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FREIVOGEL ON CONFLICTS WHAT'S NEW Home/Table of Contents Items posted here during the past thirty days will also appear on this What's New page. Items posted within the past ten days will appear In Ten Day Bulletin immediately below. Items older than ten days but less than 30 days will be posted in the Thirty-Day Holding Area, which follows. Ten Day Bulletin Client Merger; Privilege (posted November 29, 2019) Askari v. McDermott, Will & Emery, LLP, 2019 WL 6334192 (N.Y. App. Div. Nov. 27, 2019). No one is raising a conflict of interest in this case. The case is about who gets to see the law firm's file after a merger. Here, the merger was very complex, involving numerous individuals and entities. We think we can get the key points across by referring simply to Buyers, Sellers, Surviving Company, and Law Firm. Law Firm, associated with Sellers, orchestrated the sale and merger. The Sellers seek Law Firm's file in this replevin action. In response to dueling motions for summary judgment, the trial court ruled that Delaware (not New York) law applied. Thus, Buyers and Surviving Company controlled the privilege, and Sellers could not have the file. In this opinion the appellate court reversed, holding that New York law controlled. Although the deal documents said Delaware law would control, all the parties and Law Firm were New York-related. Moreover, the appellate court said this case was about replevin of the file, not enforcement of the deal. The court relied on Tekni-Plex, Inc. v. Tang, 674 N.E.2d 663 (N.Y. 1996), which, by analogy would favor Seller. A Delaware statute, Del. Gen. Corp. Law § 259(a), would appear to have favored Surviving Company. (BTW, Tekni-Plex was a conflict of interest case.) Former Client; Rule 1.11 (posted November 29, 2019) Martley v. City of Basehor, 2019 WL 6340132 (D. Kan. Nov. 27, 2019). Plaintiff, Lloyd Martley, is suing City for violating equal pay laws. Martley was police chief from 2008 to 2018. During that time Martley would also act as part-time city administrator. Patrick Reavey, Martley's lawyer in this case, was city attorney for City from 2007 until 2011. City moved to disqualify Reavey. In this opinion the magistrate judge denied the motion. City cited both Rule 1.11 and 1.9. The court, relying on ABA Op. 97-409, ruled that because Rule 1.11 applied, Rule 1.9 would not apply. As for the application of Rule 1.11, the court's analysis was highly fact-specific, and of questionable precedential value. As city attorney, Reavey had occasional and episodic contact with Martley and the details of Martley's employment. Thus, under Rule 1.11(a), Reavey was not involved "personally and substantially" as to Martley. The court also considered Rule 1.11(b) & (e) and found no application. Investing; Doing Business with Clients (posted November 25, 2019) State of Nebraska v. Chvala, 304 Neb. 511 (Neb. Nov. 22, 2019). [Note: This case is a "poster child" on how not to do business with clients.] For 35 years, and until the date of this opinion, Janet Chvala had been "an experienced, well-respected" business lawyer in rural north-eastern Nebraska. She had been representing members of the Kaup family "in the 7 years before the 2003 real estate transaction" involved here. This included representing the Kaup brothers and their mother and aunt in a variety of farming-related matters, including, farmland purchasing and leasing, crop liens, hay operations, livestock, and trucking. This saga is long and complex. In short, Chvala was all over the brothers' 2003 $1 million purchase of a section of farm land. She was involved, her husband was involved, and all four of the aforementioned members of the Kaup family were involved. The Kaups made a disciplinary complaint, and the referee ruled that Chvala should be disbarred. In this long opinion the Nebraska Supreme Court affirmed the referee. The court found that the deal was structured in a way to favor Chvala and her husband. A major problem was that Chvala was able to lull the brothers into missing an option deadline to repurchase part of the section from Chvala's husband. Civil litigation resulting from that pratfall ended in the brothers' settling and agreeing to pay three times as much for the property as they would have under the option. In this opinion, the court found a violation of DR 5-104(A) (doing business with client). (Nebraska adopted the new Rules in 2005, after the land purchase.) The court did not find a violation of Rule 1.8(a) because no transaction occurred after 2005. However, the court did find a violation of Rule 1.8(b) (using client information). The court made a distinction we have not seen in "business-with-clients" cases. That is, under former DR 5-104(A) (and presumably, under current Rule 1.8(a)), the lawyer must comply with the disclosure and consent provisions even if the lawyer is not acting as lawyer for the complaining client in the transaction in question. The court also found violations of DR 5-105 and Rule 1.7(a) & (b). As to causing the Kaups to miss the option deadline, the court found violations of Rule 8.4(a) & (c). MISCELLANEOUS ETHICS AND LIABILITY NEWS [Note: Items that do not fit under the conflicts categories below, but which we believe will be of interest to this audience will appear here and on the This and That pages.] Privilege. (posted November 29, 2019) Askari v. McDermott, Will & Emery, LLP,
2019 WL 6334192 (N.Y. App. Div. Nov. 27, 2019). To read about the case, go to "Client Mergers . . . ," below. Rule 4.2 (posted November 13, 2019). Hernandez v. Helm,
2019 WL 5922233 (N.D. Ill. Nov. 12, 2019). Two city workers sued City
and two City managers in this whistle-blower matter. The plaintiffs
moved to disqualify City's lawyer. First, the plaintiffs claimed City's
lawyer violated Model Rule 4.2. The plaintiffs cite three instances
where fellow workers attempted to get them to drop the suit. Because
there was no showing that City's lawyer had anything to do with those
attempts, the magistrate judge rejected the Rule 4.2 argument. The
plaintiffs also claimed that City's lawyer has a conflict in
representing City along with the two individual defendants. The court
noted Seventh Circuit authority holding that, without more, that is not a
conflict. The plaintiffs were unable to specify how the defendants'
interests diverged. Thus, no conflict of interest under Model Rule 1.7.
The court did not address standing. [Note: These, too, will appear at the This and That pages.] Nothing current. ARBITRATION OF MALPRACTICE CLAIMS (To read the full article, click here.) (posted November 6, 2019) Golden v. O'Melveny & Myers LLP,
2019 WL 5693760 (C.D. Cal. Nov. 1, 2019). Jeffrey Golden is bankruptcy
trustee for Corp. In this case Golden sued O'Melveny ("O&M") for
malpractice in its representation of Corp. Under an arbitration clause
in the engagement agreement between O&M and Corp. the court ordered
Golden's case to arbitration. Golden lost the arbitration. In this
opinion the court denied Golden's motion to vacate the arbitration award
and granted O&M's motion to confirm the award. An important part of
Golden's malpractice claim is his argument that O&M had a conflict
of interest in representing Corp. along with two of Corp.'s executives
in litigation with another company ("the other cases"). Both the
arbitrator and the court found that O&M did not have a conflict
because, in the other cases, the opposing party was seeking money from
Corp. and the executives on the same grounds. Put another way, that case
was a direct action against all three defendants, and not a derivative
one to benefit Corp. An interesting side issue was whether the
arbitration award could be vacated where it violated public policy. The
court said an arbitration award that ran counter to legal ethics rules
could be a violation of public policy and, therefore, grounds for
vacating the award. However, the arbitrator found no conflict of
interest, and the court found no basis for overruling the arbitrator. BANKRUPTCY (To read full article, click here) Nothing current. Nothing current. BOARD POSITIONS (To read full article, click here.) Nothing current. CHANGING FIRMS - SCREENING (To read full article, click here.) Nothing current. CLASS ACTIONS (To read full article, click here.) (posted November 13, 2019) Opelousas Gen. Hosp. Auth. v. Louisiana Health Service Indem. Co.,
2019 WL 5883534 (La. App. Nov. 12, 2019). The trial court certified a
class of healthcare providers in this antitrust case. On appeal, the
defendant objected to one of class counsel ("Lawyer") because Lawyer
served on the board of the class representative. The defendant claimed
that Lawyer's fiduciary duty to the class representative was
inconsistent with his duties to the class. In an opinion the Louisiana
Board of Ethics disagreed. The trial court relied on the Board opinion.
In this opinion the appellate court affirmed the trial court. (posted November 29, 2019) Askari v. McDermott, Will & Emery, LLP, 2019 WL 6334192 (N.Y. App. Div. Nov. 27, 2019). No one is raising a conflict of interest in this case. The case is about who gets to see the law firm's file after a merger. Here, the merger was very complex, involving numerous individuals and entities. We think we can get the key points across by referring simply to Buyers, Sellers, Surviving Company, and Law Firm. Law Firm, associated with Sellers, orchestrated the sale and merger. The Sellers seek Law Firm's file in this replevin action. In response to dueling motions for summary judgment, the trial court ruled that Delaware (not New York) law applied. Thus, Buyers and Surviving Company controlled the privilege, and Sellers could not have the file. In this opinion the appellate court reversed, holding that New York law controlled. Although the deal documents said Delaware law would control, all the parties and Law Firm were New York-related. Moreover, the appellate court said this case was about replevin of the file, not enforcement of the deal. The court relied on Tekni-Plex, Inc. v. Tang, 674 N.E.2d 663 (N.Y. 1996), which, by analogy would favor Seller. A Delaware statute, Del. Gen. Corp. Law § 259(a), would appear to have favored Surviving Company. (BTW, Tekni-Plex was a conflict of interest case.) CO-COUNSEL/COMMON INTEREST (To read full article, click here.) COMMERCIAL NEGOTIATIONS (To read full article, click here.) Nothing current. CORPORATIONS (To read full article, click here.) Nothing current. CRIMINAL PRACTICE (To read full article, click here.) Nothing current. CURRENT CLIENT (To read full article, click here.) Confidences of Non-Client (posted November 12, 2019) GCT Canada Ltd. P'ship v. Vancouver Fraser Port Auth.,
2019 FC 1147 (CanLII) (Fed. Ct. Sept. 6, 2019). GCT and Port Authority
are litigating over whether Port Authority may expand a port facility.
Law Firm appeared for Port Authority. GCT moved to disqualify Law Firm
because Law Firm had access to GCT information in another matter. In the
other matter Investor retained Law Firm to conduct due diligence for
Investor's proposed investment in GCT. In this opinion the court
disqualified Law Firm. The court faulted Law Firm's conflict check in
the first instance. The court also found that significant information
relating to this case could have been discovered during the due
diligence that could have been used to GCT's disadvantage in this case.
Moreover, the court found that Law Firm's attempts to screen relevant
lawyers from GCT's information were inadequate. [Our note: We have
greatly condensed the facts and the court's reasoning. Lawyers who
become privy to non-client sensitive information would do well to read
the opinion.] DERIVATIVE ACTIONS (To read full article, click here. (posted November 6, 2019) Golden v. O'Melveny & Myers LLP,
2019 WL 5693760 (C.D. Cal. Nov. 1, 2019). To read about the case, go to "Arbitration," above. (posted November 4, 2019) Reddy v. Patel, 2019 WL 5677779 (D.N.J.
Nov. 1, 2019). Plaintiff sued three defendants (D1, D2, & D3)
involving several LLCs that owned, leased, or ran a hotel business. D1
filed cross claims against D2 and D3 and a claim against Hotel LLC.
These included individual claims and derivative claims of Hotel LLC. Law
Firm appeared for D2 and D3. D1 moved to disqualify Law Firm. In this
opinion the magistrate judge denied the motion. Law Firm never
represented D1 individually, but did represent Hotel LLC, in which D1
claims he had an interest. D2 and D3 are claiming that D1's interest in
Hotel LLC ceased in 2015, before Law Firm represented Hotel LLC or
anyone else involved here. The court said D1 could renew his motion in
the event the court confirms the extent and timing of D1's interest in
Hotel LLC. [Our note: The nature and ownership of the involved
entities are extremely complex, and little purpose would be served in
sorting them out at this stage of the case. We may have gotten these
relationships a little turned around. Stay tuned.] ENJOINING CONFLICTS (AND OTHER NON-TRADITIONAL REMEDIES) (To read full article, click here.) Nothing current. EXPERT WITNESSES (To read full article, click here.) Nothing current. FORMER CLIENT (To read full article, click here.) Rule 1.11 (posted November 29, 2019) Martley v. City of Basehor,
2019 WL 6340132 (D. Kan. Nov. 27, 2019). Plaintiff, Lloyd Martley, is
suing City for violating equal pay laws. Martley was police chief from
2008 to 2018. During that time Martley would also act as part-time city
administrator. Patrick Reavey, Martley's lawyer in this case, was city
attorney for City from 2007 until 2011. City moved to disqualify Reavey.
In this opinion the magistrate judge denied the motion. City cited both
Rule 1.11 and 1.9. The court, relying on ABA Op. 97-409, ruled that
because Rule 1.11 applied, Rule 1.9 would not apply. As for the
application of Rule 1.11, the court's analysis was highly fact-specific,
and of questionable precedential value. As city attorney, Reavey had
occasional and episodic contact with Martley and the details of
Martley's employment. Thus, under Rule 1.11(a), Reavey was not involved
"personally and substantially" as to Martley. The court also considered
Rule 1.11(b) & (e) and found no application. (posted November 12, 2019) Garcia v. Marion County Bd., 2019 WL
5863896 (M.D. Fla. Nov. 8, 2019). Plaintiffs are Marion County Fire
Rescue Captains. Law Firm has filed this FLSA action against County
because it failed to pay Plaintiffs overtime. County moved to disqualify
Law Firm. In this opinion the court denied the motion. A member of Law
Firm ("Lawyer") had been general counsel of the local fire firefighters
union. The current Fire Chief was previously vice president of the union
local. While the Chief was vice president, Lawyer wrote him a letter
regarding union business. The court could not find any evidence that
Lawyer represented the Chief personally. The court also found that the
letter was not substantially related to this case. Nothing current. HOT POTATO DOCTRINE (To read full article, click here.) Nothing current. INITIAL INTERVIEW - HEARING TOO MUCH (To read full article, click here.) (posted November 7, 2019) Pizzarotti, LLC v. FPG Maiden Lane LLC, No. 651679/2019 (N.Y. Sup. Ct. Sept. 3, 2019). Plaintiff is suing the defendants for breach of a construction management contract. Plaintiff moved to disqualify the defendants' law firm ("Law Firm") because Plaintiff had approached Law Firm "for advice on land use and zoning." Both this suit and the request for advice relate to 161 Maiden Lane in Manhattan. In this opinion the court denied the motion to disqualify. The analysis was fact-specific. Plaintiff's contacts with Law Firm were brief, and the court found that Plaintiff had failed to establish that Plaintiff had conveyed any information to Law Firm that would be prejudicial to Plaintiff in this case. INSURANCE DEFENSE (To read full article, click here.) Reservation of Rights (posted November 14, 2019) Canadian Mar. Eng'g Ltd. v. Intact Ins. Co.,
2019 NSSC 328 (S. Ct. N.S. Nov. 6, 2019). Insured services boats. InsCo
insures Insured for claims by Insured's customers. While a boat owned
by the Canadian government was in Insured's custody, the boat was
damaged. Canada made a claim against Insured for the damage, claiming
Insured was negligent in caring for the boat. InsCo's policy contained
an exclusion for "any person acting maliciously." The parties disagree
whether the exclusion applies; there was evidence of malicious behavior.
In this case Insured seeks a finding that it can hire its own
independent counsel at InsCo's expense. In this opinion the court ruled
for Insured. The court said this was a case where the insurance
company's appointed counsel could direct the case in a direction
triggering the exclusion. INVESTING IN CLIENTS/STOCK FOR FEES (To read full article, click here.) How not to Do Business with Clients (posted November 25, 2019) State of Nebraska v. Chvala, 304 Neb. 511 (Neb. Nov. 22, 2019). [Note: This case is a "poster child" on how not to do business with clients.]
For 35 years, and until the date of this opinion, Janet Chvala had been
"an experienced, well-respected" business lawyer in rural north-eastern
Nebraska. She had been representing members of the Kaup family "in the 7
years before the 2003 real estate transaction" involved here. This
included representing the Kaup brothers and their mother and aunt in a
variety of farming-related matters, including, farmland purchasing and
leasing, crop liens, hay operations, livestock, and trucking. This saga
is long and complex. In short, Chvala was all over the brothers' 2003 $1
million purchase of a section of farm land. She was involved, her
husband was involved, and all four of the aforementioned members of the
Kaup family were involved. The Kaups made a disciplinary complaint, and
the referee ruled that Chvala should be disbarred. In this long opinion
the Nebraska Supreme Court affirmed the referee. The court found that
the deal was structured in a way to favor Chvala and her husband. A
major problem was that Chvala was able to lull the brothers into missing
an option deadline to repurchase part of the section from Chvala's
husband. Civil litigation resulting from that pratfall ended in the
brothers' settling and agreeing to pay three times as much for the
property as they would have under the option. In this opinion, the court
found a violation of DR 5-104(A) (doing business with client).
(Nebraska adopted the new Rules in 2005, after the land purchase.) The
court did not find a violation of Rule 1.8(a) because no transaction
occurred after 2005. However, the court did find a violation of Rule
1.8(b) (using client information). The court made a distinction we have
not seen in "business-with-clients" cases. That is, under former DR
5-104(A) (and presumably, under current Rule 1.8(a)), the lawyer must
comply with the disclosure and consent provisions even if the lawyer is
not acting as lawyer for the complaining client in the transaction in
question. The court also found violations of DR 5-105 and Rule 1.7(a)
& (b). As to causing the Kaups to miss the option deadline, the
court found violations of Rule 8.4(a) & (c). Nothing current. JOINT/MULTIPLE REPRESENTATION (To read full article, click here.) (posted November 13, 2019). Hernandez v. Helm,
2019 WL 5922233 (N.D. Ill. Nov. 12, 2019). The court held that one lawyer could defend a city and two managers absent a divergent of interests. To read more about the case, go to "Miscellaneous," above. Nothing current. Nothing current. MALPRACTICE LIABILITY/FEE FORFEITURES (To read full article, click here.) Nothing current. OF COUNSEL (To read full article, click here.) Nothing current. OPPOSING LAWYERS NEGOTIATING A LAW PRACTICE MERGER (To read full article, click here.) Nothing current. PARTNERSHIPS (INCLUDING LIMITED PARTNERSHIPS) (To read full article, click here.) Nothing current. SETTLEMENT AGREEMENTS (To read full article, click here.) STANDING (To read full article, click here.) Nothing current. Nothing current. UNDERLYING WORK PROBLEM (To read full article, click here.) Nothing current. WAIVERS/CONSENTS (To read full article, click here.) Nothing current. WITNESS - ADVERSE - CURRENT/FORMER CLIENT (To read full article, click here.) ZERO SUM GAMES (To read full article, click here.) Nothing current. Home/Table of Contents Website powered by Network Solutions® |