“Bankruptcy Court Can Convert a Case Due to a Conflict of Interest, Even in a Subchapter V” —
- “In In re Ghatanfard, No. 24-CV-2858 (CS), 1 (S.D.N.Y. Nov. 7, 2024), the U.S. District Court for the Southern District of New York affirmed a decision by the U.S. Bankruptcy Court for the Southern District of New York converting a debtor’s Subchapter V case to a Chapter 7 case. In particular, the district court found that the bankruptcy court’s decision to convert was not an abuse of discretion, especially in light of the serious conflicts of interest that existed between the debtor and the potential target of significant fraudulent transfer claims held by the debtor’s estate.”
- “In 2017, former restaurant worker Pavle Zivkovic, on behalf of himself and his fellow employees (the class action creditors), sued his former employer, Laura Christy Midtown LLC (Laura Christy) and its owner, David Ghatanfard (Ghatanfard). On June 22, 2022, Zivkovic was awarded $650,000 in punitive and compensatory damages for his individual claims and the class action creditors were awarded $4.5 million in damages.”
- “In their post-judgment collection efforts, the class action creditors discovered that Ghatanfard had rendered himself insolvent as a result of various transactions and transfers to his ‘life partner,’ Rosey Kalayjian, with whom he lived and shared a bank account, and who has worked in several restaurants owned by him. In particular, the class action creditors discovered that Ghatanfard transferred to Kalayjian the sum of: $1.2 million from the sale of a home he owned; $675,000 he had received from Laura Christy; $600,000 from the sale of another restaurant; and $1.4 million from the refinancing of another one of his houses located in Southampton, New York. In addition, Ghatanfard also recorded a deed transferring title to the Southampton home from his individual ownership to a joint ownership with Kalayjian. Furthermore, right before the class action judgment was entered, Ghatanfard transferred to Kalayjian 90% of his ownership in a limited liability company called Oak Grove Road LLC that owned a 50% stake in Valbella at the Park LLC.”
- “On Feb. 12, 2024, Ghatanfard filed his Subchapter V plan of reorganization, in which he proposed to fund the plan by paying $1,700 monthly payments along with a lump sum payment of $500,000 to be obtained from Kalayjian in settlement of any and all claims against her, including, without limitation, the fraudulent transfer claims.”
- “On April 11, 2024, after oral argument on the motion to convert, the bankruptcy court entered an order converting the case, stating that it had found cause for dismissal or conversion, including the Ghatanfard’s conflicts of interest in pursuing potential fraudulent transfer claims and other claims of the estate to his ‘life partner’ Kalayjian. Given the class action creditors’ opposition to expanding the powers of the Subchapter V trustee, a decision in which the bankruptcy court expressed disappointment in since with their consent, the Subchapter V trustee would have had the power to pursue avoidance actions, the bankruptcy court concluded that conversion to Chapter 7 was the only appropriate remedy. Ghatanfard filed a notice of appeal on April 12, 2024.”
- “Initially, the district court found that it had standing to hear the appeal in light of a Chapter 7 trustee having already been appointed in the bankruptcy case during the pendency of the appeal. The district court denied Ghatanfard’s argument that he was an ‘aggrieved’ person because he has stage IV cancer, had been denied confirmation of his Subchapter V plan, and was forced to spend ‘what could be his final days’ in bankruptcy and litigation involving his longtime partner. However, rather than directly addressing whether the debtor had standing, the district court turned to the merits of the case.”
- “Upon review, the district court’s standard of review was under an abuse of discretion standard and, as such, found that the bankruptcy court’s decision to convert the case due to the significant conflicts of interest was not a reversible error, despite the fact that the bankruptcy court did not list any of the additional factors under Section 1104 of the Bankruptcy Code for converting the case. In point of fact, the district court found that there clearly was cause for conversion due to the ‘irreconcilable conflict of interest in terms of assessing where various assets had gone and whether they were appropriately transferred from Ghatanfard to other parties,’ and that conversion to Chapter 7 would allow for a trustee with ‘both the ability to investigate and the ability to act’ as opposed to the limited powers of a Subchapter V trustee.”
- “The district court also rejected Ghatanfard’s argument that it was reversible error for the bankruptcy court to convert the case rather than expand the powers of the Subchapter V trustee. In particular, Ghatanfard argued that the bankruptcy court committed reversible error in converting his case instead of expanding the Subchapter V trustee’s powers. As noted by the district court, under Section 1112(b) of the Bankruptcy Code, a court is not required to expand the Subchapter V trustee’s powers. Furthermore, expansion of the Subchapter V trustee’s powers, in this case, would have only permitted the Subchapter V trustee to investigate and report on the debtor’s pre-petition actions and transfers, but, absent creditor consent, the Subchapter V trustee (unlike a Chapter 7 trustee) lacked standing to bring the requisite avoidance actions against Kalayjian.”
- “As a consequence, the district court found that the bankruptcy court’s decision that the expansion of the Subchapter V trustee’s powers would be insufficient in light of the facts and circumstances of the case was not an abuse of discretion.”
“Law firm Simpson Thacher agrees to UK fine over money laundering rule breaches” —
- “U.S. law firm Simpson Thacher & Bartlett was fined 300,000 pounds ($389,069) on Wednesday over breaches of anti-money laundering rules at its London office.”
The firm agreed to a settlement with the Solicitors Regulation Authority (SRA), which regulates solicitors in England and Wales, under which Simpson Thacher will also pay 62,000 pounds towards the SRA’s legal costs.” - “Simpson Thacher admitted failing to have a firm-wide risk assessment between June 2017 and March 2020, as required by British money laundering regulations.”
It also accepted not having a fully-compliant firm-wide risk assessment from March 2020 until February 2023, after the SRA announced it was bringing a regulatory case in August.”
The SRA did not allege Simpson Thacher’s admitted breaches led to any money laundering, but the regulator said in court filings that they created ‘an increased risk of money laundering’.” - “A spokesperson for Simpson Thacher said in a statement that the firm’s London office ‘acknowledges and regrets certain historic shortcomings in some of our UK AML (anti-money laundering) written policies’.”
- “An SRA spokesperson said in a statement: ‘Money laundering is not a victimless crime and can have detrimental effects on many, many people. Solicitors have an important role to play in keeping the profits of crime out of the profession and the wider UK economy.’”
- “Simpson Thacher is the latest major law firm to face disciplinary action over alleged breaches of money laundering regulations.”
“Global law firm Clyde & Co was last year fined 500,000 pounds after admitting multiple breaches of money laundering regulations relating to a long-standing client.” - “The SRA’s prosecution of fellow global firm Dentons was dismissed by the Solicitors Disciplinary Tribunal in March. But that decision was overturned on appeal on Tuesday and the SRA’s case was sent back to the tribunal.”
“SXSW Privacy Discussion: The Rising Risks Lawyers Can’t Ignore” —
- “On Friday afternoon at SXSW, Meredith Whittaker, CEO of Signal, painted a sobering and downright alarming picture of the modern privacy landscape. Whittaker argued that the world today is more surveilled than ever before, with a handful of corporations and governments wielding unprecedented access to our personal data. Her comments highlighted the risks that everyone — but especially lawyers, given our duty of confidentiality — need to take seriously.”
- “Whittaker noted that privacy is not a luxury; it is a fundamental condition for free thought, secure relationships, and democratic engagement. Yet, we live in an era where every message, search query, and interaction is recorded, stored, and could potentially be weaponized against us. The sheer volume of data collected by companies like Google, Meta, and telecommunications providers creates vast vulnerabilities. Whether through government subpoenas, corporate data sales, or hacking incidents, this information is accessible in ways many of us just don’t fully appreciate.”
- “To illustrate her point, Whittaker posed a chilling hypothetical that quieted the room: Every single message you’ve ever sent in your life is suddenly on a database and a link just got sent to everyone you know. That’s your boss, that’s your best friend, that’s your dad’s best friend, that’s the weird guy who comes to your Thanksgiving. That’s everyone you know, and they click on that link, and they can access that database. And there’s a little AI bot that’s like appended onto that database so they can quickly summarize everything in that database, search their name. Search that one time you told that weird lie because you hadn’t had coffee, searched that time you taught shit on your best friend because you were in a weird place…Search that message to your doctor? Search that thing you sent to your colleague that was really mean about your other colleagues, search your prescription information. Search the time you talk to a union organizer, search the time you reported corruption at your workplace with journalists, all of that is on there.”
- “As large language models and AI become more powerful, it will become even easier for an AI bot to summarize and search everything, exposing your personal, professional, and even legal conversations. Whittaker says this is not science fiction; it reflects today’s reality.”
- “Why Lawyers Should Care. For lawyers, the implications of these privacy risks are particularly critical. Attorney-client privilege and confidentiality are not just ethical obligations, they form the very basis of attorney client relationships. Lawyers need to be aware of and comply with their ethical duty to protect “information relating to the representation of a client.” They also need to understand and satisfy the ethical obligation to understand the risks and benefits of technology under the rules of professional responsibility. At a minimum, these duties require lawyers to be informed of the threats technology poses to client confidentiality.”
- “Moreover, both lawyers and clients need to be secure in the knowledge that their conversations are protected and not easily accessible to others. Lawyers also need to be prepared to advise clients on privacy risks and how to mitigate them.”
- “Metadata Matters: Even when message content is encrypted, metadata — who you talk to, when, and how often — can reveal critical details. As Whittaker noted, metadata to can be used to track relationships, map influence networks, and uncover confidential activities. In legal matters, this could expose privileged consultations, witness communications, or legal strategies.”
- “Given these risks, lawyers and legal professionals should think through their approach to digital communications. Steps to consider include:
- Limiting the Use of Commercial Messaging Apps: Mainstream platforms like WhatsApp, iMessage, and Telegram may offer some encryption, but they still collect metadata and, in some cases, retain message content. Lawyers should avoid discussing sensitive matters on these apps.
- Implementing Secure Communication Protocols: Law firms and legal departments should prioritize end-to-end encryption tools that minimize data collection and do not store metadata.
- Educating Clients on Privacy Risks: Confidentiality doesn’t just depend on lawyers; clients also need to understand the risks of discussing legal matters on insecure channels both when talking to their lawyers and in their day-to-day business activities.
- Challenging Data Retention Policies: Many tech companies store years’ worth of messages, call logs, and search history. Lawyers should advocate for stricter data retention limits and ensure their own firms do not store unnecessary digital records that could later be subpoenaed or hacked.”
