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A federal judge has disqualified lawyers from Dilworth Paxson in Philadelphia from defending a corporate chief executive officer in a civil RICO lawsuit that accuses him of cooking the books at a family company to cheat his siblings. In Imbesi v. Imbesi, Senior U.S. District Judge Robert F. Kelly found that the Dilworth firm had a conflict of interest because it previously represented the siblings when it represented the company and because the lawyers themselves may be called as witnesses. In the suit, four Imbesi siblings — Joseph, Lawrence, Mark and Antonia — claim that their brother John Charles Imbesi used “incompetent” bookkeepers and accountants to make it appear that the family company, Imbesi Bottling Group, was losing money. By hiding the fact that he had drained funds from the corporate accounts, the siblings claim, John Imbesi duped them into selling their interests in the company for no profit. The $16.5 million sale price of the company generated no cash for any of the siblings because it was used up paying debts, including $6 million that the IRS said was wrongly withheld from the company’s pension plans. But John Imbesi profited handsomely by opening a new company — without any family members as co-owners — that operates lucrative franchises purchased with funds from the family company. The siblings also claim that John Imbesi was solely responsible for a pair of sexual harassment lawsuits, including one that resulted in a verdict of more than $725,000. The suit alleges that John Imbesi also “padded” the company’s payroll with his friends and girlfriends. When John Imbesi hired the Dilworth firm to defend him, the siblings’ lawyers objected, arguing that the Dilworth lawyers owed a continuing duty of loyalty to the siblings. In a motion seeking the Dilworth firm’s disqualification, attorneys Paul R. Rosen and Bruce L. Thall of Philadelphia’s Spector Gadon, along with Howard A. Finkelman of Bock & Finkelman in Philadelphia, argued that under Rules 1.7 and 1.9 of the Pennsylvania Rules of Professional Conduct, the Dilworth firm had an incurable conflict of interest. But Dilworth attorneys Joel M. Friedman and Thomas E. Groshens argued that the siblings can’t complain of any real conflict since there is no information any of them gave to the Dilworth firm that they expected to be kept secret from John Imbesi. As president and CEO, John Imbesi was the “liaison” between the family businesses and the law firm, they said. The Dilworth lawyers cited Allegeart v. Perot, a decision from the 2nd U.S. Circuit Court of Appeals that said courts should first determine whether a lawyer was in a position to receive information that a former client might assume the lawyer would withhold from a present client before reaching the question of whether the current litigation is “substantially related” to the matters at issue in the former representation. Judge Kelly found that the Imbesi siblings can meet the Allegeart test. “The plaintiffs have in fact shown that the Dilworth firm was in a position where it could have received information which the plaintiffs might reasonably have assumed the Dilworth firm would withhold from John Imbesi,” Kelly wrote. “For example, the Dilworth firm represented both John Imbesi and Larry Imbesi in connection with criminal charges arising from the alleged pension underfunding. Certainly, during this representation, the Dilworth firm could have received information which Larry Imbesi might reasonably have assumed that the Dilworth firm would withhold from John Imbesi.” Kelly found that from 1991 on, the Dilworth firm represented all of the Imbesi siblings and their company in “all but a few” of their personal and business matters. “These matters included many of the matters involved in the current suit such as the pension underfunding, absence of workers’ compensation insurance, diversion of corporate opportunities, John Imbesi’s retention of trademarks and franchises for his sole benefit, and the resolution of sexual harassment claims against John Imbesi,” Kelly wrote. By 1997, the siblings were complaining to the Dilworth lawyers about John Imbesi’s handling of the company. Two years later, the siblings presented the Dilworth firm with a draft complaint against John Imbesi. When settlement discussions failed, they filed suit. The Dilworth lawyers argued that the siblings waived their right to seek disqualification by bringing the Dilworth firm into the dispute four years ago and by delaying four months into actual litigation before filing the motion to disqualify. Kelly disagreed, saying there was no waiver because the siblings “stated numerous times to the Dilworth firm, orally and in writing, that they believed its representation of John Imbesi was improper.” The motion to disqualify could not be filed until the lawsuit was actually filed, Kelly said, and the four-month delay in filing the motion is not long enough to constitute a waiver. Kelly found that disqualification was necessary to effectuate the purposes of the ethical rules. “This court finds that the purposes of Rule 1.9, such as the plaintiffs’ interest in attorney loyalty and the court’s interest in protecting the integrity of the proceedings and maintaining public confidence in the judicial system outweigh the countervailing policies, such as the defendants’ interest in retaining their chosen counsel, the risk of prejudice to the defendants, and the public’s interest in permitting attorneys to practice without excessive restrictions,” Kelly wrote.

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