Tuesday, October 18, 2016

Second Circuit Orders Disqualification In Russian Fraud Case

The United States Court of Appeals for the Second Circuit reversed the trial court and ordered the disqualification of BakerHostetler in a case where the court found that the firm had "switched sides" in litigation.

The underlying litigation arises out of a 2013 civil forfeiture action (the “Forfeiture Action”) brought by the United States alleging that Prevezon received the proceeds of a complex, sweeping scheme that defrauded the Russian treasury of roughly $230 million (the “Russian Treasury Fraud”). The government alleges Prevezon laundered portions of the fraud proceeds in New York by buying various real estate holdings in Manhattan. We draw much of the background section from the second amended complaint, and note that the accuracy of the government’s allegations remains untested...

In granting the petition, we are sensitive to the fact that the motion to disqualify came late in the litigation, on the eve of trial after several years of pretrial discovery and motion practice and while several million dollars of property  remains under pretrial restraint. However, Prevezon shares in the responsibility for the unfortunate timing, as Prevezon did not reveal its strategy of arguing Hermitage committed the Russian Treasury Fraud until the government moved for partial summary judgment in the fall of 2015.

The circumstances leading to our grant of the writ, moreover, truly are extraordinary: it is rare that a nonparty, nonwitness will face the risk of prosecution by a foreign government based on the potential disclosure of confidential information obtained during a prior representation. That real risk, however, coupled with the misapplication of the law by the district court, outweighs the delay and inconvenience to Prevezon of obtaining new counsel.

The court found the situation to present an "extraordinary circumstance" meriting reversal of the trial court.

Thanks to a reader for sending this to us. (Mike Frisch)


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