Risk Update

Conflicts Costs — Ex-billionaire Sues Ex-counsel, Calling “Secret Betrayal,” and Litigation Funding Rule Change Coming in NJ

Posted Dan Bressler

“Rackspace founder Graham Weston sues San Antonio lawyer” —

  • “Rackspace Technology Inc. co-founder Graham Weston calls it ‘perhaps the most blatant violation and betrayal of the attorney-client relationship in the history of Texas jurisprudence.'”
  • “Davis and his law firm, Davis & Santos, accepted more than $2.9 million in legal fees to represent Weston in various matters over the years — only to ‘secretly’ agree later to serve as Elizabeth Weston’s counsel in the couple’s divorce, the suit alleges. The complaint was filed Wednesday.”
  • “As part of his representation of Elizabeth Weston, the complaint says, Davis conducted a “secret investigation” to develop criminal, civil and family law claims against Weston — all while still representing him and entities he manages in three lawsuits.”
  • “In an answer filed Thursday afternoon, Davis says the lawsuit is an attempt to “bully” him and his client because ‘they dared to stand up’ to Weston. Davis describes himself as her lawyer and “longtime, trusted confidant.” He has represented Weston entities, for which Elizabeth Weston has served as authorized representative while managing their litigation, the document says. Davis disputes he ever represented Graham Weston individually, save for a matter involving Rackspace that ended in 2012.”
  • “In his order, Waldrip found ‘an impermissible conflict of interest arose when Davis agreed to assist Elizabeth in investigating claims now within this divorce proceeding, including allegations of personal injury and family violence against Graham.’ Davis sought to overturn Waldrip’s ruling, but the 3rd Court of Appeals in Austin last week denied the request without explanation.”
  • In a declaration attached to Davis’ answer Thursday, Elizabeth Weston said she filed for divorce because ‘I could no longer withstand the emotional, psychological, physical, and sexual abuse I suffered by Graham for many years.’ Weston has said the allegations are fabricated. He has accused his wife of recording him and hiring a private investigator to track him for a year and a half.”

“New Local Rule Allows Disclosure of Litigation Funding in NJ’s Federal Courts” —

  • “New local Rule 7.1.1 (effective Aug. 5, 2021), changes the landscape of litigation funding disclosure in New Jersey’s federal courts. The District of New Jersey will now require all parties to file statements setting forth information about any non-party person or entity that is ‘providing funding for some or all of the attorney fees and expenses for the litigation on a non-recourse basis’ in exchange for either ‘a contingent financial interest based upon’ the litigation’s results or a ‘non-monetary result that is not in the nature of a personal or bank loan, or insurance.'”
  • “The emerging trend has been to extend privacy protections to litigation funding materials under the work-product doctrine, and generally to deny production or use of such materials in litigation. New Jersey federal courts seem to be charting a different path, and one that may influence other courts to reexamine their own rules and practices.”
  • “Part of the stated basis for the new Rule 7.1.1 is to allow judges sufficient information to decide recusal issues for potential pecuniary interest and conflict. However, the Rule’s actual impact may be broader, as the Rule also provides that a party may seek discovery “of the terms of any such agreement upon a showing of good cause that the non-party has authority to make material litigation decisions or settlement decisions, the interests of the parties or the class (if applicable) are not being promoted or protected, or conflicts of interest exist, or such other disclosure is necessary to any issue in the case.” So, although information about the funding is disclosed, a party seeking discovery about the terms must still demonstrate good cause to get additional information. That line of thinking is consistent with the case-by-case analysis generally applied to discovery of litigation funding documents.”
  • “New Jersey’s new local federal rule seems intended to strike a balance, requiring a showing of good cause before chasing down records that might be compromising. However, the idea that a funder is a real party in interest to be disclosed at the outset is, in and of itself, not insignificant, particularly as mainstream financial institutions continue to take on this type of funding arrangement. The implications for recusal are real, and courts should have the existence of the agreement and identity of the funder as a basis for decision.”