Full Disclosure

By Thomas Brom
     
     
      Taint So
      "Conflicts stink," says Robert G. Krupka, co-head of Kirkland & Ellis's Los Angeles office. "And the problem continues to get worse." Krupka should know. Kirkland had acquired the services of Bruce G. Vanyo-former litigation chair at Wilson Sonsini Goodrich & Rosati in Palo Alto-earlier this year when unanticipated conflicts ended the relationship after just one month. No one was injured. Vanyo quickly moved to the Los Angeles office of Katten Muchin Rosenman, where he cochairs the securities litigation department. But all parties came away bruised.
     
      "It's a sore subject," says Vanyo, who declines to comment because of attorney-client privilege issues. But he wasn't the only high-profile litigator to miss the trapeze this year. IP litigator James Pooley, formerly a partner at Milbank, Tweed, Hadley & McCloy in Palo Alto, was Morrison & Foerster's catch of the day before a conflicts check put the deal on hold. Lateral hires are becoming the collateral damage at AmLaw 100 firms, where consolidation between themselves and among clients is creating a conflicts nightmare. "Now everybody wants to be a national law firm-and conflicts checks are coming back three inches thick," says Gary Reback, of counsel to Palo Alto's Carr & Ferrell, who himself has been disqualified from litigation because of alleged conflicts.
     
      Certainly there's been no decline in lateral hiring. "We close 50 to 60 partner placements a year," says Larry S. Watanabe, principal in the recruiting firm Watanabe Nason & Seltzer of San Diego, who placed Vanyo at Kirkland and then at Katten Muchin. "But we interview as prospects more than four times that number. Deals die over conflicts all the time."
     
      Recruiters try to anticipate taints, but they often don't even know a candidate's complete client list because of confidentiality concerns. Waivers can resolve some issues, especially in transactional work, where clients may regard an attorney's conflicts as an asset to deal making. But the potential taint from imported litigation partners can't be easily waived off. Conflicts arising from representing adverse parties arise from the nature of the work; these are addressed with varying degrees of precision by California Rule of Professional Conduct 3-310; Business and Professions Code section 6068(e); ABA Model Rules 1.6 to 1.10; and civil case law in 50 states.
     
      Tainted laterals could be hit with disqualification motions, court sanctions, and disciplinary action, resulting in malpractice suits and even disgorgement of fees. But Richard Flamm, an Oakland sole practitioner and author of Lawyer Disqualification: Conflicts of Interest and Other Bases (Banks & Jordan Publishing, 2003), says that if a lateral promises to bring a big book of business, hiring firms have an economic incentive to ignore potential problems. "I liken it to the exploding Pinto situation," he says. "It may be cheaper to settle the occasional lawsuit and continue to make the cars."
     
      The most vexing problem-and biggest hazard-is vicarious disqualification based on the so-called double imputation. The law assumes that the new hire has knowledge of all clients in a previous firm and will impart that knowledge to all attorneys at the hiring firm. The double imputation creates the possibility that an imported taint from a new hire could disqualify a firm from representing its most valuable clients.
     
      "The real concern is confidential information," says Steven E. Schon, a professional liability litigator at Howard Rice Nemerovski Canady Falk & Rabkin in San Francisco. "Firms are rightfully concerned that lawyers could bring taint, plus could force them to disgorge fees." Schon says "ethical walls" could be used to screen off laterals from conflict-ridden clients if procedures are in place to prevent access to files and to separate attorneys with conflicts in different offices. Though the state Supreme Court hasn't accepted ethical walls yet, Schon says recent appellate cases suggest that it will.
     
      In a 2000 ruling, for instance, Judge Alex Kozinski wrote, "The vicarious disqualification of an entire firm can work harsh and unjust results, particularly in today's legal world where lawyers change associations more freely than in the past." (County of Los Angeles v. United States Dist. Court, 223 F.3d 990, 996 (9th Cir. 2000).) Kozinski continued, "An automatic disqualification rule would make firms be understandably more reluctant to hire mid-career lawyers, who would find themselves cast adrift as 'Typhoid Marys,' and clients would find their choice of counsel substantially diminished, particularly in specialized areas of law." Bruce Vanyo couldn't have said it better.
     
      In 2001 the Fourth District Court of Appeal went even further, calling disqualification based on a presumption of imputed knowledge "out of touch with the present day practice of law." (Adams v. Aerojet-General Corp., 86 Cal. App. 4th 1324, 1336 (2001).)
     
      But a concurring and dissenting opinion by Presiding Justice Arthur G. Scotland nicely stated the case for a traditional reading of the ethical guidelines: "The fact this rule is overinclusive, may impose significant hardship on the attorney's current client, and may unfairly limit the attorney's employment opportunities is immaterial because the importance of the public policy at stake is paramount." (at 134243.)
     
      Ethical walls seem at least feasible in the public sector and at large firms, where attorneys work in separate groups or offices. Stanley W. Lamport, a partner at Cox, Castle & Nicholson in Los Angeles and past chair of the State Bar's Standing Committee on Professional Responsibility and Conduct, says large firms in California have argued for decades that they need different rules. "But when you play out ethical screening, it doesn't work," Lamport says. "You've only got the attorney's promise that he won't use confidential information. There's no effective oversight."
     
      Still, the ABA's Ethics 2000 Commission recommended an exception to Model Rule 1.10 if "the personally disqualified lawyer is timely screened from any participation in the matter and is apportioned no part of the fee." Though proponents made a strong showing, the ABA's House of Delegates killed the screening provision in August 2001.
     
      "Conflicts issues are an ongoing process," says Mark L. Tuft, a partner at Cooper, White & Cooper in San Francisco and coauthor of California Practice Guide on Professional Responsibility for Lawyers (The Rutter Group, 1997). "It's never over. The courts in California are realizing that they have to recognize mobility and not punish the large firms. The rules of professional conduct won't work if they don't match reality."
     

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