(Reuters) - For nine months in 2008 and 2009, BakerHostetler represented the hedge fund Hermitage Capital Management in the investigation of a $230 million fraud scheme in Russia that began with the theft of the corporate identities of Russian companies in Hermitage’s portfolio. BakerHostetler earned $200,000 in the engagement.
Now Hermitage is asking a federal judge to order its onetime lawyers to cough up $1.4 million in fees – not money Hermitage paid to BakerHostetler but legal fees Hermitage laid out to other lawyers in order to get BakerHostetler bounced from a U.S. government suit to recover some of the alleged proceeds of the Russian fraud. BakerHostetler represented the defendant in the forfeiture case, a Cyprus-based real estate holding company called Prevezon.
Hermitage, as I’ve written, spent years arguing that BakerHostetler’s defense of Prevezon – an accused launderer of money obtained in the Russia fraud – compromised the law firm’s obligations to Hermitage, a purported victim of the scheme. In a groundbreaking opinion last October, the 2nd Circuit U.S. Court of Appeals agreed with Hermitage. Even though Hermitage was not a party or a witness in the U.S. forfeiture and money-laundering case against Prevezon, the appeals court said BakerHostetler’s ongoing duty to its former client Hermitage barred the law firm from defending a new client with conflicting interests.
In the fee motion filed Tuesday, Hermitage flat-out accused two prominent BakerHostetler lawyers of making “repeated misrepresentations” to a federal trial judge and the 2nd Circuit in a misguided attempt to hold onto the firm’s Prevezon assignment. The motion, filed by Hermitage’s lawyers at Susman Godfrey, claims BakerHostetler partners John Moscow and Mark Cymrot falsely assured U.S. District Judge Thomas Griesa that the firm’s previous Hermitage assignment was related to a different Russian fraud scheme, not the fraud underlying the Prevezon case.
And to compound the law firm’s betrayal, according to Hermitage, after it persuaded Judge Griesa to allow it to remain in the case for Prevezon, BakerHostetler demanded discovery from its onetime client Hermitage in order to portray Hermitage as the true villain of the story.
“No client should ever have to watch its former lawyers be so disloyal,” Hermitage said in its fee motion. “And no client should have to bear more than a million dollars in fees and expenses to compel its former lawyers to do what the law requires: withdraw.”
The motion said Hermitage spent nearly $900,000 on its first attempt (in 2014) to disqualify BakerHostetler as Prevezon counsel, nearly $500,000 on the second (and ultimately successful) disqualification litigation and about $52,000 on the fee motion. At a minimum, Hermitage said, it must be compensated for the fees it expended after BakerHostetler “disclosed its trial strategy of blaming Hermitage” for the Russian fraud, “which violated Judge Griesa’s explicit warning and was … obviously unethical.”
The Hermitage fee motion is outright accusatory because the bar to recover fees for litigating to disqualify your former lawyer is so high. Hermitage has to show BakerHostetler acted in bad faith, not just that it was conflicted. The motion is not unprecedented – in 2015, the 2nd Circuit affirmed a fee award against Boies Schiller Flexner for acting in bad faith against the interests of a former client – but is rare.
I emailed BakerHostetler partners Moscow and Cymrot for a response to Hermitage’s allegations they misled the court. A firm spokeswoman sent me a statement in response: “We do not comment on pending litigation involving our firm. We will respond to the complaint - and our response will speak for itself.”
The U.S. settled the forfeiture and money-laundering suit against Prevezon last week, on the eve of trial, for $5.9 million. After BakerHostetler’s disqualification, Prevezon was represented by Quinn Emanuel Urquhart & Sullivan.
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