Risk Update

Conflicts That Mean Business — Business Relationship Conflict Censure, Fee

Posted Dan Bressler

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

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

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

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