Risk Update

Conflicts and Relationships (Lateral Edition) — Real-world Disqualification Stories and Examples

Yesterday’s update on conflicts stemming from personal relationships had me digging for related examples. And that meant seeing what Bill Freivogel had in his risk roster of record. While more in the realm of a lateral rather than personal relationships, there were a few interesting stories that were news to me and worth sharing, starting with: “Hinker v. County of Cape May, 2020 WL 205901 (D.N.J. Jan. 13, 2020)” —

  • “Law Firm P represents Plaintiffs. Law Firm D represents Defendant. Firm P assigned Lawyer to represent Plaintiffs. Lawyer contacted Firm D about employment there. Firm D made Lawyer an offer.”
  • “Shortly after the offer, lawyers at Firm D realized that two matters, including this one, created conflict issues. Thus, Firm D withdrew its offer. Lawyer had a melt-down (our phrase). He begged Firm D to resolve the conflict issues so he could join Firm D after all. He even wrote disparaging descriptions of the size and merits of this case.”
  • “Lawyer left Firm P but did not join Firm D. Plaintiffs moved to disqualify Firm D. In this opinion the magistrate judge denied the motion. The pivotal issue was whether Lawyer had become ‘associated’ with Firm D within the meaning of New Jersey Rules 1.9 and 1.10. In a fact-specific analysis the judge concluded that Lawyer had not become associated with Firm D, and, thus, Rules 1.9 and 1.10 did not apply.”

Bill also flags this writeup by law professor Keith Swisher, from a few years ago: “DQ Case of the Week: Negotiating to Work for the Opposing Firm” —

  • “An associate represented the debtor-in-possession in a Chapter 11 bankruptcy, and essentially two secured creditors had claims to virtually all of the debtor’s assets. The firm representing one of the secured creditors gave the associate a job offer, which the associate accepted on March 11, 2015. The associate failed to disclose the accepted offer to his supervising attorney until April 20, 2015.”
  • “Furthermore, “[b]etween March 11, 2015 and June 5, 2015, [the associate] continued to sign and file all pleadings on behalf of the Debtors. ‘It was during this time that the debtor and creditors entered into a settlement agreement, divvying up the debtor’s previously liquidated assets among the secured creditors and stipulating to dismiss the bankruptcy case.'”
  • “On June 5, the associate moved to withdraw (without disclosing the conflict), and on June 15, the supervising attorney ‘filed a Supplement to Application for Employment of Attorneys [under 11 U.S.C. 327], for the first time informing the Court of [the associate]’s acceptance of an employment offer with [the secured creditor’s law firm].’ The U.S. Trustee in response filed a motion to disqualify and to deny all compensation to the debtor’s firm.”
  • “The court then noted that ‘accepting a position at a law firm representing one of the largest creditors in a case where one represents the debtor must be disclosed, [and] . . . the connections between the firms and the parties at a minimum created the appearance of impropriety.'”
  • “The court therefore concluded that, ‘under § 327(a) and Rule 2014(a), there is no question [the associate] and his firm . . . had the fiduciary duty and responsibility to disclose [the associate]’s move to [the secured creditor’s firm]. It is also undisputed [they] failed to do so for over three months. The failure to disclose the connection between [the associate] and [the creditor’s firm] warrants denial and disgorgement of fees and expenses.'”
  • “The court proceeded to penalize the associate’s former firm by denying all compensation for work done on and after March 11, 2015 (the date on which the associate had secretly accepted the offer of employment), even though the supervising attorney did not know about the conflict until over a month later.[4] The court refused to disqualify the firm, however, reasoning in essence that the associate ‘created the conflict here, and he has left’ the debtor’s firm (and the creditor’s firm has apparently been screening the associate since his arrival).”
  • Text of decision available here.