Risk Update

Conflicts and Disputes — Recent Conflicts Decisions, Shareholder DQ Fight

Posted Dan Bressler

Some recent spots from Bill Freivogel:

  • Abreu v. Alvarez, No. 21 Civ. 1641 (RER)(VMS) (E.D.N.Y. Dec. 31, 2024).
    • “This opinion by the magistrate judge involves Law Firm No. 1’s attempt to represent Driver and two Passengers against the other vehicle’s driver. Defendants filed a counterclaim against Driver. Law Firm No. 2 began defending Driver as counterclaim defendant. Passengers then retained Law Firm No. 3 to represent Passengers as plaintiffs. Law Firm No. 1 continued to represent only Driver and only as plaintiff.”
    • “Passengers had, at the outset, signed waivers of Law Firm 1’s conflict. Nevertheless, the magistrate ordered that Law Firm No. 1 be disqualified from representing Driver as plaintiff, as well as Passengers.”
    • “The analysis is complicated by Defendants’ claiming that Plaintiffs ‘staged’ the accident. The opinion appears to be a pretty good review of New York state and federal court results in driver/passenger situations (there are a lot of them). Compare this result with the very recent Arcos v. Vee Bee Cooling Corp., No. 522644/2022 (N.Y. S. Ct. Kings County Nov. 25, 2024). There, the court denied a motion to disqualify the lawyer for the driver and passenger because the parties had signed waivers.”
  • S.E.C v. Thurlow, 2024 WL 5245008 (S.D.N.Y. Dec. 30, 2024).
    • “The S.E.C. sued a number of defendants who were involved in a scheme to set up a “shell company” for the purpose of fraudulently issuing debt, converting the debt to equity, and selling the equity shares without registering them. Lawyer, one of the defendants, is alleged to have been directly involved in many of these transactions. Lawyer appeared for himself and three other defendants.”
    • “The court, sua sponte, raised the specter of Lawyer’s conflict of interest. In response, the parties submitted letters discussing the conflict, and Lawyer submitted conflict waivers from his other clients. In this opinion the court disqualified Lawyer from representing his other clients. The court said given the obviousness of Lawyer’s conflict under Rule 1.7, the court did not have to address Rule 3.7 issues.”
  • Savett v. SP Plus Corp., 2024 IL App (1st) 230931-U (Ill. App. Dec. 26, 2024).
    • “The trial court certified the class. In this opinion the appellate court affirmed. One objection was that Class Counsel had participated with Class Rep No. 1 as both class counsel and class representative in a “significant number of cases, switching roles back-and-forth.” Another objection was that Class Counsel and Class Rep. No. 2 were friends and their children went to the same school. The appellate court rejected both objections.”

“Venable Faces DQ Bid In AmeriMark Shareholder Dispute” —

  • “Attorneys from Venable LLP and Parsons Behle & Latimer PC have been hit with a disqualification bid in Utah federal court in a shareholder dispute involving AmeriMark Group AG, with the defendants arguing the lawyers are representing both the suing shareholder and the AmeriMark subsidiary at the heart of the dispute, causing a conflict of interest.”
  • “Defendants Rymark Inc. and Nicholas Thayne Markosian filed a disqualification motion on Thursday against the attorneys representing the suit’s plaintiffs, Capana Swiss Advisors AG and AmeriMark Automotive AG.”
  • “According to the motion, the lawsuit boils down to a dispute over who controls AmeriMark Group and AmeriMark Automotive. Capana claims it has about 13 million shares in AmeriMark Group, or a 65% stake, but Markosian alleges in a countersuit that those 13 million shares were stolen from him and that he is, in fact, the largest shareholder in the company.”
  • “Now, Markosian and Rymark claim that the same attorneys are representing AmeriMark, Capana and several executives of both companies, causing a conflict of interest.”
  • “‘In the ordinary course, AmeriMark would be agnostic as to the dispute between Capana and Mr. Markosian over the 13,000,000 shares. And the evidence of the theft is so overwhelming that AmeriMark would almost certainly be advised by independent counsel to credit Mr. Markosian’s claims,’ the motion said.”
  • “‘But in this litigation, AmeriMark is represented by the same attorneys representing Capana,’ the motion said. ‘Those attorneys are being paid by Capana, not AmeriMark. The upshot is that AmeriMark is essentially at the mercy of Capana and Capana’s attorneys. It is not receiving independent or unbiased legal advice.'”
  • “The defendants argued that Capana and its owner, Shaen Bernhardt, are the ones ‘calling the shots’ in the suit and that Capana is paying AmeriMark Automotive’s counsel fees because the AmeriMark companies have no money and are essentially empty shells.”
  • “They argued that such dual representation violates two Utah Rules of Professional Conduct. The first, Rule 1.7, prohibits concurrent conflicts of interest. The second, Rule 1.8(f), prohibits an attorney from receiving ‘compensation for representing a client from one other than a client’ without the client’s consent or when doing so will ‘interfere[] with the lawyer’s independence of professional judgment,’ according to the motion.”
  • “Markosian and Rymark said that Venable and Parsons Behle could not have obtained informed consent from AmeriMark to receive legal fee payment from Capana because the control of AmeriMark is disputed.”
  • “And even if the firms did go through the process of obtaining consent and the consent were legitimate, it ‘would still not cleanse the financing arrangement here, since the conflict and payment terms threaten to ‘interfere’ with those firms’ ‘independence of professional judgment [and] with the client-lawyer relationship,” the motion said.”
  • “‘This is not meant as an insult to specific attorneys. It is simply an acknowledgment of the practical realities present when a lawyer represents two entities with divergent interests and only one of the entities is paying,’ the motion said. ‘Attorneys who are being paid by Capana to represent AmeriMark just cannot be expected to see clearly when — for instance — incontrovertible evidence comes to light showing that Capana’s stake in AmeriMark Group was stolen.'”
  • “John Worden of Venable LLP: ‘This case has been pending for 18 months, and they brought this [motion] at the close of discovery and it is obviously just to postpone the trial date. They could have brought this months ago and instead sat on it through series of depositions.'”