Kasowitz Beats Disqualification in NYC Society Divorce Fallout

A New York judge rejected a bid to disqualify the firm of President Donald Trump’s longtime lawyer from a multimillion-dollar fraud case that grew out of a bitter divorce between a City Hall insider and a wealthy Long Island businesswoman.

The plaintiff, Bradford E. Billet, waited too long to bring his disqualification motion, Justice Michael L. Katz of the state Supreme Court for New York County ruled from the bench April 23.

He allowed Kasowitz Benson Torres LLP to continue to represent Jodi Drexler and other defendants against Billet’s claims that her family shifted $30 million in marital assets to hide them in the divorce proceedings.

The disqualification hearing had the elements of tabloid fodder: a big-dollar divorce, allegations of asset concealment, and well-known lawyers—including Marc E. Kasowitz, who made a personal appearance and is best known as one of Trump’s go-to lawyers. But the hearing took place in a nearly empty courtroom with Kasowitz sitting alone in the back row.

Katz rejected Billet’s claims that the Kasowitz firm has a conflict because of secret details he confided during a 2013 consultation with then-partner Eleanor Alter, a leading New York matrimonial lawyer who has since left the 262-member firm.

Billet, a career public servant who had high-ranking posts under three mayors and now works as a managing director with the New York government relations firm Mercury LLC, said he shared those confidences after he was assured the firm “would be ethically barred from representing Jodi,” who was also lawyer-shopping at the time.

But Katz drew on arguments presented by Kasowitz attorney Kelly Frawley that Alter’s matrimonial practice was walled off as a “firm within a firm,” and called it “important” that Alter had left the firm before the fraud case began and taken her records with her.

“It’s also significant that we had this discussion two years ago and nothing was done,” Katz said of the delay in bringing the motion.

Pointing to cases rejecting a delayed disqualification motion as an attempt to gain a tactical advantage, Katz said that “even if there is no master plan,” Billet’s lawyers are “stuck with what you’ve done here.”

Katz added that he was ruling from the bench to “get the case moving forward,” rather than studying the submissions and ruling in six months. Lawyers huddled after the hearing to produce a schedule for the proceedings.

Celebrity Lawyers, Novel Legal Questions

After the New York Post covered the divorce in September 2016, Katz reminded lawyers for Billet and Drexler that domestic proceedings are confidential.

Drexler’s lawyers got that case recaptioned Anonymous v. Anonymous, and both the divorce and the fraud lawsuit have since flown under the media radar. The disqualification ruling may change that.

Kasowitz isn’t the only lawyer involved in the tangle who has had dealings with Trump before he became president. One of Billet’s divorce lawyers is William S. Beslow, whose roster of former clients includes a host of celebrities—and Marla Maples, Trump’s second wife.

But if the tabloids don’t take notice, the trade sheets that get circulated in large firms will. That is certain because conflict of interest issues are a huge bottom-line concern for big firms, and Katz’s decision analyzed an ethics rule that few courts—in New York or elsewhere—have interpreted.

What Giuliani Joined, Put Asunder

Bradford Billet and Jodi Drexler were married in 1996, in a ceremony at the Pierre Hotel officiated by then-Mayor Rudolph W. Giuliani, who is now another Trump lawyer.

Over the next decade, Billet rose through the city’s bureaucratic ranks as an emergency manager, and Drexler helped turn her family-run vitamins company into a health and lifestyle juggernaut that fetched $100 million in a 2005 sale to Kikkoman, a Japanese food conglomerate.

Billet said the Drexlers “became obsessed with the idea of cutting [him] out” of their new riches, according to the complaint, and asked him to sign a post-nuptial agreement that would accomplish that goal.

Billet said when that he refused to sign, his parents-in-law promised to ensure he never saw “a cent” of that money.

The complaint alleges the Drexlers then used a “deliberately byzantine asset protection strategy” that essentially shifted his wife’s share of the Kikkoman proceeds to her brother, MusclePharm Corp. CEO Ryan Drexler.

At a February 2017 hearing, Billet’s lawyer said that Ryan “received $30 million or so more” than his sister and has kept “a ledger of every penny” he has spent on her behalf. "[W]hen he disburses monies, they’re a debit against her account,” Beslow said.

Tony Soprano Rule

Billet’s disqualification motion was premised on New York Rule of Professional Conduct 1.18, which addresses duties to “prospective clients.”

Fans of the HBO series “The Sopranos” may recall that when the show’s protagonist was contemplating a divorce, a lawyer friend advised him to consult with every high-powered matrimonial attorney in New Jersey as a tactical move—to create conflicts of interest that would prevent his wife from retaining those attorneys.

The enactment of Rule 1.18 was driven by what a New York judge described as “the flood of disqualification applications” that followed a court ruling booting an attorney from a case based on a preliminary consultation.

The rule says that lawyers who consult with prospective clients are prohibited from representing an adverse party in a “substantially related” matter—but only if the lawyer “received information from the prospective client that could be significantly harmful to that person in the matter.”

The rule also creates a safe harbor that will permit other lawyers from a personally disqualified attorney’s firm to represent an adverse party. The rule says those other lawyers are not disqualified if the firm “implements effective screening procedures” and promptly gives written notice to the prospective client.

‘Tactical Purposes’

Although nearly all U.S. jurisdictions have adopted a version of Rule 1.18, there is little case law interpreting the rule. New York has more case law on Rule 1.18 than any other state—but the number of published opinions analyzing the rule stands at just 22, and just three of those were issued by appellate courts.

In one of those three cases, an appellate panel said courts analyzing Rule 1.18 should “also examine whether a motion to disqualify, made during ongoing litigation, is made for tactical purposes, such as to delay litigation and deprive an opponent of quality representation.”

The Drexler defendants successfully invoked that principle in arguing against disqualification. Even if Billet had a strong argument, they said, he “simply has waited to long to make it.”

Katz agreed.

Frawley told Bloomberg Law after the hearing that “we’re pleased that the court denied the motion for disqualification and that the case will proceed.”

The lead attorney for Billet, Matthew J. Press of Press Koral LLP in New York, told Bloomberg Law: “We are disappointed that Justice Katz found, as a procedural matter, that Mr. Billet waited too long to bring the motion.”

Press maintained, however, that “the facts show that the Kasowitz firm breached its duties to Mr. Billet.”

Billet was represented by Matthew J. Press and Jason M. Koral of Press Koral LLP, New York. The defendants were represented by Emily Pollock and Kelly Frawley of Kasowitz Benson Torres LLP, New York.