Cappello Disqualified for Conflict of Interest

Legal Battle Against Real Estate Mogul Gets Personal

Thursday, February 20, 2014
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As clashes of the titans go, the showdown pitting Barry Cappello, Santa Barbara’s premier legal samurai, against Jim Knell, ​a downtown commercial real-estate mogul, ​proved too short to generate many sparks. That’s because Judge Thomas Anderle disqualified Cappello from representing Emmett McDonough ​— ​an unhappy investor who claims Knell got rich at his expense by charging exorbitant management fees and withholding key information ​— ​in a lawsuit against Knell and his company SIMA Management. Judge Anderle ruled that because Cappello’s law firm had represented Knell in several serious real-estate disputes from 1984 to 1987 ​— ​one involving an attempt by the California Department of Real Estate to revoke Knell’s real estate license ​— ​that it would constitute a conflict of interest for Cappello to now lead the charge against his former client.

Barry Cappello
Click to enlarge photo

Paul Wellman (file)

Barry Cappello

The conflict was not merely theoretical, Anderle ruled, but direct and immediate. In 1985, Knell was convicted of a felony for falsifying loan documents, prompting the state Department of Real Estate to seek revocation of his license. Attorneys working for Cappello defended Knell, arguing at the time that he had been acting under orders of his employer and that he’d rehabilitated himself by wearing a wire and helping to secure a federal conviction of his boss, who wound up serving time. In that case, the judge ultimately shortened Knell’s probation from five years to three, and finding he posed no threat to the real-estate community, ruled that disclosure letters would not be necessary.

Late last year, however, Cappello filed legal papers arguing that Knell should have informed McDonough at the outset of their professional relationship ​— ​which dates back to 1998 ​— ​of his past legal troubles. Had McDonough been so informed, Cappello argued, he would never have invested with Knell. In response to the conflict of interest allegations, Cappello initially denied that he or his firm had ever represented Knell, and that to the extent anyone in his office ever did, they did so without his knowledge or approval. Based on documentation provided by the real-estate department, Anderle found Cappello’s recollection to be at variance with the facts.

Cappello said he did not intend to appeal Anderle’s ruling because it would only cause further delays. “Justice delayed is justice denied,” he wrote in an email. “Mr. McDonough will obtain new counsel and will prosecute James Knell expeditiously.” Attorneys for Knell said McDonough had long prospered by investing in partnerships managed by Knell, but that he suffered ​— ​along with everyone else ​— ​when the bottom fell out of the real-estate market.


Independent Discussion Guidelines

Hard to keep track of everyone who got sued.

John_Adams (anonymous profile)
February 20, 2014 at 8:23 a.m. (Suggest removal)

I'm pretty sure one former SIMA bookkeeper went on to become a bookkeeper for Cappello several years back. This town is too small. Choose your investment partners wisely...make sure they are people you wouldn't mind suing or being sued by sooner or later.

sbmomandpop (anonymous profile)
February 20, 2014 at 10:34 a.m. (Suggest removal)

Barry Cappello lied? ("In response to the conflict of interest allegations, Cappello initially denied that he or his firm had ever represented Knell, and that to the extent anyone in his office ever did, they did so without his knowledge or approval. Based on documentation provided by the real-estate department, Anderle found Cappello’s recollection to be at variance with the facts.") Simply not possible!

JoeHill (anonymous profile)
February 20, 2014 at 3:04 p.m. (Suggest removal)

Based on documentation provided by the real-estate department, Anderle found Capello’s recollection to be at variance with the facts.!!! I know someone on the receiving end of one of these conflicts of interest where a lawyer will make up some random response to memory lapse. Put down the scotch and do a records search or have your staff do it. Ridiculous that these knuckleheads cannot remember who their clients are. Capello was in possession of those papers he could have shown McDonough so either he was trying to drum up business in hard times, or they were totally in cahoots. Someone should turn Capello into the bar.

bimboteskie (anonymous profile)
February 20, 2014 at 5:01 p.m. (Suggest removal)

Will Capello be reported to the BAR for this great injustice to his former client? How would he like his doctor spreading all his confidential medical files about town for financial gain? DRE cases are heard in downtown LA. Did Capello's legal team really forget they spent the day in LA with Mr Knell?
I have invested with the "Real Estate Mogul" for numerous years and will continue to do so with the utmost confidence.

citolife (anonymous profile)
February 20, 2014 at 10:28 p.m. (Suggest removal)

Knell is a financial genius, I remember he got a girlfriend to move in back in the day and then charged her rent.

pointssouth (anonymous profile)
February 20, 2014 at 11:53 p.m. (Suggest removal)

Good God, what a stinking cesspool!

Holly (anonymous profile)
February 21, 2014 at 1:35 a.m. (Suggest removal)

Hi Barry, I'm Marge and Marty's son, they say "Hi" from the Great Beyond.

billclausen (anonymous profile)
February 21, 2014 at 2:47 a.m. (Suggest removal)

@ Joe Hill I agree someone should turn Cappello into the bar. I've been a long time investor with Jim Knell and have found him to be one of the easiest and most straightforward in the business. I've done very well investing with him and what I have found over the years is when the economy dips if you hang in there he puts together a plan so that while you may not profit as much as you'd planned, your losses are minimal if any. I googled this Emmett McDonough and funny that he happens to be an attorney a crooked one or a very stupid one. I'm not really sure how he was unable to read the contracts that very clearly state the mgmt fees. In all of my dealings with Jim he has encouraged me to have my attorney and my family go over all any documents before I sign them to make sure that we all understand what I'm signing. I cannot believe that two attorneys are going after him, guns ablazing. Apparently they have no real basis for this lawsuit, which how can you sue because the economy took a dive? So they decided to bring up something that happened 30 years ago, Obviously the DRE, trusts him with his Real Estate License, The judge said he didn't need to disclose and his penalty was reduced due to his wearing a wire to catch whoever was responsible. That and his integrity in all of our dealings are enough for me. Its all so irrelevant. These are just two greedy, dishonest men and I hope someone does turm Cappello into the bar and that another lawyer laughs at McDonough if he tries this ridiculousness again. What a waste of the Court time and taxpayer money.

sjong (anonymous profile)
February 21, 2014 at 7:53 a.m. (Suggest removal)

Right, SB's "premier lawyer' doesn't know how to do a conflicts check????? That EVERY firm is supposed to do before hiring a client. Give. Me. A. Break. He SHOULD be turned in. He lied to the Court!!! Smells like a rat.

PnuttyNut (anonymous profile)
February 21, 2014 at 10:42 a.m. (Suggest removal)

A conflicts check is standard procedure before an attorney can agree to represent someone, and Mr. Cappello no doubt knows this. His faded recollection explanation is disingenuous, and evidently Judge Anderle knows this, too.

LegendaryYeti (anonymous profile)
February 21, 2014 at 1:18 p.m. (Suggest removal)

I often wonder if the phrase "to the best of my recollection" is sort of a blanket statement for being full of $hit.

bimboteskie (anonymous profile)
February 21, 2014 at 3:14 p.m. (Suggest removal)

DarrylGenis (anonymous profile)
February 23, 2014 at 8:18 a.m. (Suggest removal)

Hey Darryl,
When are you losing your license? You never have a conflict of interest nope nope.

Herschel_Greenspan (anonymous profile)
February 23, 2014 at 12:33 p.m. (Suggest removal)

The pains of our economy from 2008 until now have destroyed many investments, banks, and almost our Country. . Whose fault? All of us were at fault. Our economy was overheated by consumption with borrowed money. Many point the finger at someone else, but most all of us enjoyed the cheap money. Knell stayed with his responsibilities, worked long hours, traveled, advanced his own funds and saved most of our investments. Thanks Jim!!!

Knell had acquired properties going into 2008, over night we watched the equites in some of these projects disappear. What did he do? He worked very, very hard and long restructuring the mortgages, which in most cases he did. Sometimes we had to meet cash calls, some of us did, some did not. Those that believed that Knell would continue to work to reposition the properties did contribute. Now a few are calling foul, because they might be better off having met the cash calls.

The investments I have made with Knell, over the past 25 years, in spite of the down turns, are overall good to outstanding.

whooops (anonymous profile)
February 26, 2014 at 11:54 a.m. (Suggest removal)

SIMA is known for charging exorbitant rents. No wonder the investors are happy. No wonder either that our downtown has become so bland and boring.

blackpoodles (anonymous profile)
February 26, 2014 at 9:16 p.m. (Suggest removal)


The appearance of our downtown is controlled by various City Commissions, and the elected folks. Have you been involved in making improvements to our downtown?

SIMA has, in my opinion, added color and improvements to our downtown, it has restored many properties that were neglected by previous owners.

As for rents, they are set by the market.

You make this statement: "SIMA is known for charging exorbitant rents" Please, please state what the rents are on the properties it owns. If you cannot, maybe you don't know what you are talking about.

whooops (anonymous profile)
February 26, 2014 at 10:48 p.m. (Suggest removal)

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