Risk Update

“Endless Risk” — A Taxing (Tainted) 401(k) Law Firm Disqualification

Yesterday we highlighted recent writing from the professional responsibility practice at Clyde & Co. Today, sauce for the gander (as my favorite first officer would say) — Here’s the latest from Karen Rubin at Thomson Hine:

Citing “endless risk,” district court DQ’s firm from 401(k) case” —

  • “A New York district court judge earlier this month disqualified a firm representing hundreds of 401(k) plan participants based on a conflict of interest. The judge called the risks posed “endless,” and requested additional briefing on whether the firm would be allowed to remain as counsel in related arbitration proceedings in Missouri. The ruling spotlights the sometimes-thorny conflict issues that can arise in ERISA litigation.”
  • “In two of the actions, The Klamann Law Firm represented profit-sharing plan participants who alleged ERISA violations based on several breaches of fiduciary duty against the participants’ employer, the trust investment manager and the plan advisory committee along with the advisory committee’s individual members.”
  • “At the same time, in Missouri, The Klamann Law Firm was representing a number of claimants, including three individual former members of the plan advisory committee, in arbitration proceedings against the employer and the trust investment manager. Claimants’ claims in the arbitration were nearly identical to the litigation claims asserted in the two New York district court cases.”
  • “Citing its broad discretion to invoke the ‘drastic remedy’ of disqualification whenever a lawyer’s conduct ‘tends to taint the underlying trial,’ the district court noted that the Second Circuit considers adverse representation of current clients improper per se. The burden is on the lawyer to show that there will be no actual or apparent conflict in loyalty or ‘diminution in the vigor of [the lawyer’s] representation.'”
  • “The court noted that claims in the New York District court complaints made it ‘evident’ that plaintiffs intended to sue both the employer and the plan advisory committee for fiduciary breaches committed while two and possibly all three of the individual members were on the committee — the same members The Klamann Firm was representing as claimants in the Missouri arbitration.”
  • “Under many circumstances, a current-client conflict is waivable if each client gives informed consent. Timing is everything, however. Here, the firm said it had obtained consent of its clients — but only too late, wrote the court. Consent ‘needed to be obtained prior to… undertaking representation of adverse interests, not in response to a motion to disqualify.'”