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Column: Quinn Emanuel's conflict battles highlight thorny challenge for big law firms

COLUMN-Quinn Emanuel's conflict battles highlight thorny challenge for big law firms

The opinions expressed here are those of the author, a columnist for Reuters.

By Sara Randazzo

- It’s generally frowned upon, and can be a violation of ethics rules, for a law firm to go from representing a client to suing it on behalf of someone else.

That's why it caught my eye when several former and current clients of litigation powerhouse Quinn Emanuel Urquhart & Sullivan alleged the firm did exactly that.

Two rulings this year disqualifying Quinn Emanuel over client conflicts and three recent lawsuits raising conflicts issues got me wondering how large law firms navigate this tricky ethical area.

Avoiding conflicts — essentially, a situation where work for one client negatively impacts another — can be particularly complicated at large firms with hundreds of lawyers and thousands of clients. Such firms dedicate entire departments, often operating around the clock, to spot conflicts before taking on new work.

Quinn Emanuel, with 1,300 lawyers, was founded 40 years ago as a litigation-only firm comfortable taking on cases for both plaintiffs and defendants.

While most big firms have traditionally focused on defense work, more are also expanding into plaintiffs-side litigation. That shift, plus frequent lateral partner hiring between large firms, may make avoiding conflicts an even bigger headache.

“The more you switch sides, the more complicated it gets,” said Nancy Rapoport, a law professor at University of Nevada, Las Vegas who teaches legal ethics.

LOYALTY CHECK

Quinn Emanuel told me that in the context of the thousands of matters it litigates around the world, it is rarely kicked off a case for conflicts.

When it does see challenges, the firm said it is often an attempt at a strategic advantage, or because a client doesn't want to pay its fees. “Adversaries often seek to disqualify us because they don't want to face such a formidable opponent,” the firm said in a statement to me. “You don’t move to disqualify a firm you’re relieved to see on the other side.”

Quinn said it “diligently vets” conflicts and turns down cases because of them. “We make the necessary disclosures when we are hired, and clients can always ask questions and seek separate counsel if they have concerns,” the firm said.

Conflict allegations can be used as a tactical move by litigation adversaries and lead to disqualifications when a judge agrees ethical lines were crossed. Ethics experts tell me that loyalty is the crux of conflicts rules, including making sure attorneys don’t use sensitive information against a client later on. Firms must disclose potential conflicts upfront, and clients can sometimes waive them.

In one case, a California state court judge in March disqualified Quinn Emanuel from representing medical technology company Masimo in a lawsuit brought by its founder over his ouster from the company, because Quinn lawyers had earlier represented Masimo and the founder in another case related to his employment agreement. Allowing the firm to remain in the case, the judge concluded, could “undermine the public's trust in the integrity of the system.” Quinn has appealed.

In another, a federal judge in July ruled Quinn couldn’t bring an antitrust case against CoStar Group on behalf of a competitor because CoStar was its client in an unrelated employment case. CoStar general counsel Gene Boxer said this week of the ruling: “It is a basic principle that every client is entitled to expect loyalty from its lawyers.” Quinn Emanuel had called CoStar's position "litigation gamesmanship" but ultimately withdrew a request to appeal the judge's decision.

Apart from cases where it was disqualified, Quinn Emanuel has also been sued directly by onetime clients alleging improper side-switching.

Former clients Jessica Mah and Andrea Barrica allege in a malpractice case filed in August that Quinn Emanuel didn't property disclose the nature of its prior work for an investor the pair hired Quinn Emanuel to sue. The investor filed a motion to disqualify Quinn, citing that back in 2017, the firm represented him for a few months as he was getting pushed out of an investment fund.

Mah and Barrica said in their new lawsuit that Quinn didn't disclose that its prior assignment, like the current case, involved allegations of sexual harassment against the investor. They refused to pay a $1.7 million invoice, according to their federal lawsuit, and stopped working with Quinn partners.

In its statement, Quinn said Mah is alleging conflicts “after-the-fact to avoid having to pay" for work she requested. An attorney for Mah and Barrica said the evidence supports their allegations.

My Reuters colleagues covered other unresolved conflicts allegations brought against Quinn, including a lawsuit by Playboy Enterprises over a case it says the firm mishandled, which Quinn says is about avoiding paying fees. In another case, short seller Muddy Waters Capital alleges the firm used confidential information from a prior representation to sue it. The firm disputes the claims, arguing in a court filing that the representations aren't substantially related.

ETHICAL LANDMINES

One approach many big firms now take is asking clients to waive any future conflict claims as part of retention agreements.

In a closely-watched 2018 case, the California Supreme Court ruled that law firm Sheppard, Mullin, Richter & Hampton needed to get sign-off from a client about a known conflict and couldn't hide behind a generic advanced waiver. The ruling caused some firms to use such waivers in more targeted ways, ethics experts have said, though it hasn't halted the practice.

Even interviewing for new work raises the risk of creating conflicts because of information that can be shared by potential clients. Law firms rely on software — and these days, AI tools — to help keep track of every client and matter across every office of a firm. But no system is perfect.

“These claims often don’t arise from intentional misconduct, just inadequate monitoring,” Eileen Garczynski a principal with EPIC Law Firm Group who advises firms on risk management and insurance issues, said of conflicts issues generally. Over 16 years of surveying insurers on why law firms are sued for malpractice, Garczynski said client conflicts has consistently been number one.

Law firm mergers and international offices can also create conflicts issues. In one instance a few years ago, Dentons got hit with a $32 million malpractice verdict from its work in a patent case, after U.S. lawyers at the firm were disqualified for failing to disclose conflicts related to its Canadian lawyers. Dentons said at the time it "acted properly, ethically and consistent both with our duties to our clients and with our firmwide conflicts policy."

At Boies Schiller Flexner, chairman Matthew Schwartz said representing both plaintiffs and defendants is one of the litigation-only firm's big selling points, but it does expose it to potential conflicts.

Schwartz said beyond the basic questions of whether they've previously represented a party they're suing, they also consider if taking on a case could put it in a position of advancing a legal argument that's unhelpful to other clients.

If you're not careful, he said, "You run the risk of creating with the right hand bad precedent for the left hand."


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