Home/Table of Contents

A good scenario to begin this discussion are the facts from Tekni-Plex, Inc. v. Tang, 674 N.E.2d 663 (N.Y. 1996).  A law firm ("M&L") represented Tekni-Plex, Inc. ("TP") and its owner, Tang, for several years.  It did environmental work for TP, including obtaining certain permits for one of its machines.  Tang decided to sell TP, and M&L represented TP and Tang in negotiating and closing the sale.  According to the agreement, the buyers formed a shell corporation, and TP was then merged into the shell.  The resulting company was called "Tekni-Plex, Inc."  Tang received $43 million.

        When the buyers discovered that the aforementioned machine was violating environmental laws, Tekni-Plex, Inc. ("New TP") brought an arbitration against Tang.  M&L appeared for Tang. New TP moved to have M&L disqualified.  New TP claimed that it was a former client of M&L and that the arbitration involves a matter substantially related to M&L's earlier representation of TP.  The arbitrator believed he had no authority to disqualify M&L.  New TP then brought an injunction action against M&L, seeking an order removing M&L from the arbitration.  What result?  When a former client corporation merges with another corporation, is the resulting corporation a former client?  Would it make a difference if the transaction was not a merger but, rather, a sale of assets?

        The analysis is basically a Model Rule 1.9(a)(former client/substantial relationship) analysis.  Is the surviving entity a former client (or never a client)?  If the surviving entity is a "former client," is the current matter substantially related to the matter the lawyer handled previously?  The answers are not as clear as one would like. 

        In Tekni-Plex, The New York Court of Appeals affirmed the Supreme Court and Appellate Division holdings that the injunction should issue.  It held that M&L was being adverse to a former client in a matter substantially related to what the firm had done for the client before the merger.  The court was confronted with an earlier Second Circuit case, which seemed to hold the contrary, International Electronics Corp. v. Flanzer, 527 F.2d 1288 (2d Cir. 1975).  In Flanzer the court held that the surviving corporation in a merger is not a former client.  The New York court distinguished Flanzer, because there the lawyer's only involvement with the older corporation was handling the sale.  The New York court said that being involved in arms-length negotiations with the buyers did not put the lawyer in a position to violate the company's confidentiality in a later proceeding.  The court went on to say that it was M&L's environmental work, which related to the arbitration, that made the difference.

        Oswall v. Tekni-Plex, Inc., 691 A.2d 889 (N.J. Super. 1997) involves the same players as those in the New York Tekni-Plex case.  Oswall, a former employee of Tekni-Plex, sued the company for breach of contract.  The lawyers for Tekni-Plex subpoenaed Tang, the former owner, for a deposition.  M&L attempted to represent Tang at the deposition.  M&L started objecting to questions and instructing Tang not to answer.  The court held that M&L was being adverse to its former client, Tekni-Plex, and disqualified M&L.  The court cited the reasoning of the New York Court of Appeals in the above opinion.

        Data Trace Info. Services, LLC v. Kopchak, 2006 U.S. Dist. LEXIS 3467 (D.N.J. Jan. 26, 2006).  Co. A. merged into Co. B.  Co. B is the plaintiff in this action.  Co. B moved to disqualify the lawyer for a third-party witness in this action because the lawyer had represented Co. A before the merger.  The court, in this brief opinion, affirmed the magistrate’s order disqualifying the lawyer because the lawyer was being adverse to a former client on a matter substantially related to this action.  The opinion, being largely about procedure, does not say what the relationship was or what was adverse about the representation of the witness.  But, the court did buy into the notion that Co. B inherited Co. A’s “privilege,” citing Oswall, just above.

         Russell-Stanley Holdings, Inc. v. Buonanno, 210 F. Supp. 2d 395 (S.D.N.Y. 2002).  Russell-Stanley (“RS”) purchased all of Buonanno’s stock in New England Container (“NEC”).  Edwards & Angell (“E&A”) represented Buonanno in that transaction.  E&A had represented Buonanno and NEC on various matters for several years, including environmental matters.  After the sale Buonanno remained an employee of NEC and continued to use E&A for environmental matters.  E&A did no work for RS directly.  RS asked E&A to stop representing NEC and then sued Buonanno, claiming he had made misrepresentations about environmental matters.  E&A seeks to represent Buonanno in the litigation.  RS moved to disqualify E&A.  The court denied the motion, relying on the fact that E&A would have learned nothing to prejudice RS in representing Buonanno and NEC, before and after the sale.  The court distinguished Tekni-Plex, Inc. v. Tang, 674 N.E.2d 663 (N.Y. 1996), as follows:

        In Ali v. American Seafoods Co., LLC, 2006 U.S. Dist. LEXIS 29880 (W.D. Wash. May 15, 2006) the LLC moved to disqualify the other lawyers.  The other lawyers claim that when they had done work for the LLC, it was a different company.  The court granted the motion, holding that the new company should be treated the same as the old company because the personnel, assets, liabilities, and procedures had survived the reorganization largely intact.

        Weasler v. Weasler Engineering, Inc., 596 N.W.2d 501 (Wis. App. 1999), involved the same merger structure as that in the Tekni-Plex cases.  The Wisconsin court cited the New York Court of Appeals decision and reached the same result.  A case that pre-dated Tekni-Plex that reached the same result is Thompson US, Inc. v. Gosnell, 581 N.Y.S.2d 764 (N.Y. App. 1992).  A similar result occurred in Exterior Systems, Inc. v. Noble Composites, Inc., 175 F. Supp. 2d 1112 (N.D. Ind. 2001).  Gross v. SES Americom, Inc., 307 F. Supp. 2d 719 (D. Md. 2004), takes a contrary approach and follows International Electronics Corp. v. Flanzer, 527 F.2d 1288 (2d Cir. 1975). 

        ebix.com, Inc. v. McCracken, 312 F. Supp. 2d 82 (D. Mass. 2004).  Pursuant to an acquisition, Company A purchased and merged with Company B, forming new Company C.  Sometime later, Company C sued the sellers of Company B for misappropriating trade secrets and related causes of action.  The law firm representing the defendants formerly had represented Company B on a range of matters.  The plaintiff moved to disqualify the defendants’ law firm, claiming those matters were substantially related to the issues in this case.  Evidently, the court and the parties assumed that, because of the merger, new Company C was a “former client” of the defendants’ law firm.  Thus, the disqualification issue turned solely on whether the representations were substantially related.  That analysis is lengthy but routine, and little would be accomplished by sorting it all out here.

         In In Re Cap Rock Elec. Coop., Inc., 35 S.W.3d 222 (Tex. App. 2000), a lawyer attempted to be adverse to an entity that had combined with his former client.  The combination had some characteristics of a merger and other characteristics of an asset sale.  The court first held that the combination was a merger, rather than an asset sale.  But, the court held that the new matter was not substantially related to what the lawyer had done for the entity and affirmed the lower court's denial of disqualification. That is easy enough to follow.  However, after finding that the combination was a merger, the court embarked on an unnecessary, and confusing, analysis comparing the case to FDIC v. Amundson, 682 F. Supp. 981 (D. Minn. 1988).  In Amundson the court held that the former lawyer for a failed thrift could be adverse to the estate of the thrift, because the thrift was out of business with no hope of reviving.  The Texas court said that in Cap Rock the entity was also dead with no remaining existence or business.  What the court seems to be implying with that last point is that in the case of any merger, the predecessor entity is dead, with no hopes of going forward, and that the surviving entity should not be treated as a former client.  (Or, at least that is the way we read it.)

        Cites Cap Rock.  L Greene’s Pressure Treating & Rentals, Inc. v. Fulbright & Jaworski, L.L.P., 178 S.W.3d 40 (Tex. App. 2005).  Co. A retained Fulbright to opine that its process (“Process”) did not infringe a patent (“Patent”) held by Co. B.  Fulbright wrote the opinion.  Co. C acquired Co. A and used the Process.  Co. C then sold 5% of its assets to Co. D, including the Process, which Co. D then used.  Co. B, holder of the Patent, then sued Co. D for infringement of the Patent.  Surprise: Co. B’s law firm is Fulbright, author of the aforesaid non-infringement opinion.  The case settled.  Then Co. D sued Fulbright for breach of fiduciary duty, claiming that when it purchased the Process, it purchased Co. A’s relationship with Fulbright.  The trial court granted Fulbright summary judgment.  In this opinion the appellate court affirmed.  The court held that because Co. D obtained the Process in an asset sale, as opposed to a merger, Co. D did not stand in the shoes of Co. A, with regard to Co. A’s relationship with Fulbright.  The court relied upon In re Cap Rock, discussed just above.

            United States v. Nabisco, Inc., 117 F.R.D. 40 (E.D.N.Y. 1987).  A law firm represented Standard Brands.  Standard Brands merged into Nabisco.  The law firm tried to sue Nabisco in another, unrelated, matter.  Nabisco moved to disqualify the firm in the latter matter.  The granted the motion, because, by virtue of the merger, the law firm now represents Nabisco and cannot be adverse to Nabisco in an unrelated matter.

        RAG Am. Coal Co. v. Cyprus Amax Minerals Co., 750 N.Y.S.2d 284 (N.Y. App. 2002).  Company A was the parent company.  Company B was a subsidiary of A.  Company C was a subsidiary of B.  Lawyer worked in the law department of A, but all his work was for C.  Company X purchased C from B.  As part of the bargain Lawyer went from A to X, where he became General Counsel of X.  X sued B for breach of contract.  B moved to disqualify Lawyer.  The court denied the motion, saying that because Lawyer’s move was part of the deal, A could not expect Lawyer not to use all he had learned while with A and working on C’s matters.

        Home Ventilating Institute, Inc. v. Air Movement & Control Ass’n. Int’l., Inc., 2004 U.S. Dist. LEXIS 17242 (N.D. Ill. Aug. 30, 2004).  A has sued B, in part, for a declaratory judgment that A and B were separate entities and had not been subject to a “de facto” merger, as claimed by B.  A’s lawyer in this case, X, has represented A for many years.  X admits that he also represented B in the past, but on narrow and unrelated matters.  B moved to disqualify X.  The court first held that X would survive the “substantial relationship” test as to the prior representation of B.  The court then addressed the knotty issue of whether X still, in effect, represents B because of B’s position that A is still part of B.  The court noted that the relationship of A to B was one of the substantive issues in the case.  The court held that this chicken-before-the-egg issue required that it be resolved in favor of disqualification.

       Occidental Hotels Mgm’t. B.V. vs. Operadora Intercontinental de Resorts & Hotels, S.A., 440 F. Supp. 2d 303 (S.D.N.Y. 2006).  For several years Lawyer, as outside counsel, and later as inside counsel, represented Parent and Sub on a number of matters.  At one point Parent sold Sub to Buyer.  Buyer then sued Parent under indemnification clauses in the purchase agreement.  Prior to the sale Lawyer had worked on the matters that were the subjects of the indemnification claims.  Lawyer is now with Law Firm, which is defending Parent in this action.  Because of Lawyer’s presence in Law Firm, Buyer moved to disqualify Lawyer and Law Firm.  In this opinion the magistrate judge denied the motion.  The court said it was the client (Sub), and not the lawyer, that had changed sides.  Moreover, the court said that Buyer could never have had an expectation that Lawyer would not have told his client Parent everything Lawyer knew about his client Sub.  The court distinguished Tekni-Plex, Inc. v. Meyner & Landis, 674 N.Y.S.2d 954 (N.Y. 1996), in which a lawyer had been disqualified.  There the lawyer had not represented both the owner and the owner’s company in the matters in question prior to the owner’s sale of the company.

        In Waid v. Eighth Judicial Dist. Ct., 119 P.3d 1219 (Nev. 2005), the court held that the lawyer for one entity is deemed lawyer for its successors. 

       Intelsat, Ltd. v. Int’l. Telecomm. Satellite Org., 2007 U.S. Dist. LEXIS 23113 (S.D.N.Y. March 16, 2007).  The plaintiff and defendant, in a restructuring, came from a common parent.  In the restructuring the plaintiff received almost all the assets, operations, and personnel.  The defendant received very few assets or operations and just a few employees.  The defendant moved to disqualify plaintiff’s law firm because the law firm had previously represented the parent.  The defendant argued that it was, in effect, a former client of the plaintiff’s law firm.  In denying the motion the court reasoned that, given the result of the restructuring, the former client was really the plaintiff.

        Rannala v. 1212802 Alberta Ltd., 2008 CanLII 32806 (Ont. S. Ct. July 7, 2008).  Co. A purchased Co. B from the owners of Co. B.  Co. B became amalgamated into Co. A.  This action is a claim by the sellers for the contract price and a counterclaim by the new amalgamated company for misrepresentation.  In this opinion the court reversed a finding by a master that the law firm for the sellers (“Law Firm”) should be disqualified.  Law Firm had represented the sellers in the sale and was also privy to the facts involved in the misrepresentation claim.  After the amalgamation the new company caused an investigation to be done concerning the employee at the center of the misrepresentation claim.  The court ruled that Law Firm could represent the sellers in this action.

        Goodrich v. Goodrich (N.H. Dec. 4, 2008).  One family group purchased the stock in a closely held corporation ("Corp.") from another family group.  The purchasing group and Corp. have sued the selling group for breach of fiduciary duty and other grounds.  The plaintiffs moved to disqualify the law firm for the defendants ("Law Firm") because Law Firm had represented Corp. before its sale.  The trial court denied the motion, and, in this opinion, the New Hampshire Supreme Court reversed.  It held that Law Firm could not be adverse to Corp. because Corp. was a former client of Law Firm.  The court remanded to the trial court so it could decide other Rule 1.9 issues, such as the "substantial relationship" test.  The court relied heavily upon Tekni-Plex, Inc. v. Meyner and Landis, 674 N.E.2d 663 (N.Y. 1996).

        Girl Scouts-Western Okla., Inc. v. Barringer-Thompson, 2011 Okla. LEXIS 22 (Okla. March 29, 2011).  Scout Corp. No. 1 merged with Scout Corp. No. 2, with the latter being the surviving entity.  No. 2 brought a replevin action against No. 1's former lawyer ("Lawyer") to recover her files pertaining to No. 1.  Lawyer resisted, claiming attorney-client privilege.  The trial court ruled for No. 2, and in this opinion, the supreme court affirmed.  The court held that No. 2, the surviving entity, owns the privilege previously owned by No. 1, citing CFTC v. Weintraub, 471 U.S. 343 (1985), and Tekni-Plex, Inc. v. Meyer and Landis, 674 N.E.2d 663 (N.Y. 1996).

        Hanson v. Loparex, Inc., 2011 U.S. Dist. LEXIS 90806 (D. Minn. Aug. 15, 2011).  Company B purchased and merged with Company A.  Law Firm formerly represented Company A.  Employee of Company A became an employee of Company B.  Sometime after the merger Employee left Company B.  Employee and Company B began a "food fight" over non-compete agreements and the like (this case).  Law Firm is representing Employee.  One of the issues is whether Employee tortiously interfered with Company B's relationship with Law Firm.  In this opinion the court granted Employee summary judgment on that claim, because, under the circumstances, Company B was not a former client of Law Firm.  For one thing, after the merger Company B had never approached Law Firm about representation.  The court also noted that it had earlier denied a motion to disqualify Law Firm in this case, finding that Law Firm had never represented Company B.  The court found largely the same reasoning applied to both motions.

        Tex. Op. 626 (April 2013).  Lawyer represented Corp. A and thereby learned information about Corp. A and the relevant industry.  Corp. A was purchased, and Lawyer's representation ended.  Later, Lawyer made a "significant" investment in Corp. B, a competitor of Corp. A.  In this opinion the committee held that the investment violated Texas ethics rules.  [Note: when Texas adopted its version of the ABA Model Rules, it changed things around for no apparent reason.  Thus, this opinion is largely based upon Texas' version of MR 1.6, which resembles MR 1.9(c).  Under any formulation the opinion points to the correct result.  Hats off to the ABA/BNA Lawyers Manual on Professional Conduct, May 22, 2013 edition of Current Reports for flagging this opinion and providing an excellent analysis.]

        Retention of Privilege.  Great Hill Equity Partners IV, LP v. SIG Growth Equity Fund I, LLLP, No. 7906-CS (Del. Ch. Nov. 15, 2013).  Group One purchased Plimus, Inc. from Group Two.  Plimus, Inc. was the surviving entity.  Group One sued Group Two for fraud in inducing the sale of Plimus, Inc.  After the sale Group One found on Plimus servers communications between Group Two and their outside law firm regarding the sale.  After being notified of this discovery, Group Two asserted attorney-client privilege.  Group One moved for an order declaring that it owned the communications.  In this opinion the chancellor ruled that the communications and the privilege passed to Plimus.  The court noted that there was nothing in the Delaware law or in the transaction documents that provided to the contrary.  The court said that the parties could have contracted around this result, but did not.

        Sunbeam Prods. Inc. v. Oliso, Inc., 2014 U.S. Dist. LEXIS 29058 (N.D. Cal. March 4, 2014). Patent infringement action involving “vacuum packaging technology.” Lawyer represented Company A for some years in vacuum packaging technology cases. In 2006 the plaintiff in this case purchased Company A and merged it into the plaintiff. Because Lawyer now represents the defendant, the plaintiff moved to disqualify Lawyer. In this opinion the court granted the motion. First, the court held that by virtue of the merger the plaintiff is deemed a former client of Lawyer. Second, the court held the representations were substantially related.

        In re ATopTech, Inc., 2014 U.S. Dist. LEXIS 10119 (Fed. Cir. May 29, 2014). Law Firm represented Co. A in 2004 in a patent suit against Co. B. Co. A. merged with Co. B in 2012. Law Firm represented Co. A in the merger. The surviving company was called Co. B. In this case (Co. B vs. Co. C) Co. B claims Co. C is infringing Co. B’s patent. Law Firm appeared for Co. C. Because Law Firm earlier represented Co. A (Co. B’s merger partner), Co. B moved to disqualify Law Firm in this case. The trial court granted the motion. Co. C sought mandamus in the Federal Circuit. In this opinion the Federal Circuit denied mandamus. The court did not analyze the facts or the law of disqualification, but rather chose to discuss the heavy burden upon one seeking mandamus. The technology involved was electronic design automation (EDA).

        Askari v. McDermott, Will & Emery, LLP, 2019 WL 6334192 (N.Y. App. Div. Nov. 27, 2019). No one is raising a conflict of interest in this case. The case is about who gets to see the law firm's file after a merger. Here, the merger was very complex, involving numerous individuals and entities. We think we can get the key points across by referring simply to Buyers, Sellers, Surviving Company, and Law Firm. Law Firm, associated with Sellers, orchestrated the sale and merger. The Sellers seek Law Firm's file in this replevin action. In response to dueling motions for summary judgment, the trial court ruled that Delaware (not New York) law applied. Thus, Buyers and Surviving Company controlled the privilege, and Sellers could not have the file. In this opinion the appellate court reversed, holding that New York law controlled. Although the deal documents said Delaware law would control, all the parties and Law Firm were New York-related. Moreover, the appellate court said this case was about replevin of the file, not enforcement of the deal.  The court relied on Tekni-Plex, Inc. v. Tang, 674 N.E.2d 663 (N.Y. 1996), which, by analogy would favor Seller. A Delaware statute, Del. Gen. Corp. Law § 259(a), would appear to have favored Surviving Company. (BTW, Tekni-Plex was a conflict of interest case.)

        The Hillman Group, Inc. v. KeyMe, LLC, 2020 WL 759387 (E.D. Tex. Feb. 14, 2020). Hillman is suing KeyMe for infringing Hillman's '446 patent and another patent. Cooley appeared for KeyMe. Hillman moved to disqualify Cooley. In this opinion the court granted the motion. The problem is that for about ten years Cooley had represented Minute Key in many matters. A Cooley lawyer attended at least one lengthy meeting involving the '446 patent. In 2018 Hillman purchased Minute Key. Cooley represented Minute Key in that transaction. Cooley's involvement with Minute Key more or less ceased after the Hillman acquisition. Nevertheless, among other things, the court found that Hillman was a current client of Cooley's. [Our note: The court's analysis is very fact-specific. In our view, the decision could have gone either way. We have never been happy with the analyses in the conflict/corporate/acquisition/merger cases. This is one of them. If you practice in the Fifth Circuit, you might want to read the opinion.]

        McHugh, Chapman & Vargas, LLC v. McCarter & English, LLP, No. X03-CV-21-6151754-S (Conn. Super. Ct. Hartford Dist. Oct. 18, 2022). The McHugh law firm is suing the McCarter law firm for malpractice ("This Case"). In this opinion the trial court mostly denied McCarter's motion to dismiss. A little history: The McHugh firm had been 100% owned by Sean McHugh. At some point David Chapman became a minority "member" of the McHugh firm. Believing that Sean McHugh had been defrauding the McHugh firm, Chapman caused the McCarter firm to be hired by the McHugh firm to sue Sean McHugh for his misconduct (the "Underlying Case"). The Underlying Case was settled with Sean McHugh becoming the 100% owner/member again. In This Case the McHugh firm - now completely controlled by Sean McHugh - has sued the McCarter firm for, among other things, having a conflict of interest in the Underlying Case. The conflict is essentially that McCarter was, in effect, representing Chapman as well as the McHugh firm and that Chapman's causing the McCarter firm to be paid substantial - but unnecessary - fees from the McHugh firm's coffers was harming the McHugh firm. [Our note: This is a long opinion analyzing who the real parties were at various times leading up to This Case. To give you an ideal how complex the analyses were, the court saw fit to bring in Commodity Futures Trading Comm'n v. Weintraub, 471 U.S. 343 (1985), and Tekni-Plex, Inc. v. Meyner & Landis, 651 N.Y.S.2d 954 (N.Y. 1996), as well as a number of Connecticut statutes and cases.]

What About Pure Asset Sales?

        In the following cases the transaction was the sale of all, or substantially all, the client's assets.  The issue was whether the law firm for the seller could be adverse to the purchaser.  In each case the court held the law firm could be adverse to the purchaser.  Telectronics Proprietary, Ltd. v. Medtronic, Inc., 836 F.2d 1332 (Fed. Cir. 1988); In re Yarn Processing Patent Validity Lit., 530 F.2d 83 (5th Cir. 1976); SMI Industries Canada, Ltd. v. Caelter Industries, Inc., 586 F. Supp. 808 (N.D.N.Y. 1984).  Telectronics and Yarn Processing involved the transfer of intellectual property.

       Graco Children's Prods. v. Regalo Int'l LLC, 1999 U.S. Dist. LEXIS 11392 (E.D. Pa. 1999) held that the transfer of assets, including patents, did empower the transferee to disqualify a lawyer on the other side, who had previously represented the transferor.  The court cited several cases involving the attorney-client privilege.  The court did not cite any cases involving disqualification, including any of those in the preceding paragraph.

       Dyntel Corp. v. Ebner, 120 F.3d 488 (4th Cir. 1997).  Cincinnati Bell sold a subsidiary to DynCorp.  After the sale, a lawyer at Cincinnati Bell attempted to be adverse to the subsidiary in an arbitration.  DynCorp sued to enjoin the lawyer from handling the arbitration, because she had earlier represented the subsidiary.  The Fourth Circuit affirmed an order dismissing the claim, citing Flanzer.  The court said that the lawyer did not currently represent the subsidiary and relied in part on the fact that DynCorp had made no showing that the lawyer would use the subsidiary's confidences.  In G.F. Industries v. American Brands, Inc., 245 N.J. Super. 8 (N.J. App. 1990), a case very similar to Dyntel, the court held that the firm had to be disqualified because it had been privy to much confidential information of the sold entity.

        San Diego Unified Port District v. Superior Court, 2004 Cal. App. LEXIS 4818 (Cal. App. May 20, 2004).  Law Firm represented the Port District (“PD”).  The legislature then created the Airport Authority (“AA”), which was to take over the airport then owned by PD.  A “core group” of PD employees went from the PD to the AA.  For a time Law Firm represented both PD and AA.  After Law Firm stopped representing PD, it filed a lawsuit against PD on behalf of AA involving some real estate about which Law Firm had consulted PD during the earlier representation.  PD moved to disqualify Law Firm.  Law Firm responded that whatever information it had about PD would have passed from PD to AA when the PD employees went to AA.  Thus, the substantial relationship rationale, as it relates to confidences, should not apply.  The court disagreed and ruled the firm should be disqualified.  [The opinion also refers to a “duty of loyalty” to former clients.  However, the cases it cites on loyalty do not really establish that loyalty is an issue in former client situations.  The only focus should be confidentiality.  If a lawyer had a duty of loyalty to former clients, then a lawyer could never be adverse to a former client.]

        Scher v. Slater Entertainment, LLC, 2006 U.S. Dist. LEXIS 44186 (D.N.J. June 26, 2006).  Plaintiff was assigned Company A’ claim against Company B.  This is Plaintiff’s suit against B on the assigned claim.  B’s counsel in this case, Law Firm, previously represented A.  Plaintiff moved to disqualify Law Firm in this case.  Plaintiff argued that A’s assignment included the right to assert A’s conflict-of-interest claim against Law Firm.  The court disagreed and denied the motion.  The court distinguished cases such as Oswall v. Tekni-Plex, Inc., 691 A.2d 889 (N.J. Super. 1997), in which the complaining party had acquired ownership and control of an entire enterprise.  In that case the purchaser inherited the seller’s right to object to its lawyer’s conflict.

        Asset Sale; What Happens to Privilege?  Postorivo v. AG Paintball Holdings, Inc., 2008 WL 343856 (Del. Ch. Feb. 7, 2008).  Plaintiff sold many of its assets to Defendant, but retained some.  This suit arises from that transaction.  This opinion deals with a discovery dispute and the extent to which the attorney-client privilege of Plaintiff passes with the assets to Defendant.  We will not discuss the case in any detail, in part because the asset purchase agreement dealt with some of the issues, and the parties agreed to much of what the court ruled.  The only disputed issue was whether Plaintiff retained the privilege as to assets it retained, and the court ruled that it did.  The court noted the relevance of Tekni-Plex, Inc. v. Tang, 674 N.E.2d 663 (N.Y. 1996), which is a leading case on client mergers and lawyer disqualification.

        Sale of Division.  Parus Holdings, Inc. v. Banner & Witcoff, Ltd., 2008 U.S. Dist. LEXIS 81147 (N.D. Ill. Oct. 9, 2008).  In this case Parus is suing Law Firm because Law Firm assisted another party in obtaining patents competitive to Parus' patents using information from Parus.  Law Firm had earlier represented Vail on patent matters.  Vail sold a division to Parus, which included the patents at issue in this case, as well as employees and physical assets.  One of the issues in this case was whether Parus had standing to sue Law Firm although Law Firm had represented Vail and not Parus.  In a good analysis of the client merger/asset sale cases, the court, in this opinion held that the right to sue passed from Vail to Parus as a result of the sale of the division.  The court applied the "practical consequences" test enunciated by courts from other jurisdictions.

        Cole v. Salt Creek, Inc., 2009 U.S. Dist. LEXIS 41792 (D. Utah May 15, 2009).  David Cole ("Cole") was an officer and major shareholder of Salt Creek.  In 2002 all the outstanding stock of Salt Creek was sold to Inve Asia, at which time  Cole entered into an employment agreement with Inve.  Inve terminated Cole in 2008.  In this suit Cole, represented by Robert Mansfield, is suing Salt Creek and Inve over the employment agreement.  Mansfield had been at the Van Cott firm and had represented Salt Creek from 1992 until 2008, when he left Van Cott and joined the Snell firm.  In 2002 when Cole sold his stock to Inve, Mansfield represented Cole in negotiating Cole's employment agreement.  Mansfield billed that time to Salt Creek.  In this opinion a magistrate judge denied the defendants' motion to disqualify Mansfield.  First, the court held that Mansfield's work for Salt Creek was not substantially related to this case.  As to Mansfield's work on the employment agreement, the court said that everything Mansfield learned about the matter he learned from Cole.

        M-I LLC v. Stelly, 2010 U.S. Dist. LEXIS 52736 (S.D. Tex. May 26, 2010).  This opinion is a discussion of when the lawyer for an entity, which merges with another entity, becomes lawyer for the merged entity.  In this case, given the facts, the court held that the lawyer did become lawyer for the merged entity.  Then, after doing a routine substantial relationship analysis, the court found that the lawyer should not be disqualified.

        Card v. CSC Credit Servs., 2014 U.S. Dist. LEXIS 18690 (S.D. Ind. Feb. 13, 2014). Lawyer stopped representing Equifax in FCRA cases seven years ago. In 2012 Equifax purchased CSC’s consumer-reporting assets and assumed liability for FCRA claims brought against CSC. CSC remains a “separate entity.” In this case Lawyer represents a plaintiff against CSC. CSC moved to disqualify Lawyer. In this opinion the magistrate judge denied the motion because CSC is not a former client of Lawyer. [Note: the opinion does not say whether this case is under FCRA or how the asset sale relates to CSC's remaining a “separate entity.”]

        USI Ins. Servs., LLC v. Ryan, 2014 U.S. Dist. LEXIS 91591 (N.D. Ind. July 7, 2014). Law Firm represented Co. No. 1 in drafting an employment agreement for John Ryan. Co. No. 1 sold its insurance assets to Co. No. 2 and assigned Ryan’s employment agreement to Co. No. 2. This is a suit by Co. No. 2 against Ryan to enforce the employment agreement. Law Firm appeared for Ryan, and Co. No. 2 moved to disqualify Law Firm. In this opinion the magistrate judge granted the motion. First the judge ruled that because Co. No. 2 continued the same insurance business that Co. No. 1 had operated, this was not the usual asset sale, and Co. No. 2 had the right to assert Law Firm’s conflict. Second, the judge held that this case was substantially related to what Law Firm had done for Co. No. 1.

        Law Review Article.  Henry Sill Bryans, Business Successors and the Transpositional Attorney-Client Relationship, 64 Bus. Lawyer 1039 (August 2009).

Home/Table of Contents