Law \ Legal

Conflicts — Conflict Denied, Freivogel Findings (“Near Client” and More), PCAOB Points Out EY Errors (Auditor Conflicts of Interest Compliance)

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Buchanan Ingersoll Has No Conflict of Interest in Employment Dispute, Pa. Appeals Court Finds” —

  • “Pittsburgh-headquartered firm Buchanan Ingersoll & Rooney can continue to represent a vending machine business client in an employment contract dispute with the business’ former president, a Pennsylvania Superior Court panel decided on Friday, despite contentions by the defendant that the firm has a conflict of interest.”
  • “The Sept. 30 appellate decision comes 10 months after a trial court denied a motion by defendant Alan Simons, the former president of RDS Vending, to disqualify Buchanan from representing his former RDS business partner John Brown in a dispute over Simons’ employment contract from 2019.”
  • “[In the appeal] Simons argued that Buchanan’s representation of RDS leadership, including himself, in the formation of two businesses operated by RDS in the mid-2010s should conflict the firm out of representing Brown and RDS in their suit against Simons.”
  • “However, as the judges noted in their decision last week, all invoices for Buchanan’s legal work for the companies’ formations were directed to RDS and not Simons, and the firm has claimed in court filings that it has not performed legal work for RDS regarding the LLCs since 2016.”
  • “There was no express agreement indicating that Simons retained the firm when it provided legal services for the formation of one of RDS’s companies, Rite-Vend, the judges found. And while there was an express agreement for the formation of the other RDS company, Regal Vending, the judges reasoned that it was RDS, not the appellant, that retained Buchanan.”

Bill Freivogel notes:

  • CALAMCO v. J.R. Simplot Co., 2022 WL 7443383 (E.D. Cal. Oct. 13, 2022).
    • “Plaintiff is suing Defendant for a judgment declaring the parties’ obligations under a fertilizer ‘handling and storage agreement.’ Law Firm represents Defendant. Plaintiff moved to disqualify Law Firm because Law Firm is privy to information turned over by Plaintiff to Plaintiff’s own ‘Class B’ directors, and to Defendant’s subsidiary.”
    • “The complication here is that the Class B directors were appointed by a subsidiary of Defendant. That power to appoint derived from Defendant’s subsidiary’s ownership of ‘many’ of Plaintiff’s outstanding shares.”
    • “Over Plaintiff’s objection, a state court ordered that Plaintiff furnish certain information to the Class B directors and the Defendant’s subsidiary. Plaintiff began doing so. Law Firm, representing the Defendant, the subsidiary, and the Class B directors, necessarily became privy to the information. In this opinion the court denied the motion to disqualify because the information was disclosed to the subsidiary without any ‘protections against later use.’”
  • Marchant Realty Partners v. Milborne, 2022 ONSC (CanLII) (Ont. Super. Ct. Sept. 7, 2022).
    • “Plaintiff is suing Defendants to collect unpaid loans. Defendant, Charles Hunter Milborne (‘Hunter’), moved to disqualify Plaintiff’s law firm (‘Law Firm’). Hunter is a shareholder of Niagra Global, a Law Firm current client. Hunter also has familial relationships with the other Defendants as well as some supervisory responsibilities.”
    • “Thus, in this opinion the court found that Hunter is a ‘near client’ of Law Firm, and that Law Firm should be disqualified. The court went on to look at Law Firm’s earlier representation of Hunter himself. After a fact-specific analysis, the court determined that Hunter would have shared enough information with Law Firm to make those matters and this one ‘sufficiently related’ to further justify disqualification. Law Firm had erected a screen about six months after taking on this case. The lateness was due to a glitch in Law Firm’s conflicts checking. The court said the screen was not sufficient.”
  • ZW Acquisition LLC v. Volkov, No. 500199/2022 (N.Y. Sup. Ct. Kings Cty. Sept. 29, 2022).
    • “Defendant moved to disqualify law firm (‘Law Firm’) for Plaintiff, claiming Law Firm had represented Defendant in the transaction underlying this case. In this opinion the court denied the motion. The decision turned on whether Defendant was Law Firm’s client at the time of the transaction. While Law Firm’s retainer agreement for the transaction could have been clearer, there was no place for Defendant to sign individually (just as representative of the company subject to the transaction), and Defendant never sought personal advice from Law Firm regarding the transaction.”

EY’s US partners flouted conflict of interest rules, regulator says” —

  • “One in three of EY’s US audit partners has flouted its policies for preventing conflicts of interest, the industry regulator said on Monday, and the firm had failed to address the issue more than a year after it was discovered.”
  • “Among lower-level managers the rate of non-compliance with its financial disclosure rules was even higher, at almost half, according to a Public Company Accounting Oversight Board report.”
  • “The revelations come on the heels of other ethics scandals at the Big Four firm, including the discovery of widespread cheating on professional exams, which led to a $100mn settlement earlier this year.”
  • “EY, which audits about 15 per cent of US public companies, requires staff to adhere to numerous compliance rules designed to ensure the independence of their work. Its own spot checks in 2018 found that 33 per cent of partners and 46 per cent of managers certified they had made the proper financial disclosures without actually doing so.”
  • “The issue was reported to the PCAOB as part of its annual inspection by the regulator. It was kept out of the inspectors’ public report, however, to give EY time to address the issue. The PCAOB only makes such deficiencies public if they are not fixed within a year.”

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