Risk Update

Nano Tech, Larger Conflicts Allegations — Malpractice Suit, Advanced Waiver, Engagement Terms & More

Posted Dan Bressler

“Malpractice Suit Against K&L Gates Heads Back to Texas Trial Court” —

  • “A conflict-of-interest suit against K&L Gates is likely headed back to a Texas trial court after the state Supreme Court on Friday declined to take an interlocutory appeal.”
  • “Quantum Materials Corp. of San Marcus sued K&L Gates in 2018 in Hays County district court, alleging the firm engaged in a conflict of interest by representing the business and its lenders in a dispute over a loan. That dispute led to Quantum Materials being sued in three states.”
  • “Quantum Materials, which makes tetrapod quantum dots for use in lighting applications, said in its petition that it engaged K&L Gates as counsel in 2016 to do corporate work, including drafting documents for a prospective lender. The company later shifted that legal work in-house, but maintains in the petition that K&L Gates never formally resigned from the representation and still remains as legal counsel to Quantum.”

Previously (March): “K&L Gates Loses Appeal In $100M Nanotech Malpractice Suit” —

  • “A ‘rational mind’ could look at a set of uncontested facts in a suit filed by nanotechnology company Quantum Materials Corp. and infer that K&L Gates LLP used the company’s information against it when it sued Quantum, a onetime firm client, on behalf of lenders, a Texas appeals court said Friday.”
  • “Backing Quantum in the firm’s bid to fight a denied dismissal, a three-judge Court of Appeals panel said the company made a prima facie case that K&L Gates violated its fiduciary duty to Quantum and engaged in a conflict of interest.”
  • “The panel also sided with Quantum on whether K&L Gates’ alleged misconduct was ‘unconscionable’ under the state Deceptive Trade Practices Act, allowing that claim to continue as well.”
  • “According to the suit, Quantum hired K&L Gates in 2016 for ‘non-adverse’ corporate advice, which included helping the company go public and the drafting lending agreements with two investor entities. The engagement letter included an advance conflict waiver allowing K&L Gates to represent adverse parties in matters not substantially related to the corporate work, which included attendance by a K&L Gates attorney at Quantum board meetings.”
  • “Quantum ultimately sued a transfer agent involved in the dispute. During that case, K&L Gates lawyers filed an intervention petition on behalf of the lenders alleging Quantum Materials had breached its contracts with the lenders. That spurred a Quantum Materials bid to disqualify the firm and accusations that the firm had used Quantum’s confidential information to benefit the lenders and itself. K&L Gates maintained that the advance waiver applied and that the matters were not substantially related.”