Will That New Associate Get You Disqualified?

What now? Two recent decisions provide guidance on this issue. The U.S. Court of Appeals for the Fifth Circuit's decision in Kennedy v. MindPrint (In re ProEducation Int'l, Inc.), No. 08-20398, slip op. at 13 (5th Cir. Oct. 30, 2009), reached a different result from that reached by the Ohio Court of Appeals for the Eighth Appellate District in Litigation Management, Inc. v. Bourgeois, 182 Ohio App.3d 742, 2009-Ohio-2266 at ' 27 (Ohio Ct. App. 2009). A comparison of these cases, however, assists in evaluating whether that new associate was a good hire for this case or not.

The MindPrint Case

The MindPrint case involved a bankruptcy associate ' Kirk Kennedy ' who worked at Jackson Walker while another attorney at that firm represented MindPrint in the ProEducation International bankruptcy. Kennedy was unaware of Jackson Walker's representation of MindPrint. Another creditor in the same bankruptcy case held a position adverse to MindPrint. Based on that dispute, MindPrint moved for sanctions against that creditor and, after losing, sought appeal of that decision.

The adverse creditor's employer then hired Kennedy as general counsel. Once MindPrint learned of Kennedy's involvement, it objected. The Bankruptcy Court for the Southern District of Texas disqualified Kennedy based on his prior employment by Jackson Walker during the time Jackson Walker represented MindPrint. The Bankruptcy Court refused to allow Kennedy to rebut the presumption that confidences obtained by one lawyer in a firm will be shared with the other lawyers. The Bankruptcy Court, however, refused to sanction Kennedy for his actions. On appeal, the District Court affirmed on both issues. A further appeal was sought before the Fifth Circuit.

The Fifth Circuit rejected the Bankruptcy Court's decision that the presumption of shared confidences was irrebuttable. The Bankruptcy Court should have allowed Kennedy to prove that he did not receive confidential information regarding MindPrint during his time at Jackson Walker. The Fifth Circuit then reviewed Kennedy's evidence and held that “Kennedy successfully showed that his imputed disqualification ended when he left Jackson Walker; therefore, his representation of [the adverse creditor] did not present a conflict of interest requiring his disqualification.“ MindPrint, No. 08-20398, slip op. at 13.

The evidence at issue consisted of testimony by Kennedy that he was unaware of the MindPrint representation. In response, Jackson Walker stated that the MindPrint case was discussed at bankruptcy group meetings that Kennedy should have attended. No one at Jackson Walker, however, could affirmatively state that Kennedy was at those meetings. Jackson Walker also conceded that Kennedy did not work on the MindPrint representation. The Fifth Circuit held that Kennedy had rebutted the presumption.

The Bourgeois Case

In the Bourgeois case, the Ohio Court of Appeals reached the opposite conclusion applying similar law. Litigation Management, Inc. (“LMI“) sued Excelas, Inc., its owner and a number of individuals who were employed by Excelas, but used to be employed by LMI (the “Employee Defendants“). The complaint involved breach of noncompete, nonsolicitation and confidentiality agreements as well as misappropriation of trade secrets and unjust enrichment.

The Employee Defendants were represented by Ogletree, Deakins, Nash, Smoak & Stewart, P.C. (“Ogletree“). LMI moved to disqualify Ogletree because one of Ogletree's associates ' Kristin Somich ' used to be an associate at Baker & Hostetler, L.L.P., the firm representing LMI. The latter asserted that Somich did the research that Baker & Hostetler used to file the complaint against the Employee Defendants.

The Court of Appeals applied Ohio law, which is similar to the law cited by the Fifth Circuit in MindPrint. In Ohio, counsel should be disqualified if: 1) there is a substantial relationship between the current matter and the previous matter; 2) the attorney cannot rebut the presumption that there were shared confidences; and 3) the new law firm failed to erect adequate and timely screens sufficient to rebut the presumption of shared confidences once it learned that the attorney had personal knowledge of the previous matter.

Somich testified that she recalled doing general research on the matter as a first-year associate at Baker & Hostetler, but that she did not recall the specifics of the research. She also testified that she had no contact with LMI, nor did she ever attend any meetings with LMI. The partner who supervised Somich's work, however, testified that she disclosed to Somich both confidential business information about LMI and the legal strategy recommended to LMI by Baker & Hostetler. The partner also provided bills to show that Somich billed 14.6 hours on her research and that that research “'was the cornerstone of the basis for the decisions that were made.'” Bourgeois, at '8. The partner further testified that the claims researched by Somich were the same claims asserted in the current action.

Even though she was only a first-year associate, billed less than 15 hours on the matter and never met the client, the trial court determined that Somich had “substantial responsibility for the former matter.“ Because the former matter was found to be substantially related to the current matter, Ogletree was disqualified as counsel for the Employee Defendants.

The Court of Appeals affirmed that holding. Specifically, Somich's inability to recall the details of her former research “was insufficient to rebut the presumption of shared confidences with respect to the matter, particularly in light of [the partner's] testimony that shared confidences existed.“ Even though Somich spent relatively little time on the matter and never met the client, the Court of Appeals found that “Somich was personally involved in the former representation of LMI to an important, material degree in the investigative or deliberative process.“ Bourgeois, at ' 27. That finding was based on the testimony that: 1) Somich was given confidential information regarding LMI; 2) the claims Somich analyzed were substantially related to the current action; 3) her work product formed the basis for the advice Baker & Hostetler gave to LMI; and 4) she was told the legal strategy presented to LMI.

The Court of Appeals further stated that even if Somich had not had substantial responsibility for LMI, Ogletree still would have been disqualified for failing to screen Somich from the matter. Because Somich admitted that she had discussed her previous work on the LMI matter with Ogletree and because no ethical wall was ever created, Ogletree failed to rebut the presumption that Somich shared confidences with Ogletree regarding LMI. Thus, Ogletree was disqualified.

In comparing these two cases, it appears that the difference relates to what the associate did and how the new firm responded. In large firms like Jackson Walker and Baker & Hostetler, it is likely that a single junior associate will not know about every case that the firm is handling. If the associate can disclaim knowledge and the previous firm cannot rebut it, as in MindPrint, then disqualification becomes less likely. But, if the previous firm can show any material involvement, no matter how insignificant the time or how junior the attorney, then the new firm had better establish a screen in an effort to avoid disqualification. Screens cannot solve every problem. (See Kala v. Aluminum Smelting & Refining Co., Inc., 81 Ohio St. 3d 1, 14, 688 N.E.2d 258 (Ohio 1998) (holding that “[t]he appearance of impropriety is so strong that nothing that the Duvin firm could have done would have had any effect on Kala's perception that his personal attorney had abandoned him with all of his shared confidences and joined the firm representing his adversary while the case was still pending.“). An effective screen, however, reduces the likelihood of disqualification in most instances.

As for the initial hypothetical, if Superstar did any work for MegaBank related to the lien on GTF's property, she needs to be off the case or your firm will be disqualified. However, if Superstar either never did any work for MegaBank or if she disclosed her previous work on MegaBank and was screened from the adversary proceeding, disqualification is unlikely. The key is knowing what Superstar did in her previous position before it becomes too late to establish an effective screen.

Recommendations

Most firms require new attorneys to provide a list of previous representations that were material in nature. That list is then used to determine when screens are necessary. For this process to be effective, and in light of the cases discussed above, firms should incorporate the following principles:

• When receiving the initial report of potential conflicts from a new hire, the firm needs to be clear that materiality can be easily met, as evidenced by the LMI decision. If in doubt, the matter should be included.
• When potential new matters arrive at the firm, a process should be established to make others aware of the potential representation. Attorneys should be directed to review those new matters and immediately disclose any previous representations that could create a conflict, no matter how small.
• Once a potential conflict arises, a screen should be established as quickly as possible. Designating personnel to monitor that system will ensure conformity throughout the process and remove any potential for an attorney to overlook a potential conflict because he or she really needs the potentially conflicted attorney on the case.

By following these simple steps and creating a culture where these types of issues are at the forefront of every attorney's thoughts when a new case comes in, the potential for disqualification due to a new hire will significantly decrease.

Kasey T. Ingram is the Director of Litigation at Scotts Miracle-Gro Company. He was formerly a Partner at Dinsmore & Shohl in Columbus, OH, where his practice focused on representing debtors and creditors in bankruptcy.

In these tough economic times, many attorneys are changing firms. When your firm takes on a new hire, you may be putting the firm at risk for disqualification from a large case. For example, suppose you literally just hired a superstar. Ima Superstar graduated from a top law school, clerked for a great judge and spent the last two years practicing at Big & Expensive, LLP (“B&E“), the most prestigious law firm in this region. Now she works for you. Even better, she spent her two years at B&E in the bankruptcy group researching and writing on complex issues. You were just retained by Mom & Pop Construction (“MPC“) to represent it as a creditor in the bankruptcy case of Grew Too Fast, Inc. (“GTF“). Superstar will help you prove that MPC's mechanic's liens have first priority on GTF's assets. This will be great. Or maybe not.

MegaBank was GTF's primary secured lender, and asserts that it holds a first priority lien on GTF's assets. B&E represents MegaBank. MegaBank files an adversary proceeding to determine lien priority. Just as the discovery process begins, B&E moves to disqualify you and your firm. B&E asserts that Superstar worked for B&E when it analyzed MegaBank's case. Thus, Superstar is disqualified from representing MPC and, by imputation, so are you.

Two Cases in Point

What now? Two recent decisions provide guidance on this issue. The U.S. Court of Appeals for the Fifth Circuit's decision in Kennedy v. MindPrint (In re ProEducation Int'l, Inc.), No. 08-20398, slip op. at 13 (5th Cir. Oct. 30, 2009), reached a different result from that reached by the Ohio Court of Appeals for the Eighth Appellate District in Litigation Management, Inc. v. Bourgeois , 182 Ohio App.3d 742, 2009-Ohio-2266 at ' 27 (Ohio Ct. App. 2009). A comparison of these cases, however, assists in evaluating whether that new associate was a good hire for this case or not.

The MindPrint Case

The MindPrint case involved a bankruptcy associate ' Kirk Kennedy ' who worked at Jackson Walker while another attorney at that firm represented MindPrint in the ProEducation International bankruptcy. Kennedy was unaware of Jackson Walker's representation of MindPrint. Another creditor in the same bankruptcy case held a position adverse to MindPrint. Based on that dispute, MindPrint moved for sanctions against that creditor and, after losing, sought appeal of that decision.

The adverse creditor's employer then hired Kennedy as general counsel. Once MindPrint learned of Kennedy's involvement, it objected. The Bankruptcy Court for the Southern District of Texas disqualified Kennedy based on his prior employment by Jackson Walker during the time Jackson Walker represented MindPrint. The Bankruptcy Court refused to allow Kennedy to rebut the presumption that confidences obtained by one lawyer in a firm will be shared with the other lawyers. The Bankruptcy Court, however, refused to sanction Kennedy for his actions. On appeal, the District Court affirmed on both issues. A further appeal was sought before the Fifth Circuit.

The Fifth Circuit rejected the Bankruptcy Court's decision that the presumption of shared confidences was irrebuttable. The Bankruptcy Court should have allowed Kennedy to prove that he did not receive confidential information regarding MindPrint during his time at Jackson Walker. The Fifth Circuit then reviewed Kennedy's evidence and held that “Kennedy successfully showed that his imputed disqualification ended when he left Jackson Walker; therefore, his representation of [the adverse creditor] did not present a conflict of interest requiring his disqualification.“ MindPrint, No. 08-20398, slip op. at 13.

The evidence at issue consisted of testimony by Kennedy that he was unaware of the MindPrint representation. In response, Jackson Walker stated that the MindPrint case was discussed at bankruptcy group meetings that Kennedy should have attended. No one at Jackson Walker, however, could affirmatively state that Kennedy was at those meetings. Jackson Walker also conceded that Kennedy did not work on the MindPrint representation. The Fifth Circuit held that Kennedy had rebutted the presumption.

The Bourgeois Case

In the Bourgeois case, the Ohio Court of Appeals reached the opposite conclusion applying similar law. Litigation Management, Inc. (“LMI“) sued Excelas, Inc., its owner and a number of individuals who were employed by Excelas, but used to be employed by LMI (the “Employee Defendants“). The complaint involved breach of noncompete, nonsolicitation and confidentiality agreements as well as misappropriation of trade secrets and unjust enrichment.

The Employee Defendants were represented by Ogletree, Deakins, Nash, Smoak & Stewart, P.C. (“Ogletree“). LMI moved to disqualify Ogletree because one of Ogletree's associates ' Kristin Somich ' used to be an associate at Baker & Hostetler, L.L.P., the firm representing LMI. The latter asserted that Somich did the research that Baker & Hostetler used to file the complaint against the Employee Defendants.

The Court of Appeals applied Ohio law, which is similar to the law cited by the Fifth Circuit in MindPrint. In Ohio, counsel should be disqualified if: 1) there is a substantial relationship between the current matter and the previous matter; 2) the attorney cannot rebut the presumption that there were shared confidences; and 3) the new law firm failed to erect adequate and timely screens sufficient to rebut the presumption of shared confidences once it learned that the attorney had personal knowledge of the previous matter.

Somich testified that she recalled doing general research on the matter as a first-year associate at Baker & Hostetler, but that she did not recall the specifics of the research. She also testified that she had no contact with LMI, nor did she ever attend any meetings with LMI. The partner who supervised Somich's work, however, testified that she disclosed to Somich both confidential business information about LMI and the legal strategy recommended to LMI by Baker & Hostetler. The partner also provided bills to show that Somich billed 14.6 hours on her research and that that research “'was the cornerstone of the basis for the decisions that were made.'” Bourgeois, at '8. The partner further testified that the claims researched by Somich were the same claims asserted in the current action.

Even though she was only a first-year associate, billed less than 15 hours on the matter and never met the client, the trial court determined that Somich had “substantial responsibility for the former matter.“ Because the former matter was found to be substantially related to the current matter, Ogletree was disqualified as counsel for the Employee Defendants.

The Court of Appeals affirmed that holding. Specifically, Somich's inability to recall the details of her former research “was insufficient to rebut the presumption of shared confidences with respect to the matter, particularly in light of [the partner's] testimony that shared confidences existed.“ Even though Somich spent relatively little time on the matter and never met the client, the Court of Appeals found that “Somich was personally involved in the former representation of LMI to an important, material degree in the investigative or deliberative process.“ Bourgeois, at ' 27. That finding was based on the testimony that: 1) Somich was given confidential information regarding LMI; 2) the claims Somich analyzed were substantially related to the current action; 3) her work product formed the basis for the advice Baker & Hostetler gave to LMI; and 4) she was told the legal strategy presented to LMI.

The Court of Appeals further stated that even if Somich had not had substantial responsibility for LMI, Ogletree still would have been disqualified for failing to screen Somich from the matter. Because Somich admitted that she had discussed her previous work on the LMI matter with Ogletree and because no ethical wall was ever created, Ogletree failed to rebut the presumption that Somich shared confidences with Ogletree regarding LMI. Thus, Ogletree was disqualified.

In comparing these two cases, it appears that the difference relates to what the associate did and how the new firm responded. In large firms like Jackson Walker and Baker & Hostetler, it is likely that a single junior associate will not know about every case that the firm is handling. If the associate can disclaim knowledge and the previous firm cannot rebut it, as in MindPrint, then disqualification becomes less likely. But, if the previous firm can show any material involvement, no matter how insignificant the time or how junior the attorney, then the new firm had better establish a screen in an effort to avoid disqualification. Screens cannot solve every problem. ( See Kala v. Aluminum Smelting & Refining Co., Inc. , 81 Ohio St. 3d 1, 14, 688 N.E.2d 258 (Ohio 1998) (holding that “ [t]he appearance of impropriety is so strong that nothing that the Duvin firm could have done would have had any effect on Kala ' s perception that his personal attorney had abandoned him with all of his shared confidences and joined the firm representing his adversary while the case was still pending. “ ). An effective screen, however, reduces the likelihood of disqualification in most instances.

As for the initial hypothetical, if Superstar did any work for MegaBank related to the lien on GTF's property, she needs to be off the case or your firm will be disqualified. However, if Superstar either never did any work for MegaBank or if she disclosed her previous work on MegaBank and was screened from the adversary proceeding, disqualification is unlikely. The key is knowing what Superstar did in her previous position before it becomes too late to establish an effective screen.

Recommendations

Most firms require new attorneys to provide a list of previous representations that were material in nature. That list is then used to determine when screens are necessary. For this process to be effective, and in light of the cases discussed above, firms should incorporate the following principles:

• When receiving the initial report of potential conflicts from a new hire, the firm needs to be clear that materiality can be easily met, as evidenced by the LMI decision. If in doubt, the matter should be included.
• When potential new matters arrive at the firm, a process should be established to make others aware of the potential representation. Attorneys should be directed to review those new matters and immediately disclose any previous representations that could create a conflict, no matter how small.
• Once a potential conflict arises, a screen should be established as quickly as possible. Designating personnel to monitor that system will ensure conformity throughout the process and remove any potential for an attorney to overlook a potential conflict because he or she really needs the potentially conflicted attorney on the case.

By following these simple steps and creating a culture where these types of issues are at the forefront of every attorney's thoughts when a new case comes in, the potential for disqualification due to a new hire will significantly decrease.

Kasey T. Ingram is the Director of Litigation at Scotts Miracle-Gro Company. He was formerly a Partner at Dinsmore & Shohl in Columbus, OH, where his practice focused on representing debtors and creditors in bankruptcy.