Pillsbury offices in Washington. Credit: Diego M. Radzinschi / NLJ

In January, when his client Continental Service Group Inc. was again turned down for a contract to collect overdue student loans, Pillsbury Winthrop Shaw Pittman partner Todd J. Canni did not hide his displeasure with the U.S. Education Department.

Speaking to a Washington Post reporter, Canni criticized the Education Department's decision-making and singled out a company that, he said, should not have prevailed over his client and other competing bidders for contract work worth upward of $400 million: Performant Financial Corp.

“Given the fact that Performant was not a highly rated [company] and, in fact, was rated fairly low … the agency will be under intense scrutiny and will need to explain how suddenly these ratings changed so significantly to allow Performant to leap frog over so many other qualified [companies],” Canni told the Washington Post.

For Pillsbury, a problem would soon emerge: Performant was also one of the firm's clients. Now, Canni's comments have come back to haunt him and the firm.

Pointing to Canni's “disparaging” comments about Performant and the firm's long-standing relationship with the company, a U.S. federal claims court judge on March 30 disqualified Pillsbury from representing Continental Service Group, also known as ConServe, in the debt collector's challenge to the Education Department's contract award. Lawyers for the firm had argued against disqualification, saying such a drastic move could “devastate” ConServe. The arguments didn't sway the judge.

“The court is of the opinion that Pillsbury is not permitted to continue such representation due to the troubling course of events—and their resulting consequences—that took place throughout this bid protest,” Federal Claims Judge Thomas C. Wheeler wrote in his ruling.

Canni would later tell lawyers in the case he was unaware Pillsbury represented Performant when he spoke with the Post.

“Regardless of whether Mr. Canni was aware of Pillsbury's conflict of interest at the time he made his disparaging comments about Performant, his comments have created a breach of the duty of loyalty that cannot be cured,” Wheeler wrote. “By speaking ill of Performant—a contemporaneous Pillsbury client—to the Washington Post, Mr. Canni has created a situation where he has stunted Pillsbury's ability to effectively and zealously advocate on ConServe's behalf.”

Performant, represented by Hogan Lovells in the federal claims court, had asked Wheeler in March to disqualify Pillsbury from representing ConServe.

“Pillsbury's representation of ConServe in this matter is directly adverse to Performant's interests,” Hogan Lovells partner Michael McGill said in a court filing. “Performant expressed its concerns directly to Pillsbury in mid-January after a Pillsbury lawyer was quoted in the Washington Post making disparaging remarks about Performant in connection with the department's award.”

According to Wheeler, Performant and ConServe had agreed that Pillsbury's representation of both companies created a conflict—but the companies differed on the question of whether that conflict prevented the firm from staying on the case before Wheeler.

Canni, a government contracts partner in Pillsbury's Washington and Los Angeles offices, said in a declaration that ConServe told him that Pillsbury could represent the company in the bid protest.

An Ethics Wall at Pillsbury

Pillsbury argued, in part, that the conflict was not foreseeable when it was retained by ConServe in December 2016 and that the firm had adopted measures to protect both clients.

“Pillsbury has taken steps to ensure that its representation of Performant Financial has not and will not result in client confidences being shared with the attorneys representing ConServe. An ethical wall is in place between the attorneys representing Performant Financial and those representing ConServe,” lawyers for Pillsbury said in a court filing on March 19. The law firm Harris, Wiltshire & Grannis represented Pillsbury in the federal claims court.

At one point, the two companies were on the same side—denied a contract and united in protesting the Education Department's initial awards. It was only in January that the Education Department took “corrective action” and awarded a contract to Performant Recovery Inc. but not ConServe. (Performant Financial is the parent company to Performance Recovery.)

In his ruling, Wheeler said Pillsbury should have been able to envision the possibility of a conflict arising out of the case. Bloomberg's Big Law Business reported March 30 on the decision.

“Pillsbury's claim that it could not have possibly foreseen an eventual realignment of parties in this litigation at the outset of this bid protest—particularly in a bid protest that appears to have an affinity for corrective action—is ignorant and careless,” Wheeler wrote.

“As a law firm with a plethora of experience in bid protests and government contracts, Pillsbury should know this cycle well and should have known that ConServe's and Performant's interests could have easily diverged at some point in this litigation as this rather knotty procurement marched on,” he added.

Pillsbury said in a statement: “As addressed fully in our papers and declarations submitted to the court, Pillsbury had represented ConServe for over 13 months in this protest before the [U.S. Government Accountability Office], Court of Federal Claims and U.S. Court of Appeals for the Federal Circuit. When the parties were realigned after the award of January 2018 and a conflict arose, Pillsbury, with the advice of specialized outside counsel, immediately implemented remedial measures and determined that it should move forward in the representation of ConServe. It is important to note that Pillsbury never represented Performant or its subsidiary in any protest matters.”

“We have implemented additional safeguards and processes in our conflicts system to ensure this circumstance will not occur again,” Pillsbury said in a statement.

After Performant moved to disqualify Pillsbury from the case, the firm said that it had, in fact, run an updated conflicts check following the Education Department's “corrective action” in January. That check returned a “NO CONFLICT” result because Performant had previously gone by “Diversified Collection Services Inc.” and the system had not been updated with the company's new name.

But it was Pillsbury, years earlier, that recommended the renaming. The firm's earlier work was not lost on Wheeler.

“The court understands that conflict systems are not perfect, but the irony here is that Pillsbury was the very law firm that advised Performant on its name change in 2012,” Wheeler wrote. “At the very least, Pillsbury should have either updated its conflicts system in 2012 to reflect the name change or run an additional conflicts search for 'Diversified Collection Services Inc.' knowing that the name change had taken place.”

Wheeler continued: “To claim that Pillsbury should be in the clear because it received a 'NO CONFLICT' result simply does not hold water, especially given Pillsbury's knowledge of and advisement on Performant's name change.”

In a declaration, filed March 19, Canni said he could not “simply walk away from our work for ConServe and leave ConServe to search for new counsel, unfamiliar with the background and prior work that Pillsbury has done.”

Indeed, lawyers for Pillsbury told Wheeler a ruling that disqualified the firm would be “devastating” to ConServe.

“This is not your run-of-the-mill litigation for ConServe. This litigation centers on a contract that has been the 'lifeblood' of ConServe for many years,” lawyers for the firm wrote in a court filing in March. They continued: “Under these unique and compelling circumstances, disqualification could devastate ConServe.”

Wheeler's ruling is posted in full below: