Risk Update

Conflicts Allegations — “Side Switching” ERISA Conflict Allegation, DQ Motion Oral Argument on Video

Posted Dan Bressler

“Fourth Department – Motion to disqualify: Consumer Beverages Inc. v. Kavcon Development LLC” —

  • “Background: The defendant appealed from an order that denied its motion to disqualify the plaintiff’s attorneys from representing the plaintiff in the underlying action to recover on a demand note. It is undisputed that, at the time the demand note was issued, the plaintiff’s attorneys represented both parties.”
  • “Ruling: The Appellate Division affirmed. The court held that the defendant failed to demonstrate that the prior representation is substantially related to the present litigation. The court noted vague references to confidential information, but it does not explicitly contend that the plaintiff’s attorneys received specific confidential information substantially related to the litigation.”
  • WATCH: Oral argument video

Naylor v. BAE Systems, Inc., Docket No. 1:24-cv-00536 (E.D. Va. Apr 04, 2024): “PLAINTIFF’S MEMORANDUM OF LAW IN SUPPORT OF HER MOTION TODISQUALIFY DEFENDANT’S COUNSEL” —

  • “Groom currently represents the [BAE Systems Employees’ Savings and Investment] Plan. Groom has represented the Plan for several years. Groom receives from the Plan roughly $700,000 per year for legal services. The Plan has paid Groom more than $2 million for legal services over the past three years.”
  • “Plaintiff alleges in her Complaint that Defendant breached ERISA’s duty of prudence by causing the Plan to pay excessive and unreasonable fees to the Plan’s third-party service providers, including Groom.”
  • “Groom has appeared in this lawsuit as counsel for Defendant. Accordingly, Groom is simultaneously representing both the Plan and the Defendant in this case – defending against the Plan’s claims in this matter. Should Groom be disqualified from representing both the Plaintiff and Defendant in this lawsuit?”
  • “Plaintiff alleges Defendant is violating a myriad of ERISA provisions and causing the Plan to suffer millions of losses. Among Plaintiff’s allegations is that Defendant is causing the Plan to pay Groom excessive and unreasonable fees both in relation to the services provided to the Planand in relation to the fees paid by retirement plans in general for ERISA compliance and legalconsulting services.”
  • “Plaintiff identifies several retirement plans that paid Groom between $10,000 and $34,000 annually for the same or similar services that Groom provided to the Plan here for roughly $700,000 annually.”
  • “Groom has represented the Plan for the entirety of the class period. Groom’s concurrent representation of the Plan and Defendant (who is seeking to defeat the claims of the Plan), creates an obvious irreconcilable concurrent conflict, specifically prohibited pursuant to Rule 1.7(a)(1)and (2).”
  • “The conflict is even more glaring considering Plaintiff’s allegations that Defendant breached its duty of prudence to the Plan, among other ways, by causing the Plan to pay Groom millions of dollars in excessive and unreasonable compensation during the class period.”
  • “The allegations pertaining to Groom’s excessive compensation make the conflict even more egregious and troubling. Groom is defiantly shirking the duties it owes to the Plan and instead seeking to help Defendant defeat the Plan’s claims and thereby protect the excessive fees that Defendant is causing the Plan to pay Groom. Groom’s ‘switching sides’ and seeking to protect the Defendant to the detriment of the Plan further bolsters the core claims in the operative Complaint that the Defendant breached ERISA’s duty of loyalty and prudence in connection with the administration of the Plan.”
  • “Under ERISA, Defendant has the highest duties of loyalty known to law. Instead of respecting its duties of loyalty to the Plan, Defendant is insisting on using the Plan’s lawyers to defend against claims that Defendant breached its duty of loyalty to the Plan.”
  • “Defendant’s disregard for its duty of loyalty to the Plan is on full display by insisting on having the Plan’s lawyers represent Defendant (who have gained confidential information about the administration of the Plan, while representing the Plan, and being paid millions of dollars by the Plan) in this action to the detriment of the Plan.”