Conflicts Waivers: Advanced Waivers and Wiggle Words

Future Conflict Waivers – Simultaneous Adverse Representation of Current Clients” —

  • Southern Visions, LLP v. Red Diamond, Inc., 2:18-cv-02039-RDP (N.D. Ala. 2018)
  • “Can a law firm convert a current client into a former client in order to take on a new client adverse to the now former client without falling foul of the “hot potato” rule?”
  • “At the outset of most of these matters, Red Diamond signed an engagement letter which purported to provide consent to Law Firm for the undertaking of future representations of other clients. This consent applied to “any matter that is not substantially related” to Law Firm’s work for Red Diamond, ‘even if the interests of such clients in those other matters are directly adverse’ to Red Diamond, and ‘even if such representations would be simultaneous.’ Law Firm did not advise Red Diamond to seek, and Red Diamond did not retain, independent legal counsel with respect to these advance conflict waivers.”
  • “In 2018, Southern Visions, LLP, a competitor of Red Diamond, filed a patent infringement action against Red Diamond. On December 18, 2018, Southern Visions’ owner contacted Law Firm, seeking to have it represent Southern Visions in the suit against Red Diamond. At that time, certain debt collection matters remained pending in which Law Firm represented Red Diamond. Red Diamond learned Law Firm was considering representing Southern Visions in the suit on December 19, 2018.”
  • “On December 21, 2018, Red Diamond informed Law Firm that Red Diamond did not consider itself to have waived any conflict created by Law Firm’s representation of Southern Visions and, regardless, Red Diamond revoked any alleged consent, effective immediately.”
  • “In granting Red Diamond’s motion to disqualify, the court determined the following: Law Firm represented two clients directly opposed to one another in pending litigation for three days; Red Diamond did not consent to Law Firm’s representation of Southern Visions; and despite the broad language, the advance waivers did not permit Law Firm to undertake the representation of Southern Visions because there was no consent “after consultation” and Red Diamond unequivocally revoked any alleged consent before Law Firm began representing Southern Visions; and Law Firm could not have reasonably believed suing Red Diamond on behalf of its competitor, Southern Visions, would not adversely affect its relationship with Red Diamond.”

While not directed at the legal profession, still relevant and worth noting: “When disclosing conflicts of interest, wiggle words like ‘may’ may not be good enough” —

  • “The Securities and Exchange Commission and journalists have something in common. Both are leery of wiggle words like “may.”
  • “The SEC’s problem with ‘may’ revolves around disclosures of conflicts of interest. If the conflict is there, investment advisers better say so, rather than describing the potential conflict as something that “may” affect their recommendations to clients.”
  • “A case pending in the U.S. Court of Appeals for the D.C. Circuit focuses on this situation. The Robare Group, a registered investment adviser, has appealed an SEC administrative decision to sanction the firm for failing to disclose conflicts connected to a revenue sharing arrangement it had with Fidelity Investments for the sale of certain mutual funds.”
  • “‘[I]t appears many firms used the word ‘may’ in good faith, believing the term was consistent with industry practice and regulatory guidance,’ the law firm Eversheds & Sutherland said in a legal alert on the Robare case. ‘Regardless of how the Circuit Court decides this case, its decision will likely affect how firms draft disclosure documents in the future.'”
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