NEW YORK (Reuters) - After Patton Boggs merged with Squire Sanders, the new law firm, Squire Patton Boggs, dropped Patton Boggs’ client, Tate & Lyle, because it represents a group of U.S. sugar companies that are suing Tate and others for falsely billing its high-fructose corn syrup as “just like sugar.”
Now Tate and another ingredient maker asked a federal judge in Los Angeles to disqualify Squire Patton Boggs from working for the sugar companies, which include American Sugar Refining, Inc., Western Sugar Cooperative and C&H Sugar Co. If the judge agrees, the companies could lose lawyers who have put in 20,000 hours on the case and racked up $12 million in legal fees, according to court filings. At a hearing on Thursday in the case, U.S. District Judge Consuelo Marshall said she’d take the matter under advisement.
Squire Patton Boggs said in court papers that Tate waived future conflicts when it retained the firm. Tate said in court filings that the waiver it signed with Patton Boggs covered only unrelated matters, but that the firm had advised it on issues related to high fructose corn syrup. Tate said Squire Patton Boggs dropped it as a client because “sugar company plaintiffs were more valuable clients.”
Squire Patton Boggs declined to comment. Tate also declined to comment, as did the sugar companies through their lawyers.
The case shows how the conflicts created by law firm mergers and by lawyers moving from firm to firm create a host of complications for client companies, including the risk of losing their outside lawyers. A number of companies have sought to disqualify lawyers based on their mixed allegiances.
Law firm mergers and acquisitions hit a record last year, with 88 deals completed in 2013, 47 percent more than the previous year, according to consultancy Altman Weil. And the practice of recruiting lawyers from competitors ramped up, too. There was 25 percent more partner moves among big law firms between 2012 and 2013 than three years prior, according to the American Lawyer, a trade magazine.
Ethics rules prohibit lawyers from representing clients on opposite sides of a legal dispute. While lawyers try to comply by running thorough conflicts checks before hiring new lawyers or merging with other firms, those checks don’t always resolve the conflicts.
When a conflict is found, lawyers often ask clients to waive it. If they don’t, law firms sometimes resolve the problem by dropping certain clients or laying off lawyers.
In several recent cases, judges have booted lawyers when conflicts emerged, resulting in a burden on clients to find new counsel. That process can cost millions of dollars as lawyers ramp up their billable hours to get familiar with a new case.
For example, a San Francisco federal judge in 2012 disqualified law firm McDermott Will & Emery from advising web translation firm MotionPoint Corp. in a patent dispute with a rival company because McDermott had hired partners from a firm that had represented the rival.
MotionPoint lost the patent case and turned around and sued McDermott for the $10 million it claims to have incurred as a result of bringing new lawyers up to speed to try and salvage the case, among other damages. A trial is scheduled for February 2016 in state court in San Mateo, California.
McDermott declined to comment.
Last year, a judge in federal bankruptcy court in Riverside, California, ruled that law firm Winston & Strawn couldn’t represent bond insurer National Public Finance Guarantee Corp. in the bankruptcy of San Bernardino County because Winston had hired lawyers from another firm that had worked on the same matter for a state pension fund that had opposed National. Winston declined to comment, as did National.
To avoid the increasing conflicts created by all this activity, some law firms have asked their clients to waive conflicts in advance. That hasn’t helped in the Squire Patton Boggs case.
In addition to Tate, another former Patton Boggs client, Ingredion Inc., is also asking the judge to disqualify the merged firm. Squire Patton Boggs says Ingredion was not a current client when the firm’s merger occurred. Ingredion supplies ingredients used in making foods and beverages, cosmetics, baby powder and other products.
The practice of asking for advance waivers has gotten under the skin of more than a few company lawyers.
Jeff Carr, who recently retired as general counsel of energy equipment provider FMC Technologies, called advance waivers unreasonable. “Large firm views on conflicts drive me crazy,” said Carr, who has been outspoken on issues related to lawyer-client relations. “I have this bizarre concept that I’m the customer, so it should be about me and my company, not them – go figure.”
Reporting By Casey Sullivan; Editing by Alexia Garamfalvi, Amy Stevens and John Pickering