William McGrane v. Howrey LLP
698 F. App'x 881
| 9th Cir. | 2017Background
- Howrey LLP bankruptcy: the Official Committee of Unsecured Creditors (the Committee) retained William McGrane and McGrane LLP as counsel; later several individual former Howrey creditors were represented by McGrane or his firm.
- McGrane later represented seven individual creditors and Howrey Claims LLC in matters adverse to the Committee and pursued claims (including alter-ego theories) the Committee had considered and rejected.
- The bankruptcy court found McGrane violated professional ethics (including Cal. Rule Prof. Conduct 3-310(E)), reduced the McGrane Parties’ fee award, and ordered partial disgorgement of fees already paid; the district court affirmed.
- McGrane argued his prior work for the individual creditors and withdrawal from that representation made concurrent representation issues and privilege concerns inapplicable and that his withdrawal was effective prior to serving as Committee counsel.
- The bankruptcy court found no evidence McGrane disclosed conflicts or obtained informed written consent from the Committee, and found improper disclosure of confidential Committee communications and opposition to a Committee-negotiated settlement.
- The Ninth Circuit reviewed de novo legal determinations and for abuse of discretion factual and discretionary aspects, and affirmed the fee reduction and partial disgorgement.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether McGrane violated Rule 3-310(E) by later representing former clients adverse to the Committee in substantially related matters | McGrane: concurrent/joint representation and alleged withdrawal removed conflict; no improper adversity | Appellees: McGrane accepted adverse employment without informed written consent and had access to confidential info | Held: Violation of Rule 3-310(E); no evidence of required disclosure/consent, substantial relationship existed |
| Whether a joint-client or concurrent representation exception prevents disqualification or ethical violation | McGrane: joint representation negated conflict and privilege concerns | Appellees: no informed written consent or disclosure; joint-client exception inapplicable | Held: Exception inapplicable because no informed written consent and no disclosure of conflicts |
| Whether other ethical breaches (loyalty, disclosure of confidences, opposing Committee settlement) justify fee reduction and disgorgement | McGrane: actions were permissible or not prejudicial; withdrawal effective | Appellees: McGrane breached loyalty, disclosed confidential memos/term sheet, opposed settlement he previously counseled against | Held: Bankruptcy court did not abuse discretion; ethical breaches supported fee reduction and partial disgorgement |
Key Cases Cited
- Flatt v. Superior Court, 885 P.2d 950 (Cal. 1994) (establishes the "substantial relationship" test for imputed confidentiality under Rule 3-310(E))
- Oasis W. Realty, LLC v. Goldman, 250 P.3d 1115 (Cal. 2011) (attorney may not injuriously affect a former client in matters previously handled)
- Law Offices of David A. Boone v. Derham–Burk (In re Eliapo), 468 F.3d 592 (9th Cir. 2006) (standard: appellate review of bankruptcy fee awards for abuse of discretion or legal error)