Legal Ethics

Judge to Decide Whether Pillsbury Should Give Up $4M-Plus Fee


A bankruptcy case involving alleged conflicts of interest by Pillsbury Winthrop Shaw Pittman has reinforced the need for disclosure.

A San Jose, Calif., bankruptcy judge will consider whether the law firm should give up its $4 million-plus fees in the bankruptcy case of client SonicBlue following an investigation by the trustee, the Recorder reports.

The law firm was kicked off the bankruptcy because of allegations that it didn’t disclose a promise of indemnification it made to three hedge funds. A letter written to the funds investing in a $75 million bond issue promised they would be paid in full even if SonicBlue declared bankruptcy. The funds threatened to sue unless their investment was repaid.

The trustee said in court papers that the promise posed a conflict because “for every dollar the [hedge fund’s] claim was reduced, [Pillsbury’s] corresponding exposure would increase.”

Now lawyers for a creditor claim the firm failed to disclose an agreement with the firm, its directors and its officers to toll the statute of limitations on a potential malpractice claim. At issue is whether the firm was responsible for an insurance company’s refusal to cover directors and officers sued by some noteholders.

Steven Sacks, a bankruptcy lawyer at Sheppard, Mullin, Richter & Hampton in San Francisco, told the Recorder that bankruptcy lawyers have been following the case.

“It heightened the awareness that everything needs to be disclosed,” he said.

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