Third Circuit Holds Ethical Screen Insulates Side-Switching Lawyer's New Firm

The Third Circuit recently affirmed a bankruptcy court's denial of a defendant's motion to disqualify the plaintiff's law firm in a large adversary proceeding, holding that it had not abused its discretion because the plaintiff law firm (W) had "complied with" American Bar Association Model Rule of Professional Conduct 1.10(a)(2). In re Maxus Energy Corp., 2022 WL 4113656, *4 (3d Cir. Sept. 9, 2022). According to the court, a lawyer (B) who "moved from" the defendant's law firm "to the [plaintiff's] firm" was not cause for W (the new firm) to be disqualified. W's ethical "screen was sufficient to prevent [B's] conflict from being imputed to the entire firm [W]." Id. at *1. The Model Rules, applicable here, did not impute B's "conflict to her new firm," said the court, because "a timely screen, together with certain other requirements," prevented "conflict imputation." Id.

Relevance

Maxus shows the practical problems that arise when law firm partners move from one firm to another. The court's reading of the Model Rules is not controversial. The facts, however, are provocative, as shown below. Left unmentioned in the Maxus opinion is any concern for B's former client who apparently felt betrayed.

Facts

B worked on the litigation for her former firm (S) for roughly three years before moving to W. She was part of the S team that pitched the defendant as a client; participated in key strategy meetings; appeared on the client's behalf at bankruptcy court hearings, including a motion to dismiss; and billed at least 300 hours on the engagement. B "started dating the head of W's restructuring group" in 2017, "before she pitched [S] to [the defendant as a prospective client]" in 2018. Id. "In late 2018 [B and L's] relationship became exclusive, and they lived together starting in 2019." Id. According to the Third Circuit, it was "unclear from the record whether [the defendant, B's client] knew" about the relationship but the defendant denied any such knowledge. While engaged to marry [L], [B] moved to his firm [W]. Id. at *2.