Risk Update

Freivogal Findings — Law Firm Conflicts, Disqualifications and More

Posted Dan Bressler

With kind thanks (as always) today’s update focuses on the latest from Bill Freivogel:

  • “JKAYC, LLC v. Noah Bank, No. 20-CV-943 (PKC) (SMG) (E.D.N.Y. Sept. 30, 2021). Tenant moved to disqualify Landlord’s law firm (“Law Firm”) because Law Firm had for many years represented Tenant on other matters. All that ended in June 2019. The magistrate judge granted the motion. In this opinion the district judge denied Landlord’s motion for reconsideration. Law Firm did not represent Tenant in negotiating or executing The Lease. However, Law Firm’s of-counsel (and office sharer) did. The of-counsel did communicate with Law Firm about various aspects of the lease. The decisions turned on substantial relationship, and, to a small extent, playbook. Because of the factual intensity of both courts’ opinions and, because it all is of dubious precedential value, we will not burden you more with background.”
  • “LaSalle Elec. Contractors Inc. v. 2590687 Ont. Inc., 2021 ONSC 6547 (CanLII) (Super. Ct. Ont. Oct. 4, 2021). Hotel construction project. LaSalle, an electrical contractor, is suing the owner of the project, 259. 259 has filed a third-party action against the project construction manager, JBL. Law Firm has appeared representing both LaSalle and JBL. 259 moved to disqualify Law Firm, claiming, in part, that Law Firm’s representation of both LaSalle and JBL would enable Law Firm to use confidential information from one to benefit the other — all to the unfair disadvantage of 259. In this opinion the court granted the motion to disqualify Law Firm from representing LaSalle. Recognizing the reality of many third-party actions, the court found the joint representation to be ‘untenable.’ ‘Put bluntly, it is not wholly in JBL’s interests for LaSalle’s claim against 259 to succeed.'”
  • “In re S-Tek 1, LLC, 2021 WL 4876930 (D.N.M. Oct. 19, 2021). Chapter 11. Pre-petition, Debtor sued Company for fraud and related grounds. Company counterclaimed, claiming Debtor owed Company money. Company also filed a third-party claim against persons related to Debtor (“Individuals”). Debtor moved to employ Law Firm as Debtor’s Counsel. At the same time Law Firm would represent Individuals in the litigation. Several parties objected to the joint representation, claiming Law Firm would have a conflict of interest. In this opinion the bankruptcy judge approved retention of Law Firm with several conditions. The court characterized the conflict as “potential.” The court said that if the conflict ripened into an actual one, Law Firm would have to resign. To prevent that from happening, the court restricted Individuals from raising issues that would cause an actual conflict. [Our note: Given the unique relationships of the parties, and the questionable precedential value of the case, we will not burden you with the various ways the conflict could become an actual one. The bankruptcy judge took pages doing that.]”
  • “Tecnicas Reunidas De Talara S.A.C. v. SSK Inteneria Y Construccion S.A.C., No. 21-22206-CIV-ALTONAGA (S.D. Fla. Oct. 13, 2021). SSK successfully achieved a $40 million international arbitration award against Tecnicas. Tecnicas brought this action to vacate the award because of “side-switching” by a lawyer (“Lawyer”) during the arbitration. Early in the arbitration Tecnicas added lawyer and his firm (“Firm 1”) to “its team of counsel.” Lawyer, while at Firm 1, actively participated for Tecnicas in the arbitration hearing (during March 2-6, 2020). Before the deadline for filing post-hearing briefs, Lawyer left Firm 1 and joined the firm representing SSK (“Firm 2”). Tecnicas first raised this “side-switching” by Lawyer when it filed this petition to vacate the award. In this opinion the court denied relief to Tecnicas, granted SSK’s motion to dismiss this case, and confirmed the award. First, the court found no prejudice to Tecnicas. The court did not apply a Rule 1.9-type analysis because Tecnicas waited until after the arbitration award to raise the conflict. Thus, the standard shifted from “substantial relationship” to prejudice. The court also found that Tecnicas waived the conflict by not raising it in the arbitration tribunal and waiting until after the award to bring it to this court. A lot of the court’s analysis is dependent on the application of international arbitration rules, which we will ignore here given the unusual sequence of events and nature of the case. In denying attorneys fees to SSK, the court said that Tenicas’ ‘arguments are not frivolous, as evidenced by the 22 pages of analysis contained in this Order.'”
  • “Hepworth Holzer, LLP v. Dist. Judge Norton, 2021 WL 4692822 (Ida. Oct. 8, 2021). Gary Tubbs was injured in a bicycle accident on property owned by a recreational association (“Ass’n”). Tubbs hired the Hepworth law firm (“Hepworth”) to bring a case against Ass’n. The Elam firm (“Elam”) represents Ass’n. Elam filed a motion for summary judgment. While that motion was pending, an associate (“Lawyer”) left Elam and joined Hepworth. One month after Lawyer’s move, the trial court granted summary judgment for Ass’n. Lawyer, then at Hepworth, helped draft a motion for reconsideration. Earlier, while at Elam, Lawyer did discuss legal theories regarding the motion for summary judgment with two Elam lawyers. Lawyer billed no time to the case. Ass’n moved to disqualify Hepworth. The trial court granted the motion. Hepworth petitioned the Idaho Supreme Court for mandamus or prohibition. In this opinion the court, in granting mandamus (reversing the disqualification), discussed several procedural issues at great length. We will skip those. The court was particularly impressed with Lawyer’s “negligible contact” with the case while at Elam and the prejudice to Tubbs if the disqualification of Hepworth were sustained.”