Bressler Risk Blog

“Judge Won’t Recuse From Citi Cases Over Husband’s Law Firm Ties” —

• “A federal judge in New York said Thursday that she won’t recuse herself from two cases involving Citigroup Inc. over her husband’s job at a law firm that frequently services the banking giant.”
• “Plaintiffs in a securities suit over Citi’s internal controls sent a letter April 21 to Judge Loretta A. Preska of the U.S. District Court for the Southern District of New York, suggesting that more information was needed to determine if Preska had a conflict of interest. Her husband, Thomas J. Kavaler, works at Cahill Gordon & Reindel LLP, which regularly represents Citi and its subsidiaries in various actions, the plaintiffs noted.”
• “The judge said she does not have a financial interest in the subject matter in controversy, ‘or any other interest that could be substantially affected by the outcome’ these cases. The court held that the ‘tenuous’ relationship between her husband and this case wasn’t enough to warrant a necessary recusal, in part because he doesn’t get a share of the firm’s profits.”

“3rd Circ. Casts Skeptical Eye On Firm DQ Bid In Maxus Case” —

• “A Third Circuit panel appeared to question Tuesday whether a lawyer who formerly represented Argentine energy company YPF SA in an environmental liability case spilled any secrets when she moved to the law firm representing the Maxus Liquidation Trust and married one of its leading attorneys.”
• “At oral arguments in Philadelphia, the three-judge panel rigorously questioned attorney Victor Hou, who is representing YPF in is bid to disqualify White & Case from representing Maxus in the litigation. YPF’s former attorney, Jessica Lauria, moved to the firm and married the head of its restructuring department.”
• “The court’s focus appeared to be on picking apart YPF’s argument that ethical screens put up by a Delaware bankruptcy judge were not sufficient to mitigate any conflicts. Judge Peter J. Phipps said that YPF needed to prove that those screens were faulty, something he indicated he was not convinced of.”
• “‘I don’t see a path to victory for you unless you can prove the screens were not complied with, or you can prove the screens were structurally deficient,’ Judge Phipps told Hou.”
• “Hou had argued throughout the session that no type of screen, however stringent, could mitigate the potential harm Lauria could do to YPF because ‘the topics she advised on are the nuclear launch codes’ to YPF’s case.”
• “When pressed by multiple judges on whether there was a concrete injury done to YPF, Hou responded that the risk posed by Lauria’s potentially talking YPF’s strategy with her husband or current firm was enough.”
• “‘You want to disqualify an entire firm based on a risk? That’s extreme,’ Judge Phipps said.”
• “Judge Joseph A. Greenaway Jr. noted that U.S. Bankruptcy Judge Christopher S. Sontchi found that the screens were adequate. Judge Sontchi previously said in an April 2021 denial of YPF’s disqualification request that the disqualification bid was a ‘shabby attempt to embarrass Ms. Boelter and Mr. [Thomas] Lauria and/or to prejudice the court in some manner.'”
• “The court and attorneys referred to Jessica Lauria by her maiden name, Boetler, during the session.”

“When to Hang Up the Phone—Hazards of Talking to Prospective Clients” —

• “Casual phone inquiries from people seeking an attorney to represent them can sometimes lead to troublesome claims of conflicts of interest. Arthur D. Burger, chair of Jackson & Campbell’s professional responsibility practice group, discusses steps lawyers can take to minimize the likelihood of such claims.”
• “The casual nature of such inquiries can leave lawyers and their firms vulnerable to being blind-sided by subsequent claims of conflicts of interest that fall outside the firm’s usual mechanisms for screening.”
• “Should I Listen to the Whole Voicemail Message?… So, for example, if a lawyer is in a firm that defends hospitals and doctors in medical malpractice cases the lawyer should be wary of messages from callers seeking representation in bringing such claims. If the lawyer receives a voicemail of this nature, they should stop listening to the message, delete it and need not return the call. Under these circumstances, the caller cannot credibly assert a conflict of interest if that lawyer’s firm ends up defending the caller’s suit.”
• “One measure used by some firms is to require lawyers to conduct a preliminary review of potential conflicts before initiating a substantive conversation with a prospective client. This could be done by checking the firm’s data base of current and former clients to rule out the likelihood that the new matter will create a conflict of interest.”
• “Another measure firms may consider is having the names of former prospective clients entered into the firm’s data base so they will be accessed in the firm’s routine screening of conflicts.”
• “Notwithstanding the limits on the protections for prospective clients with respect to conflicts of interest, lawyers should remain mindful that their duty of confidentiality and the protection of the attorney-client privilege are the same as those for their former clients. The application of the attorney-client privilege is an inherent feature of the status of prospective clients.”

“Appeals court voids firm fee imposed on departing lawyers who take clients with them” —

• “The Colorado Court of Appeals has addressed two issues of first impression that relate to law firm agreements that aim to prevent departing attorneys from taking clients with them.”
• “In its April 28 opinion, the appeals court held that an agreement imposing a fee on a departing attorney for each client who leaves with them may violate Colorado Rule of Professional Conduct 5.6(a), which prohibits agreements that restrict ‘the right of a lawyer to practice,’ if it is unreasonable under the circumstances. The appeals court also said contractual provisions that violate this rule are necessarily void as against public policy.”
• “The case arose after associate attorney Grant Bursek resigned from the Denver office of Modern Family Law in September 2019. The firm requested that Bursek pay $1,052 for each of the 18 clients who left with him per the terms of a reimbursement agreement that he signed earlier that year.”
• “When Bursek refused, Modern Family Law filed a complaint asserting a breach of contract claim and a claim that a separate confidentiality and nondisclosure agreement was enforceable against Bursek. A district court found that the $1,052-per-client fee violated Rule 5.6(a), and that the agreement was unenforceable. However, the district court agreed that the second agreement was enforceable and entered judgment in favor of the law firm on that claim.”
• “The appeals court said while the firm’s agreement claimed that the purpose of the fee was to recoup marketing costs, it did not explain why the fee represented a fair estimate of costs for each client. The court noted that the fee was imposed even on clients Bursek brought to the firm without the assistance of marketing.”
• “While the appeals court also held that a contractual provision that violates Rule 5.6(a) is necessarily void, it said a violation of the rule will not void a contract in its entirety. It reversed the portion of the district court’s order that declared Modern Family Law’s entire agreement unenforceable.”

“Amazon Attorney To Be Deposed To Settle Disqualification Bid” —

• “A California federal judge ordered a senior in-house patent lawyer at Amazon who is leading the company’s defense of claims of infringement of MasterObjects Inc.’s search engine patent to be deposed regarding a potential conflict of interest that MasterObjects accuses him of trying to hide.”
• “On Monday, Judge William Alsup of the U.S. District Court for the Northern District of California ordered attorney Scott Sanford to be deposed by software company MasterObjects, which comes after the judge called a gap in Sanford’s LinkedIn profile ‘suspicious’ because it omitted a two-year stint at a law firm that represented MasterObjects.”
• “In its opposition to the motion filed with the court, Amazon asserts that MasterObjects filed the motion for tactical reasons, to distract from allegations of unclean hands that Amazon has lodged against the software maker.”
• [See: Previous news on this matter.]

“Crowell loses bid to question ex-Walgreens top lawyer in conflicts case” —

• “Crowell & Moring has lost a bid to question the former top lawyer at Walgreens Boots Alliance Inc, as the law firm tries to fend off a conflict-of-interest lawsuit brought by the national pharmacy retailer.”
• “In an order released on Wednesday, Judge Hiram E. Puig-Lugo of the District of Columbia Superior Court said Crowell had not shown it was necessary to depose Marco Pagni, who left his role as chief legal officer with the retail giant’s parent company last year and is now living in the UK.”
• “Walgreens last year sued Crowell in D.C. Superior Court, alleging the law firm violated confidences when it began representing major U.S. health insurers against Walgreens in arbitration and court matters involving drug pricing. Crowell once advised Walgreens on the drug matters that are now in contention, the lawsuit alleged.”
• “Crowell’s lawyers at Harris, Wiltshire & Grannis argued Walgreens was ‘aware of the facts of the supposed conflict’ at least two years before it sued, and that the timing supports the contention that Walgreens ‘waived its claims and failed to mitigate supposed damages by taking no action.'”
• “Puig-Lugo ruled that ‘Crowell has not shown that Mr. Pagni would hold ‘unique’ information’ about certain drug-pricing matters. ‘Crowell has failed to show that the information sought is not available from other sources,’ the judge wrote.”
• “The court said it would revisit a deposition if Crowell says it is unable to obtain information from other officials.”

We noted updates on this fight last summer. Here’s the latest: “Flint water judge rejects Napoli Shkolnik’s call to DQ rival lawyer” —

• “The federal judge in charge of litigation over the Flint water scandal refused law firm Napoli Shkolnik’s request to disqualify a rival lawyer for simultaneously representing clients who approved of a $600 million settlement and those who wanted it to fail, saying the lawyer probably violated ethics rules but it wasn’t worth removing him from the case.”
• “New York-based Napoli Shkolnik filed a motion to disqualify Philadelphia lawyer Mark Cuker, who made headlines in the case after falling asleep during a Zoom hearing, after he filed objections to the settlement on behalf of 12 clients while his remaining 968 clients approved it.”
• “In 2020, the Napoli firm and Levy Konigsberg defeated efforts by rival attorneys to have them removed as co-liaison counsel over allegations including they were trying to garner more money for their clients by requiring expensive ‘bone scans’ to provide evidence of lead exposure.”
• “Napoli argued Cuker violated the Michigan Rules of Professional Conduct by simultaneously representing clients who objected to the settlement and those who wanted it to proceed. Judge Levy largely agreed, saying ‘these positions are irreconcilable.'”
• “The ethics rules allow lawyers to represent clients who have competing opinions about a settlement, the judge said, but only after ‘consultations’ in which they are informed about the conflict and the participation of other clients.”
• “The judge rejected Cuker’s argument the rival law firm didn’t have standing, saying a motion to disqualify counsel is the proper mechanism for informing the court about alleged ethical violations.”

“Morgan Lewis Can’t Escape Suit Alleging Conflict in Deal Work Led to Client Bankruptcy” —

• “A California federal bankruptcy judge on Wednesday advanced claims from the Chapter 7 trustee for a former Morgan, Lewis & Bockius client, which alleged the firm’s dual representation of the agency and its owners in a stock sale created a conflict of interest that led to a 2019 bankruptcy filing.”
• “Court records indicate Morgan Lewis was paid $517,688 in legal fees for shepherding the deal. But Stadtmueller asserted in court the firm and Hector represented the owners in the stock sales as well, allegedly creating a conflict of interest that was never disclosed to the parties.”
• “As for the second cause for action, which alleges breach of duty of loyalty, Latham found that they represented the owners, ‘whose interests were materially adverse to debtor’s.’ As a result, the judge found the agency was allegedly damaged by the loss of its legitimate expectation of loyalty and paying $277,848.92 in legal fees for counseling on the second stock sale.”
• “‘Principally, debtor sought the lowest possible purchase price and the owners’ desired the highest. Yet despite the conflict, defendants failed to disclose the dual representation or obtain either debtor’s or the owners’ informed consent,’ Latham said. ‘So defendants breached their duty.'”

“Working for both opioid maker and FDA wasn’t conflict, McKinsey tells committee” —

• “McKinsey & Co managing partner Bob Sternfels told a congressional committee Wednesday that his consulting firm did not have a conflict of interest when it gave advice both to Oxycontin manufacturer Purdue Pharma LP and the government agency charged with regulating opioid sales.”
• “McKinsey gave consulting advice to both Purdue and the Food and Drug Administration from 2008 to 2019, and 22 of its consultants worked for both clients, according to a report published by the House Oversight Committee, which hosted the hearing. During that period, McKinsey offered to ‘turbocharge’ Purdue’s opioid sales while also working with the FDA division overseeing the development and marketing of drugs.”
• “That work did not create a conflict because McKinsey advised the FDA on topics such as technology upgrades and organizational efficiency, Sternfels said.”
• “That answer did not satisfy lawmakers, who said McKinsey failed to inform the FDA that its consultants continued to give advice to Purdue.”
• “Democratic Representative Katie Porter of California pointed out the omission allowed McKinsey to avoid a government review of potential conflicts of interest.”
• “‘Your scheme worked really well,’ Porter said. ‘McKinsey got contracts, Purdue got rich, and America got addicted.'”
• “An FDA official said Monday in a separate congressional hearing that it did not seek McKinsey’s advice about drug safety, and the agency did not know about McKinsey’s work with Purdue until 2021.”

“FDA Not Issuing Contracts to McKinsey Amid Investigation Into Conflict of Interest in Opioid Consulting” —

• “The Food and Drug Administration (FDA) will not be issuing new contracts to the consulting firm McKinsey and Co. amid an investigation into potential conflicts of interest, a top official has confirmed.”
• “‘The Center for Drugs currently does not have a contract with McKinsey and across FDA,’ said Patrizia Cavazzoni, director of the Center for Drug Evaluation and Research for the FDA. ‘We anticipate that further contracts will not be issued pending the outcome of the investigations.'”
• “In an April 13 report (pdf), committee members alleged that McKinsey had ‘failed to disclose its serious, longstanding conflicts of interest to FDA, potentially violating contract requirements and federal law.'”
• “In one case detailed in the report, at least four McKinsey consultants were allegedly working for the FDA on improving drug safety while also working for the privately held U.S. pharmaceutical company and opioid manufacturer, Purdue Pharma.”
• “The committee said that Purdue Pharma, ‘explicitly tasked McKinsey with providing advice on how to influence the regulatory decisions of the U.S. Food and Drug Administration (FDA), another McKinsey client,’ according to the report.”
• “‘As I indicated earlier, we follow contracting regulations that apply across the entire U.S. government, including other agencies. And we rely on contractors to follow those rules and to inform us of any conflicts of interest,’ Cavazzoni responded while dismissing suggestions that the FDA should change its rules regarding conflicts of interest.”

“Oversight Committee Grills McKinsey & Company on Its Role in Nation’s Opioid Epidemic” —

• “When asked by Chairwoman Maloney whether her office’s investigation of McKinsey found the firm had advised Purdue to undermine federal drug safety measures, Attorney General Healey responded: ‘Absolutely. … McKinsey was actively coaching Purdue on how to band together with other opioid companies on how to fight FDA safety requirements while also working at the agency.'”
• “Rep. Porter questioned Mr. Sternfels on McKinsey’s failure to disclose conflicts of interest to the FDA, asking, ‘who made you the conflict-of-interest czar for the federal government?’ After Mr. Sternfels asserted that McKinsey ‘made clear in multiple instances that the individuals involved had experience in both pharmaceuticals and opioids,’ Rep. Porter responded: ‘They didn’t have experience, they were the identical humans working for both [FDA and Purdue] at the same time. Did you tell the FDA, did you make these disclosures, and then allow the government to decide whether there was a conflict of interest?’ Sternfels was unable to say whether McKinsey had made any specific disclosures.”
• “Asked by Congresswoman Norton whether staffing the same individuals on contracts at both FDA and opioid manufacturers was concerning from a conflicts of interest perspective, Dean Tillipman [Jessica Tillipman, Assistant Dean for Government Procurement Law Studies at the George Washington University Law School.] agreed that ‘given the nature of the work, when there is the potential for overlap, the work could raise significant red flags’ about the presence of an organizational conflict of interest.”

In a statement, McKinsy noted: “Since we stopped advising clients on opioid-related business in 2019, we have continued to improve our policies around governance and client selection. That year, we implemented a new client selection policy governing which clients we serve and on what topics.” For more see: “McKinsey Client Selection Policy” —

• “In recent years, we have strengthened our governance and compliance processes as part of our ambition to lead our industry.”
• “Among other enhancements, we implemented a new Client Service Policy and increased the influence and authority of the global committee that reviews high-risk engagements. We have spent more than $300 million over the past several years on strengthening our risk-management teams and capabilities, and we have implemented new trainings and accountability mechanisms to ensure that our colleagues understand and adhere to our policies. Each of these enhancements applies globally.”
• “Our Client Service Policy requires partners to systematically assess client projects across five interrelated dimensions: Country, Institution, Topic, Individual, and Operational considerations. Referred to as “CITIO,” this framework is embedded in the way we assess risk for all our client work.”
• “Among other criteria, the policy requires us to consider the unintended consequences of any proposed work, including potential negative impact on vulnerable populations. If a client or proposed project falls short of our standards, we will not do the work. This policy applies globally, across all sectors, whether work is paid or unpaid.”
• “Our policies forbid an employee who has acquired confidential information about a client from serving a competitor in a competitively sensitive engagement. That restriction lasts as long as the information has significant competitive value.”
• “We follow additional conflict-management protocols in our work with the public sector. In addition to managing any potential staffing conflicts, we are subject to our government clients’ conflict of interest requirements and review potential conflicts—both actual and potential—accordingly.”

“Dentons Stuck With $32M Malpractice Verdict Over Verein DQ” —

• “Denton’s bid to shed a $32 million malpractice verdict triggered by a disqualification and conflict between branches of the firm’s ‘verein’ structure failed Thursday at an Ohio appeals court.”
• “Finding no error in the trial verdict for RevoLaze LLC, a former Dentons client, the three-judge panel said there was ‘overwhelming evidence’ suggesting that Dentons operated “as a single firm” despite its verien structure.”
• “A Dentons partner who had worked for RevoLaze in a patent case at the U.S. International Trade Commission involving The Gap Inc. had also foreseen a possible conflict via the firm’s Canadian arm, which had represented Gap, the court said.”
• “‘Here, we find Dentons US’ membership in a verein, with a common conflicts base, that shares client confidential information throughout the organization, is irreconcilable with Dentons US’ contention that it was separate from Dentons Canada,’ the court said.”
• “‘Critically, Dentons US by initially identifying Gap as a conflict, even though it had done no work for Gap, strongly indicates that Dentons US did not think it was sufficiently separate from Dentons Canada, to be allowed to represent RevoLaze against Gap,’ the court added.”
• “The decision represents a major blow for Dentons, a mega-firm that has long argued that, because its various verein entities are legally distinct and don’t share clients or information, they are effectively distinct firms for the purpose of imputed conflicts.”

More background and detail via Bloomberg: “Big Law Model Tested in $32 Million Dentons Malpractice Case” —

• “At least six major U.S. firms affiliate with other law operations under the Swiss verein model to market services globally as if they were a single entity.”
• “‘I’m sure there’s a high level of distress over what happened in this case,’ said law firm consultant Peter Zeughauser, noting that conflicts checks can be expensive and time consuming. ‘Firms worry a lot about their reputations for trustworthiness and integrity—and because of that, they worry about conflicts.'”
• “Swiss verien firms risk losing business if they’re required to disclose conflicts related to affiliates’ work. Existing clients may balk at other representations. Potential clients could decide to go elsewhere when they learn who else the firm is representing.”
• “Conflict checks that turn up nothing can still take time and limit the ability of partners to bill clients on new matters until the checks are done, said Zeughauser, whose group has worked for Dentons, Baker McKenzie and other Swiss verein firms.”
• “Jim Jones, senior fellow at Georgetown Law’s Center on Ethics and the Legal Profession, said the case could prove to be a cautionary tale for Swiss verein firms’ ability and willingness to fully disclose potential conflicts to clients, especially given that from country to country, ‘conflicts rules are all over the place… I’ve always been extremely dubious that Swiss vereins could protect you against ethical obligations,’ Jones said.

“Weaponizing Attorney Sanctions? Miami Law Firm Partner Defeats $190,000 Penalty” —

• “A South Florida attorney will be reimbursed for a six-figure sanction as early as Wednesday, after the Miami-Dade Circuit Court and the Third District Court of Appeal vacated orders that imposed punishment based on evidence that a trial judge suggested had likely been forged.”
• “Jared Lopez, a co-managing partner at Black Srebnick Kornspan & Stumpf in Miami, was the subject of the original sanction order in May 2019. But two courts have suggested Lopez and his law firm were incorrectly disqualified from the litigation.”
• “The dispute, in the sanctions case, involved ‘an inherent conflict of interest,’ leading Accetta to file a 21-day safe-harbor notice. Under Florida Statutes Section 57.105, an attorney has 21 days to withdraw a filed pleading, motion or other document that is not supported by facts, law or is otherwise frivolous—or the lawyer could face potential sanctions.”
• “Accetta claimed that when Lopez filed a lawsuit on behalf of Iacono, it was an ‘illegal’ action because, as manager, Cavagnuolo was the only person with authority to file that lawsuit, citing an operating agreement in which Cavagnuolo was identified as the ‘sole’ manager of the company, L24M.”
• “Accetta sent multiple notices to Lopez that he should dismiss the lawsuit filed in the name of the company, because only Cavagnuolo was authorized to initiate it in the company’s name, according to court filing.”
• “As a result, when evidence suggested a forgery, Miami-Dade Circuit Judge Michael Hanzman, who inherited the case, denied that Lopez should be allowed to intervene due to the settlement, noting his motion “is without legal merit.””
• “‘Having said that, the court understands Lopez’s frustration, as the evidence presented strongly suggests that the 2013 operating agreement relied upon by Cavagnuolo in pursuing his motions for disqualification and sanctions was a forgery,’ Hanzman ruled in February. ‘But Lopez’s claim that Cavagnuolo secured the disqualification and sanction orders through the submission of fraudulent evidence will have to be adjudicated elsewhere.'”