Another Court Deals with a Former Subsidiary’s Adversity to its Former Parent

June 4, 2008

Several recent cases have highlighted the risk of law firms’ and law departments’ joint representation of a parent and its subsidiary in a transaction during which the subsidiary gains independence, or after which the subsidiary declares bankruptcy. Under standard joint representation principles, the subsidiary (a former client now under different control) normally can seek the law firm’s and law departments’ documents generated during the joint representation.

In 625 Milwaukee, LLC v. Switch & Data Facilities Co., Case No. 06-C-0727, 2008 U.S. Dist. LEXIS 19943 (E.D. Wis. Feb. 29, 2008), law firms Blank Rome and Quarles & Brady represented a parent and its fully owned subsidiary in a transaction involving the subsidiary’s sale to a new owner. The subsidiary later sued its former parent, and sought the law firms’ files. The court ordered production of the files despite the law firms’ argument that they never represented the subsidiary in the transaction. The court noted that the parent had presented “no evidence indicating that it ever hired separate counsel for [the subsidiary] before the date it was sold to [buyer],” so “the only attorneys who could have been representing [the subsidiary] at the moment the Lease Term Sheet was signed were Blank Rome and Quarles & Brady.” Id. at *12. The court even ordered the production of a post-transaction document — Blank Rome’s invoice which referred to the firm’s pre-transaction work.

The recent series of cases reaching this conclusion highlight the inherent risk of such joint representations.