A recent Order by the Delaware Court of Chancery restated the well-established case law that a motion to disqualify counsel that is based an alleged violation of the Delaware Lawyers’ Rules of Professional Conduct will not be granted unless it is shown by clear and convincing evidence that there is not only a violation of the DLRPC, but also the breach must be “so extreme that it calls into question the fairness or the efficiency of the administration of justice.”  Indemnity Insurance Corporation, RRG, v. Cohen, C.A. No. 8985-VCZ (Del. Ch. Apr. 22, 2019) (Order)(citing Dunlap v. State Farm Fire & Cas. Co., 2008 WL 2415043, at * 1 (Table) (Del. May 6, 2018)).  The Order added that trial courts do not have jurisdiction in Delaware to consider applications for breach of the DLRPC unless the challenged conduct prejudices the fairness of the proceedings. (citing In re Infotechnology, Inc., 582 A.2d 215, 221 (Del. 1990)).

Court’s Rationale & Key Rules Cited:

An eminently quotable passage from the Order in this case deserves to be highlighted:

“A corporation being a purely metaphysical creature, having no mind with which to think, no will with which to determine and no voice with which to speak, must depend upon the faculties of natural persons to determine for it its policies and direct the agencies through which they are to be effectuated.” 

(citing N. Assur. Co. v. Rachlin Clothes Shop, 125 A.184, 188 (Del. 1924)); see 8 Del. C. § 141(a); 18 Del. C. § 5911.  See also, DLRPC 1.13 which recognizes that an organizational entity cannot act except through its officers, directors, employees, shareholders or other constituents and that a lawyer representing an organization represents it through its duly authorized constituents. 

The court also discussed DLRPC 1.7 which provides, with exceptions not relevant here, that a lawyer shall not represent a client if the representation involves a concurrent conflict of interest, which exists if: “(1) the representation of one or more clients will be directly adverse to another client; or (2) if there is a significant risk that the representation of one or more clients will be materially limited by the lawyers’ responsibilities to another client, a former client or a third person or by personal interest of the lawyer.”

The court’s reasoning is included in the following conclusion: simply because the firm [that was the subject of the motion to disqualify] was hired by the board to represent the corporation initially, does not disqualify it from representing the corporation on behalf of a receiver appointed by the insurance commissioner.

Concluding Note:

This case involves a lengthy procedural history of prolonged litigation by the Delaware insurance commissioner due to financial improprieties by the controlling stockholder of the insurance company that was forced into a receivership by the insurance commissioner.