Risk Update

Ethical Screening Success — Detail Analysis of a Disqualification Denied (Bankruptcy Matter, Imputation, Ethical Walls & More)

Excellent overview and analysis from Francis G.X. Pileggi, a managing partner of the Delaware office of Lewis Brisbois Bisgaard & Smith, LLP: “Court Rejects Disqualification of Law Firm Based on Rules 1.9 and 1.10” —

  • “The U.S. Court of Appeals for the Third Circuit recently addressed a motion to disqualify based on a partner who moved from a law firm representing one party in a bankruptcy proceeding to the firm representing the opposing party in the same case. The court applied Model Rules of Professional Conduct 1.9 and 1.10(a)(2). The attorney who made the lateral move was described in the oDetpinion as Jessica Lauria, née Boelter. (‘Boelter’).”
  • “Rule 1.10(a)(2) imputes her conflict to her new firm unless she, among other things, ‘is timely screened from any participation in the matter and is apportioned no part of the fee therefrom.’ The new firm timely screened Boelter, but Boelter’s former client moved to disqualify her new firm, White & Case, arguing that a screen was not enough. The appeal considers the decision of the U.S. Bankruptcy Court, which denied a motion to disqualify White & Case.”
  • “Boelter was a partner at Sidley and participated in Sidley’s initial pitch to represent YPF. She recorded a total of 300 hours in the representation of YPF, mostly at the beginning of the case. YPF executives regarded her as an integral part of their legal team.”
  • “Thomas Lauria, a partner at White & Case, did not record any time related to the case. Boelter started dating Lauria in 2017, before Boelter pitched Sidley to YPF. In late 2019, Boelter and Lauria began living together. Sidley knew of their relationship.”
  • “Boelter moved to White & Case while engaged to marry Lauria. At that time, White & Case followed the applicable Model Rules of Professional Conduct, and Boelter followed the standard conflict-screening process. White & Case implemented an ethical wall that the parties agreed qualified as a screen, beginning on Boelter’s first day. Her new firm obtained her acknowledgement that she complied with the screen and periodically certified her compliance. Her new firm did not give any portion of its fee from the YPF adversary proceeding to Boelter. White & Case gave YPF written notice of Boelter’s employment the day she began with the firm, explained the nature of White & Case’s screen, and included the statement of the firm’s and Boelter’s compliance with the Model Rules. White & Case stated that review may be available before a tribunal, and the firm agreed to respond promptly to any written inquiries or objections about the screening procedures.”
  • “YPF moved to disqualify based on its view that no screen would be satisfactory. The Third Circuit accepted appellate review. The standard of review for interpretation of the Model Rules, as a question of law, was de novo. The bankruptcy court’s denial of disqualification was treated as a sanction for which the standard of appellate review is abuse of discretion.”
  • “The court regarded the Model Rule (1.10) as sufficient for its analysis and declined to follow the application by the bankruptcy court of an “exceptional circumstances” exception as well as a multifactor test that was based on a decision by the District of Delaware.”
  • “The court of appeals held that White & Case complied with Model Rule 1.10(a)(2) and that the bankruptcy court did not abuse its discretion in reaching the same conclusion that the firm was not disqualified from representing the Trust. The bankruptcy court found that the ethical screen implemented by White & Case was thorough and robust between Boelter and the YPF adversary proceeding. Nor does YPF dispute that Boelter did not receive any part of the fees from White & Case’s representation of YPF.”
  • “The bankruptcy court also found that White & Case gave YPF prompt notice of the screening procedures, as well as repeated statements that White & Case and Boelter would comply with the screening procedures. White & Case also confirmed that it would respond promptly to any inquiries from YPF about the screen and invited YPF to provide input.”