a bankruptcy plan is a core function of main counsel, Rapoport said. Conflicts counsel—lawyers brought in to handle smaller matters that lead counsel is conflicted out of—is intended to deal with a need for the ‘person-power’ of Big Law in major bankruptcies, she said.”
• “Large law firms represent so many clients that it’s impossible to find one that doesn’t have any conflicts, she said.”
• “‘What I’ve been seeing, starting with really broad advance conflicts waivers and continuing in cases like this one, is a Big Law philosophy that ethics rules can be finessed by client agreement alone,’ Rapoport said. ‘I’m seeing a trend toward pretending that conflicts aren’t a ‘thing’ for lawyers to worry about any more, and that troubles me.'”
• “Lawyers are subject to both the statutory rules in the bankruptcy code, the ethical rules governing lawyer conduct from the American Bar Association, and Delaware’s rules of professional conduct, she said.”
• “‘Interpreting these rules is like unpacking a colorful set of Russian nesting dolls, only to find that the center isn’t there,’ London said. ‘It’s empty.'”

“Proskauer Fights Another DQ Bid In NJ Hospital Antitrust Suit” —

• “A New Jersey federal magistrate judge was right to allow Proskauer Rose LLP to continue as counsel for RWJBarnabas Health Inc. since the firm’s prior advice to CarePoint Health on its use of COVID-19 relief funds is unrelated to the antitrust lawsuit currently playing out between the two companies, according to the firm.”
• “Proskauer Rose’s 2020 advice to CarePoint regarded only CarePoint’s use of Coronavirus Aid, Relief, and Economic Security Act funds. But the current dispute between CarePoint and RWJBarnabas has nothing to do with the CARES Act, the firm told a New Jersey federal court Tuesday.”
• “CarePoint also waived any conflict, first when it retained Proskauer Rose to advise it on its use of CARES Act funds and then again when it gave its consent to the firm’s representation of RWJBarnabas at the beginning of the antitrust litigation. Its two-year delay in raising the issue since also waives the conflict, according to the firm.”
• “So U.S. Magistrate Judge Cathy L. Waldor was right when she denied CarePoint’s effort to disqualify the firm and her ruling should stand, Proskauer Rose said in a brief in opposition to CarePoint’s appeal of Judge Waldor’s ruling.”
• “‘[N]ot only did CarePoint waive the conflict at the outset, this case has nothing to do with the CARES Act. Judge Waldor got it right. CarePoint’s motion is a litigation tactic, pure and simple,’ Proskauer Rose said.”
• “CarePoint sought to disqualify Proskauer Rose as counsel to RWJBarnabas in August, saying the firm’s prior representation of CarePoint related to CARES Act funds necessitates the firm’s ouster from the case.”
• “During the course of the antitrust litigation, more information has been revealed demonstrating further levels of involvement on the part of Proskauer Rose in CarePoint’s finances than the company was previously aware of, CarePoint argued in calling for the firm’s disqualification.”
• “And RWJBarnabas’ defense strategy of arguing that CarePoint’s financial difficulties stem from its founders’ extraction of cash from their hospitals rather than Barnabas’ alleged anticompetitive conduct has increased the relevance of the firm’s prior representation, according to CarePoint.”
• “Judge Waldor rejected those concerns and refused to disqualify the firm in December, when she said the present case wasn’t substantially related to work the law firm previously did for CarePoint.”
• “CarePoint has said the magistrate judge erred and asked the court to hear its disqualification motion de novo. But that’s the wrong standard, according to Proskauer Rose, which said that findings of fact and mixed questions of fact and law can only be reviewed for clear error.”
  “And disqualification decisions can only be reversed over an abuse of discretion, the firm added.”
• “CarePoint also argued in its appeal of Judge Waldor’s ruling that the magistrate judge used the ‘wrong standard’ in reaching her decision. The judge should have used New Jersey Supreme Court jurisprudence that found a waiver of conflict is appropriate only in ‘extraordinary circumstances,’ according to CarePoint.”
• “But Judge Waldor isn’t bound by those state Supreme Court cases, Proskauer Rose countered Tuesday. And even if extraordinary circumstances were required in order to find that CarePoint waived the conflict, Judge Waldor found that CarePoint’s two-year delay in raising the issue qualifies as extraordinary, the firm pointed out.”

And the latest from Bill Freivogel:

• In re Elna Medical Group Inc., 2025 QCCS 370 (CanLII) (Que. Super. Ct. Feb. 12, 2025).
  • This is a proceeding under the Canadian federal Companies’ Creditors Arrangement Act (“CCAA”). Elna is the primary debtor. The court has raised the issue of Law Firm’s representation of the monitor (“Monitor”) while representing other parties interested in the proceeding, including bidders in the Sale and Investment Solicitation Process (“SISP”).
  • Monitor has described various steps Law Firm has taken to guard the loyalty and confidentiality of various, some adverse, parties. However, the court expressed concern Law Firm is advising Monitor on the efficacy of these steps. The court requested Monitor to obtain from a law firm other than Law Firm to ensure Law Firm’s measures do not “compromise the integrity of the SISP and the judicial system.”
• Perry v. Monaco, 2025 WL 460804 (S.D.N.Y. Feb. 10, 2025).
  • In denying class certification, the court held a lawyer could not be both class representative and class counsel, citing Second Circuit authorities.
• Sniper Pressure Servs. Ltd v. Northbridge Gen. Ins. Co., 2025 ABKB 77 (CanLII) (Ct. K.B. Alb. Feb. 11, 2025).
  • Insured’s roof collapsed. InsCo paid Insured for the loss and has commenced a subrogation action against the tortfeasors. Insured brought this action against InsCo for additional amounts Insured says InsCo owes Insured.
  • The problem is Lawyer is representing InsCo in this case and is acting on InsCo’s behalf in the subrogation case. Insured claims Lawyer is acting as Insured’s lawyer in the subrogation case. Thus, Lawyer “represents” Insured in the subrogation case and opposes Insured in this case. In this very brief opinion the applications judge said the law was not “black and white.” Given the “circumstances” of these representations, the judge denied Insured’s application to remove Lawyer from this case.
• Brown v. Sprague, 2025 ABCA 41 (CanLII) (Ct. App. Alb. Feb. 7, 2025).
  • “[31] A lawyer who does business with a client has onerous fiduciary duties.” Lawyer, while in a law firm, represented a business client. At some point, the client entered into an agreement for Lawyer to become in-house general counsel of the client. That did not work out, and Lawyer brought this action against the client for breach of contract. The trial court dismissed the action. In this opinion the appellate court affirmed.
  • From our point of view, the concurring opinion is significant in two respects. First, it is a review of the ethics implications of lawyers doing business with clients across Canada and across other common law jurisdictions, including the U.S. (particularly application of Rule 1.8(a) of the ABA Model Rules). Second, the concurring opinion lays out a number of hypotheticals (which the majority did not endorse) illustrating what sorts of transactions might, or might not, implicate the fiduciary duties of lawyers. Common principles across common law jurisdictions is the transaction must be fair and reasonable to the client, and the client must be given an opportunity to get advice from another lawyer.

“Morgan Stanley Launches Conflict-of-Interest Probe” —

• “Morgan Stanley has announced it is conducting an in-house conflict-of-interest probe. The firm’s chief executive officer Philip Purcell, speaking at the Securities Industry Association’s national conference in Florida this past week, said Eric Dinallo, a former aide to Eliot Spitzer, would be leading the ‘conflicts examination effort…with the support of every business leader in our firm.'”
• “Separately, Merrill Lynch engaged in some house cleaning of its own, fining two senior executives responsible for supervising a trio of brokers fired for allowing hedge funds to engage in late trading.”
• “Dinallo, who joined Morgan Stanley in September, was instrumental in Spitzer’s investigations into the research and investment banking malpractices at brokerage firms.”
• “Spitzer’s investigation accused firms, including Morgan Stanley, Merrill Lynch and Citigroup, of allowing investment-banking concerns to corrupt the research of their analysts. The firms settled in April for $1.4 billion and a package of reforms intended to prevent these abuses in the future. Morgan Stanley agreed to pay $125 million for its part.”
• “Separately (and more recently), the NASD fined the firm $2 million for encouraging managers and brokers to compete over the sale of in-house mutual funds. When it announced the fines in September the NASD said Morgan Stanley ‘failed to have any supervisory systems or procedures in place to detect and prevent this widespread misconduct.'”
• “In his speech to the SIA, Purcell referred to a ‘conflicts crisis’ on Wall Street and said there is no easy way to fix the problem. ‘The conflicts are not always readily apparent,’ said Purcell. ‘So the first step in disclosure is disclosure to ourselves.'”
• “Morgan Stanley did not wish to comment further on the probe. Brokers at the firm were either unaware of the probe or tightlipped about its progress.”

“Family Ties Could DQ Judge From Hawaii Wildfire Litigation” —

• “The federal judge overseeing a proposed class action brought against Maui County, Hawaii, departments by Lahaina residents whose homes were destroyed in a devastating August 2023 wildfire has indicated she is ‘inclined’ to grant a recusal bid.”
• “U.S. District Judge Jill A. Otake indicated in a docket entry on Wednesday that she would be willing to step back from the case, one day after the plaintiffs filed a motion to disqualify her. Her brother Thomas M. Otake is an attorney representing individual plaintiffs in a separate suit that could soon be subject to a global settlement.”
• “Named plaintiffs Sean Stover, Cassandra Fairall, Mark Prevot, Eva Marie Adam and Randy Brock said in their Tuesday motion that Judge Otake must be disqualified from the case under the U.S. Code, which states the judge must step away because Thomas Otake ‘is known by the judge to have an interest that could be substantially affected by the outcome of the proceeding.'”
• “The named plaintiffs said that if the proposed global settlement pending before the state Supreme Court is approved, they intend to challenge it in their federal suit, which could affect attorney fees paid to Otake’s brother in his clients’ individual suit against the defendants. Whether such a challenge would be permitted is not clear.”
• “In her brief docket entry, Judge Otake asked the defendants to bring forward any objections to her recusal by Feb. 18, noting that ‘because the question of whether Judge Otake has the power to review the state court settlement would also warrant her recusal, any objections should not address that question.'”
• “The proposed class of Lahaina residents sued Maui County officials and several entities in July 2024, alleging the defendants variously failed to deenergize power lines, did not post fire watches and committed other negligence that led to wrongful forcible displacement of up to 12,000 local residents. Those named include the county itself, its emergency management agency and fire and public safety department, trustees of a massive land trust called the Estate of Bernice Pauahi Bishop, and local telecommunications and electric companies.”
• “The plaintiffs told Judge Otake in their motion that her brother’s clients could soon be implicated, if the federal suit causes the global settlement to be nullified.”
• “‘It is obvious that, if the [global settlement agreement] is approved in state court, there will be a challenge by us in federal court to the GSA on the procedures involved in state court in adopting the GSA and the adequacy of representation of absent class members by the [class plaintiffs’] attorneys in state court,’ the proposed class told Judge Otake in the motion.”
• “‘If our challenge to the GSA succeeds, under the terms of the GSA, defendants will probably declare the GSA to be null and void because of the substantial monetary claims of the Stover class plaintiffs,’ they added. ‘If the GSA is declared null and void, attorney Otake stands to lose his attorney’s fees in the state court proceeding as part of the GSA. On the other hand, attorney Otake’s fee is protected if our attack on the GSA in federal district court fails (although the GSA may fail if we prevail on appeal).'”

“Dentons’ UK Case Could Have ‘Chilling’ Effect on Anti-Money Laundering Enforcement” —

• “Dentons, the world’s largest law firm, is at the centre of a pivotal battle between England’s legal regulators over a ruling that it is claimed could allow law firms to bypass anti-money laundering laws with impunity.”
• “The extraordinary High Court case in London—involving the Solicitors Regulation Authority (SRA) and Solicitors Disciplinary Tribunal—revolves around Dentons U.K. and Middle East and a banker known only as ‘Client A’ who was eventually sentenced to 15 years imprisonment and ordered to pay $39 million to the bank he’d chaired.”
• “In 2024, the Tribunal found that Dentons, which maintains its innocence, breached money laundering regulations by failing to properly investigate the source of the banker’s wealth. The tribunal decided there was no breach of SRA principles or code of conduct, however. No sanction was given and the case was dismissed. The SRA then appealed to the High Court with a hearing held in late January.”
• “‘If the (Dentons) judgment is permitted to stand, it might send a very unhelpful message to the profession—that law firms can fail in their obligations under the Money Laundering Regulations 2007 (MLR 2007) and get away without any regulatory sanction,’ the SRA argued in its written court submission distributed at a January 29 hearing. ‘That is particularly unhelpful given the financial incentives for law firms to act in high-value transactions or for high net worth politically exposed persons.'”
• “The SRA furthermore argues that the Tribunal’s decision creates uncertainty as to whether or when the legal regulator should take regulatory action against law firms for breaches of anti-money laundering legislation. ‘If the judgment were permitted to stand, it might create a chilling effect on the SRA’s willingness to take regulatory action for breaches of anti-money laundering legislation,’ it warned.”
• “Dentons has argued that it adhered to MLR 2007 (eventually replaced by the Money Laundering Regulations 2017) to establish the source of the client’s funds and wealth, and that any breach was inadvertent.”
• “The Dentons case is the latest flashpoint in an ongoing battle between England’s legal regulators over disciplinary powers, with many of London’s top firms keen to avoid getting caught in the crossfire.”
• “Dentons isn’t the only law firm under scrutiny. The SRA crackdown on law firm money laundering has led to 23 cases involving £75 million being referred to the National Crime Agency, while the U.K. Treasury investigated two additional cases of suspected Russian sanctions breaches totaling over £300,000, according to SRA figures provided to Law.com in October. Another 410 matters have been flagged as potential risks.”

“Franchise Group’s Bankruptcy Law Firm Disqualified Over Conflicts of Interest” —

• “The owner of the Vitamin Shoppe and Pet Supplies Plus chains must find new lawyers for its chapter 11 bankruptcy after its law firm Willkie Farr & Gallagher was found to have disqualifying conflicts of interest.”
• “Willkie can’t be retained as counsel by Franchise Group because of the firm’s past work for Brian Kahn, the company’s founder and former CEO, Judge Laurie Selber Silverstein ruled on Wednesday. The ruling marks a rare disqualification of a major law firm in bankruptcy court, where lawyers often have a wide berth to manage potential conflicts.”
• “Willkie had argued that it could serve as bankruptcy adviser and manage any conflicts through the use of separate counsel. The firm also said that its disqualification could be disastrous for Franchise Group, which has been pushing to preserve retail operations through the bankruptcy case.”
• “A group of junior lenders and government lawyers challenged Willkie’s application to serve as bankruptcy counsel, arguing the firm couldn’t be an unbiased adviser because of its ties to Kahn, who stepped down as Franchise Group’s CEO last year amid federal investigations into his role in the collapse of hedge fund Prophecy Asset Management. “
• “Silverstein noted in her ruling that Willkie had advised Kahn on his 2023 buyout of Franchise Group, then represented by separate counsel. “
• “Franchise Group has been seeking outside buyers in bankruptcy while also preparing to hand over ownership to senior lenders owed over $1 billion. Junior lenders holding over $500 million in loans at Franchise Group’s parent entity have argued recoveries require litigation against Kahn and investment bank B. Riley Financial, which financed the 2023 buyout. “
• “Franchise Group and its lawyers at Willkie have argued any conflicts posed by the firm’s prior work for Kahn and his other businesses aren’t central to the bankruptcy case, which has focused on transferring the business to a buyer or its creditors.”
• ‘In her ruling, however, Selber Silverstein disagreed and said the bankruptcy isn’t only about the sale of assets. ‘Willkie cannot draft parts of the [restructuring] plan that touch upon claims against Kahn,’ she said. “
• “Willkie advised Kahn on civil and criminal cases against him in connection with the demise of Prophecy, court papers show. The law firm also previously advised B. Riley Financial, which is being investigated by the Securities and Exchange Commission over ties to Kahn.”
• “When allegations about Kahn’s role in Prophecy’s demise arose in 2023, Willkie erected a wall within the firm between teams working for Kahn and his affiliates and for Franchise Group. However, Willkie didn’t put the separation in place until after Kahn’s buyout was completed, creating conflicts for the firm in designing Franchise Group’s restructuring plan, Silverstein said. “
• “The junior lenders that advocated against Willkie’s retention have argued that while they thought Kahn held equity in Franchise Group’s parent entity, he had taken out a secret $200 million loan from B. Riley and pledged his stake as collateral.”

“Tesla Says Judge DQ Bid In Crash Suit Arrived On Time” —

• “Tesla Inc. has doubled down on its bid to disqualify a California federal judge from an accident case over his prior law firm’s work, rejecting the plaintiff’s argument that the automaker filed the motion too late.”
• “The electric car company is attempting to get U.S. District Judge P. Casey Pitts disqualified from a case because his previous law firm, San Francisco-based Altshuler Berzon LLP, worked on lawsuits against Tesla, while he was still with the firm. Judge Pitts was first assigned to this case in August 2023, but the plaintiff is questioning why Tesla waited until four months before the trial was due to start to push for the disqualification.”
• “‘There is no per se requirement that a recusal motion be filed by any specific time. Instead, the purpose of the timeliness requirement, is to ensure that litigants do not use recusal motions for strategic purposes — such as by seeking recusal after receiving adverse rulings,’ Tesla wrote in a brief filed Friday in U.S. District Court for the Northern District of California. ‘Tesla did not file this motion in response to any adverse rulings or for any other improper strategic reasons, but rather because a reasonable observer would question Judge Pitts’ ability to remain impartial.'”
• “With a trial date of May 12 looming, Tesla added, ‘Judge Pitts has not presided over any substantive issues in this case and has not issued any rulings against Tesla. Therefore, no purpose would be served by denying this motion on timeliness grounds, and the Court should consider it on the merits.'”
• “Judge Pitts was sworn into the bench in August 2023, but he had been connected with Altshuler Berzon since 2003, when he worked two years as a paralegal with the firm. After he completed law school, he rejoined the firm as an associate in 2009 and became a partner in 2017.”
• “During his time at Altschuler Berzon, the firm represented several high-profile cases against the carmaker, including defending a jury’s $136 million verdict against Tesla, a case that was still pending when Judge Pitts took the bench. That amount was later reduced to $3.2 million.”
• “In mid-January, Tesla first filed the motion to have Judge Pitts disqualified. A week later, Jackson responded saying Tesla’s motion was flimsy and would set a bad precedent.”
• “‘To adopt Tesla’s logic would result in an absurd precedent: any lawyer who was ever a partner in a firm that litigates cases and then is elevated to the bench would have to recuse herself or himself simply because other partners in the firm tried cases against a party having business before the judge,’ Jackson said in her response. ‘Not only would such a rule have a chilling effect on the practice of law, it would unduly burden the judiciary by requiring disqualification of untold numbers of judges.'”

“Trump’s ex-lawyer won’t pledge to recuse if confirmed for Justice Dept. post” —

• “Donald Trump’s former personal attorney and pick for deputy attorney general refused to commit on Wednesday to recuse from any Justice Department investigations involving the criminal cases in which he formerly represented the president.”
• “Todd Blanche — who defended Trump in the two cases brought by special counsel Jack Smith as well as the New York state case that led to Trump’s conviction on 34 felony counts last year — bristled at suggestions from Democrats during his Senate confirmation hearing that his past representation of the president would pose a ‘blatant conflict of interest’ in his new role.”
• “‘There will be conflicts, and I will not violate my ethical obligations,’ Blanche told members of the Senate Judiciary Committee. But he resisted their calls for a firm pledge to step aside should matters arise connected to those cases.”
• “That hypothetical scenario became a realistic prospect last week as Attorney General Pam Bondi announced the formation of a ‘Weaponization Working Group’ tasked with investigating, among other things, any federal cooperation with the New York case and Smith’s prosecution of Trump’s alleged mishandling of classified documents and efforts to overturn the results of the 2020 presidential election.”
• “The task force will operate with support from the deputy attorney general’s office, Bondi said in a memo.”
• “‘I find it remarkable that you feel you could participate in an investigation of people when you represented the president in those same matters,’ Sen. Adam Schiff (D-California) told Blanche in a particularly heated exchange.”
• “But despite those brief flashes of tension, Blanche emerged from the hearing widely expected to sail through the confirmation process. So, too, was Trump’s nominee to lead the Justice Department’s antitrust division, Gail Slater, who also appeared before the Judiciary Committee on Wednesday.”
• “Blanche’s law partner, Emil Bove, is serving as acting deputy attorney general and is slated to move into the role of principal associate deputy attorney general should Blanche be confirmed. Trump has also nominated D. John Sauer — who argued his presidential immunity case before the Supreme Court last year — for the role of solicitor general.”
• “‘Just how far down the line do we have to go at the Department of Justice to find someone who isn’t conflicted?’ Sen. Peter Welch (D-Vermont) asked Blanche on Wednesday, pressing him on his own connections to the president.”
• “Blanche rejected the premise of the question. He said he’d rely on the advice of career ethics officials at the Justice Department to determine when he needed to step aside.”
• “He hedged when asked directly whether he would refuse any order from Trump to do something unethical or illegal.”
• “‘I don’t think President Trump is going to ask me to do anything illegal or immoral,’ Blanche said. ‘I’ve spent thousands of hours with him over the past few years, so I don’t just say that flippantly. I will follow the law. Period.'”

“State Bar Ethics Opinion Determines Texas Lawyers Can’t Join a Firm With Non-Lawyer Partners” —

• “Texas-licensed lawyers practicing in Texas cannot join a firm with a non-lawyer partner or owner, even if that arrangement is allowed in that jurisdiction, a State Bar of Texas ethics committee found in a new opinion.”
• “The opinion dealt with the question of whether a Texas lawyer practicing in Texas could join a Washington, D.C., firm partnership that lawfully in that jurisdiction includes a non-lawyer partner. As outlined in the statement of facts in the opinion, the firm would have offices in Texas and Washington, D.C., the Texas lawyer would office in Texas and provide legal services to clients in Texas, and revenue generated by the Texas lawyer would be shared with the firm’s partners.”
• “The opinion from the Professional Ethics Committee for the State Bar of Texas found that Texas’ prohibition against non-lawyer-owned firms applies in that situation.”
• “In Texas, the applicable rule is Texas Disciplinary Rule of Professional Conduct Rule 5.04(b), which provides that ‘[a] lawyer shall not form a partnership with a non-lawyer if any of the activities of the partnership consist of the practice of law.’ According to the ethics opinion, Rule 5.04(d) extends the prohibition against non-lawyer law firm ownership to professional corporations or associations.”
• “In Washington, D.C., it is allowed under District of Columbia Rule of Professional Conduct 5.4(b).”

“Insurer Tried To ‘Embarrass’ Cadwalader, NC Court Told” —

• “Cadwalader Wickersham & Taft LLP has accused a Lloyd’s of London syndicate of attempting to ’embarrass’ the firm by publicly revealing the firm’s data breach recoveries amid the insurer’s bid to toss a coverage suit stemming from a 2022 hack.”
• “On Thursday, in response to a motion to dismiss by Lloyd syndicate Beazley, Cadwalader accused the insurer of breaching its confidentiality obligations to its insured by disclosing policy information publicly, including the amount Cadwalader received from other insurance carriers stemming from the hack.”
• “According to Cadwalader, the public disclosure of such financial information, which the response notes was later published in a Law360 article, establishes claims for bad faith denial of insurance coverage and unfair and deceptive trade practices.”
• “‘An insured should not need to anticipate that its insurer will use confidential information to publicly disparage it when the insured seeks to secure the very coverage it bargained and paid for,’ the firm said Thursday. ‘Suffice to say, the law must hold to account the insurer that treats its insured as Beazley has treated Cadwalader here.'”
• “Cadwalader filed suit against Beazley in July in a North Carolina state court, alleging the company failed to reimburse the law firm for expenses related to a November 2022 data breach.”
• “Beazley subsequently urged the North Carolina Business Court to toss the suit, saying the law firm failed to include three other carriers included on the insurance policy at issue.”
• “During the back-and-forth, Cadwalader sought to seal the complaint to shield details regarding its finances and insurance coverages, while Beazley fought to unseal the filings. In its July motion, Beazley included the amount of Cadwalader’s insurance recoveries under other policies for the data risk event at issue.”
• “‘Beazley trumpeted the confidential information in the opening sentences of its first submission to this court — a submission, moreover, that had nothing to do with the confidential information that Beazley gratuitously and improperly disclosed,’ the firm said. ‘Beazley’s disclosure was an obvious and intentional act of bad faith.'”
• “The firm previously contended that unsealing the information would make it more difficult to negotiate insurance rates in the future and act as an incentive to infiltrate its systems. In an amended complaint, the firm added claims for breach of the confidentiality agreement, bad faith and violation of North Carolina’s Unfair and Deceptive Trade Practices.”

“Accountant-Owned Law Firms Could Blur Ethical Lines” —

• “In a novel move, Big Four accounting firm KPMG LLP has taken the first step in seeking to own and operate a law firm in the U.S.”
• “A far cry from regulating attorneys, enforcing and supervising the practice of law by nonattorneys could prove challenging.”
• “Attorney oversight or, more to the point, the supervision of the practice of law, is of paramount concern not only to control and guide the practice of law, but the governing rules also help foster a sense of trust and transparency between practitioners and the public.”
• “Whether it be an accountant, an attorney, or anyone — or anything — in between, we must collectively ensure that the ethical and procedural rules governing the practice of law apply uniformly and fairly, and with an eye toward the client’s best interests.”
• “Rule 5.4, titled ‘Professional Independence of a Lawyer,’ generally prohibits an attorney or firm from sharing fees with a nonlawyer, and it prohibits an attorney from forming ‘a partnership with a nonlawyer if any of the activities of the partnership consist of the practice of law.'[2]”
• “The stated goal of the rule is to ‘protect the lawyer’s professional independence of judgment.'[3]”
• “The regulation of educated and trained attorneys is no easy task, but it may ultimately prove less demanding than enforcing those rules against those without that level of legal training and experience.”
• “On the other hand, proponents of the recent reforms disagree with the traditional restrictions of Rule 5.4. In 2020, amid its efforts to abandon Rule 5.4, the Arizona task force responsible for the amendments said in a statement that it was driven by ‘an ethical obligation to assure that legal services are available to the public and that if the rules stand in the way of making those services available, the rules should change.'[6]”
• “According to recent studies, a disproportionate number of Americans cannot effectively engage the legal profession. Reportedly, nearly 80% of the 20 million civil cases filed in state courts each year involve at least one unrepresented party,[7] and more than half of small businesses facing a legal issue cannot engage counsel.[8]”
• “Reportedly, KPMG Law US’ recent application to the Arizona Supreme Court comprised the first overture by an accounting firm to take advantage of these laws. A court committee is considering the application and whether to provide the required licensure.”
• “According to a Reuters article, KPMG said it would lean ‘on [its] network and technology to provide compliance and contract-related services and other outsourced legal work in the United States.'”
• “We can expect considerable debate and potential pushback. Notably, the ABA House of Delegates reaffirmed its commitment to Rule 5.4 and overwhelmingly passed a resolution stating that any modification to the rule, as drafted, is ‘inconsistent with the core values of the legal profession.'”
• “There is room for cooperation and competition among the practice of law and accounting. This overlap is perhaps inevitable, as most business and financial activity triggers legal implications, and vice versa.”
• “The traditional model of tax, audit and advisory services has expanded in most accounting firms to include litigation support services and nearly every aspect of consulting, which historically may have been handled by an attorney. Likewise, attorneys often provide counsel on tax and other accounting issues.”
• “Outside of the U.S., where Rule 5.4 had been a nonissue, accounting firms have greatly expanded their staff to include attorneys poised to address the growing list of available services.”
• “Critically, however, while there is some overlap, the practice of law and accounting are different, particularly with regard to the distinct ideologies that come into play.”
• “Client confidentiality and the attorney-client privilege serve as cornerstones of an attorney’s ethical and professional obligations, as set forth in the model rules.”
• “In contrast, accounting is based on independence and objectivity. When it comes to an audit, for example, the responsibility to the public is the auditor’s primary concern, with an emphasis on supervision and peer review.”
• “Against this backdrop, when considering the potential differences in professional ethics between the two professions, the CPA Journal once pondered the difficulty for an attorney ‘to envision practicing in the diverse environment of the CPA firm while retaining their client-based ethical system.'[12]”
• “If change is imminent, the distinction between the practice of law and accounting may continue to blur. It follows that professionals in either field may find it more difficult to maintain and set client expectations.”

“2 Law Firms Disqualified Over Litigation Funding” —

• “Two law firms have been disqualified from representing the defendants in a New Jersey patent dispute because they were getting funding from a nonparty. The ruling serves as a reminder of the ethical questions that can arise when litigants accept funds from nonparties who are willing to pay the bills.”
• “U.S. Magistrate Judge Andre M. Espinosa of the District of New Jersey, in Harish v, Arbit, ruled that Saiber of Florham Park, New Jersey, and Banner Witcoff of Chicago could not continue representing two inventors, because the lawyers were being funded by a nonparty producer of medical test equipment—Lincoln Diagnostics of Decatur, Illinois—which had an interest in the outcome.”
• “The case involves three people who were listed on the patent in 2018 as inventors of a device for conducting allergy skin tests without the discomfort from traditional methods using multiple injections.”
• “In 2021, Harish sued Arbit and Rubenstein, claiming he is the only inventor of the device and seeking to remove the others’ names from the patent, according to the complaint. Later, Harish moved to disqualify Saiber and Banner Witcoff from representing Arbit and Rubinstein, alleging that their bills are being paid by Lincoln. Espinosa granted the motion on Jan. 31.”
• “‘New Jersey RPC 1.8(f) outlines the circumstances where a lawyer can accept money on behalf of a client from a third party,’ said Noam J. Kritzer of Kritzer McPhee in Florham Park, New Jersey, who represents Harish. ‘If litigation is like driving a car, third-party funders are allowed to pay for gas but are not allowed to program the GPS or touch the steering wheel. Here, the attorneys at Banner Witcoff were serving Lincoln’s interests instead of defendants’ interests and the order explains in great detail the ethical violations the attorneys committed under NJ RPC 1.8(f).'”
• “The parties to the payment arrangement could not demonstrate that the client gave informed consent; and they failed to demonstrate that there was no interference with the lawyer’s independence of professional judgment or with the lawyer-client relationship, Espinosa wrote.”
• “‘Defendants present their respective declarations as evidence that the fee arrangement here has not interfered with their lawyers’ independent judgment. But this does not establish that Lincoln has not directed, regulated, or interfered with defense counsel’s professional judgment. The record makes clear that Lincoln is directing, regulating, and interfering with defense counsel’s professional judgment in its representation of defendants, and thus, the second Grand Jury condition is not satisfied,’ Espinosa wrote.”
• “Also, the parties failed to demonstrate there was no communication between the lawyer and the third-party payer concerning the substance of representation of the client, and that once the third-party payer commits to pay for the representation of another, the third-party payer shall not be relieved of its continual obligations to pay without leave of court brought on prior notice to the lawyer and the client.”
• “‘Defendants present their respective declarations as evidence that the fee arrangement here has not interfered with their lawyers’ independent judgment. But this does not establish that Lincoln has not directed, regulated, or interfered with defense counsel’s professional judgment,’ Espinosa wrote. ‘The record makes clear that Lincoln is directing, regulating, and interfering with defense counsel’s professional judgment in its representation of defendants, and thus, the second Grand Jury condition is not satisfied.'”

“New York judge resigns after saying he can’t be on a jury since he thinks all defendants are guilty” —

• “An upstate New York judge has resigned after he got out of jury duty by claiming that he couldn’t be impartial — because he thought everyone brought before a court is guilty.”
• “Richard T. Snyder, who had been a justice of the Petersburgh Town Court for about a decade, left his post after being charged with misconduct by a state judicial commission, officials said Tuesday.”
• “According to court transcripts, Snyder tried to avoid serving on a jury in 2023 by first identifying himself as a judge and then saying, ‘I know everybody come in front of me. I know they are guilty. They would not be in front of me.'”
• “He was eventually dismissed from serving on the jury after he continued to argue that he could not be impartial, saying ‘No. It would not be fair,’ court transcripts from a special grand jury empanelment in Rensselaer County show.”
• “The judge who was overseeing the jury selection reported Snyder to state officials.”
• “At a judicial commission hearing the following year, Snyder said he understood that defendants are supposed to be considered innocent until proven guilty but that he still felt that people wouldn’t be in court if they didn’t commit crimes.”
  “‘I meant, that they were guilty because they did something wrong. But they’re not guilty ‘til they come to court. They’re innocent ’til proven guilty,’ he told the commission. ‘They did something wrong. That’s why they got a ticket. But they’re not guilty,’ he added.”
• “Snyder, who was elected as a justice, is not an attorney and has agreed to never serve as a judge again.”
• “In a statement, Robert H. Tembeckjian, administrator of the New York State Commission on Judicial Conduct, said ‘there is no place on the bench for someone who so deeply misunderstands the role of a judge and the administration of justice.'”
• “‘It is bad enough that a judge would seek to avoid such a fundamental civic responsibility as jury service. It is astounding that the judge would claim an inability to be impartial, and to declare under oath that the accused must be guilty or they would not be in court,’ he said.”

“Philly Judge Rejects Ex-Kline & Specter Attorney’s DQ Bid” —

• “A former Kline & Specter partner can’t disqualify an attorney representing it from his lawsuit against the firm, a Philadelphia judge has determined, because he couldn’t prove he had an attorney-client relationship with the lawyer before he resigned.”
  “Terrance DeAngelo did not submit any substantial emails, agreements or related documents to show he had a privileged attorney-client relationship with Joseph R. Podraza, who advised him when he sat for a deposition in a separate case while DeAngelo was still employed by Kline & Specter, wrote Judge James C. Crumlish in an opinion published Tuesday in the Philadelphia Court of Common Pleas. Podraza now represents Kline & Specter as defendants in DeAngelo’s breach of contract suit, but he should not be removed from the case, the judge said.”
  “Judge Crumlish issued the order denying the disqualification in December and filed the opinion this week in response to notification from DeAngelo that the decision has been appealed to the Superior Court. The opinion asks the Superior Court to affirm the denial, saying DeAngelo did not credibly show he believed he had a privileged relationship with Podraza.”
  “In a statement to Law360 Pulse Friday, Podraza said Judge Crumlish’s opinion ‘speaks volumes and requires no amplification from us.'”
  “DeAngelo’s attorney could not be reached for comment Friday.”
  “In December, Judge Crumlish also granted Kline & Specter’s motion to send the case into arbitration and stayed the proceedings in his court. DeAngelo did not appeal those orders.”
  “According to his motion filed in December seeking the disqualification, Podraza had counseled DeAngelo when he appeared in July for a deposition in a separate lawsuit filed by his friend Thomas Bosworth against Kline & Specter while DeAngelo was still employed there.”
  “DeAngelo asked for legal advice from Podraza about the influence the deposition would have on his own employment at Kline & Specter, thinking Podraza was his attorney, according to the motion. After DeAngelo submitted his resignation in September, Podraza clarified in a letter that he is the firm’s attorney and his representation of DeAngelo was limited to the deposition, the motion said. DeAngelo said in his motion that he shared information with Podraza thinking it was a privileged relationship, and Podraza should be disqualified from a case where he could appear as a material witness.”
  “In his underlying suit against Kline & Specter, DeAngelo makes several claims against it, including that it breached its contractual obligations by failing to treat him in a professional or collegial manner by removing him from cases.”
  “Judge Crumlish points to an email DeAngelo sent to Podraza and copied to Kline & Specter’s principals, Thomas R. Kline and Shanin Specter. The email said, ‘Aren’t you my lawyer? I did not receive any notice from you that you were not continuing to represent me.’ This is the only written material submitted by DeAngelo to establish he believed he had an attorney-client relationship with Podraza, the judge said.”
  “There are no other emails, transcripts from the July deposition, or signed agreements to establish such a relationship, the opinion said. Most notably, Judge Crumlish wrote, Podraza did provide any written document that he would abandon Kline & Specter as clients in order to represent DeAngelo.”
  “Additionally, if DeAngelo truly believed Podraza was his lawyer, he would have notified his attorney in advance of his plan to resign and sought advice on how to proceed, according to the opinion.”

“SEC Sued for Failing to Reveal Records Involving Simpson Thacher Attorney” —

• “Empower Oversight sued the U.S. Securities and Exchange Commission in Washington, D.C., federal court over its failure to respond to a Freedom of Information Act request involving records in connection to former high-level officials, including William Hinman, now a senior adviser at Simpson Thacher & Bartlett.”
• “‘We discovered from an earlier FOIA request that Hinman had a financial conflict of interest and could not work on any matters that impacted his firm, which he still retained a financial interest in,’ Leavitt alleged. ‘His firm was a big promoter of Ether and Ethereum, and those are some of the circumstances that caused us to request the inspector general investigation.'”
• “‘Simpson Thacher had no involvement with EEA until several months after Mr. Hinman joined the SEC and, as Mr. Hinman testified under oath in a third-party deposition, he was unaware while at the SEC of the firm’s membership in the organization,’ Simpson Thacher alleged in a statement. ‘The firm has never had a financial interest in nor derived any revenue from EEA, and the firm’s minimal engagement with EEA was purely educational, to gain a better understanding of blockchain technology.'”
• “The controversy dates back to June 2018, when Hinman, as former director of the SEC division of corporation finance, took to the stage at the Yahoo Finance Crypto Summit in San Francisco and declared that Ethereum’s native token, Ether, was not a security.”
• “However, as Empower Oversight tells it, annual financial disclosures appeared to show that Hinman was receiving millions of dollars in payments from Simpson Thacher and that Simpson Thacher was a member of the Enterprise Ethereum Alliance, a group whose aim is to promote Ethereum.”
• “In August 2021, Empower Oversight filed a FOIA request and, later, a lawsuit that led the SEC to produce emails that revealed Hinman sought out millions of dollars in payments from Simpson Thacher, court records show. In doing so, Hinman was repeatedly warned he faced ‘criminal financial conflict’ if he had contact with the firm.”
• “The emails also appeared to show that Hinman had direct contact with one of the highest-profile third-party promoters of Ether leading up to the 2018 speech, as court records show. In May 2022, Empower Oversight sent a letter to the SEC’s Office of the Inspector General requesting a comprehensive review of the agency’s failure to properly manage Hinman’s alleged conflict of interests surrounding crypto issues.”
• “In the complaint filed Tuesday, Empower Oversight alleged that the latest FOIA request will reveal that the SEC mitigated or failed to mitigate conflicts of interest. And, to date, the SEC has allegedly failed to provide any substantive response to the May 2022 letter.”
• “‘A lot of the crypto community, particularly holders of XRP, want to see some explanation for what happened,’ Leavitt said. ‘Even if there are no specific accountability repercussions, the inspector general report is important to have a public accounting of what exactly happened and how conflicts of interest like this will be prevented in the future from impacting SEC enforcement decisions.'”

“Trump’s New Federal Attorney Withdrew Jan. 6 Charges Against His Own Client” —

• “Donald Trump’s top federal prosecutor for the District of Columbia requested that a court withdraw charges against a Jan. 6 insurrectionist he personally represented — a move that experts decried as a clear ethical violation.”
• “Shortly after taking office, Trump pardoned 1,500 of individuals who were convicted of offenses or faced charges relating to the insurrection at the U.S. Capitol on Jan. 6, 2021, and he called on the Justice Department to dismiss all Jan. 6-related cases that were still pending in court. “
• “Trump also appointed Ed Martin, a Missouri lawyer who represented several Jan. 6 defendants, as the interim D.C. U.S. attorney. Martin, who quickly fired dozens of federal prosecutors who were involved in Jan. 6 cases, quickly moved to withdraw charges in those cases, too. “
• “As Reuters reports, on Jan. 21, Martin put his name on a motion to withdraw charges against Joseph Padilla — his own client. “
• “In 2023, Padilla was sentenced to 6.5 years in prison for his alleged actions during the Capitol insurrection, which included assaulting two police officers. The Justice Department said in a press release that Padilla ‘threw a flagpole, striking an officer in the helmet.’ His case, though, was still ongoing.”
• “Ethics experts told Reuters that Martin’s participation in this motion violated the Justice Department’s conflict of interest rules, which require lawyers to recuse themselves from cases involving their former clients for at least a year.”
• “John Sciortino, a former lawyer in the Justice Department’s Office of Professional Responsibility told the outlet it represented ‘a violation of the conflict of interest rules, and the sort of thing OPR might investigate.'”
• “Missouri rules similarly prohibit state attorneys from handling cases involving their clients. “
• “According to Reuters, Martin sent an email to staffers in his office Wednesday saying that he ‘stopped all involvement’ in the Jan. 6 cases over a year and a half ago, wasn’t paid for them, and had been ‘under the impression that I was off the cases.'”
• “Court records indicate Martin was still listed as an attorney for Padilla in his case.”
• “Outside of his advocacy for Jan. 6 rioters, Martin recently drew attention for posting an unusual letter on X to Elon Musk, in which he told the world’s richest man that his office would ‘pursue any and all legal action against anyone who impedes your work’ with the so-called Department of Government Efficiency, or DOGE, as it works to gut federal agencies.”

“Fla. Judge Won’t Recuse Over ‘Adverse Ruling’ In CBD Row” —

• “A Florida federal magistrate judge has refused to step down from a case where she recommended sanctioning an attorney representing a franchisee in a contract dispute with CBD American Shaman LLC, saying adverse rulings are not grounds for recusal.”
• “In an order published Friday [1/24], U.S. Magistrate Judge Amanda Arnold Sansone of the Middle District of Florida rejected plaintiff Thomas O’Neal’s motion to disqualify her. That motion came after she recommended granting in part the defendants’ motion for sanctions against O’Neal’s attorney, Kevin Graham.”
• “‘Along with the report and recommendation on the Shaman defendants’ motion for sanctions, Mr. O’Neal lists other orders throughout this case he believes I decided incorrectly… Mr. O’Neal insists each ruling should have been favorable to him, which he submits as evidence of my ‘pervasive bias,” Judge Sansone said. She added, ‘Adverse rulings are not grounds for recusal.'”
• “According to the report, Graham filed ‘multiple baseless, duplicative arguments’ during the proceedings, chiefly four motions for reconsideration of the court’s order granting the Shaman entities summary judgment, and three motions for the court to determine if the crime-fraud exception applied in this case.”
• “‘His first attempt at reconsideration may be considered zealous advocacy,’ the judge wrote. ‘Filing three additional requests for reconsideration while knowing no new circumstances or arguments exist that would change the denial ruling from the first attempt constitutes bad faith litigation conduct warranting the imposition of sanctions.'”
• “U.S. District Court Judge Kathryn Kimball Mizelle approved Judge Sansone’s recommendation for sanctions in an order Monday. She said Graham and O’Neal are liable for $14,105 in attorney fees and admonished Graham for ‘his failure to uphold professional standards throughout the course of this litigation.'”
• “The suit originated from a contract O’Neal signed in 2018 with Nevada-based franchiser American Shaman Franchise, which sells franchises of CBD stores, that called for him to open and operate an American Shaman store in Tampa, Florida, and entitled him to open a second store in the area.”
• “In July 2022, Judge Mizelle granted judgment on the pleadings on O’Neal’s supplemental complaint in favor of American Shaman, and later denied his bid to dismiss the counterclaims.”
• “In his motion to disqualify Judge Sansone, O’Neal pointed to her ‘overtly biased and prejudicial comportment’ in connection with the sanction motion.”
• “‘An objective, disinterested, lay observer fully informed of the facts about Judge Sansone’s most recent failure to consider evidence at an evidentiary hearing favorable to Mr. O’Neal’s lawyer, together with the cumulative effect of the pervasive biased and prejudiced actions taken by Judge Sansone during the pendency of Mr. O’Neal’s supplemental proceedings, ‘would entertain a significant doubt about’ Judge Sansone’s ‘impartiality’ towards Mr. O’Neal and his lawyer,’ O’Neal said.”

Hat tip to George Bremner, Conflicts Attorney at Cooley, for sending this detailed analysis of an incident we noted several weeks ago: “Firing (and Shaming) a Client” —

• “A prominent IP professor and lawyer is getting a lot of attention for terminating his representation of Meta. Mark Lemley posted this on his LinkedIn account: ‘I have struggled with how to respond to Mark Zuckerberg and Facebook’s descent into toxic masculinity and Neo-Nazi madness… I have fired Meta as a client. While I think they are on the right side in the generative AI copyright dispute in which I represented them, and I hope they win, I cannot in good conscience serve as their lawyer any longer.'”
• “Apart from its impact as a political statement, Lemley’s post raises some interesting ethics questions, both in the narrow sense of ‘does this rule apply?’ and in the broader and possibly more interesting sense of ‘should a good lawyer do that?'”
• “In the Meta case, Lemley apparently believed he could not, in good conscience, continue to contribute his talent and experience to Meta’s causes, given his assessment of Zuckerberg’s recent changes at the company. As a matter of his personal integrity, he could not continue in a fiduciary relationship of trust and confidence with the client.”
• “Fair enough. But he had an option to preserve his integrity, which was to withdraw from the representation. David Wilkins’s discussion of the Anthony Griffin case suggests that integrity-preserving actions by lawyers ought to be narrowly tailored to be minimally intrusive on the client’s reasonable expectations of loyalty and confidentiality.”
• “It’s not necessary to the preservation of one’s moral agency to take gratuitous swipes at the client on the way out the door. My point here isn’t so much to criticize Lemly, however, as to use this as a case study of the tension between moral agency and the duties of lawyers. There is often not a clear priority between them, and lawyers may go wrong by thinking that if something is the right thing to do from a personal perspective then acting on that reason is a sufficient justification from the legal point of view.”

“Prosecutors Ask Judge to Question Charlie Javice Lawyer Over Alleged Conflict” —

• “Federal prosecutors are asking a judge to investigate whether or not an attorney for Charlie Javice, the founder of the student loan fintech start-up Frank, may have a conflict of interest, given that he represented her in a prior investigation unrelated to her pending fraud case.”
• “David Siegal of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo is not accused of wrongdoing, according to the U.S. Attorney’s Office for the Southern District of New York. But prosecutors do want the judge to bar Siegal from cross-examining witnesses or making arguments relating to matters in which he was personally involved.”
• “The case is before U.S. District Court Judge Alvin Hellerstein of the Southern District of New York. Prosecutors claim Javice willfully misled JPMorganChase into acquiring her start-up for $175 million. She has pleaded not guilty.”
• “Prior to starting Frank—a student financial aid start-up—Javice was employed by JPMorganChase, where multiple colleagues accused her of misconduct unrelated to her federal indictment. Javice was twice interviewed by investigators at Morgan, and Siegal represented her in connection with that investigation and questioning. The alleged misconduct included misuse of corporate credit cards for personal use,and use of personal emails and devices for business purposes.”
• “While Siegal at that point turned over some of Javice’s texts to Morgan investigators, prosecutors say they now know her messages contained significantly more responsive communications—including about the alleged fraud on J.P. Morgan. Prosecutors say they intend to present some of those communications at trial and claim Javice caused Siegal to convey false information as part of his representation.”
• “Though they do not seek to disqualify him, prosecutors ask Hellerstein to hold a Curcio hearing, to address any potential conflicts that may arise as a sworn or unsworn witness at trial. Meanwhile, Javice is seeking to sever her case from her co-defendant and former colleague Olivier Amar, claiming they have antagonistic defenses and that he will turn on her.”
• “Prosecutors oppose the motion, saying the request identifies no prejudice and is unsupported to warrant such a request so soon before trial.”

“Drug Co. Wants To Keep Judge On Alopecia IP Case” —

• “The developer behind an Eli Lilly & Co. alopecia drug has called allegations the company’s lawyers deliberately hired a New Jersey federal judge’s former law clerk both ‘low and baseless’ and a ‘transparent attempt to remove the judge who decided against it.'”
• “In a response filed Tuesday, drug developer Incyte Corp. minimized the involvement of an unnamed Gibbons PC associate in a patent case Incyte has been litigating since last year against Mumbai, India-based generic Sun Pharmaceutical Industries. Incyte licenses its patents to Eli Lilly, which markets the alopecia drug Olumiant, and filed suit to stop the release of a competing alopecia drug from Sun, called Leqselvi. Lilly, however, is not involved in the case.”
• “The case had been reassigned to New Jersey’s U.S. District Judge Julien Neals in August, and earlier this year, Sun filed a bid to disqualify him, claiming that Gibbons had hired one of the judge’s former law clerks who had been involved in the case while working for the judge. Since filing the suit last June, Incyte has been represented both by lawyers at Gibbons and Finnegan Henderson Farabow Garrett & Dunner LLP.”
• “The clerk that Gibbons hired, according to the filings, had been working for Judge Neals when he was considering blocking Sun from launching its rival hair loss product until the end of Incyte’s patent case, something he decided to do last November. At a September preliminary injunction hearing, the ‘former clerk occupied a prominent position’ and was ‘sitting nearly parallel with’ the judge, Sun says.”
• “Incyte presented a different view of the clerk’s involvement in the case before the clerk was hired by Gibbons. ‘The former law clerk merely attended, as an observer, a single status conference and technology tutorial, just days before he left his clerkship,’ counters Incyte.”
• “‘After the case was reassigned to Judge Neals, the former law clerk — who was in the final month of his clerkship — did not assist Judge Neals with deciding the preliminary injunction motion and did not substantively work on the case,’ says the drug developer. The clerk’s only involvement in the patent case since working at Gibbons was assisting ‘one of his colleagues over the Thanksgiving holiday with preparing a joint motion to seal,’ which had been put in front of U.S. Magistrate Judge James Clark, not Judge Neals, notes Incyte. “
• “The company sees the move from Sun as ‘a transparent attempt to remove the judge who decided against it’ in the injunction battle, per the response.”

“Goldman Sachs Secures Dismissal of Celebrity Manager’s Lawsuit Over Failed Deal” —

• “Sullivan & Cromwell beat back a celebrity business manager’s claims that Goldman Sachs breached an alleged fiduciary duty by helping an affiliate lock down a $7 billion private equity sale, while advising the management firm on a proposed, rival transaction.”
• “In dismissing the fraud case against Goldman Sachs, Justice Margaret Chan of the New York County Supreme Court said the KSFB Management LLC, whose principals have reportedly provided business management services for Beyoncé and Drake, hadn’t plausibly shown it was owed a fiduciary relationship by Goldman Sachs. KSFB was represented by Quinn Emanuel Urquhart & Sullivan.”
• “The justice pointed to a Jan. 2023 letter through which KSFB engaged Goldman Sachs to pursue a joint sale with Focus Financial Partners LLC, which later abandoned the deal in favor of a multibillion-dollar acquisition. In the letter, KSFB agreed that ‘potential conflicts of interest’ may arise as Goldman was also advising Focus, and that the interests of KSFB and Focus ‘may not always be aligned,’ according to the decision.”
• “‘These are not, as KSFB suggests, mere boilerplate disclaimers. To the contrary, construed in the entire Engagement Letter, these representations contemplated the exact conflict at the center of KSFB’s claims,’ Chan said on Thursday.”
• “The justice added that, regardless of the letter, the breach of fiduciary duty claim was insufficiently pleaded. The breach claim relies on the ‘bald and unsupported assertion’ that Goldman Sachs was charged with seeking a deal in KSFB’s best interests, Chan said.”
• “The lawsuit concerned two transactions that were pursued in 2022, an unrealized joint sale between KSFB and Focus of Focus subsidiary, NKSFB, and Focus’ later sale to Clayton Dubilier & Rice LLC. However, the relationship between KSFB and Focus dates back years, as KSFB provides management services to NKSFB, with KSFB claiming that its management has allowed NKSFB to flourish.”
• “In a complaint filed against Goldman Sachs and Focus, KSFB claimed that Focus pushed a potential joint sale of NKSFB to prevent KSFB from abandoning NKSFB while Focus pursued a potential sale to Clayton Dubilier & Rice. As part of that joint sale, KSFB retained Goldman Sachs as an adviser, even though the bank was also advising Focus, and signed a three-way non-disclosure agreement, according to Chan’s decision.”
• “But Chan dismissed the complaint wholesale, finding that KSFB much of the suit relied on an alleged fiduciary duty that the company failed to allege existed on Goldman Sachs’ or Focus’ part.”