Bressler Risk Blog

“FTX seeks to reassure court on bankruptcy lawyers’ potential conflicts” —

• “A U.S. judge on Friday signed off on FTX’s choice of legal advisers to navigate its bankruptcy, after the collapsed crypto exchange told the court it had reached an agreement with the U.S. Department of Justice removing one of the biggest obstacles to the law firm’s appointment.”
• “The U.S. Trustee, the Justice Department’s bankruptcy watchdog, and two of FTX’s creditors had objected to FTX hiring Sullivan & Cromwell, arguing the New York law firm had not disclosed sufficient information about its past ties to FTX. These ties, they said, include the fact that FTX’s U.S. general counsel, Ryne Miller, is a former partner at the firm.”
• “Dorsey said the objectors had not shown that there was an active conflict of interest between FTX and the firm, and to the extent that conflicts could arise there were procedures in place to deal with that.”
• “Former top FTX attorney Daniel Friedberg had also opposed Sullivan & Cromwell’s hiring in court filings on Thursday, saying that the law firm had overbilled for legal work and had conflicts of interest stemming from its connections to Miller.”
• “FTX creditor Warren Winter asked Dorsey to delay Sullivan & Cromwell’s approval until Friedberg’s allegations were investigated. The judge denied the request, saying that Friedberg’s court filing was not properly presented to the court and ‘full of hearsay, innuendo, speculation and rumors.'”
• “Sullivan & Cromwell has told the court it should not be disqualified simply because it performed some pre-bankruptcy work for FTX. A Sullivan & Cromwell spokesperson has said the firm had a ‘limited and largely transactional’ relationship with FTX prior to the bankruptcy and never served as primary outside counsel to any FTX entity.”

“Tulare hospital board settles suit against former attorney and law firm” —

• “The Tulare Local Healthcare District now has $3 million more in its bank account after settling a lawsuit against Bruce Greene – its former attorney – and the firm he works for, Baker Hostetler.”
• “The settlement doesn’t impact charges that the Tulare County District Attorney’s office has brought against Greene centering around his time working for Tulare and the district’s former management partner, Healthcare Conglomerate Associates (HCCA), and it doesn’t impact a California State Bar complaint lodged by the district against Greene.”
• “Kevin Northcraft, the district board’s president, told the Valley Voice that the settlement amount was nearly equal to what the district had paid Greene and the Baker firm.”
• “‘We have 88,000 people in our district, and they were all harmed by this law firm,’ he said. ‘Getting back virtually everything we paid them is some justice for the people that were harmed.'”
• “The lawsuit alleged that Greene and the Baker firm breached their fiduciary duty to act in the best interest of the district by drafting a resolution that would allow HCCA to seek $22m in loans on the district’s behalf, among other claims.”
• “The lawsuit also claimed Greene and the firm were professionally negligent by allegedly failing to disclose the potential conflicts of interest in representing HCCA, its owner Benny Benzeevi, and the district at the same time.”

“Louisiana Personal Injury Firm Sanctions Upheld in Conflict Row” —

• “A personal injury law firm in Louisiana convinced a state appeals court to affirm $7,500 in sanctions and attorneys’ fees in connection with a case in which the firm was accused of having a conflict of interest.”
• “Rental equipment company Ahern Rentals Inc. sued former employees including Scott Helms and Chadd Turnage alleging theft of confidential information after they were hired by Ahern’s competitor, EquipmentShare.com Inc. Helms and Turnage were rehired at Ahern after losing their jobs at EquipmentShare, and Ahern moved to disqualify their former counsel at Veron Bice Palermo & Wilson LLC from representing the remaining individuals.”
• “Veron opposed disqualification and sought sanctions, asking why Ahern hadn’t dismissed its employees from the action and raising concerns about confidential strategies in litigation. The trial court rejected the bid for disqualification, and granted the sanctions request in the amount of $7,500 in costs and fees.”
• “The Court of Appeal of Louisiana, Third Circuit, affirmed that ruling Wednesday. The appeals court held that the evidence was sufficient to support the trial court’s ruling that Ahern was delaying the dismissal of Helms and Turnage as defendants in an attempt to gain information about EquipmentShare’s strategy.”
• “‘There is evidence that the motion at issue in this case was filed to cause unnecessary delay and as an abuse of process,’ Judge Elizabeth A. Pickett wrote in the opinion.”

“Sidley Austin Had No Conflict in Boy Scouts’ Bankruptcy Work” —

• “Sidley Austin LLP had no conflict of interest in representing the Boy Scouts of America in its bankruptcy case despite the law firm’s connection to one of BSA’s insurers, the Third Circuit ruled.”
• “Century Indemnity Co., a Chubb subsidiary, sought to have Sidley Austin disqualified from BSA’s bankruptcy case, arguing that the law firm had previously provided legal counsel to Century in certain reinsurance disputes.”
• “The district court had upheld a similar conclusion by the US Bankruptcy Court for the District of Delaware, triggering Century’s appeal to the Third Circuit.”
• “The bankruptcy court ‘looked carefully at the specific facts before it and reasonably approved BSA’s retention of Sidley,’ the Third Circuit said. ‘This is nowhere close to an abuse of discretion.'”
• “The Boy Scouts, which filed for Chapter 11 bankruptcy in February 2020 following former scouts’ claims of sexual abuse, has negotiated with Chubb and other insurers for victim payouts.”
• “Sidley is no longer actively involved in the bankruptcy case because the attorneys who represented the Boy Scouts moved to a new firm in September 2020.”
• “The law firm separated itself from the BSA’s insurance coverage issues and didn’t receive any relevant confidential or privileged information, according to the appeals court’s opinion. Sidley’s work for Century did not affect its ability to work for the Boy Scouts, the court said.”

“Firm Properly Barred for Having Confidential Information” —

• “The Ninth U.S. Circuit Court of Appeals has affirmed an order barring a law firm from continuing to represent the plaintiff based on the firm having received confidential information about the defendants from a disbarred lawyer who gained that information from them while purporting to be their counsel in earlier litigation.”
• “In a memorandum opinion filed Thursday, a three-judge panel found that District Court Judge Percy Anderson of the Central District of California did not abuse his discretion in disqualifying the Mirch Law Firm of San Diego from acting for Seyed Zia Eddin Ahmadi Abhari and others in an action under the Racketeer Influenced and Corrupt Organizations Act against Elias Nakhleh and others.”
• “At a business lunch in 2019—before the RICO lawsuit was filed and while cordial relations existed—Abhari told Nakhleh about his lawyer, Martin Reiner, recommending that Nakhleh utilize his services. Nakhleh took the advice, hiring Reiner and providing him with a $10,000 check for Nakhleh which he regarded as an Nakhleh attorney retainer fee.”
• “Nakhleh eventually developed a suspicion that Reiner was not licensed to practice law and, on March 6, 2020, queried in an email: ‘Is it not true that you have been suspended from practicing law? You have represented being an attorney to me multiple times.'”
• “[The Ruling Noted:] ‘The Court finds The Mirch Law Firm has committed several ethical violations. Based on the evidence provided, Mr. Reiner has falsely represented to Defendants that he was their attorney. The Mirch Law Firm is using Defendants’ privileged information, obtained by Mr. Reiner, to gain a tactical advantage in this case…'”
• “The judge noted that The Mirch Law Firm insisted that Reiner merely acted as a witness for it and “that they have cut off contact with Mr. Reiner following this Motion,” but declared that ‘the damage has already been done’ by giving the firm ‘privileged information which has allowed Plaintiffs to wrongfully acquire an unfair advantage in this case.'”

“EY Dumping Audit Business Is Bad News for Law Firms” —

• “News that Big Four accounting firm EY is considering spinning off its global audit business should sound a warning bell to law firms, as the big consultancies continue to encroach on the legal services business, according to industry observers.”
• “While the development seems aimed at dodging the increasing regulatory scrutiny that audit businesses appear to be facing, it also solves the conflict of interest barriers that EY faces in providing legal services. And there’s speculation that, if EY succeeds in jumping through the substantial hurdles necessary to separate the units, its Big Four peers will follow.”
• “James Jones, a senior fellow at the Center for the Study of the Legal Profession at Georgetown University Law Center, said accounting firms with audit businesses currently face a genuine constraint in moving seriously to legal because they cannot provide legal services for corporations that they audit.”
• “But while law firm managing partners may believe that the Big Four will never go head to head with them on litigation or legal advice, Jankowski [director of the Pacesetter Research team at ALM Intelligence] said they are still an existential threat to law firms. Jankowski explained that the Big Four use their legal service offerings as a way to become stickier with their clients.”
• “‘They approach clients when the client has a key event, such as M&A restructuring, an IPO, change management, or digital transformation projects,’ said Jankowski. ‘Being able to provide the legal services for these events is central to a law firm, but it’s a value add to an accounting or consulting firm.'”
• “‘If I were a big global law firm, I would view this with a little bit of alarm. I think it’s removing the last major obstacle to these firms providing legal services,’ said Jones, explaining that the definition of ‘legal services’ introduces a gray area. For instance, in some practice areas, like tax, nonlawyers—CPAs, for example—draft documents all the time, and therefore compete with lawyers already.”

“Sonos cites ‘vexing’ Google ties but won’t seek new judge in patent fight” —

• “Sonos Inc will not seek to disqualify San Francisco U.S. District Judge William Alsup or one of his law clerks in its patent dispute with Google LLC, the company said Friday, despite sounding alarms about the clerk’s ties to Google and its law firm.”
• “Alsup’s disclosure that one of his clerks previously worked for Google and still owns Google stock has created a “vexing situation” for Sonos, the company said in a court filing. It said it also believes the unnamed clerk worked for the law firm that represents Google, Quinn Emanuel Urquhart & Sullivan, while the dispute was pending.”
• “But since the judge has determined the clerk can be impartial, Sonos will not pursue a recusal bid, its lawyers wrote.”
• “Alsup last week rejected Sonos’ request for more information about the clerk. He also told the parties that the clerk placed his Google stock in a blind trust.”
• “In the case now before Alsup, Sonos sued Google in 2020, alleging its Chromecast streamers, Home speakers, Pixel phones, and other devices infringe its patents.”
• [Ed: A few days later, the clerk was removed from the case by the judge.]

“Saul Ewing Must Conduct Ethics Screen In Superfund Suit” —

• “A Pennsylvania federal judge on Tuesday said that because of ‘an appearance of impropriety,’ Saul Ewing Arnstein & Lehr LLP must conduct an ethics screen in Superfund litigation to ensure that the firm’s work on a similar matter for clients now on the opposite side doesn’t present a conflict.”
• “U.S. District Judge Gene Pratter said there’s no evidence of inappropriate conduct by Saul Ewing attorneys, but the fact that there is one who worked decades ago on litigation involving some of the same parties and the same site creates a situation that needs a remedy. Saul Ewing is currently representing heating and cooling company Fritch Inc. and industrial manufacturer O.F. Zurn Co., which have been sued by another group of potentially responsible parties — which raised the conflicts issue — over cleanup costs at the Metro Container Superfund cleanup site in Trainer, Pennsylvania.”
• “‘Here, regardless of whether there is an actual conflict, there is arguably an appearance of impropriety,’ Judge Pratter said in an order. ‘Without a doubt, counsel from Saul Ewing could, and should, have identified and raised this issue preemptively to avoid the appearance of impropriety, or at least, the important sideshow that has ensued.'”
• “The judge ordered Saul Ewing to implement a ‘comprehensive ethics screen’ of attorneys from the 1989 litigation.”
• “Metro Container Group said Saul Ewing should be disqualified from representing Fritch and O.F. Zurn because the firm’s representation is adverse to its former clients and will necessitate the disclosure of confidential information from the prior representation.”
• “Fritch and O.F. Zurn said Saul Ewing’s representation is not a conflict because the group that Saul Ewing represented in the prior action no longer exists, and that Metro Container Group waived its right to raise the issue because it waited years after Saul Ewing joined the present litigation to bring it up.”
• “‘Even assuming that certain members of the current Metro Container Group are former clients, Metro has not met its burden as the moving party to ‘prove that [its former lawyer] has actually revealed information relating to the representation of’ them,’ the judge said. ‘It is unfair to require Fritch and Zurn to find new counsel four years into this litigation while discovery is underway and most of the parties have settled or requested a settlement conference.'”

“Novartis’ DQ Bid Sinks In Gilenya Row” —

• “A federal judge in Delaware has rejected a legal effort to prevent a Washington, D.C., patent lawyer from representing an Indian pharmaceutical company in a patent fight with Novartis over the blockbuster multiple sclerosis drug Gilenya.”
• “The latest word from the Delaware court came Tuesday in Novartis’ bid to disqualify Chidambaram Iyer of Sughrue Mion PLLC from representing Shilpa Pharma Inc., the Pennsylvania arm of a generic drugmaker based in Raichur, India. Shilpa sued Novartis last year, alleging that an active ingredient in the drug the Swiss giant has been approved to sell since 2010 did some of the same things that are described in the language of a patent that Shilpa landed from the U.S. Patent and Trademark office six years later.”
• “The same year Shilpa had secured the patent — in late 2016 — representatives from Shilpa tried to convince Novartis to license the patent but were rebuffed. Since last November, Novartis’ lawyers have been trying to prevent Sughrue Mion’s Iyer from representing Shilpa in the case because Shilpa identified him ‘as the only named Shilpa witness to several 2016 discussions with Novartis about licensing the patent.'”
• “Earlier this month, Robinson came down on the side of Shilpa’s lawyers. She wrote that Iyer’s “personal knowledge is not a basis for the allegations of willful and induced infringement. ‘There is no evidence that Mr. Iyer would so testify,’ she added in her 7-page report.”

“As R. Kelly’s Chicago trial nears, things get testy between defendants” —

• “With less than two months to go until ex-R&B superstar R. Kelly and two of his former associates go on trial in Chicago, the sparks are starting to fly.”
• “On Wednesday, lawyers for former Kelly manager Derrel McDavid blasted claims by the singer’s attorney that there may be a conflict of interest with McDavid’s legal team as ‘either woefully uninformed or purposely mendacious.'”
• “The response also criticized Kelly’s lawyer, Jennifer Bonjean, for what they called a ‘disingenuous’ attempt to link one of McDavid’s current attorneys, Vadim Glozman, to famed Chicago defense attorney Edward Genson, who represented Kelly in his child pornography trial in Cook County in 2008 that ended with an acquittal.”
• “Glozman worked for Genson’s law practice from 2012 to 2017, when it was closed due to Genson’s failing health. Genson died of cancer in 2020.”
• “Bonjean also pointed to an interview Genson gave to a Chicago Sun-Times columnist in 2019, when he was in the advanced stages of terminal cancer, in which Genson said Kelly was ‘guilty as hell’ and that he’d helped keep the singer out of trouble for a decade after his acquittal.”
• “‘Because Glozman arguably owes a duty of loyalty to Kelly because he was a member of the firm that represented Kelly, he is in a conflicted position,’ Bonjean wrote. ‘This potential conflict may be an actual conflict if Glozman possesses privileged information that he may or can use to the benefit of his client or to the detriment of Mr. Kelly at a joint trial.'”
• “In response, McDavid’s legal team called that assertion ‘disingenuous, insulting, and perhaps worse: pointless.'”
• “The Sun-Times column, their motion said, omitted that a heavily medicated Genson was ‘rushed to the hospital shortly after the interview took place and that the interviewer only entered Mr. Genson’s home through false pretenses.'”
• “In an emailed statement Wednesday, Sun-Times interim Editor-in-Chief Steve Warmbir said the newspaper ‘completely stands by its 2019 interview of Ed Genson… The columnist did nothing remotely improper regarding the interview of Mr. Genson, who was quite lucid at the time,’ Warmbir said.”

“Hacker Claims to Have Stolen Files Belonging to Prominent Law Firm Jones Day” —

• “A hacker claims to have stolen files belonging to the global law firm Jones Day and posted many of them on the dark web. Jones Day has many prominent clients, including former President Donald Trump and major corporations.”
• “Jones Day, in a statement, disputed that its network has been breached. The statement said that a file-sharing company that it has used was recently compromised and had information taken. Jones Day said it continues to investigate the breach and will continue to be in discussion with affected clients and appropriate authorities.”
• “The posting by a person who self-identified as the hacker, which goes by the name Clop, includes a few individual documents that are easily reviewed by the public, including by The Wall Street Journal. One memo is to a judge and is marked ‘confidential mediation brief,’ another is a cover letter for enclosed ‘confidential documents.’ The Journal couldn’t immediately confirm their authenticity.”
• “‘We have over 100 gigabytes of data,’ the hacker wrote in response to an email from the Journal.”
• “Jones Day, in its statement, said it hasn’t been the subject of a ransomware attack. Rather, Jones Day said, it has been informed that a company the law firm used to transfer large files electronically, Accellion, ‘was recently compromised and information taken.’ Jones Day said that Accellion is used by many law firms, companies and organizations.”
• “Law firms’ computer files often contain confidential information, including the size and nature of settlements, negotiations about pending deals, and legal strategy that would normally be shielded from the public by attorney-client privilege.”
• “Law firms have long been considered an attractive target for hackers because firm files contain information on sensitive deals and legal matters that firms have a strong incentive to keep confidential. Information on yet-to-be-announced deals can also be used for insider trading. In 2016, federal investigators explored whether a hack of large law firms including Cravath, Swaine & Moore LLP had been used by insider traders.”

“Jones Day 2nd Big Law Victim of Accellion Breach” —

• “Two weeks after Goodwin Procter came forward with news that a vendor it used had been compromised, information surfaced that Jones Day was also affected.”
• “After confirming earlier this month that Accellion was the vendor linked to Goodwin’s breach, Law.com reached out to all the law firm clients listed on Accellion’s website. None that responded said it has been affected.”

Lateral move creates disqualifying conflict. Decision issued September 8, 2020: “Goren v Barnett” —

• “From 2010 to approximately 2013, the law firm of Amstein & Lehr LLP (Arnstein & Lehr) represented the Regional Center as securities counsel in various matters related to its EB-5 program administered by the United States Citizen and Immigration Services.”
  “In 2017, Amstein & Lehr merged with Saul Ewing LLP. Saul Ewing represents Lela Goren in this matter, both individually and derivatively on behalf of the Regional Center.”
• “In support of their motion, the Defendants submit certain invoices (the Invoices) from Amstein & Lehr from 2011-2013 for work on matters that related to Ms. Goren’s allegations in this case… At least three Amstein & Lehr attorneys who worked on these matters for the Regional Center are now partners at Saul Ewing.”
• “The Invoices submitted by the Defendants establish that the subject matter of Amstein & Lehr’s prior representation of the Regional Center in connection with the Operating Agreement and finder’s fee arrangements is substantially related to the issues in this case and that Ms. Goren’s interests are materially adverse to those of Gary Barnett and the Regional Center.”
• “In addition, Saul Ewing’s representation of both Ms. Goren and the Regional Center presents a concurrent conflict of interest because it would require the firm to argue that the same transactions that it previously advised the Regional Center to undertake were part of the fraudulent scheme alleged by Ms. Goren.”
• “Finally, the former Amstein & Lehr attorneys’ conflicts of interest are imputed to the entire firm of Saul Ewing under Rule 1.10 (a) of the Rules of Professional Responsibility, therefore no lawyer in the firm may undertake the representation.”

“Paul Weiss Antitrust Leader Launches Own Firm” —

• “Jonathan Kanter, the former co-chair of the antitrust group at Paul, Weiss, Rifkind, Wharton & Garrison, has left the firm to launch his own law practice in Washington, D.C.”
• “A spokesperson for Paul Weiss said Kanter left the firm ‘due to a complicated legal conflict that would have required him to discontinue important and longstanding client representations and relationships.'”
• “In recent years, he’s represented Altice USA, which took a part in the ultimately unsuccessful challenge to the blockbuster T-Mobile-Sprint merger, and also Monsanto, in its 2016 acquisition by Bayer. Kanter declined to comment on the record about his move on Monday.”