## Facts

- Maxus Energy Corporation filed for Chapter 11 relief in the District of Delaware.
- A litigation trust created under the plan sued Maxus’s parent entities (collectively, YPF) asserting fraudulent conveyance and alter ego claims.
- The trust was represented by White & Case LLP; YPF was represented by Sidley Austin LLP.
- A Sidley restructuring partner who had represented YPF later joined White & Case while the adversary proceeding was pending.
- On the lawyer’s first day at White & Case, the firm implemented an ethical screen barring her from access to and participation in the YPF matter, required acknowledgments of compliance, and ensured she received no portion of the fees from the matter.
- White & Case provided YPF written notice of the lawyer’s move and information about the screen, and agreed to respond to related inquiries.
- YPF moved in the Bankruptcy Court to disqualify White & Case based on imputed conflict from the lateral lawyer’s prior representation and access to confidential information.

## Issues

1. Whether, under ABA Model Rule 1.10(a)(2) as incorporated by local rule, a law firm may avoid imputed disqualification when a lateral lawyer previously represented the adverse party in the same matter, if the firm timely and effectively screens the lawyer and bars fee participation, with proper notice to the former client.
2. Whether the Bankruptcy Court abused its discretion by denying disqualification notwithstanding the size and sensitivity of the litigation and the lateral lawyer’s prior involvement for the former client.

## Decision

- The Third Circuit affirmed the Bankruptcy Court’s order denying YPF’s motion to disqualify White & Case.
- The court held that Model Rule 1.10(a)(2) provides that a timely screen plus the rule’s other safeguards prevents imputation of the lateral lawyer’s conflict to the new firm.
- The court concluded White & Case satisfied the rule’s requirements: screen implemented immediately, no fee apportionment, and adequate written notice enabling monitoring.
- The court declined to invoke inherent authority to disqualify counsel beyond the incorporated rules on the record presented.

## Legal Principles

- When a court has incorporated the ABA Model Rules by local rule, disqualification analysis proceeds under those rules absent a successful challenge to their applicability.
- Under Model Rule 1.10(a)(2), a lateral lawyer’s conflict is not imputed to the new firm if the lawyer is timely screened from the matter, receives no part of the fee from it, and the former client receives written notice with sufficient information to monitor compliance.
- Courts retain inherent power to disqualify counsel in extraordinary circumstances, but that power need not be used where the governing rules supply adequate protections and the record supports compliance.

## Conclusion

The Third Circuit held that the receiving firm was not disqualified because it met Model Rule 1.10(a)(2)’s screening, no-fee, and notice requirements, and the Bankruptcy Court did not abuse its discretion in denying disqualification.


In re Maxus Energy Corp., 49 F.4th 223 (3d Cir. 2022)