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The Bankruptcy StrategistFeaturesBankruptcyLitigation

Third Circuit Holds Ethical Screen Insulates Side-Switching Lawyer's New Firm

By Michael L. Cook
October 01, 2022

The Third Circuit recently affirmed a bankruptcy court's denial of a defendant's motion to disqualify the plaintiff's law firm in a large adversary proceeding, holding that it had not abused its discretion because the plaintiff law firm (W) had "complied with" American Bar Association Model Rule of Professional Conduct 1.10(a)(2). In re Maxus Energy Corp., 2022 WL 4113656, *4 (3d Cir. Sept. 9, 2022). According to the court, a lawyer (B) who "moved from" the defendant's law firm "to the [plaintiff's] firm" was not cause for W (the new firm) to be disqualified. W's ethical "screen was sufficient to prevent [B's] conflict from being imputed to the entire firm [W]." Id. at *1. The Model Rules, applicable here, did not impute B's "conflict to her new firm," said the court, because "a timely screen, together with certain other requirements," prevented "conflict imputation." Id.

Relevance

Maxus shows the practical problems that arise when law firm partners move from one firm to another. The court's reading of the Model Rules is not controversial. The facts, however, are provocative, as shown below. Left unmentioned in the Maxus opinion is any concern for B's former client who apparently felt betrayed.

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