The Business Court granted a Motion to Disqualify counsel today in Ferguson Fibers, Inc. v. Foster, and sent a cautionary word to lawyers who represent the employees of their corporate clients in what they might believe to be unrelated matters.
The issue was whether the attorney for Plaintiff Ferguson Fibers should be disqualified because he had previously represented Foster in a child support matter and in a lawsuit involving the sale of the business of Foster’s wife. The new lawsuit appeared to be completely unrelated to those past representations. It involved claims by Ferguson Fibers that Foster had engaged in inappropriate conduct while employed by Ferguson Fibers.
Rule 1.9 of the North Carolina Rules of Professional Conduct provides 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 mater in which that person’s interests are materially adverse to the interests of the former client unless the former client gives informed consent, confirmed in writing."
The test for whether matters are "substantially related" is "if they involve the same transaction or legal dispute or if there otherwise is a substantial risk that information as would normally have been obtained in the prior representation would materially advance the client’s position in the subsequent matter."
Foster asserted that he had discussed with his former lawyer during the past representations his employment and business dealings with Ferguson Fibers, his role in helping his employer move part of its business to Mexico, and his "strained relationship" with his boss. He said that disqualification was warranted because this information might be relevant to the lawyer in his representation of his former employer.
The attorney disputed that he had ever discussed such matters with his former client, but Judge Tennille held that this made no difference. He observed that a court should "prevent even the appearance of impropriety and thus resolve any and all doubts in favor of disqualification." He said "[t]he Court need not resolve this factual dispute. Its existence is sufficient to require disqualification," and that "Foster’s perception of events, as the client, is of ‘paramount importance’ in preventing the appearance of impropriety."
The Court also provided a quick word of advice to lawyers who represent organizations as well as their employees: "Attorneys who represent various constituents of an organization, be they investors, employees, suppliers, or customers, are in a better position than lay persons to protect against potential conflicts of interest. Where counsel represents both a company and its employees, it is the duty of the lawyer to inform the client about the implications of the dual relationship."
Other decisions by the Business Court involving Motions to Disqualify are The Cottages of Stonehenge Condominium Homeowners Association, Inc. v. Dominion Mid-Atlantic Properties II, LLC, Chemcraft Holdings Corp. v. Shayban, and Flick Mortgage Investors, Inc. v. The Epiphany Mortgage, Inc.