Risk Update

New Jersey Risk — Ethical Walls Rules (in New Jersey), Overplayed Hand = DQ Denied (in New Jersey)

Posted Dan Bressler

Fascinating comparison and contrast of ABA model vs. New Jersey lateral screening rules. [In short, to misquote the play, everything is new legal in New Jersey]: “Follow the (Right) Rules on Lateral Hire Conflicts” —

  • “A recent Third Circuit precedential opinion discusses the detailed requirements under the ABA’s Model Rules of Professional Conduct. But New Jersey’s RPCs differ in several important respects. Read with caution.”
  • “For better or worse, lawyers switch firms with increasing frequency and, when they do, they carry with them various conflicts of interest. In particular, under the New Jersey Rules of Professional Conduct, a lawyer may not represent Client A at the lawyer’s new firm if (1) the lawyer’s prior firm had represented Client B in the same or a substantially related matter, and (2) Client A’s interests are materially adverse to Client B’s interests. (NJ RPC 1.9). That prohibition, moreover, applies to the entire new firm unless the lawyer is ‘screened.’ (NJ RPC 1.10)”
  • “A recent Third Circuit precedential opinion (In re Maxus Energy Corp.) discusses the detailed requirements of that screening process under the ABA’s Model Rules of Professional Conduct (as adopted by the U.S. District Court in Delaware). But New Jersey’s RPCs differ from the ABA’s model rules in several important respects. The Third Circuit’s opinion, therefore, should be read with caution.”
  • “The model rules and the New Jersey rules define the screening process similarly. Both require the ‘isolation’ of the lawyer ‘from any participation’ in the matter, through procedures that are ‘reasonably adequate under the circumstances to protect information that the isolated lawyer is obligated to protect.’ (Model Rule 1.0(k), NJ RPC 1.0(l)). But under the New Jersey rule, the screening procedures must be in writing (NJ RPC 1.10(f) and NJ RPC 1.0(l)), whereas the model rule has no such requirement. Another difference is that the New Jersey rule obligates ‘all attorneys and other personnel in the law firm’ to screen the lawyer, clearly requiring the firm to include both lawyers and non-lawyers in the screening process, whereas the model rule requires only that ‘the disqualified lawyer is timely screened.'”
  • “The New Jersey rules specify that screening is not an option when the lawyer had ‘primary’ responsibility for the matter at the prior firm. (NJ RPC 1.10(c)(1)). The model rules do not include that limitation. Thus, in jurisdictions following the model rule (such as the District of Delaware), the ‘primary’ lawyer can be screened when they switch firms, but in New Jersey (and in the District of New Jersey, which follows the New Jersey rules), the ‘primary’ lawyer cannot be screened. When the primary lawyer cannot be screened, the law firm must either obtain a written conflict waiver or withdraw from the case.”

“DraftKings Loses Bid To DQ Firm From Patent Suit” —

  • “A New Jersey federal judge Tuesday rejected DraftKings’ request to kick Shore Chan LLP off a patent infringement lawsuit it’s fighting due to the firm’s lawyers being inventors, saying third-party competitors do not count as a third person under rules of professional conduct concerning conflicts of interest.”
  • ” AG 18 LLC – a gaming company that does business as Arrow Gaming – accuses DraftKings of violating five patents. DraftKings motioned to disqualify Shore Chan from the case, saying Shore and Alfonso Chan are the inventors of issued patents and pending patent applications related to location-based restrictions on networked gaming over mobile devices, according to court documents. DraftKings raised concerns about Shore Chan accessing its confidential information during the discovery process.”
  • “In the time since DraftKings filed the motion in March, Chan left Shore Chan to join McKool Smith.”
  • “In its motion, DraftKings pointed to rules of professional conduct that preclude lawyers from representing clients when the representation would be “materially limited” by their other obligations to a third person, but U.S. Magistrate Judge Jessica Allen said DraftKings misinterpreted ‘third person’ to include third-party competitors.”
  • “‘DraftKings instead asks this Court to broadly interpret RPC 1.7(a) to impose, on litigating lawyers, an ethical obligation to their adversaries and/or purported competitors to avoid creating a risk of misusing confidential information received in discovery,’ Allen states in her order. ‘Such an expansive interpretation of Rule 1.7(a) is inconsistent with the primary concern of the rule, which is to protect a lawyer’s ethical obligations to his or her clients and those to which counsel owes a fiduciary duty.'”