Hello and welcome to this JACPA Ethics Alert blog which will discuss the recent opinion of the Ohio 9th District Court of Appeals which sanctioned a law firm for failing to withdraw when a conflict arose between two clients. The opinion is Carnegie Cos. v. Summit Properties Inc., Ohio Ct. App. 9th Dist., No. 25622 (March 28, 2012).
According to the opinion, Carnegie used the legal services of the law firm of Ulmer & Berne (U&B) in environmental matters arising out of properties in which it had an interest since 1994. In June 2007, Carnegie contacted U&B regarding an environmental concern arising out of its interest in acquiring a property referred to as the Frontier Shopping Center. A lawyer for U&B reviewed some documents for Carnegie at that time and informed Carnegie that he would need additional information before reaching a conclusion. In early February 2008, Carnegie sent additional information to the U&B lawyer related to the Frontier property and in mid-March 2008, the lawyer contacted Carnegie to discuss the additional information. U&B sent a bill to Carnegie for that discussion.
In August 2007, Pesses, the president of Carnegie, contacted Laven, another U&B lawyer who was representing Summit with regard to the potential sale of the property. Summit and Carnegie entered into a contract for the sale of the property, but Carnegie later rescinded the agreement and demanded the return of its earnest money. In February 2008, after Summit refused to return the earnest money, Carnegie sued Summit and Summit counterclaimed alleging, in part, fraud. Carnegie was represented by the law firm of Miller Goler Faeges LLP (MG) and U&B continued to represent Summit through Laven. Lawyers from MG spoke several times with lawyers from U&B, advising them of the conflict of interest created by that firm’s concurrent representation of both Carnegie and Summit, and requesting that the firm withdraw voluntarily. MG also sent a letter demanding that U&B withdraw from further representation; however, the law firm refused to withdraw. Carnegie then filed a motion to disqualify.
The trial court judge held a hearing and disqualified U&B. The judge found that the firm acted in bad faith by refusing to withdraw since the existence of a conflict of interest in U&B’s representation of both Carnegie and Summit “was readily apparent” even before Carnegie formally raised the issue by filing he motion for disqualification. U&B recognized that Carnegie was a current client at the same time that it was representing Summit in a matter adverse to Carnegie and, after it became aware of the conflict of interest, it tried to ensure that there was no internal record of its representation of Summit in the Carnegie-Summit matter so that no conflict of interest would be apparent. The firm also “plainly knew that there was a conflict of interest that could not be maintained absent a waiver,” likely in December 2007, but in any event by March 2008. U&B also “persisted in its position that there is no conflict requiring a waiver to this day, despite what the evidence demonstrated at the hearing.”
In addition, U&B allowed Laven, who had both a direct and indirect personal interest in continuing his representation of “an important client” (Summit) to make the decision on how to proceed after Carnegie asserted that there was a conflict of interest. Finally, both Karl and the “ethics attorney” for U&B called Pesses directly to attempt to obtain Carnegie’s waiver of the conflict of interest, despite the fact that Carnegie was represented by counsel from MG.
The opinion stated that “a law firm that is aware it is representing a client in a matter which is directly adverse to the interests of another of its current clients, yet appears to act to conceal evidence of the adverse representation, is acting with a dishonest purpose, conscious wrongdoing, and in breach of a known duty premised on an ulterior motive. A refusal to withdraw from representation of a seemingly more important or lucrative client under such circumstances evidences an ulterior motive to put firm revenue and/or prestige above the interests of other client.”
“We … conclude that a firm which is aware of its representation of directly adverse clients in separate matters, yet seeks a waiver of the conflict directly from one client despite the firm’s knowledge that the client is represented by counsel from another firm, is acting in bad faith. By bypassing opposing counsel, the firm acts with a dishonest purpose, moral obliquity, conscious wrongdoing, and in breach of a duty premised on an ulterior motive to obtain a benefit or advantage it could not otherwise obtain.” Further, “a firm’s designated ethics attorney, who has no involvement in the representation of either client, clearly demonstrates bad faith when he contacts a client he knows to be represented by another firm in an effort to obtain a conflict waiver from that client.”
The opinion affirmed the trial court’s Order disqualifying U&B and also its findings that Summit and the law firm acted in bad faith and were jointly and severally liable to Carnegie for $79,856.26 for attorneys’ fees and costs that Carnegie incurred in pursuing the motion to disqualify.
Bottom line: What a tangled web (they) weave…the lesson of this saga appears to be that, when a lawyer or law firm identifies a conflict of interest in litigation between 2 current clients, the lawyer or law firm should take appropriate steps to remedy the conflict, including a potential withdrawal from representation. Regardless of the ultimate resolution of the conflict of interest, the lawyer should not refuse “to withdraw from representation of a seemingly more important or lucrative client under such circumstances evidences an ulterior motive to put firm revenue and/or prestige above the interests of other client.” This may ultimately result in a finding of bad faith and sanctions…and the Bar (in this case the Ohio Bar) may also come knocking for potential Bar rule violations.
Be careful out there!
As always, if you have any questions about this Ethics Alert or need assistance, analysis, and guidance regarding these or any other ethics, risk management, or other issues, please do not hesitate to contact me.
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