Three cases this week deserve highlighting:

(1) The first case contains a lengthy discussion of both affiliate representation and advance waivers. On the first topic, the court relied heavily on the “most prominent case” of Morrison Knudsen Corp. v. Hancock, Rothert & Bunshoft, 69 Cal. App. 4th 223 (1999), addressing when a law firm will be deemed to represent an affiliate of a corporate client:

The Morrison Knudsen court described a test for the parent and subsidiary’s “unity of interests” and clarified the law does not require the two entities be alter egos. The Morrison Knudsen test is pragmatic, designed to probe whether “the attorney’s relationship with the corporate family . . . may give the attorney a significant practical advantage in a case against an affiliate.” . . . Since Morrison Knudsen was decided, a three-factor inquiry has crystallized. First, a firm may represent the subsidiary if it receives confidential information from the parent substantially related to the claim against the subsidiary, a fact which alone may require disqualification. . . . Second, the parent and subsidiary may share a unity of interests if the parent controls the subsidiary’s legal affairs or if the parent and subsidiary share a legal department. . . . Third, the parent and subsidiary may have a unity of interests if they share operations and management.

In short, the court determined that “the facts weigh in favor of the conclusion that [subsidiary] and [parent] are a unified client. Hogan Lovells has advised [parent] on strategic decisions in matters that impact the entire corporate family, [parent] and [subsidiary] share the same legal department, and the company considers Hogan Lovells to be both its and its subsidiaries’ top strategic firm.” The court’s conclusion that the law firm represented both parent and subsidiary meant that the firm was engaged in a concurrent conflict of interest in the litigation at hand. The court stuck to this conclusion even over the parent’s signed representation agreement with the firm in 2005 stipulating to “Client Identification” as follows:

You agree that the person or entity identified as engaging us in the Transmittal Letter is our client for the specific matters on which we are engaged, and that we shall not be deemed to represent any of its parents, subsidiaries, or other affiliates unless we expressly agree in writing to do so.

The court disregarded this agreement because “the behavior of Hogan Lovells, [parent], and [subsidiary] since 2005 implies that all three understood Hogan Lovells was more than just [parent]’s law firm. Hogan Lovells’s relationship with [parent] may have started with the parent company alone, but its later representation of [subsidiary] and at least one other subsidiary . . . shows the expansion of their attorney-client relationship. Beginning in or about 2008, Hogan Lovells took on assignments that unquestionably involved the entire . . . corporate family,  . . . company-wide accounting practices, and companywide FCPA compliance.”

Having thus lost its argument that it represents only the parent, not the subsidiary involved in the litigation, the firm then turned to the firm’s advance waiver in the same 2005 representation agreement and pointed out that a federal district court had recently upheld a similarly worded advance waiver in Galderma Labs. Rejecting Galderma Labs, the court instead looked to Visa U.S.A., Inc. v. First Data Corp., 241 F. Supp. 2d 1100, 1104 (N.D. Cal. 2003), in which “the Northern District [of California] developed a list of factors that may show whether an advance waiver was sufficiently informed, including the waiver’s specificity, breadth, applicability to all future conflicts, discussions between the client and attorneys, the relationship between the conflicting representations, the client’s sophistication, and in general, the interests of justice.” In particular, the waiver in Visa “disclosed the adverse client’s identity and as fully as possible without disclosing confidences described the nature of the potential conflict;” the waiver at issue in this case did not. To the firm’s argument “that rejection of its position would render the waiver agreement meaningless, upset a standard national practice, and leave hanging over it a sword of Damocles, ‘ready to drop at any moment’ at its client’s whim,” the court assured firms thatthe waiver in Visa serves as a model on which firms can rely.”  But[p]ronouncing the waiver here enforceable and blessing Hogan Lovells’s conduct would promote broad, static agreements over timely and forthright discussions of conflicts and their effects, a result contrary to California ethical rules and policy.”

The full opinion disqualifying the firm is available here: Lennar Mare Island, LLC v. Steadfast Ins. Co., No. 2:12-CV-02182-KJM, 2015 WL 1540638 (E.D. Cal. Apr. 7, 2015).

(2) As have many other courts, the Supreme Court of Kentucky continued to use the appearance of impropriety standard as an independent basis on which to disqualify attorneys.[1] Last week the court decided to abandon its long-standing adherence to this standard in lawyer disqualification matters: “To the extent that Lovell and other cases have approved the appearance-of-impropriety standard, they are overruled. Instead, in deciding disqualification questions, trial courts should apply the standard that is currently in the Rules of Professional Conduct, which at this time requires a showing of an actual conflict of interest.” The court then remanded the case back to the trial court to reconsider whether disqualification was appropriate (without considering the appearance of impropriety).

The full opinion is available here: Marcum v. Scorsone, No. 2014-SC-000172-MR, __ S.W.3d __, 2015 WL 1544429 (Ky. Apr. 2, 2015).

(3) Finally, in an unpublished decision, an appellate division panel in New Jersey affirmed the disqualification of a plaintiff’s med-mal attorney who had received, reviewed, and refused to return privileged documents from the defendant medical center.  According to the attorney, he “did not receive the documents ‘inadvertently;”’ instead, “the documents were addressed and mailed to him by someone who was apparently authorized to have possession of them.” In sum, the court did not care about this inadvertent v. unauthorized distinction and agreed with the trial court’s disqualification.

The full opinion is available here: Jablow v. Wagner, No. A-4202-13T4, 2015 WL 1541011 (N.J. Super. Ct. App. Div. Apr. 8, 2015); and a summary of the opinion is available here.

[1]           See Lovell v. Winchester, 941 S.W.2d 466, 468 (Ky. 1997). But see Humco, Inc. v. Noble, 31 S.W.3d 916 (Ky. 2000) (declining to adopt the appearance of impropriety standard as applied to Rule 4.2, the no-contact rule, but the court left Lovell standing for the more common types of disqualification).