Sheppard, Mullin, Richter & Hampton, LLP v. J-M Manufacturing Co., Inc., 2018 WL 4137013 (Cal. Aug. 30, 2018), invalidated a law firm’s engagement agreement, under which it had claimed to have been paid $4.5 million in fees, because of a conflict not disclosed at the time the matter was opened. The client, J-M Manufacturing was sued in a qui tam action brought on behalf of a number of public entities, including the South Tahoe Public Utility District. At the time the firm began representing J-M, it had done employment work, off and on, for the district. It had no active matter for the district at that time and had a broad advance waiver for unrelated work adverse to the district. J-M also provided a broad advance waiver when it retained the firm.
September 25, 2018 Practice Points
Advance Waivers Don’t Apply to Existing Conflicts
A law firm’s engagement agreement, under which it had claimed to have been paid $4.5 million in fees, was invalidated because of a conflict not disclosed at the time the matter was opened
by William T. Barker
The firm was ultimately disqualified in the qui tam case, and, in this action, J-M claimed that it forfeited all fees due to the conflict. The court held that while fee forfeiture might be imposed, the trial court had discretion to award fees based on quantum meruit and remanded for further proceedings.
The firm had not disclosed the conflict to either client, relying on the advance waivers. But the court held J-M’s waiver was invalid because the client was inadequately informed. Despite the lack of an active matter for the district at the time J-M retained the firm, the court found that there was an existing lawyer-client relationship with the district at that time. Without disclosure of that relationship, J-M did not have enough information for the waiver to be effective. 2018 WL 4137013, at *10-11.
William T. Barker is senior counsel with Dentons, Chicago.
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