## Facts

- Home Care Industries, Inc. (HCI) employed John J. Murray as President, CEO, and a director under a November 1999 employment agreement with related stock arrangements; VBI Partners, LLC (VBI) was also a plaintiff in later litigation concerning those arrangements.
- In December 1999, Murray was involved in a workplace dispute with employee Steven Bosses, including alleged conduct that raised potential personal exposure for Murray and litigation risk for HCI.
- During the same period, Murray pursued changes to sick leave and vacation policies that HCI alleged were implemented without board approval, prompting internal dissatisfaction.
- Skadden, Arps, Slate, Meagher & Flom LLP (Skadden) had served as HCI’s corporate counsel since 1998.
- After the Bosses incident, Murray contacted Skadden for assistance; Skadden interviewed Murray and others, provided advice, and communicated with Bosses’s counsel in a manner suggesting it was defending Murray in the dispute.
- Skadden did not clearly inform Murray that it represented only HCI and not Murray individually with respect to the Bosses matter.
- In January 2000, Murray resigned after discussions with an HCI director; a severance and stock package was negotiated, but HCI and VBI later asserted they had grounds to terminate Murray “for cause” and disputed the settlement’s effect.
- HCI and VBI filed a federal declaratory-judgment action to determine their rights and obligations under Murray’s employment and stock arrangements, including whether “cause” existed; Skadden appeared as counsel for HCI and VBI.
- Murray moved to disqualify Skadden, arguing Skadden previously represented him personally regarding the Bosses incident and related employment issues, creating a conflict in the later adverse litigation.

## Issues

1. Whether an attorney–client relationship, express or implied, existed between Murray and Skadden regarding the December 1999 Bosses incident and related matters.
2. If so, whether Skadden’s representation of HCI and VBI against Murray in the declaratory action was materially adverse and substantially related, requiring disqualification under applicable professional-conduct rules and the appearance-of-impropriety doctrine.

## Decision

- The court found an implied attorney–client relationship between Murray and Skadden concerning the December 1999 Bosses incident and related matters.
- The court determined the later representation of HCI and VBI against Murray was materially adverse and substantially related because the same events formed a central basis for HCI’s asserted “cause” position.
- The court concluded continued representation would create an impermissible conflict and an appearance of impropriety.
- The motion to disqualify Skadden was granted.

## Legal Principles

- A former-client conflict exists when a lawyer later represents another client in the same or a substantially related matter with materially adverse interests, absent informed consent after full disclosure.
- A substantial relationship may be shown when the later matter involves the same factual nucleus as the earlier representation, creating a risk of misuse of confidential information and divided loyalties.
- An attorney–client relationship may be implied when a person seeks legal advice and the lawyer’s conduct would lead a reasonable person to believe the lawyer is acting as that person’s counsel, even without a formal engagement.
- In evaluating disqualification, courts may consider whether the circumstances would cause an ordinary knowledgeable observer to question the integrity of the proceedings (appearance of impropriety), particularly where corporate counsel’s role with an officer was left ambiguous.

## Conclusion

The court disqualified the company’s longtime law firm because its crisis-related interactions with the CEO reasonably created an implied attorney–client relationship, and the firm’s later representation of the company in a dispute turning on the same incidents was materially adverse, substantially related, and inconsistent with conflict-of-interest rules and public confidence in the process.


Home Care Indus., Inc. v. Murray, 154 F. Supp. 2d 861 (D.N.J. 2001)