By: Cathrena B. Collins
St. John’s University School of Law
American Bankruptcy Institute Law Review Staff
In general, a law firm may be disqualified from representing a client where it has a conflict resulting from a lawyer moving firms or personal relationships amongst lawyers at differing firms. In In re Maxus Energy Corporation, a Delaware Bankruptcy Court held a law firm would not be disqualified from representing a liquidating trust established under a plan confirmed under Chapter 11 of title 11 of the United States Code (the “Bankruptcy Code”), solely because an individual attorney at the firm had previously represented the target of certain claims by the trust.[1] In June 2016, Maxus Energy Corporation and certain affiliates filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code. Pursuant to the Maxus Plan of Reorganization, the Maxus Liquidating Trust was formed and it was entrusted with, among other things, pursuing a complaint against Maxus’s parent company, YPF S.A..[2] YPF was represented by Sidley Austin LLP (“Sidley”) in that litigation. In December 2020, YPF filed a motion to disqualify the Trust’s counsel, White & Case LLP (“White and Case”), arguing that Ms. Jessica Boelter’s move from Sidley to White and Case, where her husband chairs the restructuring group, was an exceptional conflict that her entire firm must be disqualified.[3]
Following an evidentiary hearing, the Delaware bankruptcy court held White & Case would not be disqualified as they followed Rule 1.10(a)(2) of the American Bar Association’s Model Rules of Professional Conduct (“Model Rules”), and this does not amount to an “exceptional case” of which disqualification would be proper.[4] The court described an “exceptional case” as one where “no screening measures could adequately protect a client’s confidential information.” In determining whether there is an exceptional case the court weighs a variety of factors including: (a) the extent of the relationship between the lawyer and the client; (b) the time lapse between the matters in dispute; (c) the size of the firm and the number of disqualified attorneys; (d) the nature of the disqualified attorney’s involvement; and (e) the timing of the wall.[5] After examining the above factors, the court found that Ms. Boelter’s involvement was “significant but not substantial.”[6] According to the court, Ms. Boelter billed approximately 300 hours to YPF over approximately 2 years.[7] Here, the day Ms. Boelter left Sidley and joined White & Case she wrote a letter to Sidley providing notice to YPF that she would not have access to the files relating to the matter, would not discuss this matter with anyone at White & Case and would not receive any fees from this matter.[8] Furthermore, Ms. Boelter underwent screening, the results of which were provided to YPF.[9] However, YPF made no comment on Ms. Boelter’s screening because they maintained due to her extensive involvement in the matter, no screening could be adequate.[10] Additionally, Ms. Boelter’s husband and the head of White & Case’s restructuring group never took part in the Maxus cases.[11] The court determined that White & Case followed all of the requirements of Model Rule 1.10(a)(2), which dictates the steps to take when there is a conflict; therefore, a motion to disqualify would only be granted if this was considered an exceptional case.[12]
The Delaware Bankruptcy Court concluded while Ms. Boelter herself may have a conflict this does not amount to an “exceptional case” in which the entire firm must be disqualified from representing a client.[13] The court emphasized the high standard of an “exceptional case” in which no screening would be adequate and Ms. Boelter’s 300 hours of billing over two years was insufficient to meet that bar.[14] Furthermore, the Court disregarded YPF’s argument that Ms. Boelter’s marriage to a Sidley partner strengthened their motion for disqualification as there was no evidence of a breach of confidentiality.[15] In denying the motion to disqualify, the court employed “extreme caution” when it considered the “competing public policy interests of preserving client confidences of permitting a party to retain counsel of his choice.”[16]
[1] In re Maxus Energy Corp., 626 B.R. 249, 252 (Bankr. D. Del. 2021).
[2] Id. at 251 (noting the relevant defendant in this action is YPF which is comprised of YPF S.A., YPF International S.A., YPF Holdings, Inc. and CLH Holdings, Inc.).
[3] Id.
[4] Id. at 252.
[5] Id.
[6] Id. at 260 (noting that upon applying the Enzo Life Sciences factors to this case only one could possibly apply, as Ms. Boelter did not have a substantial relationship with YPF, and she acted in a timely manner).
[7] Id. at 253.
[8] Id. at 255.
[9] Id. at 254.
[10] Id.
[11] Id. at 260.
[12] Id.
[13] Id. (explaining a transferring attorney is someone who has terminated their employment at one firm and moved to employment at a new firm).
[14] Id.
[15] Id.
[16] Id. at 255 (finding it is “rarely necessary to impute the transferring lawyer’s disqualification to all of her new lawyer colleagues to meet the former client’s concerns”).