Willkie Farr & Gallagher LLP’s recent disqualification as bankruptcy counsel for Franchise Group Inc. serves as a critical learning point for major law firms. In an unusual move, Judge Laurie Selber Silverstein of the US Bankruptcy Court for the District of Delaware ruled to separate Franchise Group from its preferred Chapter 11 counsel. This ruling underscores the importance of implementing ethical walls proactively, long before any conflicts of interest may arise.
The case highlights that simply engaging in ethical practices after potential conflicts emerge might not suffice to maintain a firm’s favored positions in bankruptcy proceedings. Willkie’s prior associations with Franchise Group’s ex-CEO Brian Kahn and investment adviser-related matters likely contributed to the decision to disqualify them as counsel in this current legal matter.
For law firms, this decision emphasizes that preparation and foresight are paramount in delicate ethical landscapes where interests and prior relationships can potentially clash. Big Law firms would be well-served to establish robust internal protocols that predict and address conflicts of interest well before they become problematic.
To examine the full scope of the situation, and for further information on the implications of the court’s decision, you can read the article on Bloomberg Law.