Opposing Client's Subsidiary: Is It a Conflict of Interest?

The issue of whether representing the opponent of a client’s subsidiaries or affiliates is permissible has bedeviled lawyers, their clients, courts and commentators for years. Law firms understandably seek to avoid conflicts and insulate themselves with advance waivers, while clients, equally understandably, want loyalty from their attorneys. While not creating new law, the U.S. Court of Appeals for the Second Circuit recently entered this thicket in GSI Commerce Solutions Inc. v. BabyCenter L.L.C., No. 09-2790-cv, —F.3d— (2d Cir. Aug. 18, 2010).

The GSI-BabyCenter litigation arose when GSI Commerce Solutions Inc. sought to initiate arbitration of breach of contract claims relating to Web site and advertising services it provided to BabyCenter LLC. BabyCenter refused to arbitrate, raising the conflict of interest of Blank Rome, GSI’s attorneys, arising from the fact that BabyCenter was a wholly owned subsidiary of Blank Rome client Johnson & Johnson. GSI then filed a petition to compel arbitration in federal court, and BabyCenter moved to disqualify Blank Rome. U.S. District Judge Jed S. Rakoff granted the cross-motion of BabyCenter to disqualify Blank Rome. GSI Commerce Solutions Inc. v. BabyCenter, LLC, 644 F.Supp.2d 333, 334 (SDNY 2009).