Bressler Risk Blog

“StarKist to 9th Circuit: Trial judge’s stock ownership dooms class cert rulings” —

• “StarKist counsel Gregory Garre of Latham declined to provide a statement, but there were two important developments after oral argument before the en banc court.”
• “The first was The Wall Street Journal’s bombshell Sept. 28 report that 131 federal judges – including Sammartino – broke disqualification rules and the judicial ethics code by presiding over cases involving companies in which they or family members owned stock. Based on the Journal’s reporting and subsequent online postings of judges’ financial disclosures by Free Law Project, a legal-research non-profit, StarKist identified five MDL plaintiffs in which Sammartino or family members owned shares, in addition to the two companies previously disclosed.”
• “StarKist said in its new brief that four of the companies in which Sammartino or family members owned shares supplied data that assisted plaintiffs experts in creating damages models. Those models, StarKist said, informed the judge’s class certification decisions.”
• “In its new brief to the 9th Circuit, StarKist said the risk to public confidence is even more acute in the tuna antitrust case. Tuna purchasers are alleging hundreds of millions of dollars in damages, StarKist said, and the en banc appeal has been closely watched by the entire class action bar and business lobby.”

The motion argued: “Allowing Judge Sammartino’s class certification decision to stand would deny defendants a fair and impartial resolution on this important threshold issue and create an impermissible and unacceptable risk of undermining the public’s confidence in the integrity of the judicial process… Indeed, the high profile nature of this case and the fact that Judge Sammartino had multiple conflicts of interest in this case only magnify the concerns identified.”

“Party-Appointed Arbitrators On The Precipice” —

• “Concerns about bias and prejudice from multiple repeat appointments have plagued party-appointed arbitrators for years. This is true of international arbitration, commercial arbitration and, of course, insurance and reinsurance arbitration. Recently, there have been several cases in the United States and the United Kingdom addressing implicit bias, repeat players and the need for robust disclosures in commercial and international arbitrations. In the reinsurance world, where most arbitrations still follow the old party-appointed advocate arbitrator formula, these concerns are magnified.”
• “Are Reinsurance Arbitrators Different Than Commercial Arbitrators? Insurance and reinsurance arbitrators are no different than other commercial arbitrators. The common perception among arbitrators and parties is that party-appointed arbitrators are permitted to be predisposed to the positions of the appointing party in a traditional reinsurance arbitration proceeding. While this is generally true, the predisposition concept has been stretched to its breaking point over the last 25 years.”
• “Some reinsurance arbitrators believe that it is their solemn obligation to advocate for their appointing party’s position in deliberations and during the arbitration hearing, including aggressively questioning witnesses from the other side. Others believe that they must rule for their appointing party no matter what the evidence shows. Others have no qualms about being appointed by the same party and/or the same law firm dozens of times. These do not represent a majority view, but enough arbitrators believe in some or all these positions.”
• “Several years ago, I attended a meeting of a local bar association alternative dispute resolution committee where a well-known in-house lawyer for a significant insurance company explained to the gathering of commercial arbitration specialists how reinsurance arbitration works. When the in-house lawyer explained the party-appointed advocacy system in reinsurance arbitrations and mentioned that these arbitrators did not have to be neutral and impartial, there was an audible gasp in the room.”
• “While under old-style traditional reinsurance arbitration provisions a party-appointed arbitrator does not have to be neutral and impartial, that does not mean that a party-appointed arbitrator should be an advocate for the arbitrator’s appointing party.”
• “Problems of potential bias will never go away, but there are several ways to address the situation. First, as stated above, regardless of the form of arbitration, robust, complete, and continuing disclosures by arbitrators must occur… Second, arbitrators should think about whether excessive multiple appointments by a party or by a law firm or lawyer is a good long-term strategy. Being viewed as the ‘house’ arbitrator for a particular party is probably not a title any arbitrator wants to receive.”
• “But neutrality alone does not solve the problem as can be seen from the UK Supreme Court case mentioned above. Under English law, all arbitrators, even if party-appointed, must be neutral. Yet the failure to disclose a subsequent appointment led to a court challenge. While the law in the US does not allow for many, if any, challenges prior to the issuance of the final arbitration award, a failure to disclose a consequential relationship could result in a challenge to the final award and, under the right factual circumstances, to its vacatur.”

Interesting analysis and commentary, as always, from Dentons partners Shari L. Klevens and Alanna Clair: “Risks in Responding to Government Inquiries on Behalf of Clients” —

• “But there can be risks for outside counsel when a governmental agency—particularly those with law enforcement power—makes an informal inquiry regarding a client. In some instances, a government representative could, with or without warning, contact outside counsel to ask questions about the client’s activities, including the client’s business, relationships or financials.”
• “In such cases, the corporate attorney may be called upon to navigate the inherent tension between being forthright with the inquiring government officials (perhaps in an attempt to clear up any perceived misunderstanding and resolve the inquiry swiftly and favorably), with the requirement to abide by counsel’s ethical obligations to guard client confidences, particularly where revealing information could cause the client to face criminal liability or a formal government investigation.”
• “At the moment of first contact with a government agent, the first issue for counsel to determine is what role the attorney will play. Is the attorney simply a “third-party witness” with access to information and documents related to a former client matter? Or does the client want the attorney to represent the client in the investigation?”
• “The answer has the potential to create a conflict between the client and attorney and should be considered carefully. If the attorney is representing the client in connection with work previously performed by the attorney and which could cause the government to focus on the attorney, then representing the client could implicate conflict of interest issues.”
• “Thus, when facing a government inquiry, the lawyer must evaluate whether he or she can take on the new representation and whether the inquiry itself creates a conflict between the lawyer and the client. It may be prudent for the lawyer to decline representation and to advise the client to obtain separate counsel in the inquiry or investigation going forward so the lawyer can respond separately as a witness.”
• “If the lawyer takes on the matter, he or she should continually evaluate conflict issues as the inquiry progresses to insure that the lawyer is taking the appropriate steps to abide by its ethical obligations and ensure that all confidentiality obligations are met.”

“Allen & Overy ‘blacklisted’ by Credit Suisse after associate left briefcase on train” —

• “Allen & Overy has been blacklisted by Credit Suisse’s General Counsel after an A&O associate left a briefcase containing sensitive client documents on a train in Finland. The Allen & Overy banking associate was travelling home for the weekend when he forgot the briefcase, which contained ‘highly confidential Credit Suisse documents’ according to sources.”
• “The briefcase was recovered before any of its contents went astray, but, along with other perceived mistakes by A&O, the incident has been used by Credit Suisse General Counsel Romeo Cerutti as a pretext to freeze out the firm. ‘Cerutti has taken care of this matter personally’ said a source.”
• “Credit Suisse reappointed Allen & Overy to its panel at the start of 2021 and it is a significant client of the firm, with billings understood to be in the region of £25 million a year.”
• “However, the relationship with Cerutti is understood to have soured when Allen & Overy decided to advise Grant Thornton on the administration of failed finance company Greensill Capital. The work brought the firm £3.9 million in fees.”
• “Cerutti and his team are understood to have been unhappy that A&O worked on both sides of the Greensill matter, and began identifying perceived issues with the firm’s work, including alleged data leaks across the Chinese Wall between A&O’s Credit Suisse and Greensill teams, and the Finnish Train Incident.”

“New York City claims conflict of interest in request to disqualify Sidley Austin” —

• “Last week’s intervention by the city of New York to disqualify a law firm from a qui tam case involving alleged price fixing of municipal bonds brings conflicts of interest to the forefront of already prolonged and complex litigation.”
• “In a Nov. 16 filing in New York’s state supreme court, New York City and the New York City Transitional Finance Authority (TFA) requested to disqualify law firm Sidley Austin from representing Morgan Stanley in an ongoing case involving variable rate demand obligations (VRDOs).”
• “The city’s motion stems from the fact that Sidley Austin and its predecessors, i.e. Sidley Austin Brown & Wood LLP and Brown & Wood LLP, had served as the city’s bond counsel for three decades: 1986 to 2016. The firm also served as counsel for the TFA for almost twenty years, i.e., 1997 to 2016. In that capacity, according to the filing, Sidley Austin ‘was instrumental’ in drafting and negotiating the bond remarketing agreements that are at issue in the current litigation.”
• “Consequently, the city contends that the firm has an impermissible conflict of interest because the interests of Sidley’s current client, Morgan Stanley, are materially adverse to those of New York City and the TFA.”
• “The City of New York also believes that allowing Sidley Austin to continue its representation of Morgan Stanley means that the firm would be in a position to ‘use privileged and/or confidential information about the drafting, negotiation, and interpretation” of the agreements at issue.'”
• “In its filing, the city claims that Sidley Austin did not seek its consent to represent Morgan Stanley. It also contends that Sidley Austin ‘failed to act promptly once the city brought this conflict to their attention.'”
  Said Sidley: “‘Sidley had no role in advising the city regarding the issue raised in the complaint and was not itself involved in any of those activities.’ Sidley Austin further argued in the letter that it has fully met its confidentiality obligations with respect to its representation of the city. The firm also notes that the attorneys who worked on bond matters for the city and for the transit authority are no longer with the firm.”
• “The city sees the latter argument as insufficient in part because of an ABA rule, which says that a conflict stays with the firm, even if attorneys who worked on the conflicted matter(s) leave the firm.”

“Novartis Wants Atty DQ’d From MS Drug Patent Row In Del.” —

• “In a brief filed Nov. 22 in support of its disqualification motion, Novartis asserted that the court should bar Chidambaram S. Iyer of Sughrue Mion PLLC from representing plaintiff Shilpa Pharma Inc. because the company has identified him ‘as the only named Shilpa witness to several 2016 discussions with Novartis about licensing the patent’ at issue in the suit.”
• “‘Mr. Iyer allegedly was the first to tell Novartis about the patent’s existence in a one-on-one discussion in February 2016; he then set up and attended a meeting with unnamed Shilpa representatives and Novartis to discuss a license in March 2016; and he then followed up with one or more one-on-one discussions with Novartis in April 2016,’ the brief said. ‘Ultimately, Novartis declined the license.'”
• “Those discussions are central to Shilpa’s patent infringement case, with Shilpa relying ‘on the licensing discussions to claim willful and intentional direct and indirect infringement,’ Novartis said.”
• “Under American Bar Association professional conduct guidelines, ‘[a] lawyer shall not act as advocate at a trial in which the lawyer is likely to be a necessary witness;’ thus, Iyer should be disqualified, the company said.”

“SEC Sanctions Ex-Cozen O’Connor Conflict Counsel for Insider Trading” —

• “A former Cozen O’Connor lawyer has agreed to pay more than $20,000 to settle charges by the nation’s top securities enforcer that he misappropriated client information to enrich his personal earnings, while serving as the Am Law 100 firm’s conflicts counsel.”
• “Bala Cynwyd-based trial lawyer William Gericke, 60, was barred from practicing as an attorney before the Securities and Exchange Commission, according to an administrative proceeding filed Nov. 19 by the SEC.”
• “According to the SEC, Gericke purchased 1,000 shares of stock in Cozen O’Connor client Liberty Property Trust in 2019 after obtaining ‘material nonpublic information’ regarding an impending merger between LPT and another real estate investment trust, Prologis. Gericke allegedly sold all the stock after the trading price ballooned in the days following the merger’s announcement.”
• “Gericke practiced at Cozen O’Connor from 1997 until August of this year, when he went to work at Dugan, Brinkmann, Maginnis and Pace in Bala Cynwyd, Pennsylvania. Gerald Dugan, the firm’s chairman, declined to comment.”
• “He has also spoken about legal ethics in other settings. As late as June 10, 2021, Gericke could be seen as a panelist leading a continuing legal education webinar on “Key Ethical Considerations for Lawyers Acting As Local Counsel,” hosted by The Knowledge Group.
• “‘The actions that were alleged by the SEC against Mr. Gericke violated law as well as the firm’s policies and procedures that all employees are obligated to follow,’ [Cozen] firm leaders said in an email statement. ‘When we became aware of Mr. Gericke’s activity, we took prompt and appropriate action, including cooperating with the SEC. We are glad that this matter has been resolved and that the behavior of the former employee resulted in no harm to our client.'”

(Interesting risk question in that Mr. Gericke still lists a Cozen affiliation in his LinkedIn presence. I’m sure learned minds out there may have comment about the rules or standards regarding such things. And I do wonder what consideration and attention, if any, firms pay to these details. Though, at least one person was curious enough to check…)

“Ex-LeClairRyan general counsel gets prison time, while firm insurer agrees to pay $10M to bankruptcy trustee” —

• “The former general counsel of the defunct law firm LeClairRyan was sentenced to 44 months in prison in Richmond, Virginia, on Monday for lying to the U.S. Trustee Program while trying to thwart an investigation into his embezzlement of more than $4 million.”
  “Disbarred Richmond, Virginia, lawyer Bruce Matson, 64, was sentenced following his guilty plea to obstructing an official proceeding, report Law360 and the Richmond Times-Dispatch.”
• “Matson misappropriated about $800,000 between 2015 and 2018 while serving as the court-appointed trustee in the bankruptcy of LandAmerica Financial Group Inc., according to a press release by the U.S. attorney for the Eastern District of Virginia. He also manipulated the budget for the post-bankruptcy wind-down to allow himself to pay $3.2 million in bonuses to himself and others, prosecutors say.”
• “The sentencing happened days after LeClairRyan’s management liability insurer, the Columbia Casualty Co., agreed during a settlement conference to pay $9.475 million to settle claims by the bankruptcy trustee covered by the policy, as well as $525,000 to settle claim expenses.”
• “The settlement leaves outstanding ‘garden variety’ bankruptcy claims against the defendants and claims against legal services provider UnitedLex, the article reports.”

“UnitedLex still faces $128M lawsuit from LeClairRyan trustee” —

• “In 2018, Richmond-based LeClairRyan struck a deal to outsource about 300 of its support workers through a partnership with enterprise legal services provider UnitedLex, which created ULX Partners LLC. The workers were intended to perform back office support tasks for LeClairRyan and other law firms, with LeClairRyan holding a 1% stake in the venture. At the time of the firm’s failure, LeClairRyan still owed UnitedLex more than $8 million related to the venture.”
• “Federal Judge Kevin R. Huennekens of the U.S. Bankruptcy Court for the Eastern District of Virginia ruled that an unauthorized practice of law allegation — specifically that a non-lawyer had been given control of LeClair Ryan — and a misappropriation of funds allegation — that client funds were mismanaged by firm leaders and UnitedLex employees— supported statutory and common law civil conspiracy claims. Huennekens ruled that other allegations in the suit, including converting the business from a professional corporation to a professional limited liability company, were not illegal on their own.”