Nixon Peabody May Avoid Ouster for Conflicted Lateral

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By Samson Habte

A judge acted prematurely when he booted Nixon Peabody LLP from a case based on its “incredibly brief” association with a conflicted lateral hire who worked on the other side of the litigation, a California appeals court held Jan. 26.

The ruling was a victory for Nixon Peabody’s client, which could avoid the costs of retaining new counsel to represent it in a complex case that began in 2013.

But the ruling could have broader significance. It appears to be the first California appellate decision to hold that a law firm that hires an attorney who has “switched sides” in litigation may—in narrow circumstances—avoid disqualification by erecting an “ethical screen” around the lawyer.

California is one of the 18 states that have not adopted a version of the ABA Model Rule that allows law firms to avoid disqualification by putting an ethical screen around conflicted lateral hires. And while some California appellate decisions have recognized screening as a way to avoid imputed disqualification, none of them have done so in scenarios involving a lawyer who switches sides in the same case.

But the court said the unusual facts in this case—in which Nixon Peabody was hit with a disqualification motion based on its hiring of a side-switching lawyer who worked at the firm “for an incredibly brief period, approximately five weeks"—compelled it to reject “an absolute rule of vicarious disqualification” even in the side-switching scenario.

“Individual assessment of the facts, rather than automatic disqualification, is a modern rule that better reflects the current realities of law firm life in the 21st century,” Justice Eileen C. Moore wrote. She quoted from another decision in which a court drew a comparison between lawyers and athletes:

  • Gone are the days when attorneys (like star athletes) typically stay with one organization throughout their entire careers. … We have seen the dawn of the era of the ‘mega-firm.’ Large law firms (like banks) are becoming ever larger, opening branch offices nationwide or internationally, and merging with other large firms. Individual attorneys today can work for a law firm and not even know, let alone have contact with, members of the same firm working in a different department of the same firm across the hall or a different branch across the globe.

 

Lateral Hire’s ‘Very Short Tenure’

The appellate panel instructed a trial judge to reassess its ruling disqualifying Nixon Peabody from a case it has handled since 2013 for the California Self-Insurers’ Security Fund.

The Fund is a nonprofit entity that pays workers’ compensation claims of self-insured companies that are unable to do so. The Fund is required to seek reimbursement from those self-insured companies, and in 2013 it hired Nixon Peabody to sue 304 of them.

In February 2017, Nixon Peabody hired Andrew Selesnick to work in its Los Angeles office. Selesnick previously worked at Michelman & Robinson LLP (M&R), which represented six of the companies that Nixon Peabody sued in the reimbursement litigation. Four of those companies had settled their claims, but the two that hadn’t moved to disqualify Nixon Peabody based on its hiring of Selesnick.

Selesnick left Nixon Peabody five weeks after he was hired. But the trial court said his departure wasn’t enough to save Nixon Peabody from vicarious disqualification. The trial court “concluded that when an attorney switches sides, disqualification is mandatory; no amount of ethical screening can save the representation,” the appellate panel said.

The appellate panel reversed. It said Nixon Peabody should be given an opportunity to show that its lawyers did not acquire confidential information about the defendants from Selesnick before he departed.

If such information was transmitted, “disqualification is required,” the panel said. But if the firm put up an ethical screen, the trial court “must exercise its discretion to determine whether other reasons compel disqualification,” the panel said.

“Automatically finding that Selesnick’s very short tenure at Nixon Peabody is sufficient to impute knowledge to the entire firm, including attorneys working on the matter in a different office, places form over substance,” Moore wrote.

Narrow Ruling

The court said its rejection of automatic disqualification was compelled, in part, by the unusual facts of this disqualification dispute.

"[T]he facts in this case are significantly different from the typical ‘switching sides’ scenario,” Moore said.

“Selesnick was employed by Nixon Peabody for an incredibly brief period, approximately five weeks,” she wrote. “He worked in a different office at the firm from the attorneys who were actively involved in the instant matter. The firm took steps to isolate Selesnick from the case, and there was evidence before the court that no confidential information was shared. Further, at this stage of the case, the Fund would be substantially prejudiced if it had to hire new counsel and bring them up to speed.”

Justices Kathleen E. O’Leary and Raymond J. Ikola joined the opinion.

Arnold & Porter Kaye Scholer LLP represented Nixon Peabody. The defendants were represented by Michelman & Robinson LLP; Epps & Coulson LLP; Roxborough, Pomerance, Nye & Adreani LLP; The Law Office of Shafiel A. Karim P.C.; and Thomas G. Gehring & Associates P.C.

The case is Calif. Self-Insurers’ Sec. Fund v. Superior Court of Orange Cnty. , 2018 BL 26660, Cal. Ct. App., 4th Dist., No. G054981, 1/26/18 .

To contact the reporter on this story: Samson Habte in Washington at shabte@bloomberglaw.com

To contact the editor responsible for this story: S. Ethan Bowers at sbowers@bloomberglaw.com

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