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Monday, January 12, 2009

Ignored Conflicts Haunt More "Officers of the Courts"

Local Firm Disqualified for Delay in Walling Off Conflicted Attorney
The New York Law Journal by Noeleen G. Walder - January 12, 2009

An investor suing an automobile entrepreneur for fraud in connection with a business venture to distribute Chinese-manufactured cars in the United States will have to find new counsel, a federal judge has ruled. Malcolm Bricklin, CEO and chair of electric car designer Visionary Vehicles LLC, contended that McCarter & English partner Howard M. Berkower's prior representation of Visionary disqualified the firm from representing Chinese Automobile Distributors of America LLC in its suit against Mr. Bricklin, certain of his friends and associates, as well as Visionary Vehicles.

Last week, Southern District Judge Louis L. Stanton agreed that the confidential information Mr. Berkower had access to when he helped Visionary raise equity financing at his former firm, Zukerman Gore & Brandeis, could be imputed to McCarter & English, which waited three months before building an ethical wall between Mr. Berkower and its trial team in Stamford, Conn.  "The delay was too long," Judge Stanton wrote in Chinese Automobile Distributors of America LLC v. Bricklin, 07 civ 4113, and granted the motion to disqualify McCarter & English. Before becoming a partner at McCarter & English, Mr. Berkower worked at Zukerman Gore, where he was retained by Visionary Vehicles to represent the company in connection with "a $200 million institutional private equity financing and in general corporate matters."  According to the complaint, Mr. Bricklin allegedly formed Visionary to import cars from Chinese manufacturers and "provide North American consumers with luxury vehicles at a substantial discount off of the price of existing European and Asian luxury models."

As part of this plan, in December 2004, Visionary announced its intent to form a joint venture with Chinese-based Chery Automobile Company. The company, the complaint states, planned to create a network of 250 car dealers, each of whom would invest $2 million in Visionary in exchange for receiving an assigned "territory" and shares or units in the company. In early 2006, Chinese Automobile Distributor allegedly invested $2 million in Visionary and in turn received a number of sales territories and 800,000 Visionary shares. According to the decision, around the same time Chinese Automobile Distributer invested $2 million in Visionary, Mr. Berkower reviewed and made changes to the company's 2005 private placement memorandum and advised Visionary in connection with a $200 million financing deal with philanthropist George Soros.

The following year, Mr. Berkower helped Visionary change its structure from a limited liability company to a corporation, during which time he allegedly engaged in dozens of sensitive communications with the company's consultant, Michael Jonas. Mr. Berkower joined McCarter & English in October 2007, five months after the firm initiated suit against Mr. Bricklin, his company, and certain of the entrepreneur's associates and relatives on behalf of Chinese Automobile Distributors. The distributor alleged Mr. Bricklin fraudulently induced it to invest $2 million in Visionary by claiming the company would secure $200 million in financing. It also alleged the Visionary/Chery joint venture fell through because of Mr. Bricklin's "unwillingness" to relinquish control of the venture to Mr. Soros and another investor.

In July 2008, Visionary, Mr. Bricklin and three other defendants moved to disqualify McCarter & English from representing Chinese Automobile Distributors in the fraud action.  In an affidavit, Mr. Bricklin contended he spoke with Mr. Berkower more than 10 times, met with the attorney on several occasions, and provided him with "extremely sensitive, privileged and confidential information regarding the financial details, corporate structure and fund raising activities" of Visionary. "Clearly Berkower, and through him the McCarter Firm, have intimate knowledge of the important confidential information regarding VV's tactics and strategy in connection with the transfer of the assets, confidential business and product development plans, and of VV's possible approach to settlement of such conflicts, gained through privileged communications between Berkower, VV and Inc.," the defendants wrote in their brief to disqualify the firm. Judge Stanton agreed.

"The nature and subjects of his work for Visionary, his professional devotion to and responsibility to assist in its fund-raising activities, the extent and detail of the information on which he worked at to which he had access bar him from now undertaking or assisting in any such activity adverse to Visionary," the judge wrote in granting the defendants' motion. "Mr. Berkower's personal belief that he has no knowledge or confidence relevant to this case is immaterial: his disqualification stems from the knowledge and detail of the confidential information which was open to and used by him with respect to Visionary's business, operations and fund-raising, which are attacked in the ways asserted by plaintiff in this case," the judge added.

He observed that McCarter & English's argument that it would ultimately learn any privileged information Mr. Berkower had obtained through his prior representation during discovery and by virtue of the firm's representation of a Visionary executive in a pending state court action "has been consistently rejected as a matter of law." Judge Stanton also refused to buy the firm's argument that it should not be disqualified because Mr. Berkower, a transactional partner in its New York office, had been ethically walled off from the Stamford trial team working on the Visionary litigation. Observing that McCarter & English had waited three months before barring him from communicating with lawyers representing Chinese Automobile Distributors, Judge Stanton concluded that the "delay was too long," and that Mr. Berkower's disqualification "must be imputed to the McCarter firm." McCarter & English did not return calls for comment. Jan Michael Morris of Adorno & Yoss in Boca Raton represented the defendants. He did not return a call for comment.


Anonymous said...

McCarter, like every other 'big' firm, thinks they are above the law.

Laser said...

McCarter English is one firm that makes great effort to avoid conflicts of interest. Only wish there were more like them. This new partner will most likely become ex due to the faux pas of sorts!
Anyone following my eToys, Traub, Petters - Dreier saga - will know the great disdain I have for the system. There are too few out there trying to do the right thing. One can only hope that the public dissent displayed by Washington Justice R B Sanders and Justice Scalia v Breyer yesterday - shall start a Trend of a movement toward the right thing...

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