Risk Update

Risk Appeals (Fee Matters) — Screening Success, Fee Dispute Conflict Called

Posted Dan Bressler

“White & Case Lawyer Conflict Screen Cleared by Appeals Court” —

  • “White & Case LLP properly screened a newly hired attorney from a conflict that would have otherwise spread to the entire firm and disqualified it from participating in a bankruptcy case, the Third Circuit ruled on Friday.”
  • “Jessica Lauria, formerly called Jessica Boelter, worked at Sidley Austin LLP, which represented YPF SA in a case brought by Maxus Liquidating Trust in connection with the Chapter 11 bankruptcy of Maxus Energy Corp. She was later hired by White & Case, which represented the trust and is where her husband also works.”
  • “White & Case timely screened Lauria from involvement in the matter, but her former client YPF sought to disqualify the firm, saying the screening was insufficient. The bankruptcy court denied the disqualification bid.”
  • “The US Court of Appeals for the Third Circuit affirmed that decision, agreeing with the lower court that White & Case’s screening followed the rules, which included a requirement that the conflicted attorney not receive any portion of the fees.”]
  • “The appeals court rejected the argument that Lauria’s husband receiving fees meant the screen was not properly conducted.”

via the always excellent Legal Profession Blog: “Fee Dispute Leads To Directly Adverse Conflict” —

  • “This appeal involved a dispute over the division of a personal injury settlement between a predecessor law firm (“Litster”), a successor law firm (“IILG”), and a client who was subjected to unfair and deceptive trade practices in violation of the Idaho Consumer Protection Act (“ICPA”). Litster represented Melissa Gryder for approximately three years before IILG took over representation and settled Gryder’s case roughly two months later.”
  • “Gryder had followed her attorney, Seth Diviney, from Litster to his new firm, IILG. After Gryder’s case was settled, Litster sued IILG and Gryder, claiming a portion of the settlement fund for its incurred attorney fees and costs. Gryder, through Diviney as her attorney, counterclaimed that Litster had violated the ICPA and could not recover from the fund.”
  • “The district court granted Gryder summary judgment on the liability portion of her ICPA counterclaim but reserved the mechanics of her elected ICPA remedy (rescission) for trial. By the time of the bench trial, the district court understood, based on representations by Diviney, that only IILG and Litster claimed a stake in the disputed fund—not Gryder. From this, the district court balanced the equities and divided the disputed fund between only IILG and Litster while reducing Litster’s share to account for its ICPA violation. IILG and Gryder appealed the district court’s division of the fund and Litster cross-appealed the grant of partial summary judgment to Gryder.”
  • “Next, the Court concluded, sua sponte, that Diviney had engaged in an unwaivable concurrent conflict of interest on appeal—and throughout this case below. The Court explained that Litster, IILG, and Gryder have competing claims on how to distribute the fund. Yet, at all times, Diviney represented both Gryder’s and IILG’s directly adverse claims in the same litigation.”
  • “To ensure procedural due process, the Court declined to, on appeal, determine the appropriate sanction for Diviney’s ethical violation. Instead, the Court remanded the matter for the district court to determine the appropriate sanction after a hearing.”
  • The court wrote:
    • “We note that the cost of disqualifying Diviney from representing Gryder on her ICPA claim may, at this stage, outweigh any benefits Gryder would receive from conflict-free counsel. It has been nearly six years since Gryder’s underlying personal injury occurred, the parties have been disputing the distribution of Gryder’s personal injury settlement for over two years, one trial has already occurred, and a judgment against Gryder has been entered. Moreover, Diviney and IILG’s right to compensation in Gryder’s underlying personal injury case is materially entwined with Gryder’s right to deny Diviney and IILG a fee for the same under Gryder’s ICPA cause of action.”