Sophistication in Place of Signatures: Advance Waiver of Conflicts

The Supreme Court of New York, Appellate Division, affirmed the Supreme Court’s denial of J.C. Penney’s motion to disqualify plaintiffs’ counsel, Jones Day, due to a conflict of interest. The court held that an unsigned advanced conflict waiver from 2008 was enforceable through performance. Prior to representing the retail giant, Jones Day presented J.C. Penney with a detailed letter to be signed indicating that the firm would only represent J.C. Penney so long as the firm could still represent other large national retailers in disputes directly adverse to J.C. Penney, though not in substantially related matters. The engagement letter functioned as an advanced waiver of any conflict of interest issues with future clients.

Despite the fact that J.C. Penney never returned a signed copy of the waiver, the Court allowed the representation to move forward based on J.C. Penney’s continued use of Jones Day. Thereafter, Jones Day was handling J.C. Penney in Asia’s trademark portfolio when other litigation ensued over J.C. Penney’s Martha Stewart line in the United States against competitor Macy’s. Jones Day undertook representation of Macy’s in the action. J.C. Penney then filed a motion to disqualify Jones Day from representing Macy’s due to the conflict of interest arising from the parties’ directly adverse interests

Accordingly, the Supreme Court denied the motion, which the Appellate Division subsequently affirmed, stating that J.C. Penney’s continued acquiescence to the firm’s representation constituted an acceptance of the advanced waiver of conflicts through performance and precluded the firm from being conflicted out of the litigation.

Interestingly, the court decided this case under New York’s former ethics rules known as the Code of Professional Conduct. The court made this decision because the Code was the body of rules that were in place in New York when the March 2008 retainer agreement was created. New York did not adopt the Model Rules of Professional Conduct until December 2008. Though both the current Rules of Professional Conduct and the former Code provide for advanced waiver of conflicts, the Code stated that such waivers “need not be in writing if informed consent can be found under the circumstances.” Because of J.C. Penney’s sophistication, the Court readily found such informed consent under the circumstances. However, it is unclear whether the Court would issue the same ruling if the Rules of Professional Conduct were applied.

Click here to read the article and here to read the case.

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