Risk Update

Conflicts — Decisions of Note (Advance Consent, Withdrawal, Screening) & Alleged Accounting Conflict

Posted Dan Bressler

The latest conflicts updates and analysis from friend of the blog Bill Freivogel:

  • Wis. Memo. Op. EM-19-02 (Feb. 2, 2021).
    • “Bank #1 hires Law Firm to document a loan. The deal will involve a number of yet-unidentified additional lenders. As the deal progresses, Banks 2, 3, and 4 agree to participate. Law Firm is representing Bank 2 on other matters. Bank 2 may, or may not, wish to negotiate special terms for this deal.”
    • “Under what circumstances may Law Firm participate in such a negotiation for Bank 1? That is one of several scenarios discussed by this opinion. When is this a conflict? What if anything can be done about it? (advance consent, concurrent consent, withdrawal, etc.)”
    • “Your situation may not fit any of the scenarios neatly, but the opinion provides a list of issues likely to arise. A companion pair of opinions considers a law firm’s malpractice liability to the other lenders in a syndicated loan. Are they clients with privity? The cases are Leonard v. Dorsey & Whitney LLP, 553 F.3d 609 (2009), and McIntosh County Bank v. Dorsey & Whitney, LLP, 745 N.W.2d 538 (2008). Context for all this is in the article cited by the Wisconsin opinion, Reade H. Ryan, Jr., The Role of Lead Counsel in Syndicated Lending Transactions, 64 Bus. Law. 783 (May, 2009).”
  • Feinstein v. Freedman, 2021 ONSC 1493 (CanLII) (Ont. Super. Ct. April 12, 2021).
    • “Lawyer is acting as trustee of a family trust. This case involves Lawyer’s compensation as trustee. One objection to his compensation is that Lawyer had a conflict of interest in hiring his own law firm to do work for the trust. The trial judge approved Lawyer’s compensation. In this opinion the Divisional Court affirmed, holding, among other things, that ordinarily, it is not a conflict for a trustee to hire his own law firm to do work for the trust.”
  • Stevens v. Brigham Young Univ. Idaho, 2021 U.S. Dist. Lexis 78879 (D. Idaho April 23, 2021).
    • “Lori Stevens is suing BYU Idaho (“BYU”) for sexual harassment arising out of Stevens’ intimate relationship with a now-deceased professor. BYU is seeking discovery of Stevens’ communications with LDS Church (“Church”) leaders relating to that relationship. Church intervened to protect those communications from discovery under the priest-penitent privilege. The church is represented by the Kirton Firm. Initially, BYU was represented by the Anderson Firm.”
    • “In the fall of 2020 the lawyers at the Anderson Firm, representing BYU, moved to the Kirton Firm. The Kirton Firm formed a screen between the lawyers representing BYU and Church. Stevens moved to disqualify the Kirton Firm from representing BYU in this case. In this opinion the court denied the motion with unremarkable conditions fortifying the screen at the Kirton Firm.”

An interesting story from the accounting world: “Grant Thornton in conflict of interest as was forensic auditor for Greensill-GAM investigation” —

  • “The collapse of Greensill Capital, the supply chain financing firm, is still having repercussions with Grant Thornton, the administrator appointed to probe the collapse, facing the conflict of interest charges. Grant Thornton was apparently also involved in the investigation of Greensill’s relationship with Swiss asset manager GAM, according to sources.”
  • “A trail of associations has come to light that ties Grant Thornton to the long chain of misdoings of Greensill. While conducting a forensic audit of GAM’s dealings with Greensill in 2018, Grant Thornton was also working for one of Greensill’s biggest customer, GFG Alliance, for which it was paid nearly £6 million(€6.96 million ) from 2016 to 2020. Grant Thornton has not publicly disclosed its role in the GAM investigation.”
  • “GAM was a major investor in supply chain finance deals arranged by Greensill, including investing millions of dollars in metals magnate Sanjeev Gupta’s GFG. Sanjeev Gupta earlier had some share in Greensill too. There are questions about Grant Thornton’s role and involvement in GFG, Greensill and GAM’s triangular relationship. GFG’s relationship with Greensill is now subject to a Serious Fraud Office probe.”
  • “Grant Thornton told the High Court in London after being appointed to audit Greensill that it had undertaken about 80 “diligence related instructions” in the past few years for GFG, for which it was paid £5.8 million from 2016 to 2020 for this work. Grant Thornton also reiterated before its appointment as administrator that it had given ‘careful consideration to the code of ethics relating to such matters’ and satisfied itself that there was ‘no threat to its independence as a result of any prior relationships.'”