What a Piece of Work is Risk? (Law Firm Representing Both Sides in Same Lawsuit)

An interesting tale of a law firm trying to retain counsel which is simultaneously representing the opposing party in an ongoing lawsuit. This story reads like Shakespearean drama (with several ins and outs).

Act I -- J-M Manufacturing dismisses its law firm for alleged e-discovery malpractice. That firm is accused of disclosing thousands of privileged documents and other confidential information to opposing counsel. J-M filed suit against it in June.

Act II -- J-M hires Sheppard Mullin to represent it in the original matter at hand. Alas, Sheppard, it’s discovered, also represents the South Tahoe Public Utility District the advserse part in the matter:

• “For its part, Sheppard asserts that the South Tahoe signed a waiver of conflict of interest in a prior representation of the entity involving employment matters.” [South Tahoe had signed an engagement letter in 2006 on an unrelated matter.]
• J-M argues that it’s already made a significant investment in time and money with Sheppard, upwards of $4.5m, and that replacing that “institutional knowledge” would be prohibitive.
• In South Tahoe’s motion to disqualify its own law firm it argues that: “Rather than simply contacting its existing client to discuss the nature of this case and seek its client’s informed consent, Sheppard apparently concluded that it could not risk hearing the response to that request. Instead, Sheppard ignored its professional responsibilities and embarked on a lucrative representation of an adverse client [J-M Manufacturing] without the informed written consent of its existing client."

Act III – In a tentative ruling, the judge allows J-M to keep Sheppard as counsel. But hearing observers noted that most of its arguments “did not have much weight" with the judge.

Epilogue – The final die is yet cast -- the judge indicated that bifurcation may be the fated end:

• "The court 'rejected' Sheppard Mullin’s arguments that South Tahoe was not its present client, or that it gave informed consent and waived conflict of interest, or that it had purposefully delayed raising the conflict issue. The court concluded, somewhat indecisively, that with certain conditions it was 'somewhat inclined… but not necessarily committed' to appointing a 'conflict counsel' to represent J-M on South Tahoe's claims. It agreed to certify the issue for "interlocutory appeal” to the Ninth Circuit Court of Appeals in California. The judge said South Tahoe's claims against J-M would be tried separately from those of the other 150 plaintiffs in the case."