It seems the law firm mergers are on the rise. 2015 was considered a “record year” for US law firm combinations. This merger-happy world has brought on a list of potential ethical questions. One of those issues was recently addressed in the case Victorinox AG v. The BF System Inc., 13 Civ. 4534, in the Southern District of New York.
The world famous Swiss Army Knife maker sued the defendant for trademark infringement. The Court granted Plaintiff’s motion for summary judgment and awarded damages, attorneys’ fees, costs and injunctive relief for Defendants’ willful infringement of Plaintiffs’ mark. During their appeal of the decision, Defendants also moved to disqualify Plaintiffs’ counsel (“Counsel”), due to the fact that counsel had represented one of the Defendants’ entities in trademark matters in another Midwestern office, while simultaneously representing Plaintiffs in New York in the litigation in question. Rather than reaching a decision on the merits, the Second Circuit remanded to the district court.
In its 8-page opinion, the Court noted that Plaintiffs’ initial counsel was another firm which had merged with Counsel in 2015, and that this meant that, essentially, for almost a full-calendar year Counsel represented Plaintiffs in this case and Defendants in other matters. Concurrent representation of parties on opposing sides of the same litigation, the Court stated, is a conflict of interest. The Court noted that it was “troubled” by this fact, as well as the fact that there may have even been gross negligence afoot by Counsel in this instance, noting that, upon merger, a conflict check was only conducted for clients who had billed $100,000 in legal fees or more. Moreover, the attorney from Counsel charged with representing Defendants in the Midwest had an opportunity to inform Defendants of the potential conflict, when he was withdrawing from representation of the Defendants, but only cited “economic reasons” his withdrawal and failed to mention the conflict.
Subsequently however, Judge Rakoff denied the motion for disqualification. The withdrawing attorney testified that there was no exchange of pertinent information between the two offices, that the representation of each of the parties was substantially different from the other and that there was no indication that Plaintiffs’ legal team even knew about the conflict. Further, Plaintiff had expressed that it wished to keep Counsel as counsel. As such, the Court concluded that there was no actual or apparent conflict, and that the motion for disqualification should be denied.
While there may be plenty of reasons to combine firms, there is a real risk of conflicts. Combining firms must take steps to ensure that the interests of current and former clients are protected in the event of a law firm merger.