The California Supreme Court on Thursday found that a waiver Sheppard, Mullin, Richter & Hampton client J-M Manufacturing signed was not effective because the firm failed to disclose a known conflict with a current client.
The company, a PVC pipe manufacturer, refused to pay Sheppard Mullin over $1 million in legal fees in a whistleblower case after it came to light that the firm also represented a plaintiff in that action—albeit in unrelated employment matters—and that the firm failed to disclose it. Sheppard Mullin was forced to step aside from the litigation after the former client, the city of South Tahoe, raised the issue with the court.
Sheppard Mullin sued J-M in 2012 and routed the case to arbitration, where it was awarded $1.3 million in outstanding fees. A Los Angeles appeals court turned the tables in January 2016, finding that because of the undisclosed conflict, Sheppard Mullin had not only forfeited its claim to the unpaid fees but also must disgorge $2.7 million already received from J-M.
Although Thursday’s decision from the California Supreme Court sided with J-M on the waiver issue, the court found that “the ethical violation does not categorically disentitle the law firm from recovering the value of the services it rendered to the manufacturer.” The court routed the case back to the trial court to determine “whether principles of equity entitle the law firm to some measure of compensation” for its work for J-M.
Read the decision: