Risk Update

Law Firm Conflicts — Flint DQ Fight Foments, “Unescapable” Conflict Clash Continues

Posted Dan Bressler

We noted updates on this fight last summer. Here’s the latest: “Flint water judge rejects Napoli Shkolnik’s call to DQ rival lawyer” —

  • “The federal judge in charge of litigation over the Flint water scandal refused law firm Napoli Shkolnik’s request to disqualify a rival lawyer for simultaneously representing clients who approved of a $600 million settlement and those who wanted it to fail, saying the lawyer probably violated ethics rules but it wasn’t worth removing him from the case.”
  • “New York-based Napoli Shkolnik filed a motion to disqualify Philadelphia lawyer Mark Cuker, who made headlines in the case after falling asleep during a Zoom hearing, after he filed objections to the settlement on behalf of 12 clients while his remaining 968 clients approved it.”
  • “In 2020, the Napoli firm and Levy Konigsberg defeated efforts by rival attorneys to have them removed as co-liaison counsel over allegations including they were trying to garner more money for their clients by requiring expensive ‘bone scans’ to provide evidence of lead exposure.”
  • “Napoli argued Cuker violated the Michigan Rules of Professional Conduct by simultaneously representing clients who objected to the settlement and those who wanted it to proceed. Judge Levy largely agreed, saying ‘these positions are irreconcilable.'”
  • “The ethics rules allow lawyers to represent clients who have competing opinions about a settlement, the judge said, but only after ‘consultations’ in which they are informed about the conflict and the participation of other clients.”
  • “The judge rejected Cuker’s argument the rival law firm didn’t have standing, saying a motion to disqualify counsel is the proper mechanism for informing the court about alleged ethical violations.”

“Morgan Lewis Can’t Escape Suit Alleging Conflict in Deal Work Led to Client Bankruptcy” —

  • “A California federal bankruptcy judge on Wednesday advanced claims from the Chapter 7 trustee for a former Morgan, Lewis & Bockius client, which alleged the firm’s dual representation of the agency and its owners in a stock sale created a conflict of interest that led to a 2019 bankruptcy filing.”
  • “Court records indicate Morgan Lewis was paid $517,688 in legal fees for shepherding the deal. But Stadtmueller asserted in court the firm and Hector represented the owners in the stock sales as well, allegedly creating a conflict of interest that was never disclosed to the parties.”
  • “As for the second cause for action, which alleges breach of duty of loyalty, Latham found that they represented the owners, ‘whose interests were materially adverse to debtor’s.’ As a result, the judge found the agency was allegedly damaged by the loss of its legitimate expectation of loyalty and paying $277,848.92 in legal fees for counseling on the second stock sale.”
  • “‘Principally, debtor sought the lowest possible purchase price and the owners’ desired the highest. Yet despite the conflict, defendants failed to disclose the dual representation or obtain either debtor’s or the owners’ informed consent,’ Latham said. ‘So defendants breached their duty.'”