United States v. Prevezon Holdings Ltd.
2016 U.S. App. LEXIS 18614
| 2d Cir. | 2016Background
- The U.S. filed a civil forfeiture/money‑laundering action alleging Prevezon laundered proceeds of a large scheme that defrauded the Russian treasury (the "Russian Treasury Fraud").
- Hermitage Capital was a victim of that fraud and retained John Moscow / BakerHostetler in 2008–09 to investigate and assist in presenting evidence to U.S. authorities; BakerHostetler prepared confidential, detailed work product about the fraud.
- After terminating BakerHostetler, Hermitage continued to cooperate with U.S. authorities; the government later brought the forfeiture action against Prevezon, which purchased NYC real estate allegedly using laundered funds.
- BakerHostetler and Moscow later represented Prevezon in the forfeiture action and signaled a defense strategy that would blame Hermitage (and William Browder) for the fraud—raising a conflict risk given BakerHostetler’s prior representation of Hermitage.
- Hermitage moved to disqualify Moscow/BakerHostetler; the district court initially issued, then withdrew, an order of disqualification and ultimately denied the motion, finding no "substantial relationship" and treating the Russian fraud as background.
- Hermitage sought relief in the Second Circuit by petitioning for a writ of mandamus (after the court found interlocutory appeal via the collateral‑order doctrine unavailable).
Issues
| Issue | Hermitage's Argument | Prevezon / BakerHostetler's Argument | Held |
|---|---|---|---|
| Whether the denial of disqualification is immediately reviewable under the collateral‑order doctrine | Denial should be appealable because disclosure/use of former‑client confidences is effectively unreviewable later | Disqualification is intertwined with trial merits so not collateral | Collateral‑order doctrine does not apply; interlocutory appeal unavailable |
| Whether mandamus relief is appropriate to compel disqualification | Mandamus is warranted because (1) Hermitage has no adequate post‑judgment remedy, (2) issue is important, and (3) district court clearly misapplied law | Mandamus is extraordinary and inappropriate; standard not met | Mandamus granted: extraordinary circumstances present and relief appropriate |
| Whether BakerHostetler’s prior work for Hermitage is "substantially related" to Prevezon defense | Prior representation investigated and detailed the Russian Treasury Fraud — the same facts at issue; Prevezon’s defense hinges on blaming Hermitage | Russian fraud is merely background; Hermitage a nonparty/spectator; no substantial relationship | There is a substantial relationship; district court erred in finding otherwise |
| Whether disqualification is required to avoid trial taint / misuse of confidences | Presumption that confidences were shared if representations are substantially related; allowing counsel to switch sides would risk using former‑client confidences and taint the trial | Protective orders or ethical rules can manage risk; prejudice to client choice of counsel argues against disqualification | Disqualification required: risk of taint and misuse of confidences supports removing Moscow/BakerHostetler |
Key Cases Cited
- Mohawk Industries v. Carpenter, 558 U.S. 100 (Sup. Ct. 2009) (limits interlocutory appeals; recognizes narrow collateral‑order exceptions)
- Firestone Tire & Rubber Co. v. Risjord, 449 U.S. 368 (Sup. Ct. 1981) (treatment of disqualification and collateral‑order analysis)
- Richardson‑Merrell, Inc. v. Koller, 472 U.S. 424 (Sup. Ct. 1985) (orders disqualifying counsel often not separate from merits)
- Evans v. Artek Systems Corp., 715 F.2d 788 (2d Cir. 1983) (test for successive‑representation disqualification: former client, substantial relationship, access to confidences)
- Government of India v. Cook Industries, Inc., 569 F.2d 737 (2d Cir. 1978) (courts should not require proof that privileged information was actually shared to grant disqualification)
- Emle Industries v. Patentex, 478 F.2d 562 (2d Cir. 1973) (assume confidences disclosed once substantial relationship exists)
- In re von Bulow, 828 F.2d 94 (2d Cir. 1987) (mandamus appropriate where post‑judgment review cannot undo disclosure of privileged information)