“Law firm Gibson Dunn squares off with crypto client over work for Tether” —

• “Gibson, Dunn & Crutcher is caught up in a court battle with its own client Swan Bitcoin, after the law firm hired a lawyer who represents rival cryptocurrency company Tether.”
• “Swan sued Gibson Dunn for legal malpractice on Friday in Los Angeles Superior Court. It said the firm was improperly trying to drop Swan as a client in a federal trade secrets lawsuit against former Swan employees who formed their own company with Tether’s financial backing.”
• “Gibson Dunn formally asked to withdraw from the trade secrets case in a Sunday court filing. There has been ‘a complete breakdown’ in its relationship with Swan, the firm said, citing the legal malpractice lawsuit and alleging that Swan refused to pay its legal fees.”
• ‘The filing said Swan had demanded $18 million not to oppose Gibson Dunn’s bid to withdraw. ‘Gibson Dunn cannot continue to represent Swan under these conditions,’ the firm told U.S. District Judge Michelle Williams Court in Los Angeles.”
• “In the state court malpractice case, Swan on Monday asked a judge to enter a temporary restraining order that would prohibit Gibson Dunn from dropping it as a client. ‘As stated in our complaint, we believe Swan’s treatment here has been highly inappropriate,’ Dave Wollmuth, a lawyer for Swan, said in a statement.”
• “Gibson Dunn, on Swan’s behalf, sued Tether-backed Proton Management and several of its employees in September, alleging they misappropriated thousands of documents containing Swan’s proprietary information and sought to push Swan out of the joint venture with Tether. The lawsuit did not name Tether as a defendant.”
• “As Gibson Dunn was representing Swan, it was also in the process of hiring prominent trial lawyer Barry Berke and four other white-collar defense lawyers from Kramer Levin Naftalis & Frankel. Berke is ‘one of Tether’s regular outside litigation attorneys,’ Swan said. Federal court records show Berke was representing Tether in at least one lawsuit.”
• “Swan said one of its Gibson Dunn lawyers called its CEO days before the firm announced Berke’s hire in October. The lawyer warned Swan it would need to find new counsel because it was about to hire an attorney whose current clients conflicted with Swan.”
• “In a Nov. 6 letter to Gibson Dunn, Swan said it would oppose Gibson Dunn’s exit from the lawsuit and demand that it either drop Tether as a client or ‘disassociate itself from Mr. Berke and other laterals representing Tether.'”

Detailed analysis from several lawyers at McCarthy Tétrault: “Court Of Appeal For Ontario Clarifies The Standard For Determining Arbitrator Conflicts Of Interest: Aroma Franchise Company, Inc V. Aroma Espresso Bar Canada Inc., 2024 ONCA 839” —

• “In March 2023, the Ontario Superior Court of Justice issued its ruling Aroma Franchise Company Inc. v. Aroma Espresso Bar Canada Inc. regarding the duty of disclosure of potential conflicts of interest for arbitrators. That decision had a significant impact on arbitration practice for both arbitrators and counsel. Justice Steele set aside an award because the arbitrator had accepted a separate, unrelated mandate for the law firm of one of the parties to the arbitration before him. The ruling resulted in the proliferation of ‘Aroma letters’ by arbitrators to preclear unrelated mandates for the same lawyers or law firms.”
• “On November 19, 2024, the Court of Appeal for Ontario overturned Justice Steele’s decision and clarified the standards for disclosure and whether an award should be set aside due to a reasonable apprehension of bias.”
• “The Superior Court decision by Justice Steele is described in our previous blog post. In brief, David McCutcheon was retained to arbitrate a franchise dispute (the ‘MFA Arbitration’) between an Aroma franchisee and Aroma arising out of a Master Franchise Agreement (the ‘MFA’). The MFA directed that the parties ‘shall jointly select one (1) neutral arbitrator from the panels of arbitrators maintained by the ADR Institute’ who ‘must be either a retired judge, or a lawyer experienced in the practice of franchise law, who has no prior social, business or professional relationships with either party.’ The arbitrator confirmed that he had no conflicts and that he believed he met the criteria for appointment.”
• “Sotos was the law firm that acted for the franchisee in the MFA Arbitration. Seventeen months into the MFA Arbitration, but 15 months before the award was released, the lead Sotos lawyer asked the arbitrator if he would arbitrate a different dispute between a different Sotos’ client and a third party (the ‘Sotos Arbitration’). The arbitrator accepted the Sotos Arbitration without disclosing to the franchisor that he had been approached by Sotos or had agreed to it. The arbitrator issued a Final Award in the MFA Arbitration finding that the franchisor had wrongfully terminated the MFA and awarded substantial damages to the franchisee.”
• “After the final award, the franchisor learned about the arbitrator’s involvement in the Sotos Arbitration. The franchisor successfully applied to set aside the award. Justice Steele directed a new arbitration before a different arbitrator. She held that Mr. McCutcheon was required to disclose that he was being engaged for the Sotos Arbitration and that his involvement in it without disclosure gave rise to a reasonable apprehension of bias, fatally tainting the MFA Arbitration. In reaching that conclusion, Justice Steele gave considerable weight to correspondence between the franchisor’s counsel prior to Mr. McCutcheon’s appointment explaining their relationships with potential arbitrators and asking questions about opposing counsel’s relationships with arbitrators. This correspondence was not provided to Mr. McCutcheon.”
• “In a unanimous decision written by Justice Zarnett, the Court of Appeal for Ontario allowed the appeal and set aside the decision of Justice Steele. The Court of Appeal held that the governing principles for assessing issues of disclosure and bias must be based on the applicable legislative framework.”
• “The Aroma arbitration was governed by the Model Law, which is a schedule to the International Arbitration Act (Ontario). Article 12(1) of the Model Law requires an arbitrator to disclose—before appointment and as the arbitration proceeds—any circumstance likely to give rise to justifiable doubts about the arbitrator’s impartiality. Article 12(2) permits a challenge to the arbitrator or the award that was made if circumstances exist that give rise to justifiable doubts about the arbitrator’s impartiality, as long as the person making the challenge was unaware of the circumstances when they participated in the arbitrator’s appointment.”
• “Zarnett J.A. explained that the following principles govern disclosure under Article 12(1) and set aside applications for justifiable doubts about arbitrator impartiality.”
• “The Court held that application judge erred by placing substantial weight on the parties’ subjective expectations about disclosure of engagements based on the correspondence their counsel exchanged before the arbitrator was approached and appointed. In that correspondence, counsel explained their relationships with potential arbitrators and asked questions about opposing counsel’s relationships. Effectively, the application judge’s approach turned an objective test into a subjective one.”
• “General Standard 3(a) of the IBA Guidelines requires the arbitrator to disclose facts or circumstances that may ‘in the eyes of the parties’ give rise to doubts about the arbitrator’s impartiality or independence prior to accepting the appointment or thereafter. The IBA Guidelines set out a red/orange/green stoplight system for when an arbitrator should act or not act. The Court of Appeal held that ‘the IBA Guidelines are not a legal standard’, and differ from the Model Law by prescribing a subjective, rather than objective, standard.”
• ” ‘Justifiable doubts’ about an arbitrator’s impartiality under Article 12(2) is synonymous with reasonable apprehension of bias.”
• “The Court of Appeal affirmed the decision of Mew J. in Jacob Securities that the test for judicial bias applies to the Model Law. The apprehension of bias must be reasonable, held by a reasonable and right-minded person. The test is ‘what would an informed person, viewing the matter realistically and practically—and having thought the matter through—conclude. Would he think that it is more likely than not that the [arbitrator], whether consciously or unconsciously, would not decide fairly.’ Committee for Justice and Liberty et al. v. National Energy Board et al., [1978] 1 S.C.R. 369, at p. 394.”
• “The Court also distinguished Aroma from Aiteo Eastern E & P Company Ltd. v. Shell Western Supply and Trading Ltd. & Ors, [2024] EWHC 1993 (Comm). In Aiteo, when the arbitrator was appointed, she made disclosure of two prior engagements as an arbitrator by Freshfields, the solicitors acting for Aieteo’s opponents. However, she failed to disclose a ‘relatively recent’ engagement by Freshfields to give expert advice to a different client. And while the arbitration was ongoing, the arbitrator failed to disclose a second and third engagement with Freshfields to provide expert opinions.”
• “The Aroma appeal clarifies the standards applicable to determining whether justifiable doubts over impartiality or a reasonable apprehension of bias by an arbitrator exist. This clarification is important for counsel and arbitrators, particularly as law firms frequently engage the same arbitrators for different disputes.”
• “Aroma explains that if a party or their counsel has particular concerns about an arbitrator taking on other mandates during the course of the arbitration, those concerns should be identified and clearly disclosed to the arbitrator and opposing counsel prior to the potential engagement. Alternatively or in addition, the parties can incorporate a more stringent standard for disclosure of potential conflicts, such as the subjective test set out in the IBA Guidelines.”