Entire In-House Legal Department Disqualified Following Lateral Hire

HIGHLIGHTS:

• This court opinion demonstrates that in-house legal departments can and will be treated the same as traditional law firms when it comes to imputation of conflicts and the resulting potential for disqualification.
• Although the extent to which lateral attorneys will be presumed to have learned pertinent confidences from their former clients and/or shared them internally or externally may vary from case to case or jurisdiction to jurisdiction, in-house legal departments are well-advised to think about setting up conflicts checking and screening systems which parallel their outside counterparts.

The court held there was a rebuttable presumption that the plaintiff's lateral in-house lawyer (who had formerly worked for the defendant) had shared the defendant's confidential information with her current in-house peers inDynamic 3D Geosolutions, LLC v. Schlumberger Ltd.¹ In reaching this conclusion, the court looked to the Texas Rules of Professional Conduct, ABA Model Rules and federal case law.

The plaintiff attempted to rebut this presumption by asserting that the lateral lawyer had been appropriately screened. The court held, however, that the plaintiff had failed to rebut this presumption because there was evidence that, despite the screening, the lateral lawyer had participated in meetings/actions related to the litigation against the defendant.

Moreover, the plaintiff further argued that federal disqualification law should not apply to in-house lawyers in the same way as it applies to outside counsel. The court rejected this argument without much analysis other than alluding to the general rule that conflicts are imputed to the members of a lawyer's firm, and noting that the definition of a "firm" includes corporate legal departments.

The court also added that it made no difference that the legal department was housed within the plaintiff's parent company and not within the plaintiff since the legal department served the plaintiff either way.

With respect to the disqualification of the plaintiff's outside counsel, the court held that the defendant had to demonstrate that there were substantive conversations between the lateral lawyer and outside counsel before the burden would shift to the plaintiff to prove nondisclosure of the defendant's confidences. The court ultimately disqualified the outside counsel as well because the defendant established that the lateral lawyer had indeed communicated with outside counsel in relation to the present case.

Finally, the court dismissed the action without prejudice because the plaintiff's pleadings had been drafted by disqualified counsel. Presumably, the plaintiff will have to retain new counsel to draft a new complaint without reference to the prior work of any of the disqualified counsel.

This opinion demonstrates that in-house legal departments can and will be treated the same as traditional law firms when it comes to imputation of conflicts and the resulting potential for disqualification. In this sense, it can usefully be read together with Advanced Messaging Technologies, Inc. v. EasyLink Services Intern. Corp., which disqualified an in-house counsel and outside counsel.² Although the extent to which lateral attorneys will be presumed to have learned pertinent confidences from their former clients and/or shared them internally or externally may vary from case to case or jurisdiction to jurisdiction, in-house legal departments may be very well-advised to think about setting up conflicts checking and screening systems which parallel their outside counterparts.

Notes

¹ 1:14-cv-00112-LY (W.D. Tex., March 31, 2015)

² 913 F.Supp.2d 900 (C.D. Cal. 2012)

Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem. Moreover, the laws of each jurisdiction are different and are constantly changing. If you have specific questions regarding a particular fact situation, we urge you to consult competent legal counsel.