December 21, 2015 Top Story

World's Largest Law Firm Disqualified from Case after Merger

The International Trade Commission found Denton's "Swiss verein" is one firm

Ian S. Clement

ABA Model Rule of Professional Conduct 1.0(c)’s definition of a “firm” or “law firm” is broad enough to include a Swiss verein structure, the U.S. International Trade Commission (ITC) has held. In the Matter of Certain Laser Abraded Denim Garments. An administrative law judge granted a motion filed by Dentons Canada’s long-time client, Gap, Inc., to disqualify Dentons U.S. as counsel for opposing parties. Section leaders say global firms will need to reign in public statements about their firm structure and review client conflict waiver terms to determine whether they can overcome future disqualification challenges.

Dentons became the world’s largest law firm after SNR Denton, Fraser Milner Casgrain, and Salans merged in 2013. With its verein structure, Dentons has branches in the U.S., Canada, Europe, the Middle East, and Africa. Dentons U.S. sought to represent RevoLaze, LLC and Technolines, LLC in an action in which those companies alleged that Gap, among other clothing companies, imported products using patented “laser abraded denim having a worn or patterned appearance.” Based on the claims of RevoLaze and Technolines, the ITC initiated an investigation to determine whether the clothing companies had violated the Tariff Act of 1930.

Ethical Claims

RevoLaze and Technolines, the plaintiffs, argued that under the firm’s Swiss verein structure, Dentons U.S. is a separate firm from Dentons Canada and other Dentons branches. In support of their argument, they noted that Dentons’ American and Canadian legal practices cannot access each other’s client files, do not share confidential client information unless working as cocounsel, do not share profits and losses and are financially and operationally separate. The Dentons U.S. attorneys and paralegals who worked for RevoLaze and Technolines specifically confirmed that they did not access any files or receive any documents or information from any lawyer at Dentons Canada relating to Gap.

For its part, Gap insisted that Dentons U.S. had unfettered access to Gap’s privileged and confidential company information relevant to the RevoLaze litigation and the ITC’s investigation through its verein portal. Gap further argued that, based upon Dentons’ partial contingency fee arrangement with the plaintiffs, Dentons had a heightened interest in the outcome of the investigation. Dentons’ potential to benefit directly from its own unethical conduct was, according to Gap, all the more reason for the court to disqualify the firm. Finally, in Gap’s view, the fact that the plaintiffs signed a conflict waiver belied their argument that they would be prejudiced by Dentons’ disqualification.

Swiss Verein Is One Firm

The court noted that the crucial consideration under ABA Model Rules 1.0 and 1.7 was whether Dentons’ conduct tainted the ITC’s investigation. In making that determination, the ITC considered the nature of the ethical breach, the effectiveness of counsel in light of the violation, the public’s perception of the profession, and whether a disqualification motion was used as a means of harassment.

The court rejected the plaintiffs’ argument that Dentons U.S. was a separate law firm. The court found that the five Dentons entities operate under a single brand and management and that it would therefore treat Dentons as an association that falls within the definition of a law firm. “It was enough for the court that Dentons advertised itself as one voluntary association,” says P. John Brady, Kansas City, MO, cochair of the ABA Section of Litigation’s Commercial & Business Litigation Committee.

Relying on Comment 2 to Rule 1.0(c), the court further noted that, where a direct conflict of interest is present, the ABA would err on the side of regarding a group of lawyers as a firm. “If you present yourself to the public as one firm, then you are one firm under the model rules,” explains Stephen J. Siegel, Chicago, IL, cochair of the Section of Litigation’s Commercial & Business Litigation Committee.

Conflicts of Interest

Furthermore, the court found that Dentons had a fundamental misunderstanding of the nuances of the ABA Model Rules regarding current clients as opposed to former clients, and when the firm could implement ethical screens. The ABA does not consider ethical screens to be viable remedies for concurrent conflicts of interest.

The court found that despite a clear conflict of interest between the parties, Dentons ignored the ethical breach and failed to notify Gap or seek a conflict waiver before filing suit on the plaintiffs’ behalf. While Dentons identified potential conflicts in its retainment letter with the plaintiffs, it did not do so with respect to Gap. “The court treated Dentons’ revelation of its representation of the Gap in its retention/funding letter as an admission of an existing conflict, rather than a past or potential conflict,” Siegel observes.

“Global law firms are going to have to be diligent about obtaining a waiver; Dentons’ attempt at a waiver was insufficient in this case,” Brady adds. “If Dentons thought that the conflict was a waivable conflict, it should have sought consent from Gap,” says Siegel. The court also found that Dentons violated its duty of loyalty to Gap because it stood to benefit directly from its representation of the plaintiffs before the ITC.

After the disqualification ruling, Dentons filed a motion for reconsideration that the ITC denied. Dentons is currently appealing the ruling.

Ian S. Clement is an associate editor for Litigation News.

Keywords: verein, waiver, consent, conflict, merger

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