## Facts

- Admiral Daniel J. Murphy, U.S.N. (Ret.) (Admiral Murphy) worked for Murphy & Demory, Ltd. (Murphy & Demory).
- Before resigning, Admiral Murphy wanted either to take control of Murphy & Demory or to start a competing company.
- Pillsbury, Madison & Sutro (Pillsbury) was providing legal services to Murphy & Demory while also assisting Admiral Murphy in matters connected to his takeover or competition plans.
- Deanne Siemer and Mendelson, attorneys at Pillsbury, worked with Admiral Murphy during this period; Mendelson was senior within the firm.
- Pillsbury put Siemer in charge of spotting and addressing conflicts arising from the firm’s dual representation of Murphy & Demory and Admiral Murphy.
- Junior lawyers at Pillsbury warned that representing both Murphy & Demory and Admiral Murphy created a serious conflict of interest; those warnings were directed to Siemer and did not result in separate, independent review.
- Siemer and Mendelson tried to recruit Murphy & Demory’s director to support Admiral Murphy’s takeover attempt and prepared legal documents to carry out the proposed takeover.
- Siemer and Mendelson organized meetings with Murphy & Demory employees and helped Admiral Murphy prepare remarks intended to persuade employees to leave Murphy & Demory and join Admiral Murphy’s new venture.
- Siemer and Mendelson assisted some employees in drafting resignation letters.
- Siemer and Mendelson prepared letters for use by Murphy & Demory clients authorizing transfer of client files and business to Admiral Murphy’s planned new company.
- After Pillsbury was terminated as counsel for Murphy & Demory, Siemer and Mendelson filed suit seeking dissolution of Murphy & Demory.
- Murphy & Demory then sued, asserting claims including legal malpractice and breach of fiduciary duty against Pillsbury and the involved attorneys (and also asserting claims against Admiral Murphy and related defendants).

## Issues

1. Whether Pillsbury and Siemer could avoid malpractice liability by invoking a “safe harbor” based on the firm’s internal handling of ethics concerns when the conflict question was left to the lead lawyer involved in the dual representation.
2. Whether attorneys and their firm commit malpractice and breach fiduciary duty by concurrently representing a company and an employee whose interests become directly adverse, while assisting the employee’s effort to take over or compete with the company.
3. Whether directing repeated internal warnings about a conflict to the lead partner, without meaningful supervisory review, constitutes a reasonable resolution of an arguable question of professional duty.

## Decision

- The court held that Pillsbury and Siemer were liable for malpractice and breach of fiduciary duty arising from the conflicted dual representation and related conduct.
- The court rejected the claim that Pillsbury’s internal process provided “safe harbor” protection because it effectively made the lead lawyer the final decision-maker on the conflict concerns raised within the firm.
- The court entered judgment for Murphy & Demory and awarded $500,000 in damages against Pillsbury and Siemer.

## Legal Principles

- A law firm may face civil liability when it concurrently represents clients with directly adverse interests and fails to address the conflict in a manner consistent with the duties of loyalty and care.
- Protection based on internal resolution of ethics questions applies only when a supervisory process provides a reasonable resolution of an arguable question of professional duty.
- Routing conflict warnings to the lead lawyer whose conduct is at issue, and treating that lawyer as the final decision-maker, is not an adequate internal response.
- When a lawyer represents an organization, the organization is the client; assisting a constituent in actions directed against the organization can violate duties of loyalty and confidentiality.
- A firm can be liable for the acts of its lawyers and for firm-level failures in procedures intended to identify and resolve conflicts.

## Conclusion

This unpublished Virginia Circuit Court decision imposed malpractice and fiduciary-duty liability where Pillsbury and its lead lawyer, Siemer, assisted an employee’s takeover/competition plan while the firm still represented the employer, and where the firm’s internal handling of conflict warnings failed because it left the conflict decision to the very lawyer leading the disputed representation.


Murphy & Demory, Ltd., et. al. v. Admiral Daniel J. Murphy, U.S.N. (Ret.), et. al., Chancery No. 128219 (1994)