Canfield v. SS&C Technologies Holdings, Inc.

Background

The court considered defendants’ motion to disqualify The Klamann Law Firm and Kent, Beatty & Gordon, LLP from representing plaintiffs in the Canfield and Mendon actions and from representing claimants in related Missouri arbitration proceedings. The plaintiffs alleged that SS&C or DST, the plan’s Advisory Committee and its individual members, the Compensation Committee and its individual members, and others violated the Employee Retirement Income Security Act through breaches of fiduciary duty that caused losses to plan accounts.

The Klamann group also represented Percy Payne, who was a defendant in a related Missouri action, and represented Kenneth Hager, Thomas McDonnell, and Joan Horan in arbitration proceedings against DST and Ruane. Defendants argued that Hager, McDonnell, and Horan were among the individual Advisory Committee members sued in Canfield and Mendon, meaning the firm was representing plaintiffs against its own current clients.

Legal standard

The court explained that attorney disqualification is a drastic remedy, but that concurrent representation—representing two or more current clients at the same time—is improper under Second Circuit law unless counsel can show that there will be no actual or apparent conflict in loyalty or reduction in the strength of the representation. The court also stated that this burden is very difficult to meet and that courts may consider professional-conduct rules as guidance.

Analysis

The Klamann group argued that Hager, McDonnell, and Horan were not defendants for the alleged fiduciary breaches because they left the Advisory Committee before the relevant period. The court rejected that argument after reviewing the complaints. It concluded that the complaints alleged breaches occurring at least as early as 2011 and potentially as early as 1973, when Ruane began serving as the plan’s investment manager. Hager and McDonnell were on the committee in 2011, and Horan might also be included as a defendant under the complaints’ language.

The court found that the complaints’ allegations created a severe risk that the firm’s representation would be affected by divided loyalty and could taint the trial. It was not persuaded by counsel’s explanations that some allegations were only background, that the plaintiffs sought damages only for later conduct, or that an allegation concerning the date of the Valeant investment problem was a typographical error. The court also stated that it could not determine whether counsel was acting in good faith or trying to narrow the plaintiffs’ claims to avoid liability for the arbitration clients.

The court rejected arguments based on defendants’ alleged delay in filing the motion, possible strategic motives, prejudice to the clients, and claimed informed consent. It held that those arguments did not eliminate the concurrent conflict and that any consent needed to have been obtained before counsel undertook the adverse representation, rather than in response to the disqualification motion.

Disposition

Judge Andrew L. Carter, Jr. granted defendants’ motion to disqualify counsel as to the Canfield and Mendon actions. The court required additional briefing by July 24, 2020, on whether it had jurisdiction to decide the motion as it related to the Missouri arbitration proceedings. It also requested briefing concerning whether The Klamann group’s representation in the related Payne action remained proper. Finally, because counsel had been disqualified, the court stated that it could not approve the plaintiffs’ proposed voluntary dismissals under Federal Rule of Civil Procedure 41(a)(1).