In August 2011, Bioniche Animal Health USA, Inc. sued ADT over a contract dispute. MGM advised the ADT board about the Bioniche case. In June 2012, Plante moved to disqualify MGM as counsel for the individual defendants, alleging a conflict of interest and, in the alternative, an appearance of impropriety in light of the law firm’s role regarding the Bioniche matter.
The Fayette County Circuit Court granted Plante’s motion to disqualify MGM from representing the shareholders. The court specifically noted making no finding about any impropriety on MGM’s part, but based its ruling on Kentucky’s appearance of impropriety standard. The sued shareholders thereafter filed a writ action in the Kentucky Court of Appeals, seeking to bar enforcement of the disqualification order. That court of appeals denied the writ because of the defendants’ failure to show irreparable injury.
A New Standard
The Kentucky Supreme Court overturned the court of appeals, applying a “special-cases” exception for writs. The supreme court concluded the appearance of impropriety standard applied by the trial court was no longer appropriate and that a showing of an actual conflict was the proper standard for attorney disqualification. The court found the trial court’s factual findings insufficient for disqualification under the actual conflict standard. It remanded the matter to the court of appeals to issue a writ barring the disqualification.
Rejecting the appearance of impropriety standard, the Kentucky Supreme Court observed the state’s Rules of Professional Conduct no longer included the appearance standard, “except in commentary condemning its use and noting that it has been deleted from the rules.” The Model Rules of Professional Conduct likewise do not include the appearance standard. The court explained the appearance doctrine was, in its view, too subjective and it inappropriately created an impression that courts rule based on appearances rather than on facts. The state supreme court noted the appearance standard was still appropriate for judicial recusal issues, due to “a heightened concern about public confidence in the judiciary.”
The court provided specific instructions to trial courts for applying the new actual conflict standard, including that a trial court “must hold an evidentiary hearing.” This hearing requirement is “somewhat surprising,” remarks Thomas G. Wilkinson Jr., Philadelphia, PA, cochair of the ABA Section of Litigation Conflicts of Interest Subcommittee of the Section of Litigation’s Ethics & Professionalism Committee. “Motions for disqualification are often decided on briefs, affidavits, and exhibits if there are no credibility issues or material factual disputes,” he explains.
The appellate opinion further states that “the court must find that an actual conflict exists, and state on the record what that conflict is.” The trial court noted that it found no actual conflict. Without additional facts showing actual conflict, the Kentucky Supreme Court held the lower court’s disqualification order improper under the new standard.
“The appearance standard is too subjective and amorphous to serve as a meaningful guide to assess a lawyer’s conduct or to impose the serious sanction of disqualification,” Wilkinson believes. “States can afford to do away with the appearance standard because there almost always is a specific rule on point to redress conduct that would objectively be viewed as presenting an appearance of impropriety,” he adds.
Accordingly, though the actual conflict standard generally favors lawyers faced with disqualification motions, practitioners should still create and retain engagement letters, bills, emails, and other documents evidencing the absence of conflict or that clients possessed the appropriate information to make informed decisions, advises Nate Cade, Milwaukee, WI, cochair of the Section’s Ethics & Professionalism Committee.
Furthermore, lawyers should consider how long it takes clients to raise a conflict issue. “The longer the representation goes on without the conflict being raised, I think it helps you to say there really was not a conflict,” Cade says. In addition, lawyers should have clients execute conflict waivers to prevent future disputes. “If the appropriate person gives a waiver and they have actual or apparent authority, then that is dispositive,” he concludes.
Lisa R. Hasday is an associate editor for Litigation News.