Monday, October 12, 2015

Risk News & Commentary: Lateral Movement & Conflicts



Several interesting updates to share. First: "Negotiating for legal employment with the 'other side' raises ethics issues." Which explores issues tied to lateral movement, rooted in a "ripped from the headlines" incident. (We noted similar themes a few months ago in: "Business Moves, Business Conflicts.")
  • "When you start planning to leave your firm for greener pastures, lots of ethics issues can crop up (bad pun). One of the most acute issues is if you get an offer to join a firm that is on the opposite side of a matter you are already handling. That was the situation in a recent bankruptcy case, In re US Bentonite, Inc., and it led the court to order the firm representing a Chapter 11 debtor-in-possession to disgorge several months’ worth of fees. The firm avoided disqualification, however, in part because the lawyer’s new firm had screened him."
  • "The scenario that the court dealt with in In re US Bentonite, Inc. — negotiating for a job with counsel representing the opposing party — is not unique to the bankruptcy context... In 1996, the ABA ethics committee considered it in Formal Op. 96-400, concluding that 'a lawyer’s pursuit of employment with a firm or party that [the lawyer] is opposing in a matter may materially limit [the lawyer’s]is representation of [the] client, in violation of Model Rule 1.7(b). Therefore, the lawyer must consult with [the] client and obtain the client’s consent before that point in the discussions when such discussions are reasonably likely to materially interfere with the lawyer’s professional judgment.' The more involved the lawyer is in the client’s matter, the more likely it is that a material-limitation conflict will arise."
  • "Comment [10] to Rule 1.7 echoes the committee’s advice: 'When a lawyer has discussions concerning possible employment with an opponent of the lawyer’s client, or with a law firm representing the opponent, such discussions could materially limit the lawyer’s representation of the client.”  See also ABA Formal Op. 09-455 (Oct. 8, 2009), “Disclosure of Conflicts Information When Lawyers Move Between Law Firms.'"
  • "In Bentonite, the debtor’s firm avoided disqualification based at least partly on the fact that the migrating associate’s new firm apparently screened him when he arrived. (The court’s order says that the new firm 'shall continue to screen' the lawyer from the case.)"
Next, a few conflicts updates to share. "Where There's A Will, There's A Conflict" --
  • “The Nebraska Supreme Court has publicly reprimanded an attorney for a conflict of interest in representing both a testator and a potential beneficiary… The attorney admitted the misconduct.”
And from Bill Freivogel:
  • N.C. State Bar v. Merrell, 2015 WL 5795667 (N.C. App. Oct. 6, 2015). The state disciplinary agency ordered Lawyer suspended, in significant part because he represented both lenders and borrower in a real estate development deal. In this opinion the appellate court affirmed. The facts are complex. The court found “guidance” in a North Carolina ethics opinion, N.C. Op. 2013-14 (Jan. 2015) (“2015 FEO 14”). Opinion 14 found Baldasarre v. Butler, 625 A.2d 458 (N.J. 1993), instructive, and concluded that a lawyer may almost never represent multiple parties in a commercial real estate closing.

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