Risk Update

Conflicts Concerns — Beware “Midstream” Conflicts, Call for Case “Pause” Permitting DQ Pursuit

Posted Dan Bressler

Lawrence A. Kasten, General Counsel at Lewis Roca reminds: “Beware Of Midstream Conflicts” —

  • “The judge glances at you as he announces his ruling granting your opponent’s motion to disqualify your law firm. You think back to the day, one year earlier, when the case came in the door. It was a cold Tuesday morning. The phone rang at 7:30 a.m. You remember it well, because you hadn’t even had a chance to take your first sip of coffee.”
  • “Even without caffeine, you remembered to caution Ms. Jones not to reveal any confidential information and to provide you with the names of all parties who foreseeably might be involved in the case. After running the names through your firm’s conflicts database, you received the all-clear. You diligently filed a record of the conflicts check and the steps you took. For the past year, you have worked hard on the case, putting it in good position for a satisfactory result for Widgets.”
  • “So how did you end up getting disqualified? Ten months into the litigation, a representative of your co-defendant, the manufacturer of the allegedly defective product, testified at a deposition that a component was made by Sprockets, Inc., a small company in a remote part of the state. Plaintiff amended the complaint to add Sprockets as a defendant, and, without doing a new conflicts check, you filed a cross-claim. As it turned out, unknown to you, one of your firm colleagues has been giving Sprockets advice about its employment contracts.”
  • “Even though the matters are entirely unrelated, Sprockets sought to disqualify you and your firm, on the ground that you had an imputed concurrent client conflict of interest under ER 1.7 and ER 1.10. The judge agreed.”
  • “Too often, attorneys view conflicts clearance solely as a new-matter intake issue. Once conflicts clear, lawyers may forget to analyze subsequent developments that may create midstream conflicts of interest.”

Read the full article for commentary on incorporating supplemental conflicts checks, new party shifts, non-party awareness, and parties “changing character.”

“OptimisCorp Seeks Suit Halt Amid Bid To DQ Plaintiffs, Bayard” —

  • “OptimisCorp wants to pause a derivative suit in Delaware Chancery Court involving claims against the company’s CEO and other officers, pending decision on its bid to have plaintiffs and their counsel, Bayard PA, disqualified because of ‘conflicts’ it says ‘threaten’ to prejudice the case.”
  • “In a letter brief to Vice Chancellor Morgan T. Zurn on Monday, OptimisCorp attorney Theodore A. Kittila of Halloran Farkas & Kittila LLP argued that a suit filed by William Atkins, Gregory Smith, and John Waite, former company officers, should be put on hold pending a decision about whether they and their counsel will be disqualified. ‘Over the last two years, Waite, Atkins, and Smith played keep-away with a multi-million company asset while simultaneously levying on company accounts,’ the letter asserted.”
  • “In its disqualification motion, OptimisCorp argued that since the three are also represented by Bayard in the other suit related to their handling of the arbitration award, conflicts could arise… Among potential conflicts, OptimisCorp argued, is that ‘discovery will commence against Atkins, Smith, and Waite in the related action, and such discovery will directly implicate Bayard’s advice concerning the handling of the prior derivative award.'”
  • “Also, allowing the derivative suit to proceed before a decision is made on disqualification ‘would result in a waste of judicial and party resources if disqualification is ultimately ordered as a remedy,’ the motion argued.”