You will all recall the Business Court’s disqualification of a law firm from representing its longtime client, in Kingsdown Inc. v. Hinshaw, 2015 NCBC 27. Now there is a second chapter to the disqualification, which came in an Opinion last week, in Kingsdown Inc. v. Hinshaw, 2015 NCBC 35.
The disqualified law firm had asked Judge Bledsoe to clarify his Order disqualifying it from representing the Plaintiff Kingsdown. That was due to the firm’s past representation of Defendant Hinshaw (the corporation’s CEO) on a personal basis in the transactions which were the heart of the lawsuit.
The law firm was not giving up its representation of its corporate client easily. The Court’s disqualification Order said that the law firm was disqualified from "further representation of Kingsdown in this matter against the Hinshaws." Op. ¶56. How far did the prohibition of that Order really go?
The law firm argued that it should be allowed to continue in its role as Kingsdown’s regular corporate counsel and to advise Kingsdown on the litigation against Hinshaw without appearing as counsel of record, so long as it did not disclose any of the confidential information it had obtained in the course of its representation of Mr. Hinshaw.
Judge Bledsoe shot that argument down quickly. He said:
To the contrary, the Court intended that the Firm would cease all representation of Kingsdown adverse to the Hinshaws in this matter, whether as litigation counsel or otherwise. The Firm’s failure to satisfy Rule 10(b) of the Rules of Professional Conduct and the appearance of impropriety created by the Firm’s representation of Kingsdown do not disappear simply because the Firm is no longer counsel of record – as corporate counsel, the Firm is still representing a current client (Kingsdown) adverse to a former client (the Hinshaws) in a substantially related matter, and the ethical concerns attendant to that representation, including the appearance of impropriety, remain.
In other words, once a law firm is disqualified from representing a client in a litigation matter, it may not work "behind the scenes" or consult with, or give advice to that client regarding the matter. Op. ¶16.
There was one last piece of its representation with respect to the lawsuit which the law firm tried to keep. That was its representation of its corporate client in the claims it had brought against its former officer, Ray. The firm argued that it had never represented Ray, that it had none of her confidential information, and that it should be allowed to be adverse to Ray.
Wrong, said Judge Bledsoe, who said that:
because the Firm’s representation of Kingsdown on its claims against Ray will require Kingsdown to take positions directly adverse to the Hinshaws on claims that are substantially related to the Firm’s prior representation of the Hinshaws, the Court concludes that the same considerations requiring disqualification of Tuggle Duggins in this matter adverse to the Hinshaws likewise require disqualification of the Firm in connection with Kingsdown’s claims against Ray.
So it looks like this entire lawsuit is radioactive to the law firm, despite the law firm’s protestations that its client is being deprived of the counsel of its choice. The Court responded to that point by saying that:
the right of one to retain counsel of his choosing is secondary in importance to the Court’s duty to maintain the highest ethical standards of professional conduct to insure and preserve trust in the integrity of the bar. Avoiding a conflict and the appearance of impropriety are the best solutions.
While you might think that the issue of the law firm’s involvement in this case is now over, this may not be the end of the disqualification saga. The law firm, which was successful before its disqualification on its Motion to Dismiss the counterclaims made by Defendant Ray, has moved for sanctions against Ray. That motion is pending. I will report back on this when there is a ruling. [Update: New counsel for Kingsdown withdrew the Motion for Sanctions on April 30, 2015]