Bressler Risk Blog

“Franchise Group’s Bankruptcy Law Firm Disqualified Over Conflicts of Interest” —

• “The owner of the Vitamin Shoppe and Pet Supplies Plus chains must find new lawyers for its chapter 11 bankruptcy after its law firm Willkie Farr & Gallagher was found to have disqualifying conflicts of interest.”
• “Willkie can’t be retained as counsel by Franchise Group because of the firm’s past work for Brian Kahn, the company’s founder and former CEO, Judge Laurie Selber Silverstein ruled on Wednesday. The ruling marks a rare disqualification of a major law firm in bankruptcy court, where lawyers often have a wide berth to manage potential conflicts.”
• “Willkie had argued that it could serve as bankruptcy adviser and manage any conflicts through the use of separate counsel. The firm also said that its disqualification could be disastrous for Franchise Group, which has been pushing to preserve retail operations through the bankruptcy case.”
• “A group of junior lenders and government lawyers challenged Willkie’s application to serve as bankruptcy counsel, arguing the firm couldn’t be an unbiased adviser because of its ties to Kahn, who stepped down as Franchise Group’s CEO last year amid federal investigations into his role in the collapse of hedge fund Prophecy Asset Management. “
• “Silverstein noted in her ruling that Willkie had advised Kahn on his 2023 buyout of Franchise Group, then represented by separate counsel. “
• “Franchise Group has been seeking outside buyers in bankruptcy while also preparing to hand over ownership to senior lenders owed over $1 billion. Junior lenders holding over $500 million in loans at Franchise Group’s parent entity have argued recoveries require litigation against Kahn and investment bank B. Riley Financial, which financed the 2023 buyout. “
• “Franchise Group and its lawyers at Willkie have argued any conflicts posed by the firm’s prior work for Kahn and his other businesses aren’t central to the bankruptcy case, which has focused on transferring the business to a buyer or its creditors.”
• ‘In her ruling, however, Selber Silverstein disagreed and said the bankruptcy isn’t only about the sale of assets. ‘Willkie cannot draft parts of the [restructuring] plan that touch upon claims against Kahn,’ she said. “
• “Willkie advised Kahn on civil and criminal cases against him in connection with the demise of Prophecy, court papers show. The law firm also previously advised B. Riley Financial, which is being investigated by the Securities and Exchange Commission over ties to Kahn.”
• “When allegations about Kahn’s role in Prophecy’s demise arose in 2023, Willkie erected a wall within the firm between teams working for Kahn and his affiliates and for Franchise Group. However, Willkie didn’t put the separation in place until after Kahn’s buyout was completed, creating conflicts for the firm in designing Franchise Group’s restructuring plan, Silverstein said. “
• “The junior lenders that advocated against Willkie’s retention have argued that while they thought Kahn held equity in Franchise Group’s parent entity, he had taken out a secret $200 million loan from B. Riley and pledged his stake as collateral.”

“Tesla Says Judge DQ Bid In Crash Suit Arrived On Time” —

• “Tesla Inc. has doubled down on its bid to disqualify a California federal judge from an accident case over his prior law firm’s work, rejecting the plaintiff’s argument that the automaker filed the motion too late.”
• “The electric car company is attempting to get U.S. District Judge P. Casey Pitts disqualified from a case because his previous law firm, San Francisco-based Altshuler Berzon LLP, worked on lawsuits against Tesla, while he was still with the firm. Judge Pitts was first assigned to this case in August 2023, but the plaintiff is questioning why Tesla waited until four months before the trial was due to start to push for the disqualification.”
• “‘There is no per se requirement that a recusal motion be filed by any specific time. Instead, the purpose of the timeliness requirement, is to ensure that litigants do not use recusal motions for strategic purposes — such as by seeking recusal after receiving adverse rulings,’ Tesla wrote in a brief filed Friday in U.S. District Court for the Northern District of California. ‘Tesla did not file this motion in response to any adverse rulings or for any other improper strategic reasons, but rather because a reasonable observer would question Judge Pitts’ ability to remain impartial.'”
• “With a trial date of May 12 looming, Tesla added, ‘Judge Pitts has not presided over any substantive issues in this case and has not issued any rulings against Tesla. Therefore, no purpose would be served by denying this motion on timeliness grounds, and the Court should consider it on the merits.'”
• “Judge Pitts was sworn into the bench in August 2023, but he had been connected with Altshuler Berzon since 2003, when he worked two years as a paralegal with the firm. After he completed law school, he rejoined the firm as an associate in 2009 and became a partner in 2017.”
• “During his time at Altschuler Berzon, the firm represented several high-profile cases against the carmaker, including defending a jury’s $136 million verdict against Tesla, a case that was still pending when Judge Pitts took the bench. That amount was later reduced to $3.2 million.”
• “In mid-January, Tesla first filed the motion to have Judge Pitts disqualified. A week later, Jackson responded saying Tesla’s motion was flimsy and would set a bad precedent.”
• “‘To adopt Tesla’s logic would result in an absurd precedent: any lawyer who was ever a partner in a firm that litigates cases and then is elevated to the bench would have to recuse herself or himself simply because other partners in the firm tried cases against a party having business before the judge,’ Jackson said in her response. ‘Not only would such a rule have a chilling effect on the practice of law, it would unduly burden the judiciary by requiring disqualification of untold numbers of judges.'”

“Trump’s ex-lawyer won’t pledge to recuse if confirmed for Justice Dept. post” —

• “Donald Trump’s former personal attorney and pick for deputy attorney general refused to commit on Wednesday to recuse from any Justice Department investigations involving the criminal cases in which he formerly represented the president.”
• “Todd Blanche — who defended Trump in the two cases brought by special counsel Jack Smith as well as the New York state case that led to Trump’s conviction on 34 felony counts last year — bristled at suggestions from Democrats during his Senate confirmation hearing that his past representation of the president would pose a ‘blatant conflict of interest’ in his new role.”
• “‘There will be conflicts, and I will not violate my ethical obligations,’ Blanche told members of the Senate Judiciary Committee. But he resisted their calls for a firm pledge to step aside should matters arise connected to those cases.”
• “That hypothetical scenario became a realistic prospect last week as Attorney General Pam Bondi announced the formation of a ‘Weaponization Working Group’ tasked with investigating, among other things, any federal cooperation with the New York case and Smith’s prosecution of Trump’s alleged mishandling of classified documents and efforts to overturn the results of the 2020 presidential election.”
• “The task force will operate with support from the deputy attorney general’s office, Bondi said in a memo.”
• “‘I find it remarkable that you feel you could participate in an investigation of people when you represented the president in those same matters,’ Sen. Adam Schiff (D-California) told Blanche in a particularly heated exchange.”
• “But despite those brief flashes of tension, Blanche emerged from the hearing widely expected to sail through the confirmation process. So, too, was Trump’s nominee to lead the Justice Department’s antitrust division, Gail Slater, who also appeared before the Judiciary Committee on Wednesday.”
• “Blanche’s law partner, Emil Bove, is serving as acting deputy attorney general and is slated to move into the role of principal associate deputy attorney general should Blanche be confirmed. Trump has also nominated D. John Sauer — who argued his presidential immunity case before the Supreme Court last year — for the role of solicitor general.”
• “‘Just how far down the line do we have to go at the Department of Justice to find someone who isn’t conflicted?’ Sen. Peter Welch (D-Vermont) asked Blanche on Wednesday, pressing him on his own connections to the president.”
• “Blanche rejected the premise of the question. He said he’d rely on the advice of career ethics officials at the Justice Department to determine when he needed to step aside.”
• “He hedged when asked directly whether he would refuse any order from Trump to do something unethical or illegal.”
• “‘I don’t think President Trump is going to ask me to do anything illegal or immoral,’ Blanche said. ‘I’ve spent thousands of hours with him over the past few years, so I don’t just say that flippantly. I will follow the law. Period.'”

“State Bar Ethics Opinion Determines Texas Lawyers Can’t Join a Firm With Non-Lawyer Partners” —

• “Texas-licensed lawyers practicing in Texas cannot join a firm with a non-lawyer partner or owner, even if that arrangement is allowed in that jurisdiction, a State Bar of Texas ethics committee found in a new opinion.”
• “The opinion dealt with the question of whether a Texas lawyer practicing in Texas could join a Washington, D.C., firm partnership that lawfully in that jurisdiction includes a non-lawyer partner. As outlined in the statement of facts in the opinion, the firm would have offices in Texas and Washington, D.C., the Texas lawyer would office in Texas and provide legal services to clients in Texas, and revenue generated by the Texas lawyer would be shared with the firm’s partners.”
• “The opinion from the Professional Ethics Committee for the State Bar of Texas found that Texas’ prohibition against non-lawyer-owned firms applies in that situation.”
• “In Texas, the applicable rule is Texas Disciplinary Rule of Professional Conduct Rule 5.04(b), which provides that ‘[a] lawyer shall not form a partnership with a non-lawyer if any of the activities of the partnership consist of the practice of law.’ According to the ethics opinion, Rule 5.04(d) extends the prohibition against non-lawyer law firm ownership to professional corporations or associations.”
• “In Washington, D.C., it is allowed under District of Columbia Rule of Professional Conduct 5.4(b).”

“Insurer Tried To ‘Embarrass’ Cadwalader, NC Court Told” —

• “Cadwalader Wickersham & Taft LLP has accused a Lloyd’s of London syndicate of attempting to ’embarrass’ the firm by publicly revealing the firm’s data breach recoveries amid the insurer’s bid to toss a coverage suit stemming from a 2022 hack.”
• “On Thursday, in response to a motion to dismiss by Lloyd syndicate Beazley, Cadwalader accused the insurer of breaching its confidentiality obligations to its insured by disclosing policy information publicly, including the amount Cadwalader received from other insurance carriers stemming from the hack.”
• “According to Cadwalader, the public disclosure of such financial information, which the response notes was later published in a Law360 article, establishes claims for bad faith denial of insurance coverage and unfair and deceptive trade practices.”
• “‘An insured should not need to anticipate that its insurer will use confidential information to publicly disparage it when the insured seeks to secure the very coverage it bargained and paid for,’ the firm said Thursday. ‘Suffice to say, the law must hold to account the insurer that treats its insured as Beazley has treated Cadwalader here.'”
• “Cadwalader filed suit against Beazley in July in a North Carolina state court, alleging the company failed to reimburse the law firm for expenses related to a November 2022 data breach.”
• “Beazley subsequently urged the North Carolina Business Court to toss the suit, saying the law firm failed to include three other carriers included on the insurance policy at issue.”
• “During the back-and-forth, Cadwalader sought to seal the complaint to shield details regarding its finances and insurance coverages, while Beazley fought to unseal the filings. In its July motion, Beazley included the amount of Cadwalader’s insurance recoveries under other policies for the data risk event at issue.”
• “‘Beazley trumpeted the confidential information in the opening sentences of its first submission to this court — a submission, moreover, that had nothing to do with the confidential information that Beazley gratuitously and improperly disclosed,’ the firm said. ‘Beazley’s disclosure was an obvious and intentional act of bad faith.'”
• “The firm previously contended that unsealing the information would make it more difficult to negotiate insurance rates in the future and act as an incentive to infiltrate its systems. In an amended complaint, the firm added claims for breach of the confidentiality agreement, bad faith and violation of North Carolina’s Unfair and Deceptive Trade Practices.”

“Accountant-Owned Law Firms Could Blur Ethical Lines” —

• “In a novel move, Big Four accounting firm KPMG LLP has taken the first step in seeking to own and operate a law firm in the U.S.”
• “A far cry from regulating attorneys, enforcing and supervising the practice of law by nonattorneys could prove challenging.”
• “Attorney oversight or, more to the point, the supervision of the practice of law, is of paramount concern not only to control and guide the practice of law, but the governing rules also help foster a sense of trust and transparency between practitioners and the public.”
• “Whether it be an accountant, an attorney, or anyone — or anything — in between, we must collectively ensure that the ethical and procedural rules governing the practice of law apply uniformly and fairly, and with an eye toward the client’s best interests.”
• “Rule 5.4, titled ‘Professional Independence of a Lawyer,’ generally prohibits an attorney or firm from sharing fees with a nonlawyer, and it prohibits an attorney from forming ‘a partnership with a nonlawyer if any of the activities of the partnership consist of the practice of law.'[2]”
• “The stated goal of the rule is to ‘protect the lawyer’s professional independence of judgment.'[3]”
• “The regulation of educated and trained attorneys is no easy task, but it may ultimately prove less demanding than enforcing those rules against those without that level of legal training and experience.”
• “On the other hand, proponents of the recent reforms disagree with the traditional restrictions of Rule 5.4. In 2020, amid its efforts to abandon Rule 5.4, the Arizona task force responsible for the amendments said in a statement that it was driven by ‘an ethical obligation to assure that legal services are available to the public and that if the rules stand in the way of making those services available, the rules should change.'[6]”
• “According to recent studies, a disproportionate number of Americans cannot effectively engage the legal profession. Reportedly, nearly 80% of the 20 million civil cases filed in state courts each year involve at least one unrepresented party,[7] and more than half of small businesses facing a legal issue cannot engage counsel.[8]”
• “Reportedly, KPMG Law US’ recent application to the Arizona Supreme Court comprised the first overture by an accounting firm to take advantage of these laws. A court committee is considering the application and whether to provide the required licensure.”
• “According to a Reuters article, KPMG said it would lean ‘on [its] network and technology to provide compliance and contract-related services and other outsourced legal work in the United States.'”
• “We can expect considerable debate and potential pushback. Notably, the ABA House of Delegates reaffirmed its commitment to Rule 5.4 and overwhelmingly passed a resolution stating that any modification to the rule, as drafted, is ‘inconsistent with the core values of the legal profession.'”
• “There is room for cooperation and competition among the practice of law and accounting. This overlap is perhaps inevitable, as most business and financial activity triggers legal implications, and vice versa.”
• “The traditional model of tax, audit and advisory services has expanded in most accounting firms to include litigation support services and nearly every aspect of consulting, which historically may have been handled by an attorney. Likewise, attorneys often provide counsel on tax and other accounting issues.”
• “Outside of the U.S., where Rule 5.4 had been a nonissue, accounting firms have greatly expanded their staff to include attorneys poised to address the growing list of available services.”
• “Critically, however, while there is some overlap, the practice of law and accounting are different, particularly with regard to the distinct ideologies that come into play.”
• “Client confidentiality and the attorney-client privilege serve as cornerstones of an attorney’s ethical and professional obligations, as set forth in the model rules.”
• “In contrast, accounting is based on independence and objectivity. When it comes to an audit, for example, the responsibility to the public is the auditor’s primary concern, with an emphasis on supervision and peer review.”
• “Against this backdrop, when considering the potential differences in professional ethics between the two professions, the CPA Journal once pondered the difficulty for an attorney ‘to envision practicing in the diverse environment of the CPA firm while retaining their client-based ethical system.'[12]”
• “If change is imminent, the distinction between the practice of law and accounting may continue to blur. It follows that professionals in either field may find it more difficult to maintain and set client expectations.”

“2 Law Firms Disqualified Over Litigation Funding” —

• “Two law firms have been disqualified from representing the defendants in a New Jersey patent dispute because they were getting funding from a nonparty. The ruling serves as a reminder of the ethical questions that can arise when litigants accept funds from nonparties who are willing to pay the bills.”
• “U.S. Magistrate Judge Andre M. Espinosa of the District of New Jersey, in Harish v, Arbit, ruled that Saiber of Florham Park, New Jersey, and Banner Witcoff of Chicago could not continue representing two inventors, because the lawyers were being funded by a nonparty producer of medical test equipment—Lincoln Diagnostics of Decatur, Illinois—which had an interest in the outcome.”
• “The case involves three people who were listed on the patent in 2018 as inventors of a device for conducting allergy skin tests without the discomfort from traditional methods using multiple injections.”
• “In 2021, Harish sued Arbit and Rubenstein, claiming he is the only inventor of the device and seeking to remove the others’ names from the patent, according to the complaint. Later, Harish moved to disqualify Saiber and Banner Witcoff from representing Arbit and Rubinstein, alleging that their bills are being paid by Lincoln. Espinosa granted the motion on Jan. 31.”
• “‘New Jersey RPC 1.8(f) outlines the circumstances where a lawyer can accept money on behalf of a client from a third party,’ said Noam J. Kritzer of Kritzer McPhee in Florham Park, New Jersey, who represents Harish. ‘If litigation is like driving a car, third-party funders are allowed to pay for gas but are not allowed to program the GPS or touch the steering wheel. Here, the attorneys at Banner Witcoff were serving Lincoln’s interests instead of defendants’ interests and the order explains in great detail the ethical violations the attorneys committed under NJ RPC 1.8(f).'”
• “The parties to the payment arrangement could not demonstrate that the client gave informed consent; and they failed to demonstrate that there was no interference with the lawyer’s independence of professional judgment or with the lawyer-client relationship, Espinosa wrote.”
• “‘Defendants present their respective declarations as evidence that the fee arrangement here has not interfered with their lawyers’ independent judgment. But this does not establish that Lincoln has not directed, regulated, or interfered with defense counsel’s professional judgment. The record makes clear that Lincoln is directing, regulating, and interfering with defense counsel’s professional judgment in its representation of defendants, and thus, the second Grand Jury condition is not satisfied,’ Espinosa wrote.”
• “Also, the parties failed to demonstrate there was no communication between the lawyer and the third-party payer concerning the substance of representation of the client, and that once the third-party payer commits to pay for the representation of another, the third-party payer shall not be relieved of its continual obligations to pay without leave of court brought on prior notice to the lawyer and the client.”
• “‘Defendants present their respective declarations as evidence that the fee arrangement here has not interfered with their lawyers’ independent judgment. But this does not establish that Lincoln has not directed, regulated, or interfered with defense counsel’s professional judgment,’ Espinosa wrote. ‘The record makes clear that Lincoln is directing, regulating, and interfering with defense counsel’s professional judgment in its representation of defendants, and thus, the second Grand Jury condition is not satisfied.'”

“New York judge resigns after saying he can’t be on a jury since he thinks all defendants are guilty” —

• “An upstate New York judge has resigned after he got out of jury duty by claiming that he couldn’t be impartial — because he thought everyone brought before a court is guilty.”
• “Richard T. Snyder, who had been a justice of the Petersburgh Town Court for about a decade, left his post after being charged with misconduct by a state judicial commission, officials said Tuesday.”
• “According to court transcripts, Snyder tried to avoid serving on a jury in 2023 by first identifying himself as a judge and then saying, ‘I know everybody come in front of me. I know they are guilty. They would not be in front of me.'”
• “He was eventually dismissed from serving on the jury after he continued to argue that he could not be impartial, saying ‘No. It would not be fair,’ court transcripts from a special grand jury empanelment in Rensselaer County show.”
• “The judge who was overseeing the jury selection reported Snyder to state officials.”
• “At a judicial commission hearing the following year, Snyder said he understood that defendants are supposed to be considered innocent until proven guilty but that he still felt that people wouldn’t be in court if they didn’t commit crimes.”
  “‘I meant, that they were guilty because they did something wrong. But they’re not guilty ‘til they come to court. They’re innocent ’til proven guilty,’ he told the commission. ‘They did something wrong. That’s why they got a ticket. But they’re not guilty,’ he added.”
• “Snyder, who was elected as a justice, is not an attorney and has agreed to never serve as a judge again.”
• “In a statement, Robert H. Tembeckjian, administrator of the New York State Commission on Judicial Conduct, said ‘there is no place on the bench for someone who so deeply misunderstands the role of a judge and the administration of justice.'”
• “‘It is bad enough that a judge would seek to avoid such a fundamental civic responsibility as jury service. It is astounding that the judge would claim an inability to be impartial, and to declare under oath that the accused must be guilty or they would not be in court,’ he said.”

“Philly Judge Rejects Ex-Kline & Specter Attorney’s DQ Bid” —

• “A former Kline & Specter partner can’t disqualify an attorney representing it from his lawsuit against the firm, a Philadelphia judge has determined, because he couldn’t prove he had an attorney-client relationship with the lawyer before he resigned.”
  “Terrance DeAngelo did not submit any substantial emails, agreements or related documents to show he had a privileged attorney-client relationship with Joseph R. Podraza, who advised him when he sat for a deposition in a separate case while DeAngelo was still employed by Kline & Specter, wrote Judge James C. Crumlish in an opinion published Tuesday in the Philadelphia Court of Common Pleas. Podraza now represents Kline & Specter as defendants in DeAngelo’s breach of contract suit, but he should not be removed from the case, the judge said.”
  “Judge Crumlish issued the order denying the disqualification in December and filed the opinion this week in response to notification from DeAngelo that the decision has been appealed to the Superior Court. The opinion asks the Superior Court to affirm the denial, saying DeAngelo did not credibly show he believed he had a privileged relationship with Podraza.”
  “In a statement to Law360 Pulse Friday, Podraza said Judge Crumlish’s opinion ‘speaks volumes and requires no amplification from us.'”
  “DeAngelo’s attorney could not be reached for comment Friday.”
  “In December, Judge Crumlish also granted Kline & Specter’s motion to send the case into arbitration and stayed the proceedings in his court. DeAngelo did not appeal those orders.”
  “According to his motion filed in December seeking the disqualification, Podraza had counseled DeAngelo when he appeared in July for a deposition in a separate lawsuit filed by his friend Thomas Bosworth against Kline & Specter while DeAngelo was still employed there.”
  “DeAngelo asked for legal advice from Podraza about the influence the deposition would have on his own employment at Kline & Specter, thinking Podraza was his attorney, according to the motion. After DeAngelo submitted his resignation in September, Podraza clarified in a letter that he is the firm’s attorney and his representation of DeAngelo was limited to the deposition, the motion said. DeAngelo said in his motion that he shared information with Podraza thinking it was a privileged relationship, and Podraza should be disqualified from a case where he could appear as a material witness.”
  “In his underlying suit against Kline & Specter, DeAngelo makes several claims against it, including that it breached its contractual obligations by failing to treat him in a professional or collegial manner by removing him from cases.”
  “Judge Crumlish points to an email DeAngelo sent to Podraza and copied to Kline & Specter’s principals, Thomas R. Kline and Shanin Specter. The email said, ‘Aren’t you my lawyer? I did not receive any notice from you that you were not continuing to represent me.’ This is the only written material submitted by DeAngelo to establish he believed he had an attorney-client relationship with Podraza, the judge said.”
  “There are no other emails, transcripts from the July deposition, or signed agreements to establish such a relationship, the opinion said. Most notably, Judge Crumlish wrote, Podraza did provide any written document that he would abandon Kline & Specter as clients in order to represent DeAngelo.”
  “Additionally, if DeAngelo truly believed Podraza was his lawyer, he would have notified his attorney in advance of his plan to resign and sought advice on how to proceed, according to the opinion.”

“SEC Sued for Failing to Reveal Records Involving Simpson Thacher Attorney” —

• “Empower Oversight sued the U.S. Securities and Exchange Commission in Washington, D.C., federal court over its failure to respond to a Freedom of Information Act request involving records in connection to former high-level officials, including William Hinman, now a senior adviser at Simpson Thacher & Bartlett.”
• “‘We discovered from an earlier FOIA request that Hinman had a financial conflict of interest and could not work on any matters that impacted his firm, which he still retained a financial interest in,’ Leavitt alleged. ‘His firm was a big promoter of Ether and Ethereum, and those are some of the circumstances that caused us to request the inspector general investigation.'”
• “‘Simpson Thacher had no involvement with EEA until several months after Mr. Hinman joined the SEC and, as Mr. Hinman testified under oath in a third-party deposition, he was unaware while at the SEC of the firm’s membership in the organization,’ Simpson Thacher alleged in a statement. ‘The firm has never had a financial interest in nor derived any revenue from EEA, and the firm’s minimal engagement with EEA was purely educational, to gain a better understanding of blockchain technology.'”
• “The controversy dates back to June 2018, when Hinman, as former director of the SEC division of corporation finance, took to the stage at the Yahoo Finance Crypto Summit in San Francisco and declared that Ethereum’s native token, Ether, was not a security.”
• “However, as Empower Oversight tells it, annual financial disclosures appeared to show that Hinman was receiving millions of dollars in payments from Simpson Thacher and that Simpson Thacher was a member of the Enterprise Ethereum Alliance, a group whose aim is to promote Ethereum.”
• “In August 2021, Empower Oversight filed a FOIA request and, later, a lawsuit that led the SEC to produce emails that revealed Hinman sought out millions of dollars in payments from Simpson Thacher, court records show. In doing so, Hinman was repeatedly warned he faced ‘criminal financial conflict’ if he had contact with the firm.”
• “The emails also appeared to show that Hinman had direct contact with one of the highest-profile third-party promoters of Ether leading up to the 2018 speech, as court records show. In May 2022, Empower Oversight sent a letter to the SEC’s Office of the Inspector General requesting a comprehensive review of the agency’s failure to properly manage Hinman’s alleged conflict of interests surrounding crypto issues.”
• “In the complaint filed Tuesday, Empower Oversight alleged that the latest FOIA request will reveal that the SEC mitigated or failed to mitigate conflicts of interest. And, to date, the SEC has allegedly failed to provide any substantive response to the May 2022 letter.”
• “‘A lot of the crypto community, particularly holders of XRP, want to see some explanation for what happened,’ Leavitt said. ‘Even if there are no specific accountability repercussions, the inspector general report is important to have a public accounting of what exactly happened and how conflicts of interest like this will be prevented in the future from impacting SEC enforcement decisions.'”

“Trump’s New Federal Attorney Withdrew Jan. 6 Charges Against His Own Client” —

• “Donald Trump’s top federal prosecutor for the District of Columbia requested that a court withdraw charges against a Jan. 6 insurrectionist he personally represented — a move that experts decried as a clear ethical violation.”
• “Shortly after taking office, Trump pardoned 1,500 of individuals who were convicted of offenses or faced charges relating to the insurrection at the U.S. Capitol on Jan. 6, 2021, and he called on the Justice Department to dismiss all Jan. 6-related cases that were still pending in court. “
• “Trump also appointed Ed Martin, a Missouri lawyer who represented several Jan. 6 defendants, as the interim D.C. U.S. attorney. Martin, who quickly fired dozens of federal prosecutors who were involved in Jan. 6 cases, quickly moved to withdraw charges in those cases, too. “
• “As Reuters reports, on Jan. 21, Martin put his name on a motion to withdraw charges against Joseph Padilla — his own client. “
• “In 2023, Padilla was sentenced to 6.5 years in prison for his alleged actions during the Capitol insurrection, which included assaulting two police officers. The Justice Department said in a press release that Padilla ‘threw a flagpole, striking an officer in the helmet.’ His case, though, was still ongoing.”
• “Ethics experts told Reuters that Martin’s participation in this motion violated the Justice Department’s conflict of interest rules, which require lawyers to recuse themselves from cases involving their former clients for at least a year.”
• “John Sciortino, a former lawyer in the Justice Department’s Office of Professional Responsibility told the outlet it represented ‘a violation of the conflict of interest rules, and the sort of thing OPR might investigate.'”
• “Missouri rules similarly prohibit state attorneys from handling cases involving their clients. “
• “According to Reuters, Martin sent an email to staffers in his office Wednesday saying that he ‘stopped all involvement’ in the Jan. 6 cases over a year and a half ago, wasn’t paid for them, and had been ‘under the impression that I was off the cases.'”
• “Court records indicate Martin was still listed as an attorney for Padilla in his case.”
• “Outside of his advocacy for Jan. 6 rioters, Martin recently drew attention for posting an unusual letter on X to Elon Musk, in which he told the world’s richest man that his office would ‘pursue any and all legal action against anyone who impedes your work’ with the so-called Department of Government Efficiency, or DOGE, as it works to gut federal agencies.”

“Fla. Judge Won’t Recuse Over ‘Adverse Ruling’ In CBD Row” —

• “A Florida federal magistrate judge has refused to step down from a case where she recommended sanctioning an attorney representing a franchisee in a contract dispute with CBD American Shaman LLC, saying adverse rulings are not grounds for recusal.”
• “In an order published Friday [1/24], U.S. Magistrate Judge Amanda Arnold Sansone of the Middle District of Florida rejected plaintiff Thomas O’Neal’s motion to disqualify her. That motion came after she recommended granting in part the defendants’ motion for sanctions against O’Neal’s attorney, Kevin Graham.”
• “‘Along with the report and recommendation on the Shaman defendants’ motion for sanctions, Mr. O’Neal lists other orders throughout this case he believes I decided incorrectly… Mr. O’Neal insists each ruling should have been favorable to him, which he submits as evidence of my ‘pervasive bias,” Judge Sansone said. She added, ‘Adverse rulings are not grounds for recusal.'”
• “According to the report, Graham filed ‘multiple baseless, duplicative arguments’ during the proceedings, chiefly four motions for reconsideration of the court’s order granting the Shaman entities summary judgment, and three motions for the court to determine if the crime-fraud exception applied in this case.”
• “‘His first attempt at reconsideration may be considered zealous advocacy,’ the judge wrote. ‘Filing three additional requests for reconsideration while knowing no new circumstances or arguments exist that would change the denial ruling from the first attempt constitutes bad faith litigation conduct warranting the imposition of sanctions.'”
• “U.S. District Court Judge Kathryn Kimball Mizelle approved Judge Sansone’s recommendation for sanctions in an order Monday. She said Graham and O’Neal are liable for $14,105 in attorney fees and admonished Graham for ‘his failure to uphold professional standards throughout the course of this litigation.'”
• “The suit originated from a contract O’Neal signed in 2018 with Nevada-based franchiser American Shaman Franchise, which sells franchises of CBD stores, that called for him to open and operate an American Shaman store in Tampa, Florida, and entitled him to open a second store in the area.”
• “In July 2022, Judge Mizelle granted judgment on the pleadings on O’Neal’s supplemental complaint in favor of American Shaman, and later denied his bid to dismiss the counterclaims.”
• “In his motion to disqualify Judge Sansone, O’Neal pointed to her ‘overtly biased and prejudicial comportment’ in connection with the sanction motion.”
• “‘An objective, disinterested, lay observer fully informed of the facts about Judge Sansone’s most recent failure to consider evidence at an evidentiary hearing favorable to Mr. O’Neal’s lawyer, together with the cumulative effect of the pervasive biased and prejudiced actions taken by Judge Sansone during the pendency of Mr. O’Neal’s supplemental proceedings, ‘would entertain a significant doubt about’ Judge Sansone’s ‘impartiality’ towards Mr. O’Neal and his lawyer,’ O’Neal said.”

Hat tip to George Bremner, Conflicts Attorney at Cooley, for sending this detailed analysis of an incident we noted several weeks ago: “Firing (and Shaming) a Client” —

• “A prominent IP professor and lawyer is getting a lot of attention for terminating his representation of Meta. Mark Lemley posted this on his LinkedIn account: ‘I have struggled with how to respond to Mark Zuckerberg and Facebook’s descent into toxic masculinity and Neo-Nazi madness… I have fired Meta as a client. While I think they are on the right side in the generative AI copyright dispute in which I represented them, and I hope they win, I cannot in good conscience serve as their lawyer any longer.'”
• “Apart from its impact as a political statement, Lemley’s post raises some interesting ethics questions, both in the narrow sense of ‘does this rule apply?’ and in the broader and possibly more interesting sense of ‘should a good lawyer do that?'”
• “In the Meta case, Lemley apparently believed he could not, in good conscience, continue to contribute his talent and experience to Meta’s causes, given his assessment of Zuckerberg’s recent changes at the company. As a matter of his personal integrity, he could not continue in a fiduciary relationship of trust and confidence with the client.”
• “Fair enough. But he had an option to preserve his integrity, which was to withdraw from the representation. David Wilkins’s discussion of the Anthony Griffin case suggests that integrity-preserving actions by lawyers ought to be narrowly tailored to be minimally intrusive on the client’s reasonable expectations of loyalty and confidentiality.”
• “It’s not necessary to the preservation of one’s moral agency to take gratuitous swipes at the client on the way out the door. My point here isn’t so much to criticize Lemly, however, as to use this as a case study of the tension between moral agency and the duties of lawyers. There is often not a clear priority between them, and lawyers may go wrong by thinking that if something is the right thing to do from a personal perspective then acting on that reason is a sufficient justification from the legal point of view.”

“Prosecutors Ask Judge to Question Charlie Javice Lawyer Over Alleged Conflict” —

• “Federal prosecutors are asking a judge to investigate whether or not an attorney for Charlie Javice, the founder of the student loan fintech start-up Frank, may have a conflict of interest, given that he represented her in a prior investigation unrelated to her pending fraud case.”
• “David Siegal of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo is not accused of wrongdoing, according to the U.S. Attorney’s Office for the Southern District of New York. But prosecutors do want the judge to bar Siegal from cross-examining witnesses or making arguments relating to matters in which he was personally involved.”
• “The case is before U.S. District Court Judge Alvin Hellerstein of the Southern District of New York. Prosecutors claim Javice willfully misled JPMorganChase into acquiring her start-up for $175 million. She has pleaded not guilty.”
• “Prior to starting Frank—a student financial aid start-up—Javice was employed by JPMorganChase, where multiple colleagues accused her of misconduct unrelated to her federal indictment. Javice was twice interviewed by investigators at Morgan, and Siegal represented her in connection with that investigation and questioning. The alleged misconduct included misuse of corporate credit cards for personal use,and use of personal emails and devices for business purposes.”
• “While Siegal at that point turned over some of Javice’s texts to Morgan investigators, prosecutors say they now know her messages contained significantly more responsive communications—including about the alleged fraud on J.P. Morgan. Prosecutors say they intend to present some of those communications at trial and claim Javice caused Siegal to convey false information as part of his representation.”
• “Though they do not seek to disqualify him, prosecutors ask Hellerstein to hold a Curcio hearing, to address any potential conflicts that may arise as a sworn or unsworn witness at trial. Meanwhile, Javice is seeking to sever her case from her co-defendant and former colleague Olivier Amar, claiming they have antagonistic defenses and that he will turn on her.”
• “Prosecutors oppose the motion, saying the request identifies no prejudice and is unsupported to warrant such a request so soon before trial.”

“Drug Co. Wants To Keep Judge On Alopecia IP Case” —

• “The developer behind an Eli Lilly & Co. alopecia drug has called allegations the company’s lawyers deliberately hired a New Jersey federal judge’s former law clerk both ‘low and baseless’ and a ‘transparent attempt to remove the judge who decided against it.'”
• “In a response filed Tuesday, drug developer Incyte Corp. minimized the involvement of an unnamed Gibbons PC associate in a patent case Incyte has been litigating since last year against Mumbai, India-based generic Sun Pharmaceutical Industries. Incyte licenses its patents to Eli Lilly, which markets the alopecia drug Olumiant, and filed suit to stop the release of a competing alopecia drug from Sun, called Leqselvi. Lilly, however, is not involved in the case.”
• “The case had been reassigned to New Jersey’s U.S. District Judge Julien Neals in August, and earlier this year, Sun filed a bid to disqualify him, claiming that Gibbons had hired one of the judge’s former law clerks who had been involved in the case while working for the judge. Since filing the suit last June, Incyte has been represented both by lawyers at Gibbons and Finnegan Henderson Farabow Garrett & Dunner LLP.”
• “The clerk that Gibbons hired, according to the filings, had been working for Judge Neals when he was considering blocking Sun from launching its rival hair loss product until the end of Incyte’s patent case, something he decided to do last November. At a September preliminary injunction hearing, the ‘former clerk occupied a prominent position’ and was ‘sitting nearly parallel with’ the judge, Sun says.”
• “Incyte presented a different view of the clerk’s involvement in the case before the clerk was hired by Gibbons. ‘The former law clerk merely attended, as an observer, a single status conference and technology tutorial, just days before he left his clerkship,’ counters Incyte.”
• “‘After the case was reassigned to Judge Neals, the former law clerk — who was in the final month of his clerkship — did not assist Judge Neals with deciding the preliminary injunction motion and did not substantively work on the case,’ says the drug developer. The clerk’s only involvement in the patent case since working at Gibbons was assisting ‘one of his colleagues over the Thanksgiving holiday with preparing a joint motion to seal,’ which had been put in front of U.S. Magistrate Judge James Clark, not Judge Neals, notes Incyte. “
• “The company sees the move from Sun as ‘a transparent attempt to remove the judge who decided against it’ in the injunction battle, per the response.”

“Goldman Sachs Secures Dismissal of Celebrity Manager’s Lawsuit Over Failed Deal” —

• “Sullivan & Cromwell beat back a celebrity business manager’s claims that Goldman Sachs breached an alleged fiduciary duty by helping an affiliate lock down a $7 billion private equity sale, while advising the management firm on a proposed, rival transaction.”
• “In dismissing the fraud case against Goldman Sachs, Justice Margaret Chan of the New York County Supreme Court said the KSFB Management LLC, whose principals have reportedly provided business management services for Beyoncé and Drake, hadn’t plausibly shown it was owed a fiduciary relationship by Goldman Sachs. KSFB was represented by Quinn Emanuel Urquhart & Sullivan.”
• “The justice pointed to a Jan. 2023 letter through which KSFB engaged Goldman Sachs to pursue a joint sale with Focus Financial Partners LLC, which later abandoned the deal in favor of a multibillion-dollar acquisition. In the letter, KSFB agreed that ‘potential conflicts of interest’ may arise as Goldman was also advising Focus, and that the interests of KSFB and Focus ‘may not always be aligned,’ according to the decision.”
• “‘These are not, as KSFB suggests, mere boilerplate disclaimers. To the contrary, construed in the entire Engagement Letter, these representations contemplated the exact conflict at the center of KSFB’s claims,’ Chan said on Thursday.”
• “The justice added that, regardless of the letter, the breach of fiduciary duty claim was insufficiently pleaded. The breach claim relies on the ‘bald and unsupported assertion’ that Goldman Sachs was charged with seeking a deal in KSFB’s best interests, Chan said.”
• “The lawsuit concerned two transactions that were pursued in 2022, an unrealized joint sale between KSFB and Focus of Focus subsidiary, NKSFB, and Focus’ later sale to Clayton Dubilier & Rice LLC. However, the relationship between KSFB and Focus dates back years, as KSFB provides management services to NKSFB, with KSFB claiming that its management has allowed NKSFB to flourish.”
• “In a complaint filed against Goldman Sachs and Focus, KSFB claimed that Focus pushed a potential joint sale of NKSFB to prevent KSFB from abandoning NKSFB while Focus pursued a potential sale to Clayton Dubilier & Rice. As part of that joint sale, KSFB retained Goldman Sachs as an adviser, even though the bank was also advising Focus, and signed a three-way non-disclosure agreement, according to Chan’s decision.”
• “But Chan dismissed the complaint wholesale, finding that KSFB much of the suit relied on an alleged fiduciary duty that the company failed to allege existed on Goldman Sachs’ or Focus’ part.”

“Fox Rothschild Blocks DeepSeek’s AI Model for Attorney Use” —

• “Fox Rothschild LLP blocked its lawyers from accessing tools from DeepSeek, the Chinese artificial intelligence startup, citing concerns about the privacy risks it may pose to client data.”
• “The swift action comes as other Big Law firms, such as Polsinelli and Wilson Sonsini Goodrich & Rosati, are responding to the rapid development of generative artificial intelligence by implementing guardrails on their lawyers’ use of new technology.”
• “Fox Rothschild’s 900-plus attorneys use AI tools and, like many other firms, it doesn’t generally bar its lawyers from using ChatGPT, although it imposes restrictions on the use of AI with client data, Mark G. McCreary, the firm’s chief artificial intelligence and information security officer, said. But DeepSeek, launched by a Chinese investor, poses unique security challenges.”
• “‘It’s one thing to have a risk that somebody makes a mistake with ChatGPT,’ McCreary said. ‘It’s a completely different risk for someone to make a mistake with China.'”
• “McCreary, who chairs Fox Rothchild’s artificial intelligence practice and co-chairs its privacy and data security practice, said it was prudent to ban the app while details are still emerging, like how and where DeepSeek stores data.”
• “DeepSeek in its privacy terms says it collects and stores data in servers in China, Bloomberg News reported. ‘Hundreds’ of companies are working to block DeepSeek, whose AI chatbot recently rocketed to the top of Apple Store app downloads.”
• “A data breach this week illustrates further security concerns with DeepSeek, aside from the technology’s national origin, McCreary said. The cloud security company Wiz on Wednesday revealed it had discovered chat data and ‘highly sensitive information’ from DeepSeek on a public platform.”
• “AI concerns aren’t limited to Wilson Sonsini’s own use of new models, Datesh said. Vendors that law firms use rely on AI models on the back end and there could be an issue if those vendors switch from a known entity like ChatGPT to DeepSeek’s R1, she said.”
• “‘We expect them to kind of make sure that they’re alerting us when LLMs are changing that are not on our approved LLM list,’ Datesh said about vendors.”
• “Vendor concerns are less acute with the legal world’s leading technology tools, because the companies that make them understand that the protection of law firm data is integral to their ability to retain customers, McCreary said.”
• “‘I’m not real worried about somebody deciding they’re gonna save some money and go use DeepSeek,’ he said.”

See also: “DeepSeek data breach: A grim warning for AI security”

“DC Judge Declines To DQ Jenner & Block In Casino Dispute” —

• “A D.C. federal judge on Wednesday [1/22] rejected a bid from three Native American tribes to disqualify Jenner & Block LLP from a lawsuit that seeks to block the operation of a new casino in Oregon.”
• “The Cow Creek Band of Umpqua Tribe of Indians, Karuk Tribe and Tolowa Dee-ni’ Nation had accused the firm of switching sides by representing the Coquille Indian Tribe in the D.C. litigation, having previously advised the three tribes in connection with the challenged casino. But U.S. District Judge Amit P. Mehta ruled during a hearing that no such attorney-client relationship was ever established, so Jenner & Block is free to represent the Coquille tribe.”
• “The concurrent disqualification clash centered on Jenner & Block’s prior dealings with the plaintiff tribes.”
• “The three tribes alleged in a disqualification motion that Jenner & Block attorneys, including partner Keith Harper, had represented them in 2022 in connection with their opposition to the planned Medford casino. Allowing the firm and Harper to now represent their opponent would ‘give Coquille an ‘unfair advantage,” the tribes said.”
• “The Coquille tribe, on the other hand, contended in court filings that Jenner & Block’s discussions with the plaintiff tribes ‘were part of a business-development effort that never progressed to an attorney-client relationship.'”
• “Judge Mehta agreed Wednesday, finding that an attorney-client relationship never existed.”

“Law Firms Caught Up in Litigation Over Cannabis Grower’s Troubles” —

• “A battle is intensifying between law firms connected to an insolvent New Jersey cannabis cultivator known as the Harmony Foundation. Two law firms, Lowenstein Sandler of Roseland, New Jersey and Cyrulnik Fattaruso of New York, are accused of legal malpractice in a suit filed Tuesday by a trustee for Harmony Foundation. The suit claims the two firms have a conflict of interest because they simultaneously represented Harmony and Jeshayahu Brodchandel, who allegedly sought to gain control of over the cannabis company.”
• “The latest suit, filed by Greg Trif of Trif & Modugno in Morristown, New Jersey, also names attorneys Peter Slocum and Christopher Porrino of Lowenstein Sandler and Jason Cyrulnik of Cyrulnik Fattaruso as defendants, along with Brodchandel and others. The filing comes on the heels of another, filed in November 2024, in which Lowenstein Sandler alleges that Trif & Modugno and partner Louis A. Modugno drove Harmony Foundation into insolvency and receivership.”
• “Harmony Foundation started out as a grower and seller of cannabis, and Brodchandel was one of its partners, according to the latest suit. Its dispensary in Secaucus closed in 2023 after the state revoked Harmony’s cultivating and manufacturing licenses due to unpaid fees. Brodchandel sought to squeeze out other investors who put up millions of dollars to make the operation grow, the suit alleges.”
• “The latest suit alleges that Brodchandel retained Lowenstein in 2020, and the firm, ‘in exchange for millions of dollars in fees, disregarded the Rules of Professional Conduct, deployed their unchecked attorneys, and touted alleged political influence to enable and aid Brodchandel in his unsuccessful attempt to seize control and ownership of Harmony to the company’s significant detriment.'”
• “The suit also alleges that Brodchandel sought to convert Harmony from a nonprofit to a for-profit entity, but a company that invested a large sum of money in Harmony, Secaucus Investors, ‘uncovered and then thwarted Brodchandel’s plot by securing an order enjoining Harmony from effectuating the conversion, thereby preventing Brodchandel and the Lowenstein Defendants from completing the final step of Brodchandel’s subversion of Harmony’s assets.'”
• “According to the suit, Lowenstein’s attorneys advanced Brodchandel’s interests in the name of Harmony, ‘despite the non-waivable conflict that prohibited their dual representation.’ That allegedly left Brodchandel unchecked to cause great harm to Harmony and its assets through self dealing, wasting its assets, mismanaging it, breaching his fiduciary duties and ‘effectuating his scheme to seize harm to Harmony and its assets through countless misdeeds for himself and his co-conspirators,’ the suit asserts.”
• “Kevin Marino of Marino, Tortorella & Boyle in Chatham, New Jersey represents Lowenstein Sandler, Slocum and Porrino in connection with the suit by Harmony Foundation. Marino said in an email, ‘this is a frivolous complaint filed by a disgruntled litigation adversary. It was filed in response to our lawsuit against that same adversary for the payment of legal fees. We will seek to collect the full amount of our unpaid legal fees as well as the costs incurred in defending against this meritless and obviously retaliatory claim.'”
• “In November 2024, Lowenstein sued Harmony Foundation, Trif & Modugno and others in an attempt to recoup $766,276 in unpaid legal fees. Lowenstein was retained to defend a hostile takeover lawsuit initiated by Harmony’s lender, Secaucus Investors.”

“Connell Foley Fights DQ Bid In Investment Firm’s Bias Suit” —

• “A group of current and former New Jersey state officials blasted a motion to disqualify their counsel at Connell Foley LLP in a discrimination suit from a Black-owned investment firm in New Jersey federal court, calling the move a frivolous and bad faith stalling tactic.”
• “Blueprint Capital Advisors LLC moved in December to disqualify the firm because one of its attorneys, prominent real estate attorney Elnardo Webster, allegedly represented Blueprint in the discrimination litigation before he moved to Connell Foley in 2023.”
• “The state defendants — including New Jersey Attorney General Matthew Platkin and George Helmy, former chief of staff for Gov. Phil Murphy — however, shot down that argument in a Tuesday brief filed in a New Jersey federal court.”
• “The disqualification motion from Blueprint and one of its owners, Jacob Walthour, concealed the fact that far from representing him, Webster had, at most, a handful of social interactions with Walthour over the timeframe in question and never provided any legal advice, the state defendants alleged.”
• “Walthour ‘resorts to using conclusory buzzwords such as ‘mental impressions,’ ‘advice,’ and ‘confidential information’ that demonstrate his claim of a conflict is an empty one,’ the memorandum said. ‘These buzz words cannot bridge the factual gap. The law is clear that such conclusory statements are insufficient to disqualify opposing counsel,’ they added.”
• “Blueprint claimed Webster began representing it as far back as 2016. However, the state defendants argued, and Webster himself certified, that the 2016 meeting was nothing more than a brief social interaction between Webster and Walthour that did not involve legal advice. Blueprint did not file the suit for four years after that meeting, and when it did, the case had nothing to do with Webster’s specialty of real estate.”
• “‘Plaintiff’s suggestion that incidental social conversations with a non-litigating real estate and land use attorney who was completely unfamiliar with the status of the litigation somehow rose to the level of an ‘attorney-client relationship’ is not credible,’ the state defendants said.”
• “Blueprint and Walthour did not respond to multiple requests from the state defendants for evidence that Webster ever represented them, and the investment firm waited for months after learning Connell Foley was representing the state defendants to file the disqualification motion, the state defendants argued.”
• “The state defendants told the court Blueprint’s motion approached the level of sanctionable behavior, but that they chose not to pursue sanctions. They also said the disqualification bid appears to be a form of retaliation for the state of New Jersey filing a separate complaint against Blueprint and Walthour in November 2024.”
• “The Connell Foley attorneys on the case — John Lacey and Lauren Iannaccone – have spent significant time preparing for about 40 depositions and reviewing tens of thousands of documents, the state defendants said. Disqualifying them now would require any new counsel to take months to get up to speed and delay the deposition schedule, they said.”
• “Blueprint sued the state defendants and the investment firm BlackRock in 2020, alleging the state cast it aside for a contract and instead gave the contract, along with confidential information, to the ‘overwhelmingly white’ financial giant.”

“No Duty To Report Client Fraud” —

• The Ethics” Advisory Panel of the Rhode Island Supreme Court opines on an attorney’s ethical obligations when learning of client fraud in a matter where the attorney did not represent the client”
  • “The inquiring attorney represented a client with a potential Social Security Disability (‘SSDI’) claim pursuant to a referral from the client’s workers’ compensation attorney. During the representation, the inquiring attorney filed an application for SSDI benefits on the client’s behalf in February 2024. The application was denied in April 2024, at which time the inquiring attorney requested reconsideration of the denial. The request for reconsideration was denied in August 2024. On September 9, 2024, the inquiring attorney filed a request for hearing, which remains pending.”
  • “The inquiring attorney reports that during this time his or her client was receiving workers’ compensation benefits. The inquiring attorney did not represent the client in the workers’ compensation matter. On November 14, 2024, the inquiring attorney learned that the client had settled the workers’ compensation matter pursuant to a settlement agreement signed in October 2024 in which the client affirmed that he or she had not applied for SSDI benefits and did not intend to become Medicare eligible within the next thirty (30) months. In response, the inquiring attorney terminated his or her representation of the client on November 15, 2024, and has not communicated with the client since.”
• “Is there a duty to report?”
  • “The Panel’s inquiry now turns to whether Rule 3.3 imposes such a duty of disclosure on the inquiring attorney here. By its plain language, Rule 3.3 ‘governs the conduct of a lawyer who is representing a client in the proceedings of a tribunal’ or who is ‘representing a client in an ancillary proceeding conducted pursuant to the tribunal’s adjudicative authority, such as a deposition.’ Rule 3.3, Comment [1]. Thus, the existence of a proceeding is a condition precedent for the applicability of Rule 3.3. This requirement attaches even in cases where ‘[a] lawyer . . . knows that a person intends to engage, is engaging or has engaged in criminal or fraudulent conduct related to the proceeding . . . .’ Rule 3.3(b). In this case, the inquiring attorney asks whether he or she must report the false attestation the client made in the affidavit settling his or her workers’ compensation matter; however, the inquiring attorney does not now, and never did, represent the client in that case. Accordingly, the duty of candor under Rule 3.3 does not attach here.”
  • “This conclusion is supported by the Panel’s past precedents. In Rhode Island Supreme Court Ethics Advisory Panel Op. 94-19, the inquiring attorney was retained by an insurance company to file suit to suspend workers’ compensation payments to a recipient who was allegedly operating a home business. The inquiring attorney confirmed the allegation following an investigation. The inquiring attorney also learned, however, that his or her law firm provided legal services to the recipient’s home business. On this basis, the inquiring attorney sought to withdraw from both matters. He or she asked the Panel whether he or she was nonetheless obligated to inform the Workers’ Compensation Court of the fraud.”
  • “As an initial matter, the Panel agreed with the inquiring attorney’s decision to withdraw from both matters due to the evident conflict of interest. With regard to the question of the inquiring attorney’s duty of candor, the Panel determined that the inquiring attorney was under no such obligation because he or she did not represent the recipient before the Workers’ Compensation Court. The Panel noted, however, that ‘[t]he attorney’s obligation would be different if the attorney were representing the recipient in the Workers’ Compensation proceeding.'”