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On July 5, 2022, a U.S. District Court Judge upheld an order requiring a major law firm to produce documents related to its communications with a Philadelphia-based casino showing conflicting client representation between two competitors.
Pace-O-Matic (POM), a Georgia-based gaming company that does significant business in the state of Pennsylvania, filed suit in federal court against a prominent Pennsylvania-based law firm alleging that the law firm breached its professional duties of loyalty and confidentiality to POM by undertaking the concurrent representation of POM’s major competitor, Parx Casino (Parx), in separate litigation against POM.
By way of background, POM develops, produces, and licenses electronic “skill games” that are sold in Pennsylvania and elsewhere. Beginning in 2016, POM engaged with the law firm to represent POM in Virginia with respect to litigation over whether POM’s “skill games” were illegal gambling devices under Virginia law. The law firm’s representation of POM was limited to Virginia, as the law firm represented other clients with adverse commercial interests in Pennsylvania. Specifically, one of those other clients was Parx, with which the law firm had a prior existing attorney-client relationship.
In June 2018, POM filed a lawsuit concerning its “skill games” against the City of Philadelphia and the Pennsylvania Department of Revenue. Moreover, in July 2018, POM filed a second lawsuit concerning its “skill games” against the Pennsylvania State Police. On or about December 12, 2019, POM filed a motion for preliminary injunction against the Pennsylvania State Police seeking to enjoin them from seizing POM’s “skill games” from its customers. However, on or about December 18, 2019, Parx filed an amicus brief in opposition to POM’s motion for preliminary injunction, arguing that POM’s devices were gambling machines that should be deemed illegal. As a result, on or about February 14, 2020, Parx filed an application to intervene in both of POM’s cases in Pennsylvania with the law firm representing Parx.
Upon learning that the law firm was involved in representing Parx in connection with the cases in Pennsylvania, POM requested that the law firm withdraw from representing Parx. The law firm declined and instead withdrew from representing POM in the Virginia matters. As a result, POM filed suit against the law firm in the U.S District Court for the Middle District of Pennsylvania.
During the discovery process, POM served interrogatories and requests for production on the law firm seeking information and documents concerning communications between the law firm and Parx. Ultimately, the law firm objected, asserting attorney-client privilege and work-product protection. POM then moved to compel production of the documents, and the law firm moved for a protective order precluding the production of the documents.
In November 2021, U.S. Magistrate Judge Joseph Saporito, Jr. ruled the law firm acted in “bad faith” by withholding email communications showing the law firm was representing both POM and Parx concurrently. Judge Saporito ordered the law firm to produce all documents related to the two cases in Philadelphia in which POM was a party, specifically stating that the law firm “actively and clandestinely managed and participated in the representation of Parx in the Commonwealth Court litigation against its other client POM.” Judge Saporito went on to state that “based on our in-camera review of the purportedly privileged documents, [the law firm] did so with full knowledge that the conflict asserted by POM precluded its active and continuing representation of Parx in the Commonwealth Court litigation.” Moreover, Judge Saporito added, “in light of the clear and obviously intentional subterfuge demonstrated in the purportedly privileged documents, we have no difficulty concluding that these documents evidence an intent by [the law firm] to play fast and loose with the courts.”
The law firm ultimately appealed Judge Saporito’s ruling regarding the production of documents to POM. However, U.S. District Court Judge Jennifer Wilson affirmed Judge Saporito’s order, noting that Judge Saporito did not abuse his discretion by applying judicial estoppel and was correct in his conclusion that the law firm adopted inconsistent positions in bad faith. Judge Wilson stated that “in making inconsistent representations to the court, [the law firm] has attempted to obstruct the discovery process as to the central issue in this case: whether [the law firm] breached its fiduciary duty to POM by representing Parx, a party with adverse interests, at the same time that it represented POM.” This order creates a cautionary tale for all law firms that any client communications may potentially be subject to production if such production would show conflicting client representation in pending lawsuits.