Business Court Denies Motion For Disqualification Of Counsel

in an Order yesterday in International Forest Products Corp. v. Jackson Paper Mfg. Co., the Business Court denied a motion to disqualify defense counsel from representing Jackson Paper.  The lawyers who were challenged were from the Atlanta firm of McKenna Long & Aldridge. 

The basis for disqualification was that McKenna had previously represented a Jackson Paper subsidiary, Stonewall, in matters substantially related to the Business Court case and in matters on which the lawyers'  testimony would be required. The Plaintiff  International had acquired the claims it was pursuing against Jackson Paper by assignment from Stonewall in a receivership proceeding.

If it were Stonewall suing Jackson, it seems likely that McKenna Long could not have been jackson's counsel due to McKenna's previous representation of stonewall.  That's because Rule 1.9 of the Revised Rules of Professional Conduct says that

a lawyer who has formerly represented a client in a matter shall not thereafter represent another person in the same or a substantially related matter in which that person's interests are materially adverse to the interests of the former client.

But International Forest didn't acquire the attorney-client relationship between McKenna Long and Stonewall.  It only acquired the claims that Stonewall had against Jackson.  Judge Murphy said that this made all the difference and that the Rule did not apply:

Rule 1.9 and its commentary. . .make clear that a duty of loyalty attaches to a client, and not to a claim or transaction. The lawyer-client relationship is a personal one and cannot be assigned. In the present matter, a lawyer-client relationship existed between McKennaLong and [Stonewall]. Thus, McKenna Long’s duty of loyalty and confidentiality are owed to Stonewall, not to Stonewall’s claims or interests. This personal duty, therefore, did not transfer to Plaintiff International Forest Products Corporation (“International Forest”) when it acquired certain of Stonewall’s claims. As an assignee, International Forest cannot claim protection under the duty of loyalty because it is not a former client of McKenna Long itself. Therefore, Rule[] 1.9 [is] inapplicable.

Another ground for disqualification was International's stated intention to call McKenna Long lawyers (other than Jackson's litigation counsel) as witnesses.  RPC 3.7(a) says that a lawyer cannot be an advocate at a trial in which the lawyer is likely to be a necessary witness.  But RPC 3.7(b) says that other lawyers in a lawyer-witness’s firm may continue to act as advocate unless the lawyer-witness’s testimony would be adverse to the client’s interests.  The Defendants didn't claim that the lawyer testimony would be adverse, so Judge Murphy denied that aspect of the disqualification motion as well.

Business Court Resolves Dispute Among Lawyers Over Division Of Class Action Fee Pie

Yesterday, Judge Gale entered summary judgment against a North Carolina lawyer who claimed he was entitled to a greater share of a $3 million fee award to a group of plaintiffs' counsel in a series of settled class actions.  The opinion was in the case brought by the lawyer seeking an enhancement of his fee, Donald Dunn, against the lawyers who were his co-counsel, Henry Dart and Robert Zaytoun, in Dunn v. Dart.

The lawyers represented members of the communities living near an industrial plant in Apex, North Carolina at the time of an explosion there. Those families who were forced to evacuate their homes as a result of the explosion settled several class actions for payments of close to a total of $8 million.

A federal judge approving the settlement in the Eastern District also approved the $2.9 million fee award, which allocated $75,000 to Dunn.  Dunn then filed a separate action in North Carolina asserting that he had a side arrangement with his co-counsel to split one third of the fee 50/50 with them.  Dart walked from the fee award with $975,000 and Zaytoun with $670,000, aggrieving Dunn, who received only a paltry $75,000 for his work on the case.

Dunn presented emails speaking to the split, but Judge Gale ruled that the emails were insufficient to prove an agreement, and that they anticipated further negotiation over terms followed by a final written agreement.

The other basis for summary judgment against Dunn was North Carolina Rule of Professional Conduct 1.5, which says that lawyers from different firms may divide fees only if the client consents to the split, and the agreement is confirmed in writing.   Dunn had no evidence of such consent, and no written agreement (except for the found-to-be-inadequate emails).  Judge Gale said that the agreement was unenforceable without compliance with the Rule