Risk Update

Disqualification Meets Money Matters — Verein Conflicts Pain (Appeal in Vain), “Weaponized” Sanctions

Posted Dan Bressler

“Dentons Stuck With $32M Malpractice Verdict Over Verein DQ” —

  • “Denton’s bid to shed a $32 million malpractice verdict triggered by a disqualification and conflict between branches of the firm’s ‘verein’ structure failed Thursday at an Ohio appeals court.”
  • “Finding no error in the trial verdict for RevoLaze LLC, a former Dentons client, the three-judge panel said there was ‘overwhelming evidence’ suggesting that Dentons operated “as a single firm” despite its verien structure.”
  • “A Dentons partner who had worked for RevoLaze in a patent case at the U.S. International Trade Commission involving The Gap Inc. had also foreseen a possible conflict via the firm’s Canadian arm, which had represented Gap, the court said.”
  • “‘Here, we find Dentons US’ membership in a verein, with a common conflicts base, that shares client confidential information throughout the organization, is irreconcilable with Dentons US’ contention that it was separate from Dentons Canada,’ the court said.”
  • “‘Critically, Dentons US by initially identifying Gap as a conflict, even though it had done no work for Gap, strongly indicates that Dentons US did not think it was sufficiently separate from Dentons Canada, to be allowed to represent RevoLaze against Gap,’ the court added.”
  • “The decision represents a major blow for Dentons, a mega-firm that has long argued that, because its various verein entities are legally distinct and don’t share clients or information, they are effectively distinct firms for the purpose of imputed conflicts.”

More background and detail via Bloomberg: “Big Law Model Tested in $32 Million Dentons Malpractice Case” —

  • “At least six major U.S. firms affiliate with other law operations under the Swiss verein model to market services globally as if they were a single entity.”
  • “‘I’m sure there’s a high level of distress over what happened in this case,’ said law firm consultant Peter Zeughauser, noting that conflicts checks can be expensive and time consuming. ‘Firms worry a lot about their reputations for trustworthiness and integrity—and because of that, they worry about conflicts.'”
  • “Swiss verien firms risk losing business if they’re required to disclose conflicts related to affiliates’ work. Existing clients may balk at other representations. Potential clients could decide to go elsewhere when they learn who else the firm is representing.”
  • “Conflict checks that turn up nothing can still take time and limit the ability of partners to bill clients on new matters until the checks are done, said Zeughauser, whose group has worked for Dentons, Baker McKenzie and other Swiss verein firms.”
  • “Jim Jones, senior fellow at Georgetown Law’s Center on Ethics and the Legal Profession, said the case could prove to be a cautionary tale for Swiss verein firms’ ability and willingness to fully disclose potential conflicts to clients, especially given that from country to country, ‘conflicts rules are all over the place… I’ve always been extremely dubious that Swiss vereins could protect you against ethical obligations,’ Jones said.

“Weaponizing Attorney Sanctions? Miami Law Firm Partner Defeats $190,000 Penalty” —

  • “A South Florida attorney will be reimbursed for a six-figure sanction as early as Wednesday, after the Miami-Dade Circuit Court and the Third District Court of Appeal vacated orders that imposed punishment based on evidence that a trial judge suggested had likely been forged.”
  • “Jared Lopez, a co-managing partner at Black Srebnick Kornspan & Stumpf in Miami, was the subject of the original sanction order in May 2019. But two courts have suggested Lopez and his law firm were incorrectly disqualified from the litigation.”
  • “The dispute, in the sanctions case, involved ‘an inherent conflict of interest,’ leading Accetta to file a 21-day safe-harbor notice. Under Florida Statutes Section 57.105, an attorney has 21 days to withdraw a filed pleading, motion or other document that is not supported by facts, law or is otherwise frivolous—or the lawyer could face potential sanctions.”
  • “Accetta claimed that when Lopez filed a lawsuit on behalf of Iacono, it was an ‘illegal’ action because, as manager, Cavagnuolo was the only person with authority to file that lawsuit, citing an operating agreement in which Cavagnuolo was identified as the ‘sole’ manager of the company, L24M.”
  • “Accetta sent multiple notices to Lopez that he should dismiss the lawsuit filed in the name of the company, because only Cavagnuolo was authorized to initiate it in the company’s name, according to court filing.”
  • “As a result, when evidence suggested a forgery, Miami-Dade Circuit Judge Michael Hanzman, who inherited the case, denied that Lopez should be allowed to intervene due to the settlement, noting his motion “is without legal merit.””
  • “‘Having said that, the court understands Lopez’s frustration, as the evidence presented strongly suggests that the 2013 operating agreement relied upon by Cavagnuolo in pursuing his motions for disqualification and sanctions was a forgery,’ Hanzman ruled in February. ‘But Lopez’s claim that Cavagnuolo secured the disqualification and sanction orders through the submission of fraudulent evidence will have to be adjudicated elsewhere.'”