Monday, November 9, 2015

Client Conflicts, Complex Conflicts Checks, Clashes Commence

The Recorder has posted several detailed stories on an unfolding matter involving a complex fact pattern, worth reading in complete detail (and documented nicely on their web site, with an interactive timeline). First: "Clash of Former Clients Puts Orrick in Hot Spot" --
  • "In March, Orrick, Herrington & Sutcliffe's chief legal officer typed out a few terse paragraphs cutting off the firm's three-year relationship with a Bay Area tech startup. The situation was clearly delicate. 'Because we are now aware that our clients are in litigation with each other, we believe it is appropriate to terminate' the representation, wrote Larry Low of Orrick in an email. 'This will confirm our withdrawal from our representation of Loop AI.' The email was the easy part. Extricating the firm from the ongoing litigation between its former clients has been trickier."
  • "John Bautista, a Valley Orrick partner, has represented Loop AI since its launch in early 2012 and drafted its employment contract with Gatti. A separate Orrick partner in New York helped Almawave hire Gatti as its CEO in 2014 under circumstances that are now at the core of the companies' dispute. The firm's conflict check system failed to flag any problem. All of which has left Orrick in the awkward position of fending off subpoenas and allegations of double-dealing as its two former clients bash each other in court."
  • "The dispute illustrates shortcomings in the ability of conflict check systems at large law firms to detect risky representations, particularly those outside the litigation sphere. And since the Orrick partner representing Almawave has taken that relationship to a new firm, the case also tests how far obligations of client loyalty reach in the age of frequent partner moves."
  • "Orrick's tangled role in the dispute is detailed in a motion to disqualify, not Orrick, but Almawave's litigation counsel at Venable, where the partner who represented Almawave now practices. The motion is set to be argued Thursday before U.S. District Judge Haywood Gilliam Jr. in San Francisco."
See also: "Venable Fights DQ in CEO-Sharing Conflict Brawl," which highlights several conflicts complexities, including arguments about non-litigation conflicts, evolving parameters and relationships, and allegations about what detail and flags software should have surfaced (or should be able to) --
  • "In a complicated sequence of events, Orrick, Herrington & Sutcliffe handled both companies' employment contracts with Gatti, without identifying any conflict. Earlier this year Almawave's lawyer lateraled from Orrick to Venable."
  • "Loop AI's counsel, Healy LLC's Valeria Healy, told Gilliam that Orrick's conflict system should have flagged Sternberg's representation of Almawave as a conflict, particularly because the company's U.S. subsidiary was incorporated at Gatti's home address in San Francisco."
  • "'To me, there is nothing more adverse than that,' Healy said. 'The focus is whether a conflict arose that should have been picked up that wasn't' and whether agreements were drafted by the firm that were 'prejudicial to an existing client.'"
  • "Gilliam responded that Healy's argument would put an untenable "obligation on the law firm to deduce that this second contract will somehow result in the breach of the first contract.' The example presented in the case, the judge said, is "quite far away from the paradigmatic transactional adversity" where a firm represents parties on the opposite sides of a deal."

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