X

Thank you for sharing!

Your article was successfully shared with the contacts you provided.
Boies, Schiller & Flexner, the law firm of superstar litigator David Boies, has already received a pair of public black eyes over its hiring on clients’ behalf a document production company partly owned by Boies’ children. But the ultimate cost to the firm of the alleged conflict of interest could be higher still. Former client Adelphia Communications asked Boies Schiller to resign last month for failing to disclose the family connection to document production company Amici, to which the company had paid several million dollars in fees. Adelphia’s action and other details of the matter were first reported in the Wall Street Journal. Several lawyers who have been following the case said Adelphia’s move sets the stage for a claim by the company to recover the millions paid to Amici and, possibly, the much larger sums paid to Boies Schiller as well. But opinions within the legal community are divided on just how severely the firm’s actions should be viewed. Some lawyers said they actually regarded the Amici conflict as relatively minor and said they suspected Adelphia was merely using the issue to avoid its high legal bills. Cable TV company Adelphia sought Chapter 11 bankruptcy protection in 2002, soon after disclosing that the company’s founder, John Rigas, and his son, Timothy, had borrowed almost $3 billion from the company for their own use. Boies Schiller conducted an internal investigation at Adelphia and worked alongside other firms on subsequent litigation for the company, which was then facing civil charges from the U.S. Securities and Exchange Commission and the possibility of criminal charges by the U.S. Attorney’s Office for the Southern District of New York. From 2002 to 2004, Boies Schiller, whose representation was led by partner Philip Korologos, received bankruptcy court approval for almost $30 million in legal fees. Adelphia and the Rigases settled with the government in April for $715 million, a lower figure than the $1 billion the government originally requested. In the course of its work for Adelphia, Boies Schiller brought in Amici to collect documents for discovery and place them in an electronic database to be used by all of the parties involved in the case. In an affidavit submitted to the Bankruptcy Court last month, Korologos explained that Amici is partly owned by four of Boies’ children, three of whom are also lawyers at Boies Schiller. The family of another partner at the firm, Nicholas Gravante, also owns an interest. Korologos, who did not respond to a call for comment, said in the affidavit that he had not been aware of these ownership interests when he brought Amici into the case. An Adelphia spokesman declined comment. Both Rule 1.8(a) of the Model Rules of Professional Responsibility and New York’s DR 5-104 require that lawyers seeking to do non-legal business with clients must disclose their interest, apprise their client of other alternatives and obtain written consent. Lawyers in bankruptcy proceedings must also submit statements attesting to their non-interest. In the worst-case scenario, a lawyer or firm that fails to disclose a conflict forfeits all fees after the non-disclosure and may be further subject to disciplinary action. But Lawrence Fox, a partner at Philadelphia’s Drinker, Biddle & Reath and former chair of the American Bar Association’s legal ethics committee, said the worst cases were clear, with lawyers receiving kickbacks for referrals to other professionals. Other instances were considerably less egregious though. “If a lawyer has client copies made at Kinko’s and he also owns shares in the company, I don’t think that’s a big deal,” said Fox. COMMODITY SERVICE The Boies Schiller situation, he said, fell somewhere in between the extremes, though he said he did not have enough information to say exactly where. The main issue, he said, was whether the service provided by Amici was a commodity service, the cost and performance of which would not have varied greatly with another provider. A legal ethics professor who asked to remain unnamed because he had been in contact with parties involved in the matter, said he thought the whole dispute was “dopey.” Though Boies Schiller lawyers’ interests in Amici could be imputed to the firm, he said it was nonetheless noteworthy that none of the lawyers directly involved in representing Adelphia had any direct interest in Amici. The professor also said his impression was that Amici provided an essentially commodity service. But a recent exchange of letters between a lawyer at Cravath, Swaine & Moore and Korologos may complicate that view of Amici. In a Sept. 6 letter to Southern District Bankruptcy Judge Robert Gerber, Cravath partner Max Shulman said his firm, which is representing accounting firm Deloitte & Touche in litigation adverse to Adelphia, found Amici “substandard” and said his client, which, like other Amici users, is paying a monthly $.06 per page storage charge, had been “vastly overcharged.” Shulman said the database was filled with extraneous, irrelevant materials. In a Sept. 9 follow-up letter to the judge, he described Amici as a “miserable system” and said users had been charged “for millions of pages of garbage — and the fee for each of those garbage pages enriches the family of David Boies.” He said the disclosure of the family interests “would have caused us to reject Amici in a heartbeat.” Korologos told the Wall Street Journal Monday he believes Shulman’s criticisms of Amici were tactical and that Amici’s performance and pricing were similar to other service providers. That issues surrounding the mundane provision of document services have so dogged a firm of Boies Schiller’s stature has surprised some lawyers, who said they would have expected the client and firm to work out their differences more amicably. One lawyer who was opposite the Boies Schiller lawyers during the settlement negotiations said his impression was that Adelphia CEO William Schleyer was very happy with the firm’s work as well as the April settlement. “Those guys, Korologos and [George] Carpinello, they were very aggressive,” the lawyer said. “I thought they did a great job for Adelphia.” The lawyer said he thought the company was now trying to avoid paying its bills for services with which it was otherwise pleased. He said the dispute indicated the decline in the attorney-client relationship in recent years. “This wouldn’t have happened 10 years ago,” he said. But it is not clear how much credit Boies Schiller actually deserves for delivering the settlement, especially relative to the large fees it collected. In his May decision approving the settlement, Judge Gerber suggested that other lawyers retained by Adelphia — Alan Vinegrad of Covington & Burling, a former Eastern District U.S. Attorney, and Gregory S. Bruch of Foley & Lardner, a former assistant director of the SEC’s enforcement division — deserved most of the kudos for the successful negotiation.

This content has been archived. It is available exclusively through our partner LexisNexis®.

To view this content, please continue to Lexis Advance®.

Not a Lexis Advance® Subscriber? Subscribe Now

Why am I seeing this?

LexisNexis® is now the exclusive third party online distributor of the broad collection of current and archived versions of ALM's legal news publications. LexisNexis® customers will be able to access and use ALM's content by subscribing to the LexisNexis® services via Lexis Advance®. This includes content from the National Law Journal®, The American Lawyer®, Law Technology News®, The New York Law Journal® and Corporate Counsel®, as well as ALM's other newspapers, directories, legal treatises, published and unpublished court opinions, and other sources of legal information.

ALM's content plays a significant role in your work and research, and now through this alliance LexisNexis® will bring you access to an even more comprehensive collection of legal content.

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 © 2020 ALM Media Properties, LLC. All Rights Reserved.