Bressler Risk Blog

“‘I Was Kind of Dumbfounded’: J&J Lawyers Testify in Talc Disqualification Hearing” —

• “A senior in-house attorney for Johnson & Johnson told a pair of judges on Monday that an alliance between a former member of his legal team and talc plaintiffs’ attorney Andy Birchfield was the ‘most egregious breach of ethical obligations I have ever heard of, ever seen.'”
• “At an evidentiary hearing, Erik Haas, Johnson & Johnson’s worldwide vice president of litigation, told Steve Brody, a partner at O’Melveny & Myers in Washington, D.C., that he was shocked when his former outside counsel, John Conlan, teamed up with Birchfield, of Montgomery, Alabama’s Beasley Allen, to propose settling the talc litigation for $19 billion.”
• “‘We were utterly shocked and appalled that our former counsel was conferring with our adversary,’ Haas said, ‘by proposing an alternative transaction based upon the same matter and same issues he had represented us extensively for 21 months.'”
• “But he and an outside lawyer for Johnson & Johnson, Jim Murdica, of Barnes & Thornburg in Los Angeles, had more recent revelations: they had no idea Conlan began working with Birchfield as early as April 2023, about six months before they originally learned about the alliance, until plaintiffs’ lawyers submitted a privilege log a few weeks ago in the multidistrict litigation describing confidential communications between them.”
• “‘I was kind of dumbfounded—and I was in close contact with the mediators’” Murdica testified on Monday. ‘I was extremely concerned. In my career, I’ve never seen anything like that.'”
• “Jeffrey Pollock, a partner at Fox Rothschild in Princeton, New Jersey, who represents Birchfield, objected to testimony about the communications in the privilege logs, calling it ‘rank speculation.'”
• “The hearing, before Atlantic County Superior Court Judge John Porto and U.S. Magistrate Judge Rukhsanah Singh, both in New Jersey, comes after Johnson & Johnson filed motions to disqualify Birchfield and his firm from leadership of the talc litigation. Beasley Allen principal Leigh O’Dell is co-lead plaintiffs’ counsel in the talc MDL.”
• “The disqualification motions allege Birchfield partnered with Conlan, who was a partner at Faegre Drinker Biddle & Reath until 2022, to push a talc settlement that was more than double the amount Johnson & Johnson offered as part of the second bankruptcy of its subsidiary, LTL Management.”
• “Birchfield’s lawyer, Pollock, has called the allegations ‘smear tactics’ and an unprofessional ‘locker-room brawl.'”
• “Monday’s hearing continued to be contentious, with objections back and forth. ‘Listen to my question for once,’ Pollock told Haas on cross-examination. ‘The process is not the Erik Haas show.'”
• “Both Porto, the judge in the talc multicounty litigation in New Jersey state courts, and Singh, who is overseeing the talc multidistrict litigation in the U.S. District Court of New Jersey, found that more evidence was needed.”
• “Haas, on direct examination, said he was ‘intimately familiar’ with Conlan’s work on the Johnson & Johnson talc litigation, calling him a ‘central figure in strategic decision making in connection with this team.'”
• “‘We would have weekly calls where we were collectively litigating and adjudicating the talc litigation,’ he said. ‘From the very first conversation I had and throughout the entire time Mr. Conlan was representing Johnson & Johnson, we had repeated discussions—many, many discussions—over whether and to what extent the cases should be resolved in bankruptcy or completely outside bankruptcy.'”
• “He said Conlan, who now runs Legacy Liability Solutions, approached him about a proposal to resolve the talc litigation, but he didn’t know at the time Birchfield was working with him. The idea was for Legacy to administer funds to settle talc claims, absorbing LTL and other entities with talc liabilities. Johnson & Johnson turned him down, citing its auditor’s concerns.”
• “Conlan’s Oct. 18 letter was the first time he revealed working with Birchfield—that is, until the privilege logs came up a few weeks ago showing a longer relationship between the two of them.”
• “‘We now know it’s even more egregious, because it wasn’t the first time,’ Haas said.”
• “Pollock attempted to downplay the accusations that his client was pushing for a settlement with a dollar figure that would provide more legal fees for him. He brought up two experts for Johnson & Johnson in its bankruptcy that estimated the cost to resolve the talc litigation would be $11 billion to $21 billion. He also questioned whether Conlan had breached any ethics.”
• “‘You accused him of being a side-switching lawyer,’ Pollock told Haas. ‘How can he be a side-switching lawyer if he’s not representing a client in the matter other than himself?’ Haas explained that Conlan is working with Johnson & Johnson’s adversary on the same matters ‘That is a side-switching lawyer,’ he said. Porto previously ordered that both Conlan and Birchfield must testify at the hearing. On Monday afternoon, he said he would schedule another day of the hearing at a later date.”

Mark Hinderks, Stinson LLP’s legal ethics and professional responsibility practice writes: “Is It a Conflict of Interest to Be Adverse to a Former Firm Client Who Has Left With a Departing Lawyer?” —

• “Question: I am a lawyer with a midsized firm. With the mobility of lawyers moving laterally in recent years, it is not uncommon for a lawyer to join us as a new partner with their own set of clients whose matters they bring with them to the firm. Regrettably, we also sometimes lose partners to other firms, who then depart with some or all of the clients with whom they have built relationships. This type of movement seems to be a part of the modern practice of law but creates sometimes confusing conflict of interest issues.”
• “Recently, one of our partners left the firm to join another firm. We were able to amicably and jointly communicate to clients for which she was responsible about her departure, some of which chose to stay with our firm and some of which determined to transfer their files and matters to the exiting partner’s new firm. X Company, a client that the partner had earlier brought to the firm chose to move all their matters with her to her new firm. She took all of the client files (paper and electronic), and also took with her the only associate who had worked on any of X Company’s matters. “
• “Now, a couple of months later, a dispute has erupted between one of my clients and X Company, and they want me to represent them in a suit against X Company. I am concerned that the company was also a client of our firm only about 60 days ago. Does this create a conflict issue for us either under the former client Rule 1.9, or the imputation of conflicts Rule 1.10?”
• “Answer: These facts present an interesting twist on the Model Rules’ protection of the interests of ‘former clients.’ Rule 1.9 duties to former clients seek to prevent a lawyer from using confidential information gained in a previous representation from being used to the former client’s disadvantage when representing a different client, and to prevent a changing of sides. The rule accomplishes this by limiting adversity in the ‘same or substantially related’ matters. See Rule 1.9, Comments 1-2.”
• “In your situation, however, these interests are not implicated because your firm no longer has in its possession any confidential information relating to the matters of the former client X Company; there is no lawyer remaining at the firm who was exposed to X Company’s confidential information, and there is no lawyer remaining at the firm who would be ‘switching sides’ if you or another lawyer at the firm were to now be adverse to X Company.”
• “This situation is expressly accounted for in Rule 1.10(b), which provides that when a lawyer has terminated their association with a firm, the firm is not thereafter prohibited from being adverse to a client represented by that formerly associated lawyer, and not currently represented by the firm, unless it is the same matter or substantially related to that in which the formerly associated lawyer represented the client while at the firm; or any lawyer remaining in the firm has confidential information protected by Rules 1.6 and 1.9(c) that is material to the matter, in any form, paper, electronic or in their head.”
• “Here, all the records are gone, and the only lawyers who had knowledge of the former client’s confidential information in their heads are also gone. Therefore, provided the new matter is not the same or substantially related to a matter for X Company while the partner who left represented them at your firm, neither you nor your firm have a conflict of interest that precludes current adversity. Good luck with the new matter.”

“Law firm conflicts ‘permeated FTX’s bankruptcy’, professors allege” —

• “Two law professors have claimed that Sullivan & Cromwell put its own interests before that of FTX’s stakeholders, reviving criticism over the law firm’s role in the bankrupt cryptocurrency exchange’s rise, collapse and unwinding.”
• “The firm’s ‘apparent conflicts of interest permeated FTX’s bankruptcy filing and every aspect of the case,’ Jonathan Lipson of Temple University and David Skeel of the University of Pennsylvania wrote in a paper published online earlier this month.”
• “The two academics focused on the 20 M&A and regulatory assignments that S&C worked on for FTX, for which it earned just under $10mn in the months leading up to the exchange’s November 2022 bankruptcy filing. “
• “Through that work, ‘S&C knew, or was in a position to know, that FTX was co-mingling customer assets,’ the professors contended, referring to FTX founder Sam Bankman-Fried’s misuse of account holder funds. “
• “John Ray, the chief executive appointed to oversee FTX, said in a statement on behalf of the company and its advisers: ‘The paper is simply not research but uninformed and unsupported allegations’ that ‘grossly mischaracterises the facts.'”
• “The office of the US Trustee, a part of the Department of Justice that represents the public interest in bankruptcy cases, initially objected to S&C’s retention, arguing that the law firm had failed to properly disclose the full extent of its connections to FTX. Several US senators also voiced concern.
• “But the trustee eventually lifted its objection after the law firm provided more details of its previous work, and the court approved S&C’s hiring. According to court filings, S&C has reaped $184mn in fees, including billings and reimbursements, between November 2022 and January 2024.”
• “The professors further contended that ‘S&C may have violated ethical duties of confidentiality, candour, and loyalty by reporting allegations of these crimes to prosecutors . . . by duping Bankman-Fried into giving control of FTX to Ray.'”
• “‘For well over a year, S&C and Ray had free rein to marshal and manage conflicting claims about the public and private interests at stake as they saw fit,’” the professors wrote. ‘These conflicts appear to have reduced recoveries, even as they have enriched S&C.'”
• “People close to S&C and FTX noted that all the company’s actions had to be approved by the bankruptcy court with the consent of the US Trustee and creditors, and pointed out that Bankman-Fried had several lawyers personally representing him in November 2022. Moreover, they said account holders could potentially receive the full amount of their claims by the time the bankruptcy was finished.”
• “Lipson and Skeel said they ran into each other last autumn during oral arguments before an appeals court over the examiner’s appointment. They decided afterwards to collaborate on the article about the duties of lawyers, which is to be published in the Stanford Law Review.”
• “They said there was a ‘firewall’ in place so Bankman-Fried’s parents, who are Stanford law professors, had no knowledge of the article prior to submission. Skeel said he had no interaction with the Bankman-Frieds and handled all interactions with the Stanford publication. The pair did not call S&C or FTX prior to publication but said they welcomed any feedback. “

“In public, Suarez says he’s not Ken Griffin’s attorney. Under oath, he said differently” —

• “Miami Mayor Francis Suarez has long said that he has no conflict of interest when it comes to his public support for billionaire hedge funder Ken Griffin, a major client of the law firm where Suarez is employed.”
• “But in an interview conducted under oath in December, Suarez contradicted previous public statements and said he is one of Griffin’s attorneys — a potential violation of ethics laws prohibiting elected officials from working for anyone who has business before their government.”
• “In his sworn statement to a state ethics investigator, Suarez said Griffin was not just a client of the law firm where he works, but his own personal client. The mayor made that point as part of a successful effort to get the Florida Commission on Ethics to dismiss an unrelated complaint against him.”
• “But in calling Griffin “my client,” Suarez also raised a possible conflict of interest under Florida law, given that Griffin is lobbying the city for various permissions as he moves his personal residence and company headquarters to South Florida.”
• “While Florida laws governing outside employment would not prevent the mayor from working for a firm whose clients have official business with the city of Miami, the law prohibits Suarez from doing legal work for those clients, according to a formal ethics opinion issued to Suarez in 2021.”
• “And Suarez would be in violation of state ethics laws, the letter warned, if ‘any client for whom he is performing legal services is conducting business with [not just the City Commission, but] any subordinate city board or staff.’ The restriction would apply, the ethics officials wrote, regardless of whether Suarez recused himself from any related city matters.”
• “The mayor’s office is now walking back Suarez’s sworn statement. In response to the Herald’s latest questions, the mayor’s director of communications, Stephanie Severino, said Griffin ‘is not and has never been a personal client of Mayor Suarez.’ Nor, she said, is Suarez on Griffin’s account at the law firm where Suarez works.”
• “When the Herald asked Florida Commission on Ethics spokesperson Lynn Blais about Suarez’s comment and whether it presented a conflict of interest for him if Griffin were in fact his direct client, she wrote by email: ‘We cannot give an opinion about a person’s conduct… a public officer or public employee who is in doubt about the applicability of the standards conduct to himself or herself may seek an advisory opinion from the Commission'”