Willkie Farr & Gallagher is now at the centre of a $735 million fraud suit that doubles as a warning shot for Big Law about conflicts, gatekeeper liability and deal‑side risk management.
The firm has already been stung by a major talent walkout last year over its deal with the Trump administration.
BRC Group Holdings (the rebranded B. Riley) and affiliates have sued Willkie in New York over the 2023 take‑private of Franchise Group, the retailer behind Pet Supplies Plus and other brands, claiming that former Franchise Group CEO Brian Kahn orchestrated a “sophisticated fraud” to secure more than $735 million in financing for the US$2.8 billion buy‑out, helping him reduce heavy personal debts while he was already under investigation over a separate hedge fund scandal.
Against Willkie, the suit pleads aiding and abetting fraud, civil conspiracy and breach of fiduciary duty, and seeks over US$735 million in compensatory and punitive damages plus disgorgement of all deal‑related fees. Kahn and his wife are also sued for fraud, fraudulent inducement and breach of contract.
The conflict backdrop
The civil claim lands less than a year after a Delaware bankruptcy judge blocked Franchise Group from hiring Willkie as Chapter 11 counsel because of its prior work for Kahn and B. Riley on the same take‑private.
Judge Laurie Selber Silverstein held that potential claims against Kahn — and even against Willkie itself — were so “central” to the case that conflicts counsel and ethical walls were not enough, forcing the company to pivot to new counsel.
For law‑firm general counsel, that disqualification ruling is now effectively Exhibit A in the narrative that Willkie was too close to the key players and too embedded in the transaction to act as independent strategist once the deal began to unravel.
Why this matters beyond Willkie
For other firms, the BRC suit and the Delaware ruling underline three pressure points:
- Conflicts as litigation fuel: Conflicts that once lived in internal memos are now feeding multi‑hundred‑million‑dollar claims when deals collapse, particularly where the same firm has acted for management, sponsors and the corporate vehicle at different stages.
- Gatekeeper expectations: Plaintiffs are increasingly prepared to argue that leading deal counsel had a duty to detect and resist client‑side misconduct, not just paper the transaction, especially in PE‑style, highly leveraged take‑privates.
- Reputation and client selection: Where a client executive later pleads guilty — as Kahn has now done in a separate hedge fund fraud case involving roughly US$300–360 million in investor losses — every prior judgment call around conflicts and risk looks more exposed in hindsight.
The case is a live illustration of how marquee US sponsor work can morph into brand‑threatening litigation, and how “routine” conflict waivers and walls may no longer be enough when courts and counterparties expect visible, demonstrable independence from law firms on the biggest deals
