Bressler Risk Blog

“DOJ Watchdog Seeks to Reverse Some Fees Paid to Law Firm Jackson Walker” —

• “The Justice Department division that oversees the nation’s bankruptcy courts is seeking to reverse prior court orders granting fees to a Texas law firm that employed a lawyer who had an undisclosed romantic relationship with the presiding judge.”
• “Former Houston bankruptcy judge David R. Jones awarded about $13 million to law firm Jackson Walker for its work in more than two dozen chapter 11 cases over recent years, including about $1 million in fees billed by Elizabeth Freeman, his intimate partner, without either of them disclosing their relationship, the U.S. Trustee’s office said in legal motion filed Thursday. The trustee noted that Jones first confirmed his relationship with Freeman in an interview with The Wall Street Journal last month, and resigned days later after an ethics complaint from a federal court found probable cause to believe that the judge had committed misconduct.”
• “Jackson Walker previously told the Journal that the firm in March 2021 first learned of an allegation that Freeman was in a relationship with Jones. Jackson Walker declined to comment at the time on when it verified that the relationship was real. The firm added that it was either by or before December 2022, when Freeman left Jackson Walker to start her own firm, the Law Office of Liz Freeman.”
• “‘The bankruptcy system was significantly compromised in this and other bankruptcy cases by the undisclosed intimate relationship between Jones and Freeman,’ the trustee said. ‘Jackson Walker’s misconduct in this and other bankruptcy cases risks the public’s confidence in the integrity that is vital to the very legitimacy of the bankruptcy process.'”
• “The secret relationship created an unlevel playing field for every party in interest in every case Jackson Walker had before Jones, as well as Jackson Walker cases in which Jones served as mediator instead of as presiding judge, the trustee said. ‘Judge Jones’s, Freeman’s, and Jackson Walker’s actions have injured the court and cast a cloud on dozens of bankruptcy proceedings.'”
• “The trustee filed similar motions in at least three bankruptcy cases seeking to vacate all orders in which Jones approved fees to Jackson Walker, which would mean that the orders would be nullified. ‘Vacating all orders granting fees and expenses in this case would allow parties in interest, including the United States Trustee, to object to, and to seek the return of, fees and expenses awarded to Jackson Walker under that tainted process,’ the trustee said.”

“China Firm Funds US Suits Amid Push to Disclose Foreign Ties” —

• “A Chinese firm is financing four intellectual property lawsuits in US courts as Congress members scrutinize the role of foreign investment in American litigation and seek to ban the practice in some instances.”
• “Purplevine IP, a Shenzhen, China-based company that touts itself as a provider of one-stop patent solutions, is paying the cost of the lawsuits against Samsung Electronics Co. and a subsidiary, said Daniel Staton, chairman of private equity firm Staton Capital. Boca Raton, Fla.-based Staton Capital is the majority owner of a tech firm, Staton Techiya, bringing the four suits.”
• “Litigation finance is estimated to be a $13.5 billion industry in which investors pay up-front costs of lawsuits in return for some of the proceeds if cases are successful. While UK and Australia firms have been investing in US lawsuits for years, the disclosure of a Chinese company paying for American litigation is rare.”
• “House Speaker Mike Johnson (R-La.) and two other lawmakers in September introduced legislation (H.R. 5488, S. 2805) that would require disclosure of foreign entities funding lawsuits in US courts. The proposal would ban sovereign wealth funds and foreign governments from engaging in the practice.”
• “‘Leaving our courts unprotected from foreign influence—such as from China—poses a major risk to US national security,’ Sen. John Kennedy (R-La.) said in a statement at the time of the bill’s introduction. Sen. Joe Manchin, (D-W.Va.) is also an author of the bill, which is backed by the US Chamber of Commerce and pro-market policy group R Street Institute.”
• “The extent of the role domestic or foreign funders play in US litigation is mostly unknown, as few states and courts require disclosure of the practice. Purplevine’s role was revealed because a Delaware federal judge, Colm F. Connolly, issued a standing order in April 2022 insisting that litigation finance be disclosed for cases in his courtroom. The case was transferred to another judge on Nov. 3.”
• “Purplevine has 400 people in 10 offices worldwide, according to its website. The company’s chief executive officer, Victor Yang, is also vice president/group general counsel for Chinese consumer electronics giant TCL Corp., according to his LinkedIn profile and a September TCL news release that quotes him.”
• “When asked about the relationship between TCL and Purplevine in the case in Judge Connolly’s courtroom, Yang responded via a TCL email address that ‘Purplevine is a management controlled IP firm. It funded the case out of its own decision, which has nothing to do with TCL.'”
• “The disclosure of a litigation funder tied to China ‘is our worst fears confirmed,’ said Joe Matal, former acting director of the US Patent and Trademark Office. ‘Anything China does is concerning because nothing over there is really independent,’ said Matal, who founded intellectual property firm Clear IP.”
• “But Gary Barnett, executive director of the International Legal Finance Association, said national security concerns around litigation finance are ‘pure speculation.'”

“Exclusive-Law firm tied to bankruptcy judge resignation did not make conflict disclosures -data analysis” —

• “A Texas law firm did not follow standard disclosure practices in at least 27 cases that might have revealed its former partner was secretly in a romantic relationship with U.S. Bankruptcy Judge David Jones while the firm was appearing before him, a data analysis by Reuters has found.”
• “Jackson Walker, a firm with nearly 500 lawyers and deep roots in the state, failed to disclose in court filings in major bankruptcy cases including oilfield services company McDermott International whether it had checked for connections between its attorneys and any judges on the Houston court, according to a review of the docket.”
• “Court records show Jones approved millions of dollars in fees for Jackson Walker, the leading local counsel firm for corporate debtors filing for bankruptcy in Houston since 2019, according to Bankruptcydata.com. Freeman became a partner in 2018.”
• “Jackson Walker said in a statement following Jones’ public acknowledgement that it first learned in March 2021 of an allegation of a romantic relationship between the judge and Freeman, who joined the firm after six years working as a clerk for Jones.”
• “Jackson Walker said it investigated the allegation and consulted with outside ethics experts, and instructed Freeman not to work or bill on any cases before Jones. It did not identify the ethics experts it consulted or say what it learned from the investigation.”
• “Law firms and other professionals employed by debtors are required under a bankruptcy rule to publicly list potential connections so that judges and other parties in the bankruptcy can assess if there might conflicts of interest.”
• “The rule does not mention judges specifically; it refers to debtors, creditors and ‘parties in interest.’ But disclosing connections to judges appears to be a standard practice. In the court filings Reuters reviewed, the larger national law firms that worked for the debtor alongside Jackson Walker always indicated that they had searched for connections to the judges on the bankruptcy court.”
• “Reuters reviewed Jackson Walker’s initial applications to represent debtors with at least $1 billion in debt that were filed in Houston since 2018 to the present. The list was compiled by Debtwire.”
• “Jackson Walker filed applications in 30 such cases in Houston during the period, according to the Reuters analysis of court records. In only three applications did it file papers indicating that it had searched for connections to judges, and the firm said it had found none. It was not immediately clear why Jackson Walker searched for connections to judges in these three cases and apparently not the others.”
• “If Jackson Walker lawyers knew of the relationship between Jones and Freeman but failed to report the connection in cases the firm was involved in, they may face accusations of having violated bankruptcy disclosure rules, eight legal experts said. Such violations can result in disgorgement of fees or even, in rare cases, criminal prosecution, they said.”
• “In addition, there could be violations of rules of professional conduct, which require lawyers to report to the state bar association if they became aware of another lawyer whose conduct raises a substantial question about their honesty, the experts said. Violations of the rules could lead to a loss of a license to practice.”
• “These reports are rare, as are findings of violations, the experts said.”

“Proskauer Nearing Settlement with Ex-COO in Trade Secrets Suit” —

• “Proskauer Rose is close to reaching a settlement with a former executive it accused of stealing a huge swath of records relating to its finances and business strategy before leaving the firm.”
• “Proskauer and Jonathan O’Brien, the firm’s ex-chief operating officer, are ‘optimistic’ they can finalize a settlement agreement within 30 days, according to a letter submitted Tuesday by O’Brien’s counsel, Russell Beck. Beck asked the court to pause proceedings in the matter until Dec. 3.”
• “The letter arrives nearly a year after Proskauer sued O’Brien in New York’s Southern District alleging he pilfered electronic files related to the firm’s finances, strategy and billing rates before abruptly resigning last December. The firm claimed O’Brien planned to use the files for a then-planned role at rival Paul Hastings, though the latter firm said in January O’Brien would not be joining.”
• “O’Brien has denied allegations of stealing, claiming he had copied the firm’s confidential information on two hard drives to work on issues relating to his exit while on vacation on a remote tropical island in the Indian Ocean.”
• [Previously on this]

Three lawyers at Kramer Levine say: “Proposed Expansion of Auditor Liability Would Be Ill-Advised” —

• “A proposed negligence standard that would expand the liability of accountants for contributing to rule violations is unreasonable given the growing complexity of audits, say Kramer Levin’s Michael Dell, Daniel Ketani, and Samantha Alman.”
• “The Public Company Accounting Oversight Board’s proposed revisions in September to its Rule 3502 significantly expand its authority to impose liability on accountants for contributing to a violation of PCAOB rules, securities laws, or professional standards. The board shouldn’t make these changes. The deadline for comments on the proposal is Nov. 3.”
• “Rule 3502 prohibits people associated with registered public accounting firms from taking or omitting an action while ‘knowing, or recklessly not knowing, that the act or omission would directly and substantially contribute to a violation.’ This means the PCAOB must establish scienter—at a minimum, an ‘extreme departure from the standard of ordinary care for auditors’ in the face of a known or obvious risk.”
• “The board wants to replace this with a negligence standard, under which an associated person could be fined and prohibited from associating with a registered public accounting firm for an ‘act or omission that the person knew or should have known would contribute’ to a primary violation. The accountant’s intent wouldn’t matter.”
• “The PCAOB acknowledges its proposal nearly mirrors the original version of Rule 3502 it proposed in 2004. Back then, the PCAOB changed its mind, instead deciding a scienter requirement ‘strikes the right balance.’ Now it suggests that developments in the law and the auditing profession in the past two decades warrant expanding its authority to discipline auditors.”
• “That logic is flawed. First, its proposed changes to Rule 3502 stand on shaky legal ground. The Sarbanes-Oxley Act of 2002, which created the PCAOB, doesn’t mention what the PCAOB calls ‘contributory liability.’ Section 105(c)(6) of the act creates secondary liability for certain supervisors of associated persons who commit violations, but it includes requirements and a safe harbor that are absent from Rule 3502.”
• “Chair Erica Williams observed in September that the Securities and Exchange Commission is able to ‘seek civil money penalties in enforcement actions against associated persons when they negligently cause firm violations.’ But Congress extended that authority to the SEC, not the PCAOB. And while the SEC can discipline accountants for ‘improper professional conduct’ that contributes to a violation of professional standards, the bar is much higher than what the PCAOB has proposed: The SEC must prove that the accountant engaged in ‘intentional or knowing conduct,’ ‘highly unreasonable conduct,’ or ‘repeated instances of unreasonable conduct.’”

“Yelp’s Failed Attempt to Block Paul Weiss From Google Antitrust Case Shows Obstacles to Big Law DQ Bids” —

• “A recent ruling allowing Paul, Weiss, Rifkind, Wharton & Garrison to continue representing Google in antitrust litigation, despite not seeking a waiver from former client Yelp, shows it takes more than alleging an inherent client conflict to get a large firm kicked off a case.”
• “Nonparties Yelp and News/Media Alliance had filed a motion to disqualify the Am Law 50 firm, with Yelp arguing that it retained Paul Weiss in 2016 to provide legal counsel on several antitrust matters. That representation, Yelp argued, included communications between counsel and federal antitrust enforcement officials regarding Google’s business practices and how that alleged conduct impacted Yelp’s business decisions, according to the opinion filed Oct. 16 in the U.S. District Court for the Eastern District of Virginia. “
• “Paul Weiss never sought a conflict waiver from Yelp or NMA for the present litigation, which the U.S. and eight states commenced in January, seeking substantial damages on behalf of federal agency advertisers, equitable relief and divestiture of Google’s digital advertising business, the opinion said.”
• “However, in ultimately rejecting Yelp’s motion, Judge Leonie M. Brinkema first considered whether Paul Weiss violated Virginia’s Rules of Professional Conduct pertained to former clients and representing a person with interests directly adverse to those of a client represented by a lawyer who formerly was associated with the firm.”
• “‘Here, Paul Weiss represented Yelp and NMA three years ago, primarily to communicate with federal antitrust officials regarding Google’s purported anticompetitive conduct in the Internet search industry,”’ Brinkema wrote in her opinion. ‘That representation was led by lawyers who are no longer at the firm—with one exception, Daniel Crane, who is no longer participating in the Ad Tech litigation… As such, Yelp and NMA have failed to provide ‘patently clear’ evidence demonstrating how specific confidential information Paul Weiss may have obtained during the previous representation is substantially related to the dispute in the instant litigation.'”
• “However, as an apparent precautionary measure, Brinkema ordered Paul Weiss to screen its attorneys and support staff to see if any of them participated in the previous representation of Yelp or NMA in relation to Google’s alleged anticompetitive conduct. If so, Paul Weiss is ordered to prohibit those members from participating in the present action, the judge ordered.”
• “Still, Brinkema said that a violation of the rules ‘does not automatically yield disqualification of counsel.’ In Google’s case, disqualification of Paul Weiss ‘this late stage in a complex, and fast-moving case would impose unnecessary expense, risk a delay in the trial and waste both plaintiffs’ and Google’s resources,’ she wrote.”
• “The ruling in the Google case is the latest example of a judge deciding a large law firm had taken adequate steps to avoid a conflict. The ruling in Google’s case is the latest example of a judge taking mitigating steps around an issue, rather than completely disqualifying Paul Weiss.”
• “In another case, the U.S. Court of Appeals for the Third Circuit ruled in September 2022, that White & Case was not conflicted out of a bankruptcy case after hiring a partner from opposing counsel Sidley Austin who previously worked on the matter.”
• “When Jessica Boelter, who had participated in the initial pitch by Sidley to represent YPF and billed 300 hours on the representation, moved to White & Case, she went through a standard conflict-screening process. On Boelter’s first day, White & Case implemented an ethical wall, obtained Boelter’s agreement to comply with that wall and periodically certified that compliance, according to the opinion.”
• “But YPF ‘never thought any screen could be good enough’ and moved to disqualify White & Case, according to Judge David J. Porter, who wrote the opinion for the Third Circuit. The bankruptcy court denied YPF’s motion after applying a multifactored test, finding no exceptional circumstances existed to impute Boelter’s conflict to the entire firm despite a screen, according to the opinion.”
• “More recently, over this past summer, a federal judge denied Coca-Cola Co.’s motion to disqualify its longtime outside counsel Paul Hastings from representing a startup that filed a $100 million lawsuit against Coke. U.S. Magistrate Judge Robert Norway of the Middle District of Florida found that Paul Hastings’ representation of the startup was a conflict, but that Coke signed an enforceable conflict waiver in 2021.”
• “There’s a laundry list of potential conflicts law firms must watch out for, from attorneys having their own financial interest from a separate business to lawyers needing to serve as witnesses.”
• “But University of Arizona James E. Rogers College of Law Professor Keith Swisher found that nearly half of federal motions filed for disqualifications tracked in civil cases between 2003 and 2013 were related to a former client, he wrote in ”The Practice and Theory of Lawyer Disqualification,” which was published in the Georgetown Journal of Legal Ethics in 2014.”
• “For that same decade, nearly 74% of civil disqualification motions were denied, Swisher’s research showed.”

And more on the aforementioned research (curious how the last decade compares to the 2003-2013 data presented in here): “The Practice and Theory of Lawyer Disqualification” —

• “Lawyer disqualification is commonly feared as a ‘strategic,’ ‘tactical,’ and ‘harassing’ ‘potent weapon’ depriving clients of their trusted counsel of choice. Although disqualification comes with costs, fundamental misunderstandings fuel this common fear.”
• “This Article finds that disqualification is a uniquely effective remedy for lawyer misconduct and makes the following contributions to the law and practice of lawyer disqualification:
  • (1) an exhaustive study surveying disqualification cases and refuting the common misconception that disqualification motions are uncontrollably on the rise and uncontrollably bad;
  • (2) an accessible analysis of lawyer disqualification doctrine that permits lawyers and judges to begin assessing common disqualification questions efficiently and comprehensively; and
  • (3) specific suggestions for practical improvements, including cost-shifting, legal presumptions, and better procedures in disqualification proceedings.”

“Nevada Walgreens Lawsuit Raises Conflict of Interest Concerns” —

• “The law firm chosen for the Walgreens opioid-related lawsuit was Egglet Adams, the firm where Attorney General Aaron Ford worked as a partner before taking up his current office. Now some are raising concerns about a conflict of interest.”
• “In July, Attorney General Aaron Ford announced the state had settled with Walgreens for $285 million, holding the pharmacy chain responsible for its role in the opioid epidemic in Nevada. Of that $285 million awarded, at least $65 million went to attorney fees. The law firm chosen for the lawsuit was Egglet Adams, the firm where Attorney General Aaron Ford worked as a partner before taking up his current office. Now some are raising concerns about a conflict of interest.”
• “Additionally, Senate Minority Leader Heidi Seevers Gansert told 2 News that the cap for outside attorney fees increased from $10 million to 25% in 2017 when Ford was the Senate Majority Leader. The statute change happened in the final hours of the 2017 legislature when normal legislative oversight rules were lifted. Two years later in 2019 when Ford was Attorney General, his office selected Egglet Adams, his former firm, for opioid-related lawsuits.”
• “The Communications Director for the Attorney General’s office told 2 News that Attorney General Aaron Ford did not play any role in selecting Egglet Adams. The selection was based on the fact that Egglet Adams is one of the few firms that can bear the upfront costs of lawsuits where evidence gathering costs tens of millions of dollars. Additionally, Nevada received more money by pursuing its lawsuit with the help of Egglet Adams than it would have by joining a multistate case.”
• See the video report from local TV news KTVN: Here.

“Prosecutor: Fred Daibes faces conflict of interest with lawyer in NJ bank fraud case” —

• “Fred Daibes, the prominent North Jersey developer charged alongside Sen. Bob Menendez in alleged bribery scheme, faces a conflict of interest with the attorney who represents him in a New Jersey bank fraud case that dates back to 2018, federal prosecutors say.”
• “Daibes is one of five people indicted in an alleged corruption scheme involving Menendez and his wife, Nadine Arslanian Menendez, in a separate case. Daibes pleaded not guilty last week to the superseding indictment.”
• “An attorney representing the United States in the bank fraud case said he believes there is a potential conflict of interest with Daibes’ attornies, Lawrence S. Lustberg and Anne Collart of Gibbons P.C., related to the Menendez indictment.”
• “The indictment shed light on Menendez’s alleged interference with Daibes’ bank fraud charges, saying Menendez nominated a U.S. attorney he believed he could influence in Daibes’ favor.”
• “Hana is represented by Lustberg in the Menendez indictment. ‘Mr. Lustberg knows certain facts allegedly relevant to those charges,’ wrote Vikas Khanna, first attorney for the United States in the district of New Jersey, in a letter to United States District Judge Susan D. Wigenton on Wednesday.”
• “The government requested that Daibes be made aware of the potential conflict of interest and if appropriate, sign a voluntary waiver to continue with Lustberg as his attorney. U.S. District Judge Sidney Stein repeatedly asked Hana if he wanted new representations at the arraignment last week.”
• “Stein noted that Lustberg could be called as a witness because he serves as Daibes’ attorney in a different federal case based in New Jersey. Hana said he was satisfied with Lustberg even after Stein reiterated that he would not be able to appeal on the grounds that Lustberg was conflicted at the end of the trial.”
• “That same day, Hana signed a waiver of any potential conflict of interest caused by Lustberg’s potential conflict of interest by counsel’s concurrent representation of Daibes, according to court documents.”
• “A status conference hearing — originally a sentencing date before a judge withdrew a plea deal for the bank fraud charges — was held for Daibes on Thursday. During the hearing, the potential conflict of interest was discussed for 45 minutes, court records show. The hearing is scheduled to continue on Nov. 16.”
• “Last month, corruption and bribery charges were filed against Menendez by the U.S. attorney for the Southern District of New York. The unsealed indictment said Menendez accepted hundreds of thousands of dollars in bribes from three New Jersey businessmen, including Daibes, in exchange for helping them enrich themselves and trying to get them out of trouble.”