In a rare foray into the thicket of former client conflicts, the Third Circuit affirmed a district court ruling in favor of a lawyer who represented a claimant adverse to a former client in an aviation products liability action.

In Avco v. Turner, a company that manufactures airplane engines sued their former defense attorney for breach of fiduciary duty and declaratory and injunctive relief, contending that she should be prohibited from representing a product liability plaintiff against Avco’s interests.  After Attorney Veronica Saltz Turner was hired by the Wolk Law Firm, she participated in the underlying case, Torres v. Honeywell Inc., where her work was limited to preparing and responding to Daubert motions of two non-Avco defendants and examining expert witnesses at a July 2020 Daubert hearing that did not involve Avco. After that hearing, Turner ceased work on the Torres case.

The evidence showed that over the course of 12 years, Turner had handled a number of products liability actions for Lycoming Engines, a division of Avco. Turner terminated her representation of Lycoming in November 2017 and ended her attorney-client relationship with Avco in June 2018. In March 2020, the Wolk firm, opposing counsel in several of Turner’s Lycoming products liability actions, retained Turner to assist in the Torres v. Honeywell case pending in Arizona.

District Judge Joshua D. Wolson granted summary judgment in Turner’s favor, concluding that Avco did not establish a factual dispute with respect to any actionable injury.  In bringing its claim, Avco bore the burden to produce evidence that the subject matter of the representation was “substantially related” to Turner’s previous representation of Avco.  See Pa. RPC 1.9(a)(former client conflicts). However, the court found that Avco did not meet that burden and granted summary judgment in Turner’s favor.

Avco appealed, and the Third Circuit vacated and remanded for consideration of whether there was a factual dispute as to the existence of a fiduciary relationship and Turner’s alleged breach, which might entitle Avco to fee disgorgement and injunctive relief.  2022 WL 2901015 (3d Cir. July 22, 2022).  The district court thereafter found that Avco failed to prove that Turner had breached a fiduciary duty of loyalty to Avco and again granted summary judgment. Avco Corp. v. Turner, 2022 WL 17251250 (E.D. Pa. Nov. 28, 2022).

Avco appealed once more, but the Third Circuit rejected Avco’s argument, concluding:

“Without evidentiary support of a relationship between confidential information Turner obtained from Avco and the substance of the work she did for Torres, Avco’s “appeal amounts to an argument that all [aircraft product liability] cases are the same.” [citation omitted]  Accepting this overly broad principle could handcuff attorneys to one side of the bar for their entire career. … Because Avco points to no evidence that Turner’s work in Torres called for or allowed the use of confidential information against Avco, it has not met its burden under the substantial relationship test. (Op. at 7-8.)(emphasis in original)”

The Third Circuit’s non-precedential opinion in Avco confirms that a lawyer’s intimate knowledge of a former client’s practices will not, standing alone, establish the necessary link from that confidential information to the subject matter of the later work adverse to the former client.  The challenge must be supported by an evaluation of the substance of the prior representation as compared to the current adverse representation.  Id. at 6, citing INA Underwriters Ins. Co. v. Nalibotsky, 594 F. Supp. 1199, 1206 (E.D. Pa. 1984). The Court observed that the Torres complaint alleged defects in a turbocharger caused the plane crash, but did not supply any documentation supporting its contention that Turner would have needed to draw upon Avco’s confidential information gleaned from any previous representation.

The Third Circuit’s ruling in Avco reaffirmed the principle that a challenge to a lawyer’s representation as a prohibited former client conflict is generally a fact specific inquiry, requiring the former client to produce evidence to support its contention that the lawyer’s current adverse representation is “substantially related” to the work performed for the former client, and that there is a tangible risk that the lawyer will thereby be positioned to take advantage of the former client’s confidential or privileged information. A client’s overly broad assumption that the lawyer must have obtained and will use the former client’s confidential information against in the future will also be insufficient to support a breach of fiduciary duty claim.

The Third Circuit’s observation that lawyers should not be “handcuffed” to a client or its legal position for the duration of their careers provides some comfort for lateral moving lawyers. However, before taking on a new matter that involves the interests of a former client, lawyers must be cognizant of the risks and evaluate the following:

In looking at the scope of the former representation, would the lawyer have received the type of information from the client that could be used to the advantage of the new client and disadvantage of the former client in the new matter;

Was the lawyer’s relationship with the former client so extensive that it obtained “intimate knowledge of the inner workings” of the former client (See, e.g., Darrow v. PPL Elec. Utilities Corp., 2021 WL 5895163 (Pa. Super. 2021); 

In the case of a lateral lawyer who formerly represented a client, can the firm establish an adequate and timely ethical screening protocol to isolate the lateral lawyer and effectively prohibit imputed disqualification under Pa. RPC 1.10. 

The Superior Court of New Jersey, Appellate Division, recently issued an interesting opinion upholding claims against a New York law firm stemming from its employment of an IT support technician contrary to the terms of a restrictive covenant with his former employer. Notably the court also awarded the plaintiff, Accounteks.Net, Inc., attorney fees in the amount of $175,000. 

Accounteks, an IT consulting firm catering to small and medium sized businesses in New Jersey and New York, employed Christian Montes as an IT support technician.  Plaintiff assigned Montes to provide regular on-site tech support to CKR Law LLP. In the meantime, CKR began searching for an in-house IT technician. Montes had left the plaintiff’s employment and CKR reached out directly to him for help with an IT matter. CKR later advised plaintiff that it intended to hire Montes over plaintiff’s objection due to the noncompete.

Of particular interest to law firms, the law firm that hired the IT technician in the face of the non-compete agreement faced a series of claims, including tortious interference. The trial court held a bench trial, finding that the law firm engaged in conduct that was “intentional, malicious[,] and in wanton disregard of [plaintiff’s] contractual rights[.]”  The trial court awarded $72,000 in damages against the firm, representing two years’ worth of monthly fees under the IT services agreement as between plaintiff and the law firm. The judge also found the defendants jointly liable for breach of the implied covenant of good faith and fair dealing, and the firm for intentionally causing the IT technician to breach his ongoing duty to his former employer. At a separate hearing, the court awarded plaintiff counsel fees against the law firm defendant of over $175,000.

The Appellate Division largely rejected the law firm’s appeal points, and of particular interest here, upheld the award of attorney’s fees solely against the law firm despite the lack of an articulated basis in the trial court’s opinion for its departure from the “American Rule,” which generally holds each party responsible for its own attorney’s fees absent a contractual or other recognized basis for such an award. See Rendine v. Pantzer, 141 N.J 292, 322, 661 A.2d 1202 (1995).

The Appellate Division recognized an exception to the American Rule for third-party litigation:

One who through the tort of another has been required to act in the protection of his interests by bringing or defending an action against a third person is entitled to recover reasonable compensation for loss of time, attorney fees and other expenditures thereby suffered or incurred in the earlier action.

2023 WL 3311577 *5, citing DiMisa v. Acqaviva, 198 N.J. 547, 554, 969 A.2d 1091(2009)(quoting Restatement (Second) of Torts § 914(2) (1979)). The court noted that the plaintiff’s claims for payment for services rendered were subject to the American Rule, and therefore no attorney’s fees would be awarded for pursuit of those claims. The court remanded the attorney’s fee award for a recalculation consistent with the contractual non-compete language at issue.

The Accounteks ruling is sobering not only for law firms but also for any business looking to bring IT expertise in house. The court had no difficulty enforcing the restrictive covenant precluding the IT technician from working for any customer for two years after his separation from employment, notwithstanding the general burden on the employer to establish the agreement’s enforceability and the national trend to scrutinize such restrictions more closely.  The court did acknowledge, however, that an employer may not simply employ such a restriction to prevent competition from a former employee. More importantly, the court imposed attorney’s fees against the law firm, a non-party to the IT technician’s employment agreement and fee shifting provision attached to his restrictive covenant, on the basis that the firm had tortiously interfered with his employment contract and that fees were recoverable as reasonable compensation for the tortious conduct.

In light of the Bureau of Labor Statistics May 2023 jobs report that employers added 339,000 jobs to the already tight labor market, law firms and industry alike are well advised to familiarize themselves with this decision and be vigilant about hiring practices in this competitive labor market.  Finding skilled employees is particularly difficult in the current tight labor market. While it may be tempting to consider poaching a vendor’s employees who have proven their skills and usefulness, Accounteks stands as a stark warning to refrain from doing so until and unless the new employer has performed appropriate due diligence.  A law firm considering directly hiring employees of a vendor may benefit from directly addressing with the vendor agreeable terms and conditions for direct hires.

Unlike Pennsylvania, New Jersey also imposes attorney’s fees against lawyers and law firms in legal malpractice actions. E.g., Innes v. Marzano-Lesnevich, 136 A.3d 108 (2015); Saffer v. Willoughby, 143 N.J. 256 (1996); DiStefano v. Greenstone, 357 N.J. Super. 352, 815 A.2d 496 (App. Div. 2003).  This added risk can alter the settlement calculus for law firm defendants, particularly where their available professional liability insurance coverage erodes with the expenditure of attorney’s fees incurred in defending the malpractice action. Law firms facing that additional risk of exhausting their coverage may be more anxious to settle a marginal liability claim at an earlier time.

Another lesson of Accounteks is to consider whether a potential litigation matter could trigger fee shifting. If those considerations are at play, the litigant needs to factor that exposure into its calculus of the cost of the litigation.  

For additional background and takeaways from the Accounteks decision, please review the excellent post authored by Abigail Green below.

A Third Party in New Jersey May be Unable to Avoid Fee Awards Under an Exception to the American Rule

The Federal District Court in Philadelphia has sanctioned a lawyer for copying and pasting opposing counsel’s motion in limine and filing it as her own work product the next day. Finding that the motion had been plagiarized, the court granted a motion for sanctions and awarded attorney’s fees incurred by plaintiffs in opposing the motion and in moving for sanctions. 

In Stilp v. Borough of West Chester, the plaintiffs filed a civil rights suit after the defendant Borough of West Chester issued a citation threatening fines following their flag burning demonstration on the public courthouse steps. The plaintiffs, both political activists, claimed that the local ordinance prohibiting open burning relied on by the defendant borough violated their First Amendment rights. The district court concluded that the Borough could not extinguish plaintiffs’ constitutional claims on summary judgment. On the eve of the deadline for motions in limine, plaintiffs moved to exclude lay opinion testimony by a code enforcement officer to be offered by the defendant on the grounds that he did not have specialized expert knowledge regarding the safety of the flag burning demonstration. The following day, counsel for the defendant filed a virtually identical motion, seeking to preclude lay opinion testimony of the plaintiffs on the same grounds.

The Third Circuit recently opined that sanctions were warranted against investors who pursued claims against an ailing company that were brought solely for the purpose of leveraging a settlement.  The ruling stands as a stark warning of the potential consequences to securities lawyers and their clients if their claims are deemed frivolous.

In Scott, et al. v. Vantage Corp., et al., the plaintiff investors attempted to recover millions of dollars they invested in the company, which eventually declared bankruptcy. They claimed that the company sold securities without making required disclosures and that defendant Askew, a company officer, made misrepresentations about the company’s stock. The District of Delaware granted summary judgment in favor of the defendants in 2019, and the Third Circuit affirmed. After that affirmance, the district court performed a Private Securities Litigation Reform Act (PSLRA) mandated Rule 11 inquiry, and found that two of the plaintiffs’ three claims were asserted in violation of Rule 11, which forbids frivolous filings. However, the court did not award Askew attorneys’ fees or impose any other sanction.

Did you hear about the case where the client’s CEO waived privilege by forwarding an email from his company’s counsel to a hotel’s front desk for printing? Whoops!

In Fourth Dimension Software v. Der Touristik Deutschland GMBh, linked below, the CEO of the plaintiff software company (“FDS”) received an email from the company’s former in-house counsel. Because the CEO was traveling in Germany and wanted to review the email before a key business meeting, he forwarded it to the hotel front desk’s email to print. The defendant successfully argued in the district court that forwarding the email to the hotel front desk waived attorney-client privilege.

The recent arrest of an armed man who planned to kill Supreme Court Justice Brett Kavanaugh has brought renewed attention to the issues surrounding the personal security of federal judges and their families.  The suspect told investigators that he found Justice Kavanaugh’s home address online.

On June 3, a retired Wisconsin circuit court judge, John Roemer, was shot and killed at his New Lisbon home in what the state attorney general described as a “targeted act” against the judicial system.

There were over 4,500 threats against judges in 2021, according to the U.S. Marshals Service.[1] Credible security incidents and threats against federal judges and court officials quadrupled from 2015 to 2019.