Buried in the recent decision in Supercooler Technologies, Inc. v. The Coca Cola Company, No. 6:23-cv-187-CEM-RMN (M.D. Fl. July 17, 2023), is a set of circumstances that amount to a cautionary tale for lawyers. The decision, on a motion to disqualify a law firm from acting in the case, fundamentally relates to the efficacy of advance waivers of conflicts of interest by clients, specifically in engagement letters. An advance waiver is given as to future conflicts of interest to the extent set forth in the waiver, before the particular conflict(s) has (have) actually emerged. The basic question of whether an advance conflict of interest is valid and effective is a nuanced one, and anyone interested in the topic should read the Supercooler decision, which is extensively researched and reasoned.
The point here is to explore a subtle aspect of the case. Factually, a large law firm (the “Firm”) had been retained by a large corporate client (the “First Client”) for one or more specified projects. Eventually, the Firm was retained by a different client to face the First Client in a matter that had nothing to do with the Firm’s work for the First Client. Under the applicable state’s ethics rules (the identification of which state’s rules governed was itself also a matter in dispute in Supercooler), that situation not surprisingly necessitated a waiver of possible conflicts of interest for the Firm.
The Firm pointed to the First Client’s advance waiver of conflicts in its engagement letter. One assertion was that the advance waiver by the First Client was effectively vitiated by one or both of the First Client’s outside counsel guidelines (“OCGs”) and the Firm’s use of the First Client’s billing system. The discussion of this assertion by the Supercooler court is relegated to a single footnote in the opinion, which states as follows:
[The First Client] argues that the engagement letter it executed was superseded by its guidelines for outside counsel, which state that [the First Client] does not grant advance waivers of conflicts…. Notwithstanding [the First Client]’s general policy, I find that the First Client knowingly executed an engagement letter with [the Firm] that included a waiver of future conflicts. I also find that the engagement letter was not later modified by [the Firm’s] use of [the First Client]’s billing system because [the First Client] agreed that the engagement letter could be modified only by a subsequent written agreement between it and [the Firm]. [citations omitted]
There are at least two significant lessons here, the second of which may be less obvious than the first. First, lawyers and law firms should be attuned to what requirements and purported rules may be set forth in a client’s OCG. Indeed, sometimes, the engagement letter makes express reference to an OCG or comparable document.
As to the second point, one may have thought that use of a client’s billing portal could not have vitiated a conflicts waiver set forth in an engagement letter. Apparently, the question may not be an obvious one. It is not clear what feature of the First Client’s billing portal could have led to the modification of the engagement letter so as to render the advance waiver therein ineffective; however, the court seems to have rejected the First Client’s asserted modification of the engagement letter because the engagement letter contained a provision that said that the engagement letter “could be modified only by a subsequent written agreement” between the lawyer (i.e., the Firm) and its client (i.e., the First Client). While lawyers generally may be familiar with transaction documents with a standard boilerplate-type provision that says that the document can only be modified by a further document signed by the parties, query whether lawyers should be reviewing their own ordinary-course engagement letters for whether their engagement letters likewise have such a provision.
In light of the foregoing, attorneys may wish to review their form of engagement letter for whether it may be desirable to add an express provision (if one is not already there) regarding the manner in which the letter may be modified.
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The author, in addition to continuing his ERISA practice, is General Counsel for and a Partner in The Wagner Law Group, Chair Emeritus of the New York State Bar Association (“NYSBA”) Committee on Attorney Professionalism and a member of the NYSBA’s Committee on Professional Ethics.