Wednesday, February 17, 2016

Law Firm Conflicts with Clients (and Vice-Versa)

We've been tracking conflicts news tied to 3M since 2012. Now comes: "3M Loses Bid to Disqualify Law Firm It Accused of 'Betrayal'"--
  • "The 3M Co. has long argued that one if its former law firms, Covington & Burling, committed a 'betrayal' by filing an environmental lawsuit against it on behalf of another client. Covington got some good news on Friday, when a judge refused to disqualify it from the environmental suit, a case Covington has poured years of effort into on a contingent fee basis. 3M’s lawyers are also cheering the ruling, however, seizing on a finding by the judge that Covington did, in fact, violate an ethics rule."
  • "In a 36-page decision, Judge John McShane in Hennepin County, Minnesota, ruled that the environmental case is 'substantially similar' to earlier regulatory work Covington did for 3M. Based on that finding, the judge ruled that Covington had a conflict of interest and violated an ethics rule relating to duties owed to former clients."
  • "But the judge’s analysis didn’t stop there. After reviewing emails exchanged by 3M in-house lawyers, which were recently produced in discovery, the judge found that 3M waived its right to object to the conflict. Indeed, the judge wrote that 3M made a 'tactical decision' not to seek disqualification earlier."
  • "The emails produced in discovery bolstered Covington’s waiver argument, McShane wrote in Friday’s opinion. The internal 3M emails show that company lawyers debated whether to seek disqualification of Covington early in the environmental case. In one email, an in-house lawyer at 3M wrote that the company had '[run] the traps on Covington and will not seek to disqualify the firm.' The same lawyer later wrote that Covington’s earlier work for 3M 'was remote in time and only tangentially related.'"
And via Hinshaw comes: "Client Agreement and Failure to Terminate Representation Under the Terms of Client Agreement Results in Firm's Disqualification Under Concurrent Representation Rule" --
  • M'Guinness v. Johnson, 2015 WL 9583486 (Cal. App. Dec. 30, 2015)
  • "In 2013, three shareholders sued: (1) each other for breach of fiduciary duties; and (2) their company for involuntary dissolution. The law firm that represented one of the shareholders had been retained by the company in 2006 as corporate counsel. The Sixth District for the California Court of Appeal held that the law firm's representation of one shareholder against the company constituted concurrent representation of adverse clients, which was a conflict of interest mandating disqualification. The court also held that disqualification "is not generally disfavored," meaning that there is no presumption or policy in favor of permitting the representation to go forward."
  • "This case highlights the importance of engagement agreements as the defining structure for the representation. A lawyer's eagerness to be a "jack of all trades" for a single client may be good for business. But it can also expand the scope of duties owed to the client and thus the lawyer's malpractice exposure. Or, as in this case, it can lead to conflicts of interest and disqualification. The best practice is to be honest and clear in the engagement letter about the scope of the representation, including the method of termination, and abide by those terms."

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