Bressler Risk Blog

“Flynn’s new legal team unleashes on his old lawyers in bid to withdraw guilty plea” —

• “The new legal team for former national security adviser Michael Flynn unleashed a withering assault Wednesday on Flynn’s old lawyers, accusing them of a conflict of interest so severe that it merits allowing the ex-Trump aide to withdraw the guilty plea he entered more than two years ago.”
• “Flynn’s current squad of attorneys contend that Flynn’s original legal counsel with the prominent Washington law firm Covington & Burling was too enmeshed in the early stages of Flynn’s legal troubles to give him detached advice about what to do once prosecutors from special counsel Robert Mueller’s office began threatening to prosecute the retired Army lieutenant general.”
• “‘Mr. Flynn’s guilty plea (and later failure to withdraw it) was the result of the ineffective assistance of counsel provided by his former lawyers, who were in the grip of intractable conflicts of interest, and severely prejudiced him,’ Flynn’s current lead counsel, Sidney Powell, and her colleagues wrote in the 49-page motion filed on Wednesday afternoon. ‘That pernicious conflict infected and prejudiced his defense until he retained new counsel in 2019.'”

“Law firm A&O told to drop client over conflict of interest” —

• “Luxembourg’s bar association ordered Allen & Overy to stop working on behalf of fund services firm Alter Domus after a complaint the mandate constituted a conflict of interest for the magic circle UK law firm.”
  “A&O’s work for LFP I’s opponent showed the law firm had switched sides, LFP I argued, because it had represented the fund itself in a related case.”
• “Alter Domus bought Luxembourg Fund Partners, the management company of LFP I, in December 2017, putting it in charge of financial and risk management, compliance and other administrative tasks at LFP I. But shareholders appointed new directors late in 2018, when they found millions of euros had gone missing from LFP I, an umbrella structure that allowed other managers to set up sub-funds within it.”
• “The new directors sacked Alter Domus as the fund’s management company, and have since filed several lawsuits against it. Alter Domus had hired Allen & Overy to defend it against LFP I in one case concerning Columna, one of the several sub-funds under the umbrella structure. But the law firm had earlier been working for LFP I itself to defend it against a shareholder claim in a related case, which had to do with the Aventor sub-fund, according to the ruling of the bar association.”
• “Allen & Overy argued the two cases were separate because they involved different sub-funds within LFP I, but the bar association said that sensitive information could have been compromised regardless.”

I always find interesting updates (and the comments are worth reading) through Bill Freivogel’s web site. Here are some recent highlights involving conflicts and law firm fiduciary duty:

Malpractice Liability (posted January 15, 2020) Amer. E Group PLLC v. Livewire Ergonomics Inc., 2020 WL 209903 (S.D.N.Y. Jan. 14, 2020).

• “AEG is suing Livewire on a note. Livewire brought a third-party complaint against the Barkats law firm because Barkats represented Livewire in obtaining the financing and preparing the note. Livewire is claiming that that the terms of the note were unfavorable to Livewire and that Barkats had a conflict of interest, thus breaching its fiduciary duty to Livewire. Livewire has also joined Elana Hirsch, a principal at AEG, as a third-party defendant, claiming she aided and abetted Barkats’ breach. Hirsch moved to dismiss the third-party complaint against her. In this opinion the court denied the motion.”
• “The problem is that AEG is related to the Barkats law firm, including the fact that Hirsch is married to Sunny Barkats, the firm’s named partner. The engagement agreement between Barkats and Livewire said that Livewire was waiving any conflict that might arise out of the financing being with an entity related to Barkats. However, the court said that this reference to a possible future, “hypothetical,” conflict falls far short of Rule 1.7’s requirement for an informed consent (see, especially, footnote 4). [Our note: The opinion contains a helpful discussion of lawyers’ breach of fiduciary duty and of a third party’s aiding and abetting such a breach. The opinion also discusses the applicability of New York’s versions of Rules 1.7 and 1.8(a).]”

Commercial Negotiations; Both Sides of Deal (posted January 10, 2020) Doyle v. Otto, 2020 WL 105089 (Ia. App. Jan. 9, 2020).

• “Geri Doyle and Caren De Voe were partners in a real estate brokerage business. Lawyer Mark Otto had represented both of them in various business contexts. When Doyle and De Voe agreed to part, they hired Otto to prepare the needed documents. Otto asked them to sign a conflicts waiver. De Voe insisted on a ten year non-compete clause. When Doyle asked Otto about the length, Otto opined that he did not think a court would enforce it for more than ‘two to three years.’ Doyle signed the contract Otto prepared, which included the ten-year non-compete provision.”
• “Later, in a new business, Doyle started listing property in a county named in the non-compete. De Voe reminded Doyle about the non-compete. Doyle responded by filing this action seeking a declaration that the non-compete was not enforceable and seeking malpractice damages against Otto. We will focus on the claims against Otto. The trial court granted Otto summary judgment. In this opinion the appellate court affirmed. It was clear that De Voe and Doyle agreed on all the separation terms without Otto’s involvement and that Doyle was sophisticated about the real estate business. The court found that Otto’s prediction about the excessiveness of the ten-year term was good advice. Thus, the court held that Otto had not been negligent, and that he had not breached his fiduciary duty to Doyle.”

“Serving as Escrow Agent Can Be Risky” —

• “Firms often serve as escrow agent for clients, and sometimes the adversary as well — real estate closings, corporate transaction down payments, environmental clean-up and settlement agreements in litigation are just a few examples. But is your firm protected? Do you have a detailed escrow agreement that explicitly sets forth your obligations and spells out under what circumstances exactly you can disburse the funds and to whom? If all you do is put the money in your attorney trust account and follow your client’s instruction, what happens when the adversary disputes the release of funds?”
• “That is the situation that was recently addressed by the Supreme Court of New Jersey in Meisels v. Fox Rothschild LLP, 2020 WL 97718. In that case, an intermediary entity wired funds to Fox Rothschild’s trust account in connection with a real estate deal the firm was handling. The wire transfer did not include any instructions as to how the money should be disbursed. The Supreme Court focused on two facts, (1) the funds were sent with no reference that they were on behalf of the Plaintiff and contained with no limiting instructions or conditions, and (2) plaintiff did not object to the disbursement of funds in a timely manner, and thereby dismissed the case against Fox Rothschild.”

“Ex-White & Case Client Says Firm Tried To Extort $1M Fees” —

• “A San Francisco-based cosmetics company has hit White & Case LLP with a lawsuit in New York state court, accusing its former legal counsel of pursuing a ‘campaign of extortion’ against it and repeatedly threatening to disclose its confidential client information to extract nearly $1 million in exorbitant legal fees.”
• “…Shipman Associates LLC, which does business as theBalm, claims that the law firm breached its ethical and fiduciary duties by repeatedly and unnecessarily disclosing Shipman’s privileged information, and threatening to continue to do so, in an effort to recover legal fees.”
• “White & Case allegedly represented Shipman during the early stages of a proposed transaction from February 2016 through March 2017. At the time, the firm allegedly refused to continue representing Shipman unless it entered a new agreement under which the firm received more than double it was charging in attorney fees, according to the suit.”
• “After two failed rounds of mediation in the fee dispute, Shipman claims that a White & Case attorney began a ‘campaign of harassment and coercion.’ The attorney allegedly sent emails to Shipman’s owners ‘boasting’ about how eager he was to examine the company’s witnesses about its proprietary information before a jury.”
• “Then, during a hearing, when a judge asked the White & Case attorney how it could be possible the firm never sent its client an invoice, he allegedly responded that it was because the firm was summarily fired,’ even though the firm actually quit, the suit claims. He also repeated Shipman’s confidential information in open court for a second time, the suit says.”
• “The complaint claims that the firm violated New York Rules of Professional Conduct and emphasizes that Shipman never waived and does not intend to waive its attorney-client privilege with White & Case.”

Via ALPS, which bills itself “the nation’s largest direct underwriter of lawyers’ malpractice insurance”: “Closure letters – What Are They and Why Should Lawyers Bother with Them?” —

• “In the Claims world, we love closure letters. Unfortunately, we rarely see them in the files – perhaps that is because attorneys who send closure letters may not be sued as much as those who do not send closure letters! When we use the term, “closure letter” we are referring to a letter that the attorney sends the client at the conclusion of the matter on which the attorney has assisted the client. The closure letter can take many forms.”
• “Many attorneys have misconceptions about closure letters. Attorneys want clients to consider the attorney as “their attorney” so that the next time the client has legal work, the client will automatically call that attorney. We have worked with attorneys who deliberately did not send a closure letter because they wanted the client to think of the attorney for future work and were afraid the closure letter will send a message that the attorney is completely through with the client and never wants to see the client again. Instead, the client forgot what the attorney told him or her and later sued claiming the client believed the attorney was going to do something wholly outside the scope of the original representation. With no closure letters, the claim can turn into a he-said-she-said litigated matter.”
• “If the attorney re-frames the closure letter in terms of a thank-you letter, far from offending the client, it can convey the message that the attorney has appreciated the client and looks forward to working with the client again on future matters… Another advantage is that the date of the closure letter is a bright-line date from which the statute of limitations may start running.”
• “For attorneys who work with business clients, a closure letter can be an excellent tool to clearly state who is responsible for business filings, corporate records, etc. A closure letter is a service to your client in clarifying the work and what, if anything, the client needs to think about in the future. Client’s memories fade and the letter is a useful tool in keeping the record straight. So, for 2020, we would suggest a New Year’s resolution to send closure letters in all client files!”

They offer some additional guidance on the substance of closing letters in: “Don’t Kiss Off The Importance Of Closure Letters.”

And for even more detail on navigating the topic of concluding client matters, the Advocate offers: “Terminating the attorney-client relationship.”

“The final days of Pond Lehocky Stern Giordano? A war is raging within the Philly law firm” —

• “The four law partners once worked in harmony in their Center City headquarters, raking in millions of dollars by successfully representing injured workers, and establishing themselves as major players in Democratic politics. More recently, however, that relationship has been strained. Now, it has disintegrated, to the point that one faction is fighting over clients with an excommunicated partner who was locked out of the building this week.”
• “Legal filings provide an extraordinary play-by-play of a simmering management dispute that devolved into internecine war at the largest workers’ comp firm in Pennsylvania. The court docket reads like an alternative version of The Lord of the Flies, one where the boys grew up and started wearing suits.”
• “In the petition, Stern said employees at the firm, within minutes of Stern’s supposed expulsion, began sending Stern’s clients letters and emails informing them of ‘Mr. Stern’s departure’ and forcing them to choose between going with Stern or switching to a remaining partner at the firm.”
• “‘The Pond defendants have made it appear that Stern’s whereabouts are ‘unknown,’ causing some clients to believe Stern has been physically harmed and others to believe he stopped practicing law and otherwise causing extreme confusion and upsetment amongst his clients,’ wrote Stern’s attorney, Benjamin Garber, who added that some Stern clients ‘have informed Stern that they ‘love him’ and are extremely confused by the notices….'”
• “‘We clearly disagree with the allegations — we have no apologies for demanding excellence for our clients,’ Pond said. ‘I’ve said all along that our concern first and foremost always is for our clients, staff and referral partners. That’s where our focus has to be and this will not disrupt our mission.’

“Ex-Attys Can’t DQ New Counsel In $350M Shire Deal” —

• “At a hearing in Tampa, U.S. District Judge Anthony E. Porcelli said Kevin Darken’s motion to disqualify Noel McDonell, Bryen Hill and their firm Macfarlane Ferguson & McMullen PA is moot because only the receiver of the now-defunct Barry A. Cohen PA firm — where Darken worked while handling the case — has standing to bring these claims and assert privilege over emails Darken says were obtained without authorization.”
• “In his motion, Darken said McDonell and Hill, who currently represent Vinca, improperly used confidential emails from Barry A. Cohen PA to challenge the charging lien filed by Darken, Cohen and Saady & Saxe PA for a cut of the attorney fees.”
• “Vinca, who fired his attorneys in March 2018, is suing Darken, the Cohen firm and Saady & Saxe for malpractice, claiming they cost him the full whistleblower’s cut of the Shire settlement. He says his former counsel’s failures forced him to share the whistleblower award of the settlement with the five other relators who filed FCA suits after his.”
• “Darken argued that Vinca’s malpractice claim is based on stolen, privileged and confidential emails and documents from the Cohen firm. Vinca’s current attorneys say that when Cohen’s firm could not cover its financial obligations, employees were locked out but were left with their computers, so documents were not secured. Vinca, who has the right to claim attorney-client privilege, has not objected to the use of the documents.”

Lexis offers: “Legal Ethics Rules To Watch In 2020” —

• “There is plenty happening in the world of lawyer regulation and ethics, from California’s radical access-to-justice initiative to the New York City bar’s look at litigation funding and the fee-splitting rule.”
• “Depending on your point of view, the Golden State’s ongoing ethics rule revamp is either a welcome evolution that will improve access to the justice system, or a misguided invitation for non-lawyers to provide low-quality legal services and undercut ethical standards. Either way, keep a close eye this year on California, where a bar task force is set to finalize a sweeping proposal aimed at reducing costs for consumers and making the justice system more accessible.”
• “Some 18 months ago, the venerable New York City Bar Association hit private legal investors — and a growing number of firms who use their money — with a broadside warning that funding deals in which the attorney’s repayments are tied directly to future fees or contingencies violate the fee-sharing ban under Rule 5.4. The advisory opinion was a direct challenge to so-called portfolio arrangements in which funders put up money to a firm to back a group of cases in return for a share of future profits.”
• “In Missouri, a state appeals court is expected to decide whether state prosecutors have the authority to help undo wrongful convictions in a case touching on state and national professional standards. The case involves Lamar Johnson, who was sentenced a quarter century ago to life in prison, without the possibility of parole, for a fatal shooting. Last summer, a conviction integrity unit of the St. Louis prosecutor’s office issued a scathing report about a litany of underlying police and prosecutorial misconduct in the Johnson case. That report described fabricated witness statements, secret payments made by prosecutors to a lone eyewitness and the presentation of false evidence to jurors that ‘rendered the result of the trial fundamentally unfair.'”
• “Considering the testiness of lawyer rule-making, the ABA’s revamp two years ago of attorney advertising regulations went off pretty smoothly… But since the ABA “black letter” changes were finalized, only Connecticut has actually adopted the newly streamlined rules, though two others — Virginia and Oregon — made related updates amid the run-up to the ABA updates. Was all that effort wasted? Maybe not. The high courts in Washington and Iowa are considering ad rule adoptions, while the bars in a handful of other states, including Colorado, Louisiana and Tennessee, are also considering revisions, according to the ABA.”

“Case a reminder law firms must have comprehensive conflicts system” —

• “A Federal Court judge, citing Lawson Lundell LLP’s failure to take adequate or timely measures to prevent information confidential to a dispute from being shared internally in the face of a conflict of interest, has disqualified the firm from acting on judicial review applications against the party to whom the information belonged.”
• “The twist in the case (GCT Canada Limited Partnership v. Vancouver Fraser Port Authority 2019 FC 1147), is that GCT Canada Limited Partnership, the party that successfully sought Lawson’s removal, was never a client of the firm.”
• “‘The case is a reminder that law firms must have a comprehensive conflicts system in place, one that records not only the names of clients but other parties from whom confidential information may have been derived,’ said Gavin Mackenzie of MacKenzie Barristers Professional Corporation in Toronto, a prominent expert on legal ethics. ‘And when a name comes up that could give rise to a conflict, the firm must ascertain whether it has confidential information and what can be done about it.'”
• “‘There is no dispute that GCT was never a ‘client’ of Lawson,’ Pentney wrote. ‘In this case, however, I find that the conflict rules do apply to Lawson because GCT imparted confidential information to Lawson in the context of a solicitor-client relationship between Lawson and BCI. Indeed, the very nature of the BCI retainer required Lawson to examine confidential and proprietary information about GCT in order to provide advice to its client. … I accept that the [conflicts] rules must be considered and applied with a degree of flexibility in view of the fact that this is a situation involving a non-client, but I find they do apply.'”
• “‘Lawson did not take adequate and timely steps to prevent any sharing of, or access to, this confidential information because it had not identified the situation of conflict,’ Pentney wrote.”

“Donziger Says Seward & Kissel May Have Chevron-Related Conflicts” —

• “Steven Donziger, the suspended lawyer who is facing criminal contempt charges stemming from his long fight with Chevron over environmental contamination in Ecuador, has asked a federal judge to force court-appointed prosecutors at Seward & Kissel to disclose any ties their firm has to the oil giant.”
• “In a Tuesday letter to U.S. District Judge Loretta Preska of the Southern District of New York, Donziger’s lawyer, Andrew Frisch, said his research led him to believe that an unnamed Seward & Kissel partner served on Chevron’s board and that the firm served clients who do business with Chevron or related entities. He said Glavin ‘has declined to answer my questions about Seward’s ties to Chevron.'”
• “In a response filed later Friday, Glavin said it was simply not true that any Seward partner had been on Chevron’s board. As to the allegation that its clients had done business with Chevron, she wrote, ‘even if true, this creates no conflict or conflicting loyalty for the prosecution team in this criminal case.'”

“O’Melveny defeats conflict allegations in trial court; trustee for ex-client vows appeal” —

• “A bankruptcy trustee for Aletheia, an investment manager once entrusted with more than $2 billion in assets, had brought malpractice and breach of duty claims against O’Melveny, asserting that the law firm failed Aletheia by simultaneously representing the company and its CEO in litigation alleging misconduct by the CEO.”
• “The trustee’s conflict allegation is at the heart of the case, although some coverage of the litigation in front of Judge Snyder has highlighted the easy-to-understand assertion that the arbitrator who exonerated O’Melveny, former federal judge Gary Feess, was biased because the case impacted the career prospects of his son. Feess’ son, a law student when the arbitration was under way, had signed up for on-campus interviews with O’Melveny and Gibson Dunn. When Aletheia’s trustee raised the issue of potential bias with Feess, both Gibson and O’Melveny told the arbitrator that they would refrain from hiring his son out of an abundance of caution.”
• “The trustee’s lawyers told Judge Snyder that the firms’ refusal to hire Feess’ son could only have exacerbated any bias because the arbitrator would hold the firms’ actions against the trustee. Judge Snyder swatted away those arguments, concluding that the original interviews didn’t require Feess to recuse himself and that the trustee’s subsequent assertion that the arbitrator held a grudge was ‘unpersuasive.'”
• “But the whole matter of the arbitrator’s son is a red herring. The more important issue in this case is whether O’Melveny betrayed Aletheia by representing both the company and its CEO in litigation in which another investment manager, Proctor, accused Aletheia of breaching a sales agreement.”
• “It’s important to remember as you consider the complicated facts of this dispute that Feess, a retired federal judge, sided entirely with O’Melveny after a three-week hearing. And Judge Snyder rejected the trustee’s argument that Feess’ arbitration decision manifestly disregarded the law or contravened the public policy against conflicted representations. That said, the case raises tough questions.”

“NYU Workers Say Judge Conflicted Out of Retirement Plan Suit” —

• “New York University workers told the Second Circuit that they’re entitled to a new trial in their case over the school’s retirement plans because the presiding judge’s ties to the school disqualified her from hearing the case.”
• “The workers, in addition to challenging Forrest’s legal analysis in her 2018 ruling in favor of NYU, argued that a conflict of interest disqualified Forrest from hearing the case. They pointed out that 43 days after ruling for NYU, Forrest left the bench and rejoined the law firm Cravath Swaine & Moore LLP, where firm chairman Evan Chesler is a key member of NYU’s board of directors.”

“Manhattan judge rules in favor of lawyers who donated to his campaign – and it’s all legal” —

• “The silver-maned lawyer announced the victory on his law firm’s website: A win saved his clients $130 million. Not included in that broadband boast was that the attorney, Marc Kasowitz, and his associate donated $10,000 to the presiding judge’s campaign eight years earlier.”
• “Now lawyers for Drexel-Billet’s former spouse, Bradford, are questioning why Manhattan Supreme Court Judge Michael Katz remained on the case.”
• “A spokesman for the state Office of Court Administration suggested Katz’s behavior was above board, noting that he followed state regulations dictating an ‘independent person’ handle contributions.”

“What to do when your adversary was the Judge’s clerk?” —

• “Most of the reported cases involving judges and former clerks deal with the situation where the clerk was employed while a matter was pending and later joins a firm involved in the same matter or representing one of the parties. That law is well-settled.”
• “But suppose the issue is not whether the case was in front of the judge in some fashion when your adversary was clerking; what if the issue is more thorny? Do they still have a close enough relationship to put your client at a perceived or actual disadvantage?”
• “After reading about In Re: Gizella Pozsgai, case number 19-3872 in the U.S. Court of Appeals for the Third Circuit, you have to consider raising the delicate issue before the judge and the adversary and hope for honest and complete answers.”
• “The scrutiny began because the judge gave an interview circulated on the internet describing her close personal and social relationships with former law clerks, including the AUSA. She had made similar comments in public remarks and in legal publications. She had pictures of events in her chambers of her and former clerks, including the AUSA, seen by counsel during a conference. In denying the first recusal motion along with deciding other motions, she simply inserted the denial in a footnote without analysis.”
• “The case is heading to the Third Circuit and bears watching. In the meantime, if you clerked and have a case assigned to your judge, promptly notify your adversary of the details of the clerkship and your present relationship with the judge.”
• “There is no hard and fast rule addressing the question of whether a judge should allow a former clerk to appear before the judge in any matter. Some judges wait 6 months, some wait a year, some wait two years before allowing a clerk to appear. Some districts or vicinages choose a time period by consensus.”

“Archer Beats Disqualification Bid in Litigation Over NJ Hotel Ownership” —

• “A federal judge has denied a motion to disqualify New Jersey-based law firm Archer Law from representing the defendants in a dispute among owners of a hotel.”
• “In his motion for disqualification in the present case, Sam argues that Archer’s past representation of EH Associates and Hospitality present a conflict of interest because Sam has brought derivative claims on behalf of EH Associates and Hospitality as an alleged minority member. He contends that Archer should be disqualified because their representation violates proscriptions in the Rules of Professional Conduct against representation involving a concurrent conflict of interest. He also contends the rules say representation of a client should not be followed by representation of another client with adverse interests in the same matter or a related matter.”
• “Sam does not claim to have been represented by Archer, but rather that Archer represents and has represented the entities on behalf of which he now seeks to assert derivative claims as an alleged minority member. He cited a 2014 ruling from the Appellate Division, Comando v. Nugiel, in which the court held that Norris McLaughlin could not represent the defendants in a suit brought by one co-owner of a business against the other co-owner.”
• “But Clark in his Nov. 1 ruling said that the Norris McLaughlin case could be distinguished from the present case because there, the plaintiff’s status as a member of the company on whose behalf she sought to bring derivative claims was established and uncontested. In the present case, the parties dispute whether Sam has any ownership interest in EH Associates through Hospitality, making his argument a disputed litigation position and thus not a basis for disqualifying Archer, Clark ruled, noting that the defendants claim Sam relinquished his interest in Management in 2015, before Archer represented any of the subject entities or individuals, and holds no interest in Hospitality now.”

“Texas Justices Won’t Toss Firm From Rodeo Owners’ Battle” —

• “The court found that Kelly Hart had no conflict of interest in representing both Billy Bob’s Texas Investments LLC and a group of its owners, even though the suit was filed by another owner, Murrin Brothers 1885 Ltd., on behalf of the company. The company is listed in the lawsuit as both a derivative plaintiff and a defendant.”
• “Justice James D. Blacklock, who wrote the court’s unanimous opinion, said Murrin Brothers didn’t prove it would be harmed by the decision to keep Kelly Hart in the lawsuit. He brushed aside concerns that allowing the law firm to represent both the company and group of owners would confuse the jurors, saying that could be avoided with the use of a jury instruction.”
• “‘Gone are the days when a family feud over a dance hall saloon in the Fort Worth Stockyards would be solved by six-shooters,’ Justice Blacklock said. ‘These days, we use lawyers instead of lead. Thank goodness for that. As complicated, expensive, and frustrating as litigation can be, it sure beats a shootout at the stockyards.'”