Risk Update

Conflicts and DQ Fights — Judge-Lawyer Disqualification Equation, More Crypto Conflicts Commentary

Posted Dan Bressler

“Court to Rule on Attorney Disqualification, Judge Recusal in Ritz Carlton Class Action” —

  • “A Miami attorney and a federal magistrate judge are under the microscope. In dueling filings, litigators addressed a question a federal court posed: If attorney Peter Valori is disqualified from a case, can his former law firm colleague, U.S. Magistrate Judge Melissa Damian, who has since recused herself from the case, return to rule on future motions, including for class certification?”
  • “‘Judge [Melissa] Damian’s rulings have established the legal rubric that will frame the eventual decision on class certification,’ the plaintiff’s counsel, which includes David M. Marco, a partner at Smith Marco in Sarasota, Florida, claimed in a supplemental briefing. Marco did not respond to a call or email requesting comment.”
  • “They added: ‘Returning the case to Judge Damian, either by direct reassignment ordered by [U.S. Magistrate] Judge [Lisette] Reid or through a report and recommendation to the district judge that the case be reassigned, ensures the efficient management of judicial resources and avoids the appearance of manipulating the judicial assignment process that Mr. Valori’s appearance caused.'”
  • “In response to the judicial question, the Ritz Carlton said, ‘the answer is no,’ and noted in its supplemental briefing that Valori has been ‘substantively involved’ in the case for over four months. Ritz Carlton said that the federal recusal statute, local rules, and internal operating procedures do not authorize the federal district court to ‘effectively overrule another judge’s recusal decision. Rather, they prohibit it.'”
  • “‘The fact that Plaintiff is seeking an impossible reassignment (and a pointless disqualification), suggests the motion has an ulterior motive: Attempting to malign Ritz-Carlton and its counsel to distract from the meritlessness of the renewed certification motion,’ the Ritz Carlton asserted in its supplemental briefing.”
  • “In the dispute, Fox will have the burden to prove that, based on the U.S. Court of Appeals for the Eleventh Circuit’s seven-factor test on disqualification, he has a compelling reason to override what the Ritz Carlton called its ‘right to counsel of choice.'”
  • “Now, U.S. Magistrate Judge Reid will determine in a report and recommendation whether to reject or grant the motion for disqualification and, if the latter, whether Damian will return to preside over the case on future pre-trial motions. However, the ruling will ultimately rest with U.S. District Judge Raag Singhal.”

“A Viper’s Nest of Conflicts and Intrigue” —

  • “On December 21, Big Law firm Sullivan & Cromwell filed a conflict disclosure with the U.S. Bankruptcy Court in Delaware, where it was hoping to be officially appointed as lead counsel for the bankruptcy estate of Sam Bankman-Fried’s collapsed crypto house of cards – FTX, Alameda Research and its more than 100 opaque affiliates.”
  • “Judge John Dorsey signed the order making Sullivan & Cromwell lead counsel on January 20, despite a mind-numbing list of conflicts of interests, including extensive past legal work for the FTX group and personal legal work for its now indicted kingpin, Sam Bankman-Fried. The disclosure showed that in addition to FTX and Alameda Research, Sullivan & Cromwell had 10 other current crypto clients, including four major crypto competitors to FTX — BlockFi, Coinbase, Gemini, and Kraken.”
  • “While this litany of crypto disasters does not paint a pretty picture of what is happening in general with Sullivan & Cromwell’s crypto clients, BlockFi is in a league of its own in terms of a viper’s nest of conflicts inside Sullivan & Cromwell and internecine intrigue.”
  • “Under Bankruptcy Code Section 327(a), attorneys hired by the bankruptcy estate cannot hold or represent an interest adverse to the estate and must be ‘disinterested persons.’ The December 21 disclosure filed with the FTX bankruptcy court included a declaration from Sullivan & Cromwell partner, Andrew Dietderich, who told the court the following:
    • ‘Based solely on the conflicts procedures described herein, (i) S&C is not aware of any conflict between its representation of the Debtors and its representations of its Current Clients or Former Clients that would cause S&C not to be a ‘disinterested person,’ (ii) S&C does not represent any person or entity having an interest adverse to the Debtors in connection with these chapter 11 cases…'”
  • “On the date of that declaration, December 21, Sullivan & Cromwell was well aware that its client, BlockFi, had an extremely adversarial relationship with the FTX group. On the compensation request submitted by Sullivan & Cromwell to the bankruptcy court last Wednesday, for legal work it performed for the FTX group in the last 19 days of November, the name BlockFi appears 57 times. In 6 of those instances, the billable hours were described as involving the ‘BlockFi adversary proceeding’ or ”BlockFi adversary action.'”
  • “For example, on November 30, Sullivan & Cromwell law partner, Brian Glueckstein, billed 3.2 hours for what he described as follows:
    • ‘Analysis and strategy re: BlockFi claims (.80); call with S&C and Haynes Boone teams re: BlockFi claims issues (.50); follow-up correspondence to S&C team re: same (.20); meetings with A. Dietderich re: BlockFi claims (.40); correspondences to S&C team re: BlockFi adversary proceeding (.40); meeting with A. Dietderich and J. Bromley re: BlockFi strategy issues (.40); meeting with M. Porpora re: BlockFi adversary proceeding (.50).'”
  • “Sullivan & Cromwell has conceded in a court filing that it represented Bankman-Fried in connection with this Robinshare share purchase. Making that transaction even more fraught for Sullivan & Cromwell is the fact that the Department of Justice believes that Sam Bankman-Fried may have been attempting to hide that half billion dollars he held in the publicly-traded common stock of Robinhood by setting up the offshore vehicle, Emergent Fidelity Technologies Ltd. in Antigua, to hold the shares.”
  • “The documentation on how this transaction went down is a window into what was going on under the nose of Sullivan & Cromwell’s former partner, Ryne Miller, who became General Counsel to FTX US in August of 2021.”
  • “Although Miller was General Counsel to FTX US, not Alameda Research or Emergent Fidelity Technologies Ltd., he listed himself as the contact person on the Securities and Exchange Commission filing for this Robinhood stock purchase.”