COVID-19 Resource Center

January 09, 2018

A Firm Can Avoid Conflicts By Making A Referral, Right?

Every lawyer has been taught that when a conflict of interest exists with a client, one solution is to make a referral to another lawyer.  However, will the referral avoid a conflict of interest claim?  Not necessarily.  A case pending in the Court of Common Pleas of Philadelphia County pits a former client against a firm that recognized the conflict of interest, referred a new client to another firm and still is facing millions in liability on a breach of fiduciary interest claim.

The underlying factual basis of the case of Towers Watson Delaware, Inc. v. Morgan Lewis & Bockius, LLP begins with Morgan Lewis' representation of Towers predecessor and then Towers itself, for a period of approximately seven years from 2009 to 2016.  Per the averments of the Complaint, the representation earned the firm millions of dollars in legal fees. 

In 2010, while still representing Towers, Morgan Lewis was asked to defend Meriter Health Services, Inc. in a class action alleging flaws in the design and administration of a retirement plan.  As alleged, Towers had designed the plan and thus, Meriter had a potential claim against Towers.  Morgan Lewis immediately recognized a potential conflict between clients and acknowledged the conflict in several writings.  Morgan Lewis then took the prudent and necessary act of referring the potential third-party claim of Meriter against Towers to a second law firm for review and handling.

Conflict solved, right?  Maybe not.

Unfortunately, if the allegations against it are correct, Morgan Lewis did not make a clean break.  Morgan Lewis continued to defend Meriter.  In doing so, Morgan Lewis is alleged to have actively assisted the second law firm to set up Meriter's claims against its former client.  The allegations against Morgan Lewis include: 

  • Reviewing and commenting on a tolling agreement against Towers;
  • Keeping the second law firm apprised of issues that might be of benefit in pursuing the third-party claim against the former client;
  • Inviting the second law firm to provide input into the strategy in defense of the class action against Meriter;
  • Providing not just deposition transcripts, but summaries with highlights of key testimony of potential relevance to a possible case by Meriter against Towers;
  • Providing legal analysis to preserve claims by Meriter against Towers;
  • Working with the second firm to pressure the former client to contribute to the case resolution; and,
  • Participating in the preparation of witnesses for the former client, whose testimony was potentially helpful to Meriter, but harmful to Towers in the event of future litigation. 

Although Morgan Lewis sought to have the case dismissed for failure to state a claim, the Trial Court recently overruled preliminary objections and allowed the contentious litigation to proceed.  (Case Docket No. 170402096).

How the lawsuit ends for Morgan Lewis remains to be seen.  No doubt, Morgan Lewis' version of the events will be told and inevitably, it will differ from the serious allegations against it.  Morgan Lewis has asserted a conflict waiver, as just one defense.

The lesson, however, is clear.  If you refer a case on account of a conflict of interest, but then continue to remain involved behind the scenes, asserting influence and playing sides, you are putting yourself and your firm at risk of a claim of a breach of fiduciary duty.  Instead, make a clean break.  And, consider further whether you wish to take on the risk of representation of any party in a lawsuit with a potential third-party claim against a client.