Risk Update

Law Firm DQ Motions — Analysis of Today’s Landscape and Risk Management Best Practices

Hinshaw partner Matthew Henderson on: “What Law Firms Should Know Amid Rise In DQ Motions” —

  • “Disqualification motions are being filed with more frequency. But that only tells half of the story. Such motions are often filed under seal, either by counsel seeking to avoid publicity or by corporate clients that do not want to air their dirty laundry — such as employment discrimination claims, white collar criminal matters, etc. — in a public forum. Also, law firms may quietly withdraw from representation when initially faced with a well-grounded request before anything has been filed.”
  • “Disqualification motions tend to be more prevalent in intellectual property litigation, particularly in the bioscience and chip technology sectors, because of the relatively small number of practitioners in those highly technical areas.”
  • “When a lateral partner moves to a competitor, there is a risk of disqualification motions being filed by the partner’s former clients, who may become adverse to the new firm. However, the risk may not be realized unless the new client engages in litigation with the lateral partner’s prior client, possibly months or years later.”
  • “To reduce the risk of disqualification motions, law firms are proactively including advance conflict waivers in their engagement letters.”
  • “Two recent cases — IBM Corp. v. Micro Focus (US) Inc., decided in May 2023 by the U.S. District Court for the Southern District of New York, and SuperCooler Technologies Inc. v. The Coca-Cola Co., decided in July 2023 by the U.S. District Court for the Middle District of Florida[4] — suggest that such prior consent can be effective in opposing disqualification.””The risk of disqualification motions can be considerable for clients engaged in high-stakes litigation, including losing their counsel of choice who are familiar with the case and having to retain successor attorneys to get up to speed.”
  • “Disqualification can likewise lead to a claim for legal malpractice, as illustrated in the April 2022 decision of RevoLaze LLC v. Dentons in the Eighth Appellate District of the Ohio Court of Appeals,[6] or breach of fiduciary duty against a law firm.”
  • “Disqualification motions can also have profound financial implications for law firms that earn large fees in complex and protracted litigation, particularly in the intellectual property field. Thus, law firms seeking to preserve attorney-client relationships in high-profile cases may choose to pay outside counsel themselves to oppose disqualification motions. Alternatively, in close cases of disqualification, clients may be willing to pay the attorney fees to retain access to their counsel of choice.”
  • “The best risk management practice is to identify and analyze potential conflicts of interest at the onset of the attorney-client relationship. This is a labor-intensive process that involves reviewing attorney time records and interviewing lawyers to determine the scope of the prior representation and what confidential information the law firm may possess.”
  • “Careful vetting of lateral attorneys is likewise imperative to reduce the possibility of facing a disqualification motion. Often, law firms want to move quickly in onboarding a new partner. However, it pays to complete thorough conflicts checks going back three, five or even seven years.”
  •  Engagement letters should contain (1) a disclaimer of future duties after termination of the attorney-client relationship, and (2) a sunset provision setting forth that if the law firm has not performed any legal work for the client in 12 months, it will be treated as a former client for conflicts purposes.”
  • “Given that concurrent and former conflicts of interest are imputed to entire law firms, it is also prudent to have robust screening protocols to ensure that lawyers with potential conflicts are unable to access confidential client information on a law firm’s server. Disqualification may be avoided where a law firm can demonstrate that it had promptly and carefully screened allegedly conflicted counsel.”
  • “Once a disqualification motion has been filed, a law firm must promptly consult with its client, evaluate the chances of prevailing and obtain its client’s informed consent to oppose the motion. If the conflict is serious, it is often best to withdraw.”
  • “Disqualification motions appear to be proliferating in both public and private forums, including arbitration proceedings. Law firms need to be aware of the types of conflicts that most often lead to disqualification and the types of attorneys who may be affected.”