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In re Fisker Automotive Holdings Inc. Shareholder Litigation

United States District Court, D. Delaware

August 9, 2018

IN RE FISKER AUTOMOTIVE HOLDINGS, INC. SHAREHOLDER LITIGATION

          MEMORANDUM ORDER

          Sherry R. Fallon, United Stages Magistrate Judge

         At Wilmington this 9th day of August, 2018, the court having considered the submissions presented by the parties regarding the emergency motion to maintain defendants' choice of counsel filed by defendants Kleiner Perkins Caufield & Byers LLC ("Kleiner") and Ray Lane (together with Kleiner, "defendants") (D.I. 490), [1] IT IS HEREBY ORDERED that defendants' motion is GRANTED, for the reasons set forth below:

         1. Procedural history.

         On December 27, 2013, plaintiff Atlas Capital Management, L.P. ("Atlas") filed suit against Henrik Fisker, Bernhard Koehler, Joe DaMour, Peter McDonnell, Kleiner, Ray Lane, Keith Daubenspeck, Richard Li Tzar Kai, and Ace Strength, Ltd. for alleged violations of the Securities Act of 1933 (the "Securities Act") and the Securities Exchange Act of 1934 (the "Exchange Act"), as well as common-law fraud in connection with the sale of Fisker Automotive ("Fisker") securities.[2] (D.I. 1) The instant litigation followed the filing of Fisker's chapter 11 bankruptcy petition on November 22, 2013 in the United States Bankruptcy Court for the District of Delaware. (D.I. 145 at ¶ 26)

         2. On August 18, 2017, the court entered an order granting plaintiffs' motion to stay and vacating the operative scheduling order. (D.I. 434) The stay was lifted by order of the court on February 14, 2018 for the limited purpose of allowing certain depositions to proceed. (D.I. 466) Pending before the court is a motion to lift the stay "to allow Plaintiffs to resume discovery in full," or, alternatively, to allow discovery to proceed directed to two key witnesses. (D.I. 488)

         3. Background.

         Michael D. Celio, an attorney at the law firm of Keker Van Nest & Peters LLP ("Keker Van Nest") from 2001 to July 2, 2018, has represented Kleiner and Mr. Lane as the lead attorney since the inception of the instant litigation in 2013. (D.I. 492 at ¶¶ 1-2) Mr. Celio has also represented Kleiner since 2011 in other matters relating to securities litigation, contractual litigation, regulatory matters, third-party subpoenas, and confidential pre-litigation matters. (Id. at ¶ 3)

         4. On June 15, 2016, Atlas and Gibson Dunn & Crutcher LLP ("Gibson Dunn") executed an engagement letter, which included a prospective waiver of conflicts of interest. (D.I. 493 at ¶ 2) Pursuant to the waiver, Atlas agreed that Gibson Dunn could represent any "existing or new" client in any litigation or other matter adverse to Atlas's interests, so long as the matter was not substantially related to Gibson Dunn's representation of Atlas. (Id.; D.I. 500, Ex. B at 2) The engagement letter further provides that California law governs the agreement, stating that "[t]his agreement shall be governed by the internal law, and not the law pertaining to choice or conflict of laws, of the State of California." (D.I. 500, Ex. B at ¶ 21)

         5. On July 3, 2018, Mr. Celio joined the firm of Gibson Dunn & Crutcher LLP ("Gibson Dunn") as a partner in the firm's Palo Alto, California office. (D.I. 492 at ¶ 1) Atlas is an existing client of Gibson Dunn for transactional and advisory matters, and objects to Mr. Celio's continued representation of Kleiner and Mr. Lane. (Id. at ¶ 6)

         6. In response to Atlas's objection, Mr. Celio voluntarily agreed not to participate in this matter pending resolution of the instant dispute. (D.I. 492 at ¶¶ 6, 11) On July 3, 2018, counsel filed a notice requesting the removal of Mr. Celio as co-counsel. (D.I. 497) In accordance with the notice, Mr. Celio's representation was terminated on July 5, 2018.

         7. Analysis.[3]

         The court has the inherent authority to supervise the professional conduct of attorneys appearing before it, including the power to disqualify an attorney from a representation. See United States v. Miller, 624 F.2d 1198, 1201 (3d Cir. 1980). Attorney conduct is governed by the ethical standards of the court before which the attorney appears. See In re Corn Derivatives Antitrust Litig., 748 F.2d 157, 160 (3d Cir. 1984); Intellectual Ventures I LLC v. Checkpoint Software Techs. Ltd., C.A. No. 10-1067-LPS, 2011 WL 2692968, at *5 (D. Del. June 22, 2011). In accordance with the District of Delaware Local Rules, this court has adopted the Model Rules of Professional Conduct of the American Bar Association (the "Model Rules").[4] D. Del. LR 83.6(d).

         8. Model Rule 1.7 provides that "a lawyer shall not represent a client if the representation involves a concurrent conflict of interest," which arises when "(1) the representation of one client will be directly adverse to another client; or (2) there is a significant risk that the representation of one or more clients will be materially limited by the lawyer's responsibilities to another client, a former client or a third person or by a personal interest of the lawyer." Model Rule 1.7(a). The parties do not dispute that Mr. Celio's representation of defendants in the present litigation, and Gibson Dunn's representation of Atlas in other matters, presents a concurrent conflict of interest.

         9. Where, as here, a concurrent conflict exists, the lawyer may represent the ...


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