Holland & Knight must stop representing a bank in a civil fraud case against a company the firm concurrently represented in other matters during the run-up to the suit, the U.S. District Court for the Southern District of New York held April 28 ( First NBC Bank v. Murex, LLC , 2017 BL 141143, S.D.N.Y., No. 16 Civ. 7703 (PAE), 4/28/17 ).
The court concluded that a broad advance conflict waiver in the company’s engagement agreement didn’t cure the problem. H&K’s services expanded beyond the nonlegal services contemplated in the agreement, and the waiver provision didn’t mention the specific adverse matter, Judge Paul A. Engelmayer said.
Advance conflict waivers have become a regular feature of engagement agreements for big law firms and their corporate clients. But as this case makes clear, a future conflict waiver isn’t a bulletproof shield, especially if the firm’s adverse role comes across as stabbing the client in the back.
Ethanol distributor Murex LLC retained H&K for a three-month period to lobby the Environmental Protection Agency about the obligations of entities that had purchased fraudulent “RINs” (tracking numbers for renewable fuel).
A nonlawyer senior policy analyst in H&K’s Washington office arranged the engagement, which called for “regulatory consulting services.” The engagement agreement stated that the conflicts of interest rules applicable to lawyers wouldn’t apply, and the agreement permitted H&K to represent clients adverse to Murex in unrelated matters.
During the same time frame, H&K litigators in Atlanta were getting ready to sue Murex on behalf of First NBC Bank for allegedly participating in fake ethanol transactions aimed at defrauding FNBC.
H&K argued that Murex was solely a lobbying client, but the court found that H&K formed an attorney-client relationship with the company.
The firm’s representation of Murex broadened beyond lobbying work to include helping Murex defend itself against a threatened EPA enforcement action and briefly counseling Murex on a pending lawsuit in which Murex was represented by a different law firm, the court said.
Those activities outside the scope of the engagement agreement clearly amounted to legal services, and it was reasonable for Murex to believe it had an attorney-client relationship with H&K, it found.
The court decided that on the facts here, H&K couldn’t use the waiver provision in its agreement as a shield. “The agreement simply did not cover the legal services that H&K came to provide Murex,” it said.
Also, “the agreement’s broadly worded advance waiver provision also did not identify the FNBC matter as one in which the firm sought to reserve the right to be adverse to Murex,” the court said. The waiver “fell well short of embodying informed client consent,” it said.
The court said the firm created its own predicament by “avoidable human and systemic lapses” at two junctures.
The first problem was that H&K’s Washington, D.C., office unknowingly took on work for a client that its Atlanta litigators were preparing to sue. The nonlawyer policy analyst who accepted the engagement didn’t follow up or alert anyone when a conflicts check highlighted a potential problem, because he believed that the nature of his lobbying work wouldn’t give rise to an attorney-client conflict, the court said.
Second, the policy analyst didn’t notify anyone at H&K before starting to defend Murex against a possible EPA enforcement action. H&K’s ethics and conflicts specialists never got the opportunity to warn him to confine his work to lobbying, and never got a chance to consider whether to expand the engagement to include additional services.
“The answer is for firms to have systems, cultures, and informed personnel that assure that decisions as to client matter intake and expansion are made collaboratively, consultatively, and carefully with due regard for the conflict consequences,” the court wrote.
The court ruled that H&K’s attorney-client representation of Murex was concurrent with the firm’s representation of FNBC even though its relationship with Murex ended before the case got to court.
In light of the concurrent representation, H&K had the heavy burden of showing the absence of an actual or apparent conflict in loyalties, and it failed to carry this burden, the court said.
The court found that H&K’s continued representation of FNBC would taint the litigation in two ways. First, the initial complaint in the case created the “appearance of disloyalty” to its former client Murex, it said.
A neutral observer could see the initial complaint as trying to “dirty up” Murex for no good reason by accusing it of regulatory and legal violations relating to RINs and asserting that Murex was involved with the EPA on a fraud matter, the court said.
Second, the court said that H&K’s representation of Murex provided it with access to significant confidential information that could be helpful to FNBC in the litigation.
H&K’s implementation of an ethics screen after Murex filed its motion to disqualify didn’t rebut the presumption that the firm’s FNBC lawyers had access to Murex’s confidences, the court ruled.
The firm elected to have its FNBC litigation team defend against the motion to disqualify, and those lawyers were exposed to Murex’s confidential materials submitted in connection with the disqualification issue, it said.
Holland & Knight represented First NBC Bank. Morrison & Foerster LLP and Kane Russell Coleman & Logan P.C. represented Murex.
To contact the reporter on this story: Joan C. Rogers in Washington at firstname.lastname@example.org
To contact the editor responsible for this story: S. Ethan Bowers at email@example.com
Full text at http://src.bna.com/osg.
Copyright © 2017 American Bar Association and The Bureau of National Affairs, Inc. All Rights Reserved.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to firstname.lastname@example.org.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)