Questions Hover as Condor Capital Heads to Court

In April, N.Y. State’s Department of Financial Services obtained a temporary restraining order in federal court against Hauppauge, N.Y.-based subprime auto lender Condor Capital Corp. and owner Stephen Baron. The company stands accused of bilking customers out of millions of dollars.  The case is being handled in U.S. District Court for the Southern District of New York.

Colleen McMahon, the federal judge presiding over the case, raised concerns last week that the law firm representing the state agency, Friedman Kaplan Seiler & Adelman, has a conflict of interest because it represents Wells Fargo and Bank of Montreal. Both of those banks are members of Condor’s lending syndicate.

In a further twist, on Friday McMahon ordered Condor’s CEO, Stephen Baron, to appear in court Monday — today — after she discovered that, despite a temporary restraining order in New York, the company had allegedly been conducting business in Florida at a branch office. As a result, Baron could face immediate incarceration.

In an earlier exclusive interview for an upcoming feature story, a former Condor employee told Auto Finance News among other details, that Condor had been planning a move from Long Island, New York to Florida.

But as the judge notes, the case, at the U. S. District Court for the Southern District of New York, also raises questions over why the state is using outside counsel despite the state’s attorney general’s role as New York’s chief lawyer.

Legal experts say that sometimes a state employs outside counsel from a resource perspective. Other times, the state uses outside counsel on contingency. In some states, using outside counsel runs counter to state contracting laws.

Section 63 of the Executive Law of New York State Law, says the Attorney General is the chief legal officer of the State of New York. State agencies must submit outside counsel contracts to the Attorney General’s office with a letter or memorandum detailing the nature of the services to be performed along with other details.

According to the initial complaint, the attorney listed as heading up the outside legal team is Eric Corngold of the firm’s white-collar criminal defense and investigations practice.

From 2007 to 2009, Corngold was a state-employed lawyer himself when he was New York’s executive deputy attorney general for economic justice. He served as principal advisor to the New York attorney general on litigation and policy concerning financial markets, antitrust matters, corporate and consumer fraud, and housing.

The Department of Finance did not return numerous emails or phone calls seeking answers to why outside counsel was necessary in this particular case.

When asked about basic legal procedure and state rules regarding outside counsel, the New York Attorney General’s office referred Auto Finance News back to the Department of Financial Services. Once again, The DFS press office did not return calls or answer emails so on May 1, Auto Finance News filed a Freedom of Information Act Request asking for more details.

Then, on May 7, the judge handling the case, Judge Colleen McMahon wrote in a response to Friedman Kaplan that it seems “Friedman Kaplan Seiler & Adelman has a conflict of interest because it represents Wells Fargo and Bank of Montreal both members of Condor’s lending syndicate.”

Earlier, on April 29, Wells Fargo Preferred Capital had filed a court memo saying it was owed $261 million under a credit facility it made to Condor.  The memo indicates Condor’s obligations are secured by a first priority lien and security interest in all or substantially all its assets.

Wells Fargo Bank N.A. is now named as an Intervenor in all court documents on the case.

The judge said Friedman Kaplan is obviously going to be relieved immediately. She wrote that she was “curious” as to how this potential conflict of interest situation could have been allowed to arise in the first place.

Counsel for Wells Fargo first contacted Friedman Kaplan on behalf of Wells Fargo and the secured lenders on April 27. The judge said that should have triggered a conflicts check by Friedman Kaplan.

She wrote that it is apparent that “Condor’s secured lenders and the Superintendent (Lawsky) hold wildly differing positions with respect to what to do about Condor.

“Given the banks’ refusal to allow Friedman Kaplan to argue against their interests, I cannot see how Friedman Kaplan can come in next week and argue in favor of the injunction the Superintendent is seeking,” she said.

Legal experts say that court parties can waive conflicts.  But as of now, it’s not clear if the outside counsel in question conducted a proper conflicts check. In nutshell, they say, this maybe a tempest in a teapot, or simply a very big oversight.

But the judge also seemed curious about the hiring of outside counsel in the first place.

“I do not understand why the Attorney General is incapable of representing the Superintendent; he represents agencies of the State before this court all the time,” wrote Judge McMahon.

When first filed, the DFS complaint against Condor stated that there were numerous complaints on file at the Consumer Finance Protection Bureau’s database. But, when Auto Finance News checked, there were none.

A CFPB spokesman confirmed that there were no complaints at CFPB regarding Condor.

Since DFS has not provided any alternative extensive details on the consumer complaints that led to the investigation, Auto Finance News also requested details about the complaints in its Freedom of Information request.