Risk Update

Law Firm Disqualification Fights — Conflicts Allegations in Bankruptcy and Title IX Matters

Posted Dan Bressler

“Law Firms in Hot Seat: Lowenstein, Porzio Sued Over Alleged Conflict in Bankruptcy Case” —

  • “New Jersey-based law firms Lowenstein Sandler and Porzio, Bromberg & Newman are accused in a suit of breaching their fiduciary duties to shareholders in the bankruptcy of pharmaceutical maker Aceto Corp.”
  • “The suit, which concerns the award of $13 million in legal work by a bankruptcy plan administrator who was hired as a partner in the firm getting the work, could be a serious distraction for the defendant firms.”
  • “Lowenstein’s work for Aceto general counsel Steven Rogers, the bankruptcy plan administrator, coincided with Rogers’ employment as a Lowenstein partner, the suit said. By failing to make timely disclosure of Rogers’ status as a Lowenstein partner, ‘Lowenstein intentionally put itself, and Rogers, in positions of divided loyalty,’ the suit claims. And by failing to report that divided loyalty to beneficiaries of the bankruptcy plan or to the court, Porzio ‘acted to perpetuate the Rogers-Lowenstein conflict,’ the suit claims.”
  • “Rogers, for his part, was removed from his position as plan administrator under an agreement approved on Oct. 16, 2020, after the oversight committee in the case raised objections to his relationship with Lowenstein. The agreement called for Rogers’ replacement, a company called BAK Advisors, to conduct a review of fees awarded to Lowenstein in the case.”
  • “A Lowenstein spokesman said in a statement about the suit, ‘Lowenstein is proud that the Aceto bankruptcy case has had a highly successful outcome to date, well-exceeding the expectations of all stakeholders. At the end of the day, it is expected that all of Aceto’s creditors will have been paid in full, and that there may well be a sizable distribution to Aceto’s former public shareholders. The bankruptcy court has expressly recognized this successful outcome. The newly filed class action is the fifth or sixth attempt by these plaintiffs to improperly steer funds to themselves through a questionable penny stock strategy… These claims recycle spurious allegations made in a prior lawsuit that is currently the subject of a dismissal motion and is in mediation.'”

“Attys From BYU-Idaho Title IX Suit Won’t Be DQ’d” —

  • An Idaho federal judge has agreed that a law firm is conflicted by representing both Brigham Young University – Idaho and the Church of Jesus Christ of Latter-day Saints in litigation involving allegations that the school failed to properly respond to reports that a late professor sexually abused a student, but declined to disqualify the firm from the case.”
  • “Rather than toss Kirton McConkie, U.S. District Judge B. Lynn Winmill opted Friday to order the firm to maintain two separate sets of attorneys for its clients in the case and to ensure that they do not share with each other certain privileged information involving the student, according to his opinion.”
  • “The privileged information concerns communications between the former student, Lori Stevens, and a church official and a bishop that the church and its attorneys possess, according to court documents. Judge Winmill noted that the church and its attorneys have promised they will not share the information with the school and its attorneys.”
  • “The church intervened in the case in February 2018, saying that Stevens had requested documents held by the church that are privileged. The disqualification fight is rooted in the fall 2020 move of three attorneys for the university, Wade Woodard, Steve Andersen and Christine Arnold, from Andersen Schwartzman Woodard Dempsey to Kirton McConkie. Stevens urged the court in November to disqualify Kirton McConkie, as there was a danger that the privileged documents could fall into the school’s hands, despite the firm’s assurances that it would implement a firewall between the attorneys representing each party.”