Risk Update

Risk Landscape — Conflicts and Optics When Private Equity and Torts Clash

The Law Firm Disrupted: When Private Equity and Mass Torts Collide in the Same Firm” —

  • “Skadden served as deal counsel for an investment giant that’s also funding claims against a firm client. Such tensions may grow even more common as multistrategy investors look for new opportunities.”
  • “Last Friday, Skadden product liability partner Allison Brown, representing Johnson & Johnson, penned a letter to a U.S. magistrate judge, seeking a subpoena against plaintiffs firm Beasley Allen, which is representing clients in a mass tort over the company’s baby powder.”
  • “All in a week’s work for a global law firm with over 1,600 attorneys, right? But there’s an added wrinkle here. Beasley Allen has a litigation funding arrangement with Fortress, and Brown indicated in a footnote that the investment shop should also be looking out for a subpoena.”
  • “In other words, Skadden served as deal counsel for an investment giant that’s also funding claims against a firm client.”
  • “There’s no indication that representing an investment shop in a deal involving one of its portfolio companies (or as it’s acquired by a larger player, as in the case of Skadden and Fortress) presents an ethical conflict when other attorneys at the firm are representing a client who’s facing off against an adversary backed by that same investment shop.”
  • “As one partner at an Am Law 100 firm who does work on behalf of third-party funders told me, the firm takes the position that this representation is not directly adverse to that on behalf of another firm client, legally.”
  • “Other firms, particularly those with strong relationships with the tech industry, can be more unyielding. These tech clients’ position as a frequent target of funders’ claims makes certain firms unwilling to take on any work on behalf of funders.”
  • “But there are optics considerations to take into account. When the partner, who sought anonymity to speak about firm policies, does take on one of these representations, they look to see who the defendants are, and then runs it by the firm.”
  • “‘If it came out, would it be a problem?’ the partner said. ‘What are the chances of it being disclosed, and what kind of relationship issue would it raise?'”
  • “Similarly, Parikh raised concerns about ‘bad optics’ surrounding these overlapping ties, while also recognizing that sophisticated firms like Skadden maintain ‘very particular and focused engagement letters’ with all of their clients to ward off conflict issues.”
  • “Indeed, akin to a global law firm home to hundreds of partners pursuing a range of different work on behalf of a diverse client base, investment firms like Fortress are also sprawling, disjointed entities.”
  • “‘We consider a lot of large investment firms as a monolith, but they have all these different arms, and they are all operating somewhat independently,’ Parikh said. ‘To the extent there are some tensions here, it’s on both sides of the fence.'”
  • “And with mass tort claims presenting a ripe opportunity for private equity investment, expect to see more examples of tension.”