Conflict Waiver in Engagement Letter Binding on Client that Later Became Adverse to Counsel

On July 9, 2015, the First Department issued a decision in Gem Holdco, LLC v. Ridgeline Energy Services, Inc., 2015 NY Slip Op. 06040, enforcing a conflict waiver in a law firm engagement letter.

In Gem Holdco, "defendants Changing World Technologies, L.P., Ridgeline Energy Services, Inc. and Dennis Danzik (the Ridgeline defendants)" moved to disqualify counsel for another group of defendants "(the CWT defendants)." At the case's beginning, the Ridgeline defendants and the CWT defendants had shared the same counsel. However, the groups later became adverse to each other. The law firm that had represented all defendants continued to represent the CWT defendants. The Ridgeline defendants moved to disqualify the CWT defendants' counsel, claiming that they were conflicted. The trial court denied the motion (see our post on that decision here). The First Department affirmed, explaining:

The Ridgeline defendants' contention that they did not give informed consent to the firm's asserting claims against them in this litigation is belied by the clear language of the retainer agreement and the Unit Purchase Agreement. They cannot now compel the disqualification of counsel simply because the representation to which they consented has since devolved into litigation.

Nor does the fact that the firm obtained confidential information from the Ridgeline defendants warrant disqualification since the Ridgeline defendants knowingly and expressly agreed in the retainer agreement to the firm's use of their confidential information and the disclosure of that information to the CWT defendants.

(Internal quotations and citations omitted). The decisive factor here was the clear conflict waiver language in the engagement letter.

[NOTE: Schlam Stone & Dolan LLP is counsel to the CWT defendants]