Salvatore A. Salerno
St. John's University School of Law
American Bankruptcy Institute Law Review Staff
In In re Maxus Energy Corporation, the United States Court of Appeals for the Third Circuit affirmed a bankruptcy court’s order denying a motion to disqualify a law firm because of an individual attorney’s conflict. Maxus Liquidating Trust (the “Trust”), created pursuant to the Chapter 11 plan of Maxus Energy Corporation (“Maxus”), sued Maxus’s parents (“YPF”) alleging fraudulent conveyance and alter ego claims. In that litigation, the Trust was represented by White & Case LLP (“White & Case”) and YPF was represented by Sidley Austin LLP (“Sidley”). Jessica Lauria, née Boelter (“Boelter”), a partner in Sidely’s restructuring group, participated in Sidely’s initial pitch to represent YPF and YPF considered Boelter to be “‘an integral part’ of its legal team.” Boelter moved to White & Case where her then-fiancé, Thomas Lauria (“Lauria”), was a partner in the restructuring group. Upon Boelter’s transfer, White & Case sought to comply with the American Bar Association’s Model Rules for Professional Conduct (“Model Rules”), which the bankruptcy court incorporated into its local rules. The firm implemented a screen on Boelter’s first day. It then “obtained [Boelter’s] acknowledgement that she would comply with [the screen and] periodically certified her compliance.” YPF, however, felt that no screen “could be good enough” under these circumstances and moved to disqualify White & Case from representing the Trust.  The bankruptcy court denied this motion and then granted YPF’s motion for direct appeal. 
The Court first reviewed, de novo, the bankruptcy court’s interpretation of the Model Rules. Model Rule 1.9 “prohibits a lawyer who has formerly represented a client in a matter from ‘representing another person in the same . . . matter in which that person’s interests are materially adverse to the interests of the former client.’” The parties agreed that Rule 1.9 prohibited Boelter from representing the Trust. When a lawyer is prohibited from representing a client under Rule 1.9, Rule 1.10(a)(2) prohibits any other lawyer at the firm from representing the client “unless: (i) the disqualified lawyer is timely screened from any participation in the matter and is apportioned no part of the fee therefrom; (ii) written notice is promptly given to any affected former client . . .; and (iii) certifications of compliance with these Rules and with the screening procedures are provided to the former client . . . .” The Court interpreted the word “unless” as signaling a condition subsequent; so long as White & Case complies with the conditions following “unless,” Boelter’s conflict will not be imputed to the entire firm. The Court then rejected the bankruptcy court’s suggestion of an “exceptional circumstances” exception to Model Rule 1.10(a)(2) and a multifactored test. The Court succinctly explained that neither approach was derived from the “ordinary meaning” or text of the Rule. Instead, in cases such as these, courts must determine whether a firm’s conflict-of-interest procedures qualify as a “screen” under Model Rule 1.0(k). In applying the law to this case, the Court rejected YPF’s argument that White & Case violated Rule 1.10(a)(2)(i) by failing to ensure that Lauria also received no part of the fee. Agreeing with the bankruptcy court, the Court found that the rule bars only the disqualified lawyer from apportionment of the fee. Here, the “disqualified lawyer” was Boelter, not Lauria.
Finally, applying abuse of discretion review, the Court examined the bankruptcy court’s denial of disqualification. The Court highlighted the bankruptcy court’s findings of a “robust ethical screen” between Boelter and the proceedings, that Boelter would receive no portion of the fees, and that White & Case gave YPF “prompt and exhaustive notice” of the screening procedures and agreed to respond to inquiries from YPF about the screen. Given these findings, the bankruptcy court “reasonably concluded that ‘White & Case and Ms. Boelter complied to the letter with the applicable ethical rule.’”  Therefore, the bankruptcy court “did not abuse its discretion in refusing to disqualify White & Case” and the Third Circuit affirmed the order denying the disqualification. Conflicted attorneys and their firms seeking to avoid disqualification should look to Boelter and White & Case as an example of proper conduct; strict compliance with all conditions within Rule 1.10(a)(2) will prevent that conflict from imputing to the entire firm.
 Maxus Liquidating Trust v. YPF S.A. (In re Maxus Energy Corp.), No. 21-2496, 2022 U.S. App. LEXIS 25317, at *10–11 (3d Cir. Sept. 9, 2022).
 Id. at *2 (YPF is comprised of YPF S.A., YPF International S.A., YPF Holdings, Inc., and CLH Holdings, Inc).
 Id. at *2–3 (“[Boelter] helped negotiate the engagement letter, worked with others on certain motions, was admitted pro hac vice in the proceeding, was copied on email correspondence with YPF, attended several meetings, . . . [and] billed a total of 300 hours to the YPF representation . . . .”).
 Id. at *3.
 Id. at *6.
 Id. at 4 n.2 (White & Case applied two screens, including an exclusionary screen explicitly preventing Boelter from involvement in the YPF representation and another inclusionary screen prohibiting staff from involvement in the representation unless specifically assigned to it).
 Id. at *4.
 Id. at *6.
 Id. at *7.
 Id. at *7–8 (emphasis added).
 Id. at *8–9 (“Both those approaches ignore the ordinary meaning of Model Rule 1.10(a)(2), which does not create an ‘exceptional circumstances’ standard or incorporate a multifactored test with no basis in the rule’s text.”).
 Id. at *9.
 Id. at *10.
 Id. at *10–11.