Bressler Risk Blog

“You Got Our Judge Recused? Fine, We’ll Get Your Judge Recused” —

• “Paul Andre and Centripetal Networks Inc. got some payback last week at the Patent Trial and Appeal Board. Last year Andre and his Silicon Valley colleagues at Kramer Levin Naftalis & Frankel saw a $2.75 billion patent infringement judgment they’d won against Cisco Systems Inc. wiped out at the U.S. Court of Appeals for the Federal Circuit. U.S. District Judge Henry Morgan was disqualified because his wife held $4,687.99 worth of stock in Cisco. The case has been assigned to U.S. District Judge Elizabeth Hanes for a retrial.”
• “Now Andre and Centripetal have forced an administrative judge on the PTAB to recuse himself from a case involving Cisco and one of the same cybersecurity patents at issue in the retrial. The reason: The judge has held Cisco stock worth $1,000 to $15,000.”
• “McNamara noted that the U.S. Office of Government Ethics’ threshold for recusal is $15,000, which his holdings remain below. But ‘in order to reduce the number of issues and simplify the briefing, I withdraw from the panel effective immediately and will not further participate in this proceeding,’ the judge wrote in a four-page order.”
• “Andre argued that McNamara has reported to the Office of Government Ethics that he holds Cisco stock and receives income as a retired partner from Foley & Lardner, which counts Cisco as a client, all while presiding over Palo Alto Networks’ challenges to patents that Centripetal has asserted against Cisco.”
• “‘These conflicts cannot be reconciled with Federal Circuit precedent,’ Andre wrote, citing the 2021 decision that went against him. ‘It simply cannot be correct that an Article III judge’s wife’s holding of Cisco stock can nullify his validity determination while an administrative judge can knowingly hold the same Cisco stock and decide a collateral attack on that very judgment.'”

“Brown Fox and Dallas Lawyer Sued for Alleged Negligence, Breach of Fiduciary Duty” —

• “A security industry company in Houston sued its defense attorneys for alleged negligence involving a representation conflict and not utilizing an insurance policy that could have covered its legal fees and the judgment.”
• “The client, GG Security Group LLC, sued Dallas attorney Brandi J. McKay and the law firm Brown Fox after losing a trade secrets dispute case in Harris County state court.”
• “Brown Fox represented GG Security and Zumwalt without advising GG Security of the pros and cons of the joint representation, the suit alleges.”
• “‘Indeed, Zumwalt was the culpable party, not GG Security. Yet, the lawyers failed to obtain informed consent to the joint representation,’ the lawsuit said. ‘Because of the conflicted representation, the lawyers failed to assert cross claims against Zumwalt on behalf of GG Security or asset legal positions which would distance GG Security from Zumwalt.'”
• “The complaint further alleges its law firm failed to designate an expert on trade secret matters and failed to recognize that GG Security had a $3 million insurance policy that would have covered the claims made against it. As a result, GG Security had to absorb the cost of defense, hundreds of thousands of dollars, including fees incurred by Zumwalt, and a judgment in excess of $1 million, it states.”
• “Eventually, the company could not afford the legal costs and its attorneys moved to withdraw as counsel. The 189th District Court granted the motion May 10, 2022.”
• “Ten days later, Brown Fox sued GG Security for breach of contract, seeking more than $85,279 in alleged unpaid attorney fees, the complaint said, and further alleges Zumwalt conspired with the attorneys, without notice to GG Security CEO Mark Mabile to agree to a judgment against GG Security for the $85,279, plus pre- and post-judgment interest.”

“Riverhead IDA’s law firm, representing companies suing Triple Five affiliate, says company is ‘sham vehicle’ used by principals to dodge liability” —

• “Nixon Peabody, legal counsel to the Riverhead Industrial Development Agency, has in federal court filings accused Nader Ghermezian and other members of the Ghermezian family of operating Triple Five Worldwide LLC as a ‘sham vehicle’ to shield themselves from personal liability.”
• “While Nixon Peabody is the Riverhead IDA’s retained counsel for general matters, in September, the IDA hired Nixon Peabody to act as ‘transaction counsel’ in the agency’s review and vetting of Calverton Aviation & Technology LLC, ‘a single-purpose entity’ affiliated with Triple Five Group that is in contract to buy 1,644 acres of industrial land inside the Calverton Enterprise Park from the Town of Riverhead for $40 million.”
• “Last month, the IDA reversed itself and replaced Nixon Peabody as transaction counsel for the CAT application with a new firm, Phillips Lytle. That move followed a RiverheadLOCAL report in October that Nixon Peabody had previously represented another Triple Five affiliate in connection with the American Dream mall in East Rutherford, New Jersey.”
• “IDA board member Lori Ann Pipczynski said at a special board meeting Dec. 21 the agency had obtained ‘several opinions’ that ‘there is no legal conflict of interest with Nixon Peabody as transaction counsel, but chose to hire a new transaction counsel due community perception of a conflict, so that the review process could continue ‘without any perceived prejudice.'”

“Party Affiliation Does Not Warrant Disqualification” —

• “An elected judge’s political affiliation did not warrant disqualification from a case involving a litigant with whom he is affiliated, per a decision of Ohio Supreme Court Chief Justice O’Connor.”
• “Mr. Morris has sued the Ohio Democratic Party (“ODP”) and some of its individual officers. He claims that Judge Miller has a conflict of interest because he is a member of the Franklin County Democratic Party—which Mr. Morris describes as an affiliate of the ODP—and because the judge’s campaign committee has contributed to the county party. In addition, Mr. Morris alleges that Judge Miller has demonstrated bias by ignoring some of Mr. Morris’s motions and by ruling in favor of the defendants on other matters.”
• “Ruling:
  • “Judge Miller affirms that his political relationship with the ODP will not influence his decision-making. The judge’s current term expires in February 2027, and it does not appear that he is actively campaigning for reelection. Although Judge Miller personally donates a small amount each month to the ODP, there is no evidence that he holds any office in the ODP or that he is currently receiving any tangible benefit from the organization. Further, Mr. Morris claims that he seeks only injunctive relief against the ODP—that is, he seeks to get his temporary job back; he does not seek damages.”
  • “We elect judges in Ohio, and just as we must ordinarily assume that an attorney’s support of a judge will not cause the judge to favor that attorney when he or she appears before the judge, see In re Disqualification of Osowik, 117 Ohio St.3d 1237, 2006-Ohio-7224, 884 N.E.2d 1089, ¶ 6, we must assume that a judge’s endorsement by or support of a certain political party will not affect the judge’s decision-making if that political party later appears before the judge. Based on this record, there is no evidence to call that general assumption into doubt.”

“Federal Court Disqualifies Law Firm for Conflict with Key Witness” —

• “The federal district court in Spokane recently disqualified a law firm for a conflict with a key adverse witness. Caldwell v. United States, 2022 WL 17408818 (E.D. Wash. Nov. 9, 2022) (unpublished), was a malpractice case stemming from the plaintiff’s treatment at a government medical facility. Although the U.S. government was the sole defendant, the focus of the case was on the doctor who allegedly failed to diagnose the plaintiff’s cancer. The plaintiff’s law firm had also represented the doctor in an unrelated employment matter.”
• “The government moved to disqualify the law firm—arguing that it had a conflict because it would necessarily be adverse to the doctor.”
• “The law firm made two primary arguments in response. First, the law firm contended that it had ended its employment work for the doctor and, therefore, no former client conflict arose under RPC 1.9 because the two matters were unrelated. Second, the law firm argued that even if the current client conflict rule—RPC 1.7—applied, there was no conflict because the doctor was not a defendant. The court rejected both arguments and disqualified the law firm.”
• “On the law firm’s first argument, the court found that even if the law firm had ended its relationship with the doctor, the law firm had been adverse to the doctor in pre-litigation matters leading up to the current case…”
• “The court [also] found that because the doctor’s conduct was in dispute, the predicate adversity for a conflict was present even though the doctor was not a defendant.”
• “Caldwell underscores the potential sweep of RPC 1.7. The court noted that the law firm did not have an engagement agreement with the plaintiff. The opinion is not clear on whether the law firm had run a conflict check when it took on the malpractice case and, if it did, the names that were run for the conflict check. Given the breadth of RPC 1.7, however, prudent practice suggests including the names of employees that a lawyer’s client will use to argue that an employer should be held vicariously liable.”

“Ex-Proskauer COO Accused of Secrets Theft Out at Paul Hastings” —

• “The former Proskauer Rose executive accused of stealing sensitive business secrets from the law firm has lost his job at rival Paul Hastings in wake of Proskauer’s lawsuit against him.”
  “Jonathan O’Brien, who resigned as Proskauer’s chief operating officer in December, had been set to join Paul Hastings, according to a person familiar with the matter, who said the firm was not aware of any of O’Brien’s alleged activities until they were made public.”
• “‘Mr. O’Brien is not joining Paul Hastings and we do not comment on any firms’ personnel matters,’ a Paul Hastings spokesman said in a statement.”

“Attorney Censured Over Conflict of Interest in Steering Clients to Employer’s Title Company” —

• “A New Jersey attorney has been censured for multiple violations of the Rules of Professional Conduct, including one count that alleged he steered 19 clients to use his employer, All-Pro Title Group, for real estate closings without written permission waiving the conflict of interest or providing them the opportunity to employ another title company.”
• “Angelo Bagnara consented to discipline in the matter, filed by the Office of Attorney Ethics. According to a letter issued by the Disciplinary Review Board, the stipulation stated that between Jan. 1, 2019 and April 30, 2020, Bagnara was employed by All-Pro when he steered his clients to the company for real estate closings. Since he did not obtain their written consent to waive the conflict of interest or provide them with the opportunity to employ an alternative title company, he violated RPC 1.7(a) 19 times, according to the letter.”
• “However, the DRB dismissed 19 instances of violation of 1.8(a)—improper business transaction with a client. In the letter, the DRB stated that it found no evidence that Bagnara reaped any benefit from All-Pro for procuring title insurance clients beyond the typical goodwill of an employer-employee relationship.”
• “In a New Jersey Supreme Court order filed Dec. 30, 2022, Bagnara was censured.”

“Acknowledgement of Conflict Insufficient to Support Claim for Disgorgement of Fees” —

• “In a Decision and Order, dated December 8, 2022, in Marcum LLP v. L’Abbate, Balkan, Colavita & Contini, L.L.P., Index No. 151586/2021, Justice Joel Cohen of the New York County Commercial Division, among other things, dismissed plaintiff’s claim to recover legal fees paid in connection with allegedly negligent work but not plaintiff’s claim for compensation for its increased legal expenses arising out of defendant law firm’s late withdrawal as counsel.”
• “The Court explained:
  • “Plaintiff seeks disgorgement of legal fees on the ground that L’Abbate purportedly operated under a conflict of interest, was incompetent, and was disloyal, citing to Baugher v Cullen and Dykman, LLP (173 AD3d 959, 961, 103 N.Y.S.3d 136 [2d Dept 2019]).”
  • “Here, Plaintiff does not allege disgorgement as an independent cause of action. Moreover, L’Abbate was not discharged for cause from representing Marcum. The FAC only claims that when L’Abbate placed its insurance carrier on notice of the sanctions motion, this ‘effectively discharge[d] L’Abbate for cause’ (FAC ¶ 85) (emphasis added). In fact, L’Abbate moved to be relieved as Marcum’s counsel due to the potential conflict and the motion was not decided because the Litigation settled two days after it was filed (see Conway v Marcum & Kliegman, LLP, et al, NY County (Index No. 652236/2014), Dkt Nos. 605, 611, 617).”
  • “The fact that L’Abbate acknowledged a conflict of interest as the reason for withdrawal does not indicate that there was a violation, only the existence of a potential claim.”
  • “Finally, L’Abbate has submitted unrebutted evidence that it did not charge legal fees for any work associated with the Sanctions Motion, the Clawback Motion, or the Withdrawal Motion, and thus neither Marcum nor its insurers incurred these costs (NYSCEF 60 [Rice Affidavit, ¶7, ¶9, ¶13]). Accordingly, the claim for disgorgement is dismissed.”
  • “Turning to the Legal Fees claim, Plaintiff seeks damages for the additional attorneys’ fees paid to Hodgson Russ (who had already been retained as co-counsel) to prepare to first-chair the trial of the Litigation after L’Abbate’s withdrawal as counsel, and attorney’s fees incurred by having to retain outside coverage counsel at the law firm of Reed Smith LLP to represent Marcum in a coverage dispute with its insurers.”
  • “However, according to Defendants, under Marcum’s primary insurance policy, Marcum was responsible for the first $2 Million in loss amounts, which are defined to include defense costs, inclusive of L’Abbate’s legal fees, and settlements (see NYSCEF 8).”

“Law firm Proskauer sues ex-COO, claiming data theft” —

• “U.S. law firm Proskauer Rose on Tuesday [December 27, 2022] sued its former chief operating officer, alleging he stole a trove of confidential information about the firm’s finances, lawyer compensation and clients before leaving his job there this month.”
• “The lawsuit, filed in Manhattan federal court, claims Jonathan O’Brien deceived Proskauer staff members into allowing him to copy sensitive internal documents to USB files and then wrongfully deleted thousands of emails before giving notice that he was leaving.”
• “‘Mr. O’Brien knew this information would be highly useful to Proskauer’s competitors, as it would enable them to effectively target and recruit Proskauer’s partners, practice groups, and clients,’ the lawsuit said. The firm asked the court to block O’Brien from misusing its data and is seeking unspecified damages.”
• “According to the complaint, O’Brien in November created a list of documents to steal, including each partner’s client list, financial compensation and performance; software the firm developed to create proprietary reports; and confidential strategies for lateral partner recruiting. He then allegedly tricked a technology employee into letting him copy the data, saying it has been requested by an outside consultant.”
• “Proskauer said it does not know where O’Brien plans to work, but the complaint claims he told a fellow employee that the firm would be ‘very angry’ when it learned about his new employer.”
• “O’Brien could not immediately be reached for comment. The firm said it believes he is on vacation in Mauritius.”

The complaint itself is worth reading, for even more detail:

• “For several years, Mr. O’Brien had been subject to a litigation hold, meaning that his emails could not be deleted as they might be evidence in potential litigation. In December 2022, Mr. O’Brien overrode the Firm’s controls to remove his litigation hold. Circumventing the Firm’s General Counsel, who is responsible for instituting and removing litigation holds, Mr. O’Brien directed one of the Firm’s e-Discovery consultants to lift his litigation hold. She complied. When a hold is lifted, all emails older than one year are instantaneously deleted.”
• Mr. O’Brien was subject to a ‘litigation hold.’ A litigation hold preserves data relating to actual or potential litigation, and, among other things, prevented Mr. O’Brien from successfully deleting any emails or other information from his Proskauer Outlook mailbox. If a litigation hold is not in place, a Proskauer user’s email inbox is subject to ordinary document retention policies, under which emails older than one year are automatically deleted unless the user takes steps to archive them.”
• “With rare exceptions, Proskauer partners do not have access to all the information Mr. O’Brien stole, including the proprietary systems and methods by which it was calculated, preserved, and administered, some of which was developed over years and at great expense and all at the center of the Firm’s ability to operate and preserve its ecosystem of culture, internal trust, and external obligation of confidence to its clients.”
• “The legal industry is in an era of intense competition for partner talent and clients. The methods by which partners are compensated and the processes for doing so are highly confidential and would be of great value to a competitor. They also are deeply personal and the threat to disclose such information could be used to pressure, intimidate, and extort partners and the Firm.”
• “Proskauer’s financial systems record detailed financial information about individual clients. That information is at the essence of the Firm’s duty to preserve and protect client confidences. There is almost no limit to how such data could be abused.”
• “On December 5, 2022, Mr. O’Brien called Kevin Polakoff, the Firm’s Director of Technology Support (and one of Mr. O’Brien’s reports), and asked Mr. Polakoff to grant him an exception to the system restriction that prevents copying data to removable media.”
• “Based on Mr. O’Brien’s false representation, and having no reason to suspect wrongdoing by the Firm’s COO (and his ultimate supervisor), Mr. Polakoff submitted a ‘Policy Exception’ request on Mr. O’Brien’s behalf, which his team granted. Because Mr. O’Brien was the Firm’s COO, Mr. Polakoff’s team treated Mr. O’Brien’s request as fully authorized and compliant – just as Mr. O’Brien expected they would.”

And a more recent update: “Proskauer Wins Temporary Restraining Order Against Former Chief Operating Officer” —

• “Among the relief sought by the complaint was an ex parte temporary restraining order to preventing O’Brien from disseminating the internal documents he downloaded. And that’s exactly what Southern District of New York Judge John Cronan granted in the case. O’Brien left on a paid vacation to Mauritius on December 22 and is scheduled to return to the country January 4.”
• “Although it remains unclear where O’Brien planned to work when he turned in his notice at Proskauer, according to the complaint, O’Brien indicated firm leaders would not be ‘happy’ when they learned of his new employer. But Cronan’s order would also apply to that party:”
• “[T]he temporary restraining order also applies to ‘anyone acting in concert’ with him and it temporarily bars O’Brien from working or consulting for any entities with whom he has discussed or disseminated the allegedly stolen material.”

“Hild latches onto Sam Bankman-Fried case as sentencing looms” —

• “There are several parallels between the criminal cases of Richmond businessman Michael Hild and that of notorious crypto king Sam Bankman-Fried. Each man is charged with various degrees of financial fraud that led to the collapse and bankruptcies of their respective firms – Hild’s Chesterfield-based Live Well Financial and Bankman-Fried’s FTX.”
• “Both men are fighting their legal battles in federal court in Manhattan and, until late last month, both their cases were presided over by the same judge, U.S. District Court Judge Ronnie Abrams.”
• “That was until Abrams recused herself from the high-profile Bankman-Fried case on Dec. 23, citing the fact that the law firm at which her husband is a partner had previously represented FTX.”
• “Now, as Hild is set to go before Abrams for sentencing later this month, he and his attorney are seizing on that recusal, questioning whether the judge may have had similar personal conflicts during Hild’s case to those that led to her exit from the Bankman-Fried legal saga.”
• “In a Dec. 28 letter to Abrams, Hild attorney Brian Jacobs claims that Abrams’ husband’s law firm, Davis Polk, may have represented several companies that were entangled with Hild’s case.”
• “‘In the present case, as in the FTX matter, the law firm of (Davis Polk) – according to its attorneys’ online biographies – appears to have represented multiple parties whose interests are potentially adverse to Mr. Hild’s,’ Jacobs’ letter states. ‘I write to ask that the Court address whether possible conflicts in this case should have led this Court to disqualify itself… I further ask that the Court address this matter in advance of sentencing, which is currently set for Jan. 27, 2023.'”
• “Jacobs claims that Davis Polk ‘appears to have’ represented two of Live Well’s major lenders: Industrial and Commercial Bank of China, and Mizuho Bank. Both banks are among the larger creditors in Live Well’s ongoing bankruptcy proceedings and also are among the victims and potential recipients of restitution in the Hild criminal case.”
• “Jacobs also states that a former partner at Davis Polk appears to be a board member at ICBC. Jacobs argues that illustrates a potentially close relationship between the law firm and the lender.”
• “While the potential conflicts cited by Hild and Jacobs would appear to be indirect, so were those referenced by Abrams in her recusal notice in the Bankman-Fried case: ‘My husband has had no involvement in any of these representations. These matters are confidential and their substance is unknown to the Court. Nonetheless, to avoid any possible conflict, or the appearance of one, the Court hereby recuses itself from this action.'”

“A Charity Tied to the Supreme Court Offers Donors Access to the Justices” —

• “The Supreme Court Historical Society has raised more than $23 million in the last two decades, much of it from lawyers, corporations and special interests.”
• “The charity, the Supreme Court Historical Society, is ostensibly independent of the judicial branch of government, but in reality the two are inextricably intertwined. The charity’s stated mission is straightforward: to preserve the court’s history and educate the public about the court’s importance in American life.”
• “But over the years the society has also become a vehicle for those seeking access to nine of the most reclusive and powerful people in the nation.”
• “The society has raised more than $23 million over the last two decades. Because of its nonprofit status, it does not have to publicly disclose its donors — and declined when asked to do so. But The New York Times was able to identify the sources behind more than $10.7 million raised since 2003, the first year for which relevant records were available.”
• “At least $6.4 million — or 60 percent — came from corporations, special interest groups, or lawyers and firms that argued cases before the court, according to an analysis of archived historical society newsletters and publicly available records that detail grants given to the society by foundations.”
• “Of that, at least $4.7 million came from individuals or entities in years when they had an interest in a pending federal court case on appeal or at the high court, records show.”
• “The donors include corporations like Chevron, which gave while embroiled in a 2021 Supreme Court case involving efforts by cities to hold the oil company accountable for its role in global warming.”
• “Virtually no one interviewed by The Times, including critics of the society’s fund-raising practices, said they believed that donations to the society had any bearing on cases before the justices.”
• “But as polls show public approval of the court at an all-time low, amid widespread concern that the institution has become increasingly politicized, even some supporters said it might be time to rethink the Supreme Court Historical Society’s reliance on secretive private donations.”
• “One way the society attracts such corporate largess is by courting top corporate lawyers with deep attachments to the court.”
• “Take Chevron, for instance. It began giving in 2010, the year after it hired R. Hewitt Pate, a former Supreme Court clerk and society trustee, as its general counsel. It has given every year since, for a total of $190,000, even as the Supreme Court heard a number of cases involving the company.”
• “‘We have given to the historical society in the spirit of furthering its stated mission of preserving the court’s history,’ said a Chevron spokesman, Sean McCormack. ‘There is no other motivation.'”

Happy New Year!

Lucian Pera [Partner, Adams and Reese] kindly passed along a link to the recording of the “rollicking” risk year and review webinar he presented with Trish Rich [Partner, Holland & Knight] in December.

I was able to join the session and found it worthwhile.

• They “offered practical guidance from ethics opinions and case law from all over, and review what lawyers should know to protect their clients and themselves and practice more effectively.”
• Topics covered included:
  • Judicial ethics and recusal
  • Responding to negative online reviews
  • Crowdfunding
  • Dealing with bad client conduct
  • Cybersecurity
  • Plagiarism
  • Conflicts of interest
  • …and more!

For those who’d like to watch, you can access the recording here.

And for those who’d like a preview or just the “class notes” they kind provided their slides, which are available here.