Risk Update

Marriage Conflicts (Allegations) — Judge Refuses Recusal, Third Circuit Says Ethical Screen Suffices

Posted Dan Bressler

“Judge Won’t Recuse From Citi Cases Over Husband’s Law Firm Ties” —

  • “A federal judge in New York said Thursday that she won’t recuse herself from two cases involving Citigroup Inc. over her husband’s job at a law firm that frequently services the banking giant.”
  • “Plaintiffs in a securities suit over Citi’s internal controls sent a letter April 21 to Judge Loretta A. Preska of the U.S. District Court for the Southern District of New York, suggesting that more information was needed to determine if Preska had a conflict of interest. Her husband, Thomas J. Kavaler, works at Cahill Gordon & Reindel LLP, which regularly represents Citi and its subsidiaries in various actions, the plaintiffs noted.”
  • “The judge said she does not have a financial interest in the subject matter in controversy, ‘or any other interest that could be substantially affected by the outcome’ these cases. The court held that the ‘tenuous’ relationship between her husband and this case wasn’t enough to warrant a necessary recusal, in part because he doesn’t get a share of the firm’s profits.”

“3rd Circ. Casts Skeptical Eye On Firm DQ Bid In Maxus Case” —

  • “A Third Circuit panel appeared to question Tuesday whether a lawyer who formerly represented Argentine energy company YPF SA in an environmental liability case spilled any secrets when she moved to the law firm representing the Maxus Liquidation Trust and married one of its leading attorneys.”
  • “At oral arguments in Philadelphia, the three-judge panel rigorously questioned attorney Victor Hou, who is representing YPF in is bid to disqualify White & Case from representing Maxus in the litigation. YPF’s former attorney, Jessica Lauria, moved to the firm and married the head of its restructuring department.”
  • “The court’s focus appeared to be on picking apart YPF’s argument that ethical screens put up by a Delaware bankruptcy judge were not sufficient to mitigate any conflicts. Judge Peter J. Phipps said that YPF needed to prove that those screens were faulty, something he indicated he was not convinced of.”
  • “‘I don’t see a path to victory for you unless you can prove the screens were not complied with, or you can prove the screens were structurally deficient,’ Judge Phipps told Hou.”
  • “Hou had argued throughout the session that no type of screen, however stringent, could mitigate the potential harm Lauria could do to YPF because ‘the topics she advised on are the nuclear launch codes’ to YPF’s case.”
  • “When pressed by multiple judges on whether there was a concrete injury done to YPF, Hou responded that the risk posed by Lauria’s potentially talking YPF’s strategy with her husband or current firm was enough.”
  • “‘You want to disqualify an entire firm based on a risk? That’s extreme,’ Judge Phipps said.”
  • “Judge Joseph A. Greenaway Jr. noted that U.S. Bankruptcy Judge Christopher S. Sontchi found that the screens were adequate. Judge Sontchi previously said in an April 2021 denial of YPF’s disqualification request that the disqualification bid was a ‘shabby attempt to embarrass Ms. Boelter and Mr. [Thomas] Lauria and/or to prejudice the court in some manner.'”
  • “The court and attorneys referred to Jessica Lauria by her maiden name, Boetler, during the session.”