IN RE: FTX TRADING LTD. (2025)

Chapter 11

Related to Docket No. 48

MEMORANDUM ORDER DENYING MONTGOMERY MCCRACKEN WALKER AND RHOADS LLP'S MOTION TO WITHDRAW AS COUNSEL FOR DEFENDANT

Upon consideration of Montgomery McCracken Walker and Rhoads LLP's Motion to Withdraw as Counsel for Defendant Ryan Salame (the “Motion to Withdraw”)¹ and all briefing and submissions filed in support of and in opposition to the Motion to Withdraw; IT IS HEREBY FOUND AND ORDERED THAT:

1. When a party has a controversy pending before the Court, Rule 9010-2(b) of the Local Rules of the United States Bankruptcy Court for the District of Delaware requires an attorney to obtain the Court's permission to withdraw its appearance for such party if such withdrawal will leave the party without counsel.

2. On January 24, 2025, Montgomery McCracken Walker and Rhoads LLP (“MMWR”) filed the Motion to Withdraw. If the Court grants the Motion to Withdraw, the Defendant, who is incarcerated, will be left without counsel. Notwithstanding, MMWR asserts it should be allowed to withdraw because the Defendant consents,² is unable to pay for MMWR's services, and “is basically unreachable in any meaningful sense[.]”³ Plaintiff opposes the withdrawal.⁴

3. On February 26, 2025, the Court held a hearing on the Motion to Withdraw during which it instructed MMWR to submit evidence regarding, among other things, its ability to contact the Defendant and the nature of such contact.⁵ MMWR submitted that evidence for the Court's in camera review on May 5, 2025 in the form of a Declaration of Richard M. Simins in Support of Montgomery McCracken Walker and Rhoads's Motion to Withdraw as Counsel for Defendant Ryan Salame (the “Simins Declaration”). The matter is now ripe for adjudication.

4. MMWR relies on Rule 1.16(b)(5)-(7) of the Delaware Lawyers’ Rules of Professional Conduct to support its request to withdraw.⁶ While the factors within these rules may be considered, the ultimate decision to permit attorney withdrawal from a case is a matter for the Court's discretion.⁷ “Rules regarding attorney withdrawal are necessarily general because of the context-laden nature of such determinations. The interests to be considered will vary widely from case to case.”⁸ Nonetheless, if counsel “no longer serves a meaningful purpose”, then it is entitled to withdraw.⁹

5. Courts have permitted attorney withdrawal when counsel is unable to communicate with its client.¹⁰ However, the Simins Declaration does not establish that MMWR is unable to communicate with the Defendant. It demonstrates the difficulties in communicating with the incarcerated Defendant through telephone and electronic mail. Notably, it is silent on MMWR's ability to meet with the Defendant in person, which is available according to prison policies.¹¹ This situation is uncommon in a bankruptcy case, and the Court appreciates that the lack of readily accessible telephone and e-mail communication channels to the Defendant adds difficulties to MMWR's representation. But it does not render communication impossible or impracticable. In fact, MMWR served discovery responses on behalf of the Defendant within the last week.¹² Moreover, these difficulties were a known risk at the time MMWR took on its representation of the Defendant and can be overcome in part through proper scheduling and appropriate extensions of deadlines imposed upon the Defendant. Furthermore, the Court cannot overlook the fact that the Temporary Restraining Order (“TRO”) in place prohibiting the use of the Defendant's assets makes it is unlikely that replacement counsel for the Defendant will be found.¹³ To date, one has not been found despite apparent attempts. As such, MMWR is necessary to these proceedings to ensure that the Defendant, the Plaintiff, and the Court can communicate.

6. The Court acknowledges that the Defendant is unable to pay MMWR for its services because of the TRO. Notwithstanding, MMWR is permitted to seek modification of the order but has not done so in the almost five months since its entry. MMWR could also seek exception in connection with the Plaintiff's request for a preliminary injunction. Thus, the matter of payment is not a settled matter.

7. Accordingly, the Motion to Withdraw is DENIED.¹⁴ At the Court's prior direction, the parties are to meet and confer regarding the appropriate scheduling of an evidentiary hearing on the various motions pending in this proceeding. When doing so, the Court expects the parties to meaningfully consider MMWR's communication difficulties with the Defendant and other relevant administrative hurdles presented by the Defendant's incarceration.

Dated: May 8, 2025 Wilmington, Delaware

FOOTNOTES

1.   Adv. D.I. 48.

2.   MMWR asserts the Defendant has consented to the withdrawal but there is no evidence of that consent.

3.   Adv. D.I. 48 at 2–3.

4.   Adv. D.I. 100, 101.

5.   Adv. D.I. 119 at 25:7–13.

6.   Rule 1.16(b) of the Delaware Lawyers’ Rules of Professional Conduct provides that:a lawyer may withdraw from representing a client if ․ (5) the client fails substantially to fulfill an obligation to the lawyer regarding the lawyer's services and has been given reasonable warning that the lawyer will withdraw unless the obligation is fulfilled; (6) the representation will result in an unreasonable financial burden on the lawyer or has been rendered unreasonably difficult by the client; or (7) other good cause for withdrawal exists.This state rule of professional conduct is identical to Rule 1.16(b)(5)–(7) of the Model Rules of Professional Conduct of the American Bar Association (the “Model Rules”), which govern the professional conduct of attorneys admitted or authorized to practice before this Court. See Del. Bankr. L.R. 9010-1(f).

7.   Ohntrup v. Makina Ve Kimya Endustrisi Kurumu, 760 F.3d 290, 295 (3d Cir. 2014). Model Rule 1.16(c) requires lawyers to “comply with applicable law requiring notice to or permission of a tribunal when terminating a representation.” Model Rules of Pro. Conduct r. 1.16(c) (Am. Bar Ass’n 2020); accord Del. Laws.’ Rules of Pro. Conduct r. 1.16(c). And if “ordered to do so by a tribunal, a lawyer shall continue representation notwithstanding good cause for terminating the representation.” Id.

8.   Ohntrup, 760 F.3d at 295.

9.   Id. (“The point at which the law firm no longer serves a meaningful purpose in the case marks the outer boundary of the District Court's discretion because withdrawal would be required at that point.”); accord LabMD Inc. v. Boback, 47 F.4th 164, 190 (3d Cir. 2022).

10.   Ohntrup, 760 F.3d at 295 (affirming grant of withdrawal motion when law firm was “merely a captive, uncompensated process server” and efforts to reach the party through the law firm were “futile”); Huntley v. VBit Techs. Corp., No. 22-1164, 2023 WL 4351339, at *1 (D. Del. July 5, 2023) (alterations in original) (quoting Ohntrup, 760 F.3d at 295) (allowing withdrawal after counsel was “unsuccessful in contacting” the client for over three months); see also Dettmering v. VBit Techs. Corp., No. 22-1482, 2023 WL 3790717, at *2 (D. Del. June 2, 2023) (allowing withdrawal after counsel unsuccessfully tried to contact the client thirteen times); AAG Glass, LLC v. Laminados De Aller, S.A., No. 21-638, 2025 WL 326918, at *2 (D. Del. Jan. 29, 2025) (allowing withdrawal after the client failed to pay $100,000 in legal fees and fired the attorney, and the firm attempted to contact the client twenty times without much response).

11.   See, e.g., Adv. D.I. 101, Ex. 5 at 9 (“All inmate attorney visits must be approved by the Associate of Warden Programs ․ and coordinated by the Unit Manager, in advance․ If approved, the attorney will be permitted to visit during regularly scheduled visiting days and hours. Attorneys requesting visits with inmates on non-regular visiting days or after normal visiting hours will be accommodated as far as time, security and availability of supervision permits.”).

12.   Adv. D.I. 181.

13.   Adv. D.I. 26.

14.   This denial is without prejudice to MMWR's rights to renew its request to withdraw should new facts develop warranting such relief.

Karen B. Owens United States Bankruptcy Judge