Federal law determines conflict

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Wisconsin’s conflict of interest rules don’t apply in federal court.

On Oct. 5, applying 7th Circuit precedents, U.S. District Judge Barbara B. Crabb denied a motion for disqualification of a law firm, even if, under Wisconsin’s rules, the firm would have to be disqualified from representing its client.

Silicon Graphics, Inc., has been engaged in litigation for four years against ATI Technologies, Inc., and other defendants.

When the suit began, attorney David Leichtman was a partner at one of the firms representing Silicon, and did a substantial amount of work for the client on the case.

Now, Leichtman is a partner in the firm representing ATI. However, he works in the firm’s New York office, and the attorneys handling the case work in the Minneapolis office.

Although the firm has employed a screening protocol to prevent Leichtman from disclosing any information to the lawyers handling the case, Silicon moved to disqualify the entire firm from representing ATI.

Judge Crabb denied the motion.

At issue was whether the Wisconsin Supreme Court rules or 7th Circuit precedent should govern the result. Because Judge Crabb is based in Madison, Silicon argued Wisconsin rules should apply.

Pursuant to SCR 20:1.10(a)(2), an attorney’s entire firm is disqualified from representation if he formerly represented the opposing party, unless the attorney is screened from any participation in the case and the attorney “performed no more than minor and isolated services in the disqualifying representation…”

Because Leichtman did substantial work for Silicon, the entire firm would have to be disqualified if this rule were strictly applied.

However, the 7th Circuit employs a more liberal rule, and requires only that the attorney be screened from participation in the case.

Judge Crabb concluded for several reasons that the 7th Circuit’s standard is controlling, rather than the Wisconsin Supreme Court rule.

First, she cited the general rule that federal courts apply state law to substantive questions, but federal law to procedural ones.

Second, the U.S. Supreme Court held in In re Snyder, 472 U.S. 634, 645 (1985), that “The state code of professional responsibility does not by its own terms apply to sanctions in the federal courts.”

Third, case law from other circuits holds that motions to disqualify are decided under federal law. FDIC v. U.S. Fire Ins. Co., 50 F.3d 1304, 1311-1312 (5th Cir. 1995).

Finally, Crabb criticized the Wisconsin rule as inferior to the federal law, because of an “internal inconsistency.”

Crabb noted that the rule applies only to lawyers moving from one private firm to another private firm, while not requiring firm disqualification if a government lawyer joins a private firm.

Crabb observed, “The commentary to the Wisconsin rules do not provide a rationale for the different standards and none is apparent, unless one assumes that private lawyers as a group are less trustworthy than former government lawyers.”

Applying the federal standard, Crabb concluded that firm disqualification was not required, because the firm’s screening procedures complied with the requirements set forth in LaSalle National Bank v. Lake County, 703 F.2d 252, 258-259 (7th Cir. 1983).

In addition to the fact that Leichtman works in a different office than the attorneys handling the case, the firm offered to submit declarations that Leichtman will not work on any case with any of the attorneys on this case, and will not attend any meetings with any of them, including department meetings or quarterly partner meetings.

Before concluding, Crabb added that, even if the Wisconsin rule did apply, firm disqualification would be inappropriate.

Although Leichtman billed 186 hours on the case before leaving the firm, Crabb found that the bulk of that work was on issues no longer relevant to the case, and thus there would be no appreciable risk that he would share any relevant confidential information with the firm.

What the court held

Case: Silicon Graphics, Inc. v. ATI Technologies, Inc., No. 06-CV-611

Issues: Do state rules governing firm disqualification apply in federal court?

Holdings: No. Disqualification is determined according to federal law.

SIDEBAR:

Dietrich: Court wrong on conflict ruling

HEADSHOT OF Dean Dietrich saved

Wausau attorney Dean Dietrich, who served on the Ethics 2000 Committee that drafted Wisconsin’s current disqualification rule, was critical of the 7th Circuit’s decision.

Dietrich noted that the conflict is longstanding, in that the 7th Circuit has long recognized the appropriateness of a screening process, while, until 2007, Wisconsin did not allow any screening, but required firm disqualification in all cases where an attorney previously worked for the opposing party’s law firm.

“It’s always been a quandary,” he said.

At the time the Supreme Court adopted the new rules, the ABA model rules did not include any screening provision, so the Committee had to draft one itself.

Dietrich said that the rule the committee drafted was a compromise between those who wanted to keep the old rule, and those who wanted the federal rule; there was little controversy on the court itself, he said, once the proposed rule was sent to it for consideration.

In early 2009, the ABA amended the model rules, which now contain a provision to allow screening an attorney.

Dietrich asserted that federal district courts should follow the rules of the state where the proceeding lies.

“It is a quirk that the 7th Circuit allows screening to avoid disqualification, even though, in theory, it couldn’t happen in Wisconsin because the lower court should follow the local rules,” he said.

Dietrich also took issue with Judge Crabb’s criticism of Wisconsin’s rule as inconsistent. Dietrich said that government attorneys who move to the private sector are treated differently to encourage attorneys to go into public service, not because government lawyers are considered more ethical.

“The rationale is the acknowledgement that government service is different than private practice,” he said. “The rule encourages attorneys to go into public service by removing what could be a disincentive for private practice firms to hire them if they choose later to go into private practice.”