Tuesday, December 21, 2010

Risk Roundup: Disqualifications, Ethical Walls & More

Several interesting law firm risk developments, stories and articles to share. Several touch on recent disqualification news:
  • Fighting over toys: Mattel, Bratz and related legal wrangling -- In the high-stakes fight over the Bratz toy franchise, lawyers for Mattel (Quinn Emanuel) discovered that their opponents had hired a lateral from their own firm who worked on the matter: "...Quinn contends that MGA's latest law firm had committed "the cardinal sin" under disqualification case law by hiring a former Quinn Emanuel lawyer, Jill Basinger, who worked on Mattel matters--including the MGA case--while employed by Quinn. "No amount of spin and no ethical wall can change the fact that disqualification of Glaser Weil is required," Quinn wrote. Interesting to note that Quinn recently leveraged an ethical wall to defend another disqualification attempt last month.
  • Attempted disqualification of "avowed adversary" -- Akin Gump is working for parties allied with Tribune Company's Chapter 11 case. It's also representing a party opposing the proposed bankruptcy plan. The Tribune-friendly parties want Akin disqualified from representing an "avowed adversary." Akin argues its work does not rise the level meriting disqualification, and that it has an ethical wall in place to be safe: "Oaktree and Angelo Gordon want Akin Gump disqualified from working for Aurelius, which they label 'a notoriously litigious entity.' Akin Gump says that’s not necessary because its regulatory team and its Chapter 11 team are separated by an ethical wall, and the double-representation arrangement is one of long standing....According to Akin Gump, the firm’s work for Oaktree and Angelo Gordon on the one hand, and an occasionally hostile bondholder on the other, dates more than a year." Shortly after the motion was filed, a judge expressed hesitancy to rule on the matter: "Carey appeared reluctant at the hearing on Wednesday to approve change of counsel for Aurelius at this stage in such a 'complex Chapter 11 case.' Carey asked the warring parties to resolve their issues outside the courtroom so that Aurelius could keep Akin Gump as its counsel."
  • Corruption trial delayed due to disqualification -- In this case, the defendant's law firm was disqualified because it also represents the employer of a witness for the plaintiff. (This example is interesting as it presents what was likely non-obvious relationship between the law firm and a third party -- one that may not have even been possible to identify at the start of the representation.)
  • Derivative Claim in Dispute Between Owners May Require Independent Counsel -- A paper that looks at conflicts issues and triggers requiring engagement of new lawyers (New Jersey context): "In the closely held business the interests of the owners are more likely to be the same as the business.  Nonetheless, a derivative claim raises the thorny question of whether the entity must now engage independent counsel to represent the business itself."

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