Judge Wallace Disqualifies Counsel

February 21, 2020


In Sun Life Assurance Company of Canada v. Wilmington Savings Fund Society, FSB, C.A. No. N18C-08-074 PRW CCLD, Judge Wallace granted a motion to disqualify brought by defendant Wilmington Savings Fund Society, FSB (“WSFS”). Although the plaintiff’s counsel, Cozen O’Connor, had been longtime counsel for WSFS, this was not the conflict on which WSFS moved to disqualify Cozen because WSFS had granted a waiver. Rather, WSFS moved to disqualify Cozen because Cozen also represented the ultimate beneficiary of the underlying transaction, non-party 2019 Life Settlement, formerly known as Ocean Gate Life Settlement Program.

The underlying transaction involved a life insurance policy issued by plaintiff Sun Life Assurance Company of Canada for $6 million in the name of Gordon Bartelstein. The beneficiary of the policy was EPL Legacy Trust, with the trust beneficiary being Ocean Gate and WSFS serving as the securities intermediary. Sun Life, upon learning that Ocean Gate was the ultimate beneficiary, challenged the policy as void because it was allegedly a stranger-oriented life insurance wager on Bartelstein’s life by investors lacking an insurable interest.

Shortly after Sun Life initiated litigation, Cozen obtained a conflict waiver from WSFS. WSFS later learned that Cozen also previously represented Ocean Gate. Cozen’s prior representation of Ocean Gate related to giving opinions on the enforceability of life insurance policies in which Ocean Gate considered investing. When WSFS raised this additional conflict, Cozen asserted that WSFS’s waiver included a waiver of asserting this conflict as well. Cozen, however, as a precaution promptly screened the attorneys involved in the prior Ocean Gate representation. WSFS, however, disagreed regarding the effect of the waiver and filed the instant motion.

Importantly, the court found that the conflict waiver signed by WSFS only waived Cozen’s conflict arising from its former WSFS representation. The court found that only a former client could grant a waiver. Thus, the question before the court became whether the prior representation was substantially related to the present action to warrant disqualification. In considering this issue, Judge Wallace found that the prior representation and the current dispute were related such that Cozen’s knowledge from the prior representation could inform it as to the veracity of allegations against Ocean Gate. Accordingly, the representations were directly adverse. Moreover, Judge Wallace found that although there was no ill intent, the appearance of impropriety was impermissible, regardless of whether the adverse representations could be shielded from a jury. Accordingly, because the representations were directly adverse and the issue was raised early in the case, Judge Wallace granted the motion to disqualify Cozen.

Analysis: Motions to disqualify counsel are rare, but they do happen. A motion to disqualify counsel must be grounded on clear and convincing evidence establishing a violation of the Delaware Conduct Rules. Dunlap v. State Farm Fire and Cas. Co. Disqualification of Counsel, 2008 WL 2415043 (Del. 2008). In finding disqualification appropriate, Judge Wallace found that the proceedings would be prejudiced if Cozen was permitted to proceed. In so holding, Judge Wallace distinguished Dollar Tree, Inc. v. Dollar Express, LLC, 2017 WL 5624298 (Del. Ch. Nov. 21, 2017), finding in that case that the law firm advised consultants on a corporate dividend issue, and then later represented the corporation’s suppliers against the corporation in an attack on the legality of the dividend. The difference, according to Judge Wallace, was that the work in Dollar Tree was produced by consultants with advice of the law firm, rather than being the product of the law firm directly. Judge Wallace found the distinction important because when work is prepared by the law firm, it goes directly to the “specific appearance of duplicity which concerns the Court here.”

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