Thank you for sharing!

Your article was successfully shared with the contacts you provided.
Epstein, Becker & Green has been disqualified as plaintiffs counsel in an employment suit on the grounds that the law firm was previously retained by an investment bank to conduct due diligence for the defendant’s initial public offering. In a sharply worded 13-page decision, Justice Ira Gammerman, a Manhattan judicial hearing officer, said the law firm shared the investment bank’s fiduciary duty, despite the lack of a direct attorney-client relationship. “[T]he crux of disqualification is not the attorney-client relationship itself, but the fiduciary relationship that results from it, a relationship that imposes a duty not merely to protect privileged attorney-client communications, but other confidential matter as well,” Gammerman wrote in HF Management Services LLC v. Pistone, 602832/04. The judge also harshly criticized Epstein Becker’s contention that its due diligence lawyers did not recall learning any confidential information and that it could screen out those lawyers with “Chinese walls.” “The very fact that [Epstein Becker] makes these arguments suggests a fundamental lack of appreciation for the obligations imposed by the Code of Professional Responsibility to protect confidences and secrets,” he wrote. But Kenneth Kelly, the Epstein Becker partner leading his firm’s involvement in the case, said Wednesday that the court’s decision was an “unwarranted extension” of the professional responsibility code. “The effect of the decision is to preclude any firm that conducts due diligence for an issue from later being adverse to that issuer,” he said, adding that he believes the 2nd U.S. Circuit Court of Appeals’ decision in In re John Doe Corp., 675 F.2d 482, established that no such duty arose from such circumstances. “We don’t believe [Justice Gammerman's] decision is correct,” said Kelly, adding that the firm is “seriously considering” an appeal. Epstein Becker had brought suit on behalf of HF Management, a provider of Medicare- and Medicaid-based health plans, against a competitor, WellCare Health Plans Inc. HF Management claimed that WellCare had hired away two of its sales associates in violation of antisolicitation clauses in the associates’ employment contracts. WellCare is represented in the case by A. Michael Weber of Littler Mendelson. In seeking Epstein Becker’s disqualification, WellCare noted that Kelly also had represented WellCare in a 1998 employment case. But Gammerman said neither that case nor another previous representation would by themselves have required disqualification. In 2003, WellCare engaged Morgan Stanley to handle its IPO and the investment bank subsequently hired Cleary Gottlieb Steen & Hamilton and Epstein Becker to handle due diligence for the transaction. In its motion papers, WellCare claims that Epstein Becker, hired for its special expertise in the health care area, was given responsibility for reviewing and providing opinions on 17 topics identified by the company in a prospectus. Those topics included risk factors that could affect WellCare’s business operations in the New York market as well as its competitors, including HF Management. CONFIDENTIAL DOCUMENTS In the course of the assignment, Epstein Becker lawyers reviewed confidential documents and had access to top executives at WellCare, including General Counsel Thaddeus Bereday and New York Chief Operating Officer Daniel Parietti. Bereday allegedly shared details of the company’s litigation docket with Epstein Becker lawyers. At the time, WellCare was also facing a lawsuit by a competitor charging unlawful employee raiding. WellCare claims Bereday shared the company’s strategies for dealing with such cases and provided the litigation file for the case ongoing at the time. That case was also being defended by Littler Mendelson. WellCare claims Parietti divulged to Epstein Becker lawyers confidential information about the company’s competitive position in the New York market, including the company’s need to recruit and retain senior management and sales associates. Aside from its arguments that no attorney-client relationship existed between it and WellCare, Epstein Becker also had argued that its due diligence attorneys would be screened off from the HF Management case. Four lawyers from the firm provided affidavits stating they had not learned any information relevant to the ongoing litigation during the due diligence. They also stated they were not involved in working on the HF Management case and would not participate in order to maintain a Chinese wall around the case. But Justice Gammerman found the lawyers’ statements insufficient. “Merely not being ‘involved’ or not ‘participating’ in the case is not adequate to establish a ‘Chinese wall’ sufficient to allow a firm to continue despite a conflict of interest,” he wrote, noting that the lawyers made no representations concerning past, present or future discussions they might have about their work for WellCare. Gammerman also expressed concern at the number of disqualification motions with which Epstein Becker had previously been involved. He said the firm’s arguments in the present case were inconsistent with decisions in those previous cases. “This does little to instill confidence that the firm fully appreciates the parameters of conflict of interest or its fiduciary duty to avoid such conflicts,” Gammerman said.

This content has been archived. It is available through our partners, LexisNexis® and Bloomberg Law.

To view this content, please continue to their sites.

Not a Lexis Advance® Subscriber?
Subscribe Now

Not a Bloomberg Law Subscriber?
Subscribe Now

Why am I seeing this?

LexisNexis® and Bloomberg Law are third party online distributors of the broad collection of current and archived versions of ALM's legal news publications. LexisNexis® and Bloomberg Law customers are able to access and use ALM's content, including content from the National Law Journal, The American Lawyer, Legaltech News, The New York Law Journal, and Corporate Counsel, as well as other sources of legal information.

For questions call 1-877-256-2472 or contact us at [email protected]


ALM Legal Publication Newsletters

Sign Up Today and Never Miss Another Story.

As part of your digital membership, you can sign up for an unlimited number of a wide range of complimentary newsletters. Visit your My Account page to make your selections. Get the timely legal news and critical analysis you cannot afford to miss. Tailored just for you. In your inbox. Every day.

Copyright © 2021 ALM Media Properties, LLC. All Rights Reserved.