Chancery Rules on Motion to Disqualify and Motion to Revoke Pro Hac Vice Admission; Addresses Legal Ethics Violations; Requires Disclosure of Potential Conflicts in Future Pro Hac Vice Motions

Manning v. Vellardita, C.A. No. 6812-VCG (Del. Ch. March 28, 2012), is an important decision of the Delaware Court of Chancery on legal ethics as applied to non-Delaware attorneys who appear before the Court pro hac vice.

Issues Addressed: Whether lack of complete candor to the Court in a Motion for Admission Pro Hac Vice is a basis to either: (i) disqualify counsel, and/or (ii) revoke the admission pro hac vice. The Court also addressed standards (articulated in this context for the first time), of candor and full disclosure, regarding potential conflicts, that those seeking admission pro hac vice must now follow.

Background

This is a summary proceeding pursuant to DGCL Section 225 (which is limited to the determination of who the valid members of the Board of Directors are, when one or more of those positions are contested.) In this matter, that determination will turn, in part, on whether the Board of ValCom, Inc. approved the terms of a loan which included the pledge of 50 million shares of stock as collateral pending the repayment of the debt. The New York law firm of Shiboleth, LLP represented ValCom in the loan transaction.

The lawyer whom defendants seek to have disqualifed and whose pro hac vice admission they seek also to have revoked (“the Non-Delaware Attorney”), did not include in his motion pro hac vice the fact that he is the head of litigation for the Shiboleth firm. Instead he listed himself on his application for admission pro hac vice merely as being with his own eponymous firm. This Non-Delaware Attorney was admitted pro hac vice to represent the plaintiffs in this matter, but the defendants only found out later by chance about his position at the Shiboleth firm.

Defendants’ Main Argument

In light of the Non-Delaware Attorney being a member of the Shiboleth firm, and the Shiboleth firm having represented ValCom in connection with the disputed loan transaction that is at the core of the present matter, defendants argued that Non-Delaware Attorney should be disqualified due to his violation of Delaware Lawyers’ Rule of Professional Conduct (“DLRPC”) Rule 1.9, regarding “Duties to Former Clients”.

Legal Analysis–Ethics Rules

Rule 1.9(a) prohibits a lawyer from representing a client in a matter adverse to a former client in the same or a “substantially related matter”. Comment 3 to DLRPC Rule 1.9 explains that matters are substantially related if there is “… a substantial risk that confidential factual information as would normally have been obtained in the prior representation would materially advance the client’s position in the subsequent matter.” In addition, Rule 1.10 imputes such a conflict of one member of a firm to the other members of that same firm. See generally, my most recent ethics column entitled: The Moral Aspects of a Lawyers’ Fiduciary Duty.

Prerequisites for Motion to Disqualify

As previous Delaware decisions have done, the Court in this case expressed its awareness that there is a potential for abuse with motions to disqualify. Thus, the prerequisite for succeeding on a motion to disqualify is more than a showing that there has been a violation of the DLRPC. That is, there must be “clear and convincing evidence establishing a violation of the DLRPC so extreme that it calls into question the fairness or the efficiency of the administration of justice.” See footnote 6. In addition, the Court explained that a non-client third party generally will not have standing to assert such a violation unless that party proves a personal detriment….” See footnote 7. (emphasis in original).

Instructions to Non-Delaware Lawyers Admitted Pro Hac Vice

The Court recognized that the many attorneys from other states who practice before it are among the “finest attorneys in the country” from which Delaware benefits by their skill and expertise. However, the Court emphasized that:

“to maintain the value to this Court of extending the privilege of pro hac vice admission to attorneys from other jurisdictions, it is necessary that those attorneys accorded this privilege are held to a high level of conduct including, importantly, candor with the Court.”

Potential Conflict Must Be Disclosed in Pro Hac Vice Motion

Court of Chancery Rule 170 governs admissions pro hac vice but it does not explicitly require the attorney seeking admission to disclose conflicts under DLRPC Rule 1.9, but now this decision provides a warning that such a duty of disclosure exists, based on the following reasoning:

First: When an attorney seeks pro hac vice admission, a certificate must be submitted to the Court that confirms that the attorney has reviewed, and agrees to be bound by, Delaware rules.

Second: 

A duty of candor dictates that, where a colorable claim of conflict under DLRPC  Rule 1.9 exists, at a minimum facts sufficient to put the Court and opposing counsel on notice should be disclosed in the Rule 170 application.

Third: “The duty of an applicant for admission pro hac vice, however, goes beyond simply not affirmatively attempting to mislead the Court. Here, [the Non-Delaware Attorney] ignored the obvious potential conflict and structured his application in such a way that the conflict was not revealed to the Court and the other parties. [Non-Delaware Attorney] has failed to make the kind of full and candid disclosure this Court expects of attorneys practicing within its jurisdiction.”

See generally, overview of Delaware pro hac vice standards compiled by the former head of the arm of the Delaware Supreme Court that enforces Delaware legal ethics, The Honorable Andrea L. Rocanelli.

Bottom Line

The Court determined that it need not decide whether a conflict exists because the defendants did not meet their burden to show “a violation so extreme that it calls into question the fairness or efficiency of this proceeding.” But because the Court wanted to send a message that such lack of candor would not be condoned, the Court referred this matter to the Office of Disciplinary Counsel in Delaware and the corresponding legal ethics enforcement agency in New York, the home state of the Non-Delaware Attorney, for any action those enforcement agencies deemed appropriate.