## Facts

- A public water district hired Centennial Engineering, Inc., a wholly owned subsidiary of Morrison Knudsen Corporation, for engineering services on a construction project.
- Project disputes led to litigation in which the district asserted claims against Centennial.
- Morrison, though not the contracting party, controlled Centennial’s legal affairs, contracting practices, and administration of the project contract, treating Centennial as an internal division.
- The law firm had previously represented Morrison and, during the relevant period, served as monitoring counsel for Morrison’s insurance underwriters, receiving confidential information about Morrison’s litigation strategies, policies, and financial condition.
- The district retained the law firm to prosecute claims against Centennial arising from the same project.
- Morrison sought a preliminary injunction to prevent the firm from representing the district against Morrison or Centennial in disputes connected to the project, citing conflicts and risk of misuse of confidential information.
- The trial court granted the preliminary injunction, effectively disqualifying the firm; the firm appealed.

## Issues

1. Whether Morrison’s dominance and control over Centennial made Centennial effectively the same client as Morrison for conflict-of-interest analysis.
2. Whether the firm’s prior representation of Morrison and monitoring-counsel role were substantially related to the firm’s proposed adverse representation of the district against Centennial, requiring disqualification.
3. Whether a preliminary injunction barring the firm from representing the district in project-related disputes with Morrison or Centennial was a proper and appropriately scoped remedy.

## Decision

- The Court of Appeal affirmed the preliminary injunction.
- The court treated Morrison and Centennial as closely aligned for conflict purposes because Morrison controlled Centennial’s legal and contract affairs on the project.
- The court found a substantial relationship between the firm’s work exposing it to Morrison’s confidential litigation and financial information and the proposed representation adverse to Centennial/Morrison in the project dispute.
- The court upheld injunctive relief as an appropriate means to enforce duties of loyalty and confidentiality and found the injunction’s project-limited scope not overbroad.

## Legal Principles

- A lawyer’s duties of loyalty and confidentiality can require disqualification when a firm undertakes representation adverse to a former (or effectively the same) client in a substantially related matter.
- For corporate affiliates, conflict analysis may turn on functional realities; a parent’s control over a subsidiary’s legal affairs and contract administration can justify treating the entities as a single client for purposes of adversity.
- Under the substantial relationship test, when the earlier engagement would normally have exposed counsel to material confidential information relevant to the later matter, disqualification may be required without proof of actual misuse.
- Courts may use preliminary injunctive relief to prevent conflicted representation and protect the integrity of proceedings, including by imposing a project-specific bar where narrower limits would be difficult to police.

## Conclusion

The court affirmed an injunction disqualifying a law firm from representing a public entity against a corporation’s wholly owned, parent-controlled subsidiary on a project dispute because the firm’s earlier work gave it access to confidential information materially connected to the later adverse engagement, creating an impermissible conflict under California disqualification standards.


Morrison Knudsen Corp. v. Hancock, Rothert & Bunshoft, 69 Cal. App. 4th 223 (Cal. Ct. App. 1999)