Firm Acted in Bad Faith in Not Withdrawing When Conflict Between Two Clients Surfaced
Carnegie Cos. v. Summit Properties Inc., Ohio Ct. App. 9th Dist., No. 25622, 3/28/12
Key Holding: A law firm acted in bad faith, and must pay opponent’s attorneys’ fees as a sanction, by trying to ignore or conceal a current-client conflict and pressing for a waiver rather than withdrawing.
Potential Value: Shows what not to do when faced with a conflict between current clients.
By Joan C. Rogers
A law firm engaged in sanctionable bad faith conduct in refusing to withdraw as counsel for a client that was suing a company the firm was representing in a different matter, the Ohio Court of Appeals, Ninth District, concluded March 28, approving an award of attorneys’ fees against the firm (Carnegie Cos. v. Summit Properties Inc., Ohio Ct. App. 9th Dist., No. 25622, 3/28/12).
The court faulted the firm for trying to ignore or conceal the conflict while pressing the company to waive it, rather than acknowledging the problem and withdrawing. One of the involved lawyers and the firm’s ethics counsel even went so far as to contact the company directly to seek a conflict waiver despite knowing that it was represented by other counsel in the matter, Judge Donna J. Carr pointed out. The firm was ordered to pay nearly $80,000 in attorneys’ fees to the complaining company.
Every Firm’s Nightmare
Ulmer & Berne, a Midwest-based law firm with some 180 lawyers, was sanctioned for its conduct when faced with a conflict between two business clients, Carnegie Cos. Inc. and Summit Properties Inc.
While one lawyer in the firm, Bob Karl, was advising Carnegie about environmental concerns relating to a property known as Frontier Shopping Center, another lawyer in the firm, Stuart Laven, was representing Summit in a lawsuit claiming that Carnegie defrauded Summit in a real estate deal.
According to the court, Carnegie’s lawyers in the Carnegie-Summit matter notified Laven about the conflict, but Ulmer & Berne did not withdraw. Ultimately Carnegie formally raised the conflict issue by filing a motion for disqualification.
The trial court disqualified Ulmer & Berne from continuing to represent Summit in the litigation. It also held Summit and the law firm jointly and severally liable to Carnegie for $79,856.26, to cover the attorneys’ fees Carnegie incurred in pursuing the motion to disqualify.
The court of appeals affirmed, concluding that the law firm acted in bad faith and that sanctions were therefore warranted.
Hoping It’ll Disappear
The trial court found that when Ulmer & Berne became aware of the conflict, it took steps to make sure there was no record of its representation of Summit in the Carnegie-Summit matter so that no conflict of interest was apparent within the firm. Moreover, the judge found, the firm persisted in its position that there was no conflict requiring a waiver, and allowed Laven to make the decision regarding how to proceed despite his personal interest in continuing Summit’s representation.
The appeals court said credible evidence supported the finding that Ulmer & Berne acted in bad faith in failing to voluntarily withdraw from representing Summit in the Carnegie-Summit matter. Both Karl and Laven delayed opening new matters when they began representing Carnegie and Summit, despite previous discussions indicating they were aware of each other’s involvement with those clients.
Both of them knew of the other’s involvement with their respective client but failed to acknowledge the conflict situation, even after Carnegie’s counsel in the Carnegie-Summit matter made several informal attempts to get Ulmer & Berne to withdraw, the court said.
“A refusal to withdraw from representation of a seemingly more important or lucrative client under such circumstances evidences an ulterior motive to put firm revenue and/or prestige above the interests of other clients.”Judge Donna J. Carr
Laven testified that he did not open a new Summit matter because he believed the Carnegie-Summit matter would be resolved easily; Karl testified that he did not recognize Carnegie as a current client. Emphasizing that the trial court did not credit this testimony, Carr said there was “competent, credible evidence to demonstrate that multiple attorneys at Ulmer & Berne acted to ignore or conceal the underlying conflict.”
This court concludes that a law firm that is aware it is representing a client in a matter which is directly adverse to the interests of another of its current clients, yet appears to act to conceal evidence of the adverse representation, is acting with a dishonest purpose, conscious wrongdoing, and in breach of a known duty premised on an ulterior motive. A refusal to withdraw from representation of a seemingly more important or lucrative client under such circumstances evidences an ulterior motive to put firm revenue and/or prestige above the interests of other clients.
Wanting a Waiver
The court also faulted Ulmer & Berne for pressing Carnegie to waive the conflict instead of withdrawing from Summit’s representation.
Carr pointed out that two members of the law firm–including its ethics attorney–contacted the president of Carnegie directly, bypassing Carnegie’s counsel of record in the Carnegie-Summit matter, in efforts to obtain a conflict waiver so that Ulmer & Berne could continue to represent Summit.
We … conclude that a firm which is aware of its representation of directly adverse clients in separate matters, yet seeks a waiver of the conflict directly from one client despite the firm’s knowledge that the client is represented by counsel from another firm, is acting in bad faith. By bypassing opposing counsel, the firm acts with a dishonest purpose, moral obliquity, conscious wrongdoing, and in breach of a duty premised on an ulterior motive to obtain a benefit or advantage it could not otherwise obtain.
It also declared that “a firm’s designated ethics attorney, who has no involvement in the representation of either client, clearly demonstrates bad faith when he contacts a client he knows to be represented by another firm in an effort to obtain a conflict waiver from that client.”
Deborah J. Michelson of Miller Goler Faeges, Cleveland, represented Carnegie. The appellants were represented by Orville L. Reed III of Buckingham, Doolittle & Burroughs, Akron, Ohio, and James A. Deroche of Seaman Garson, Cleveland.
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