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K&L Gates Loses Dismissal Appeal in Conflict Case

March 23, 2020, 6:50 PM

K&L Gates has again suffered a loss in its effort to quash a Texas lawsuit alleging it engaged in conflicts of interest, including violations of the Deceptive Trade Practices Act.

A three-judge panel with the Texas Court of Appeals in Austin ruled unanimously on March 20 against a motion to dismiss filed by the firm.

In the underlying suit, a Texas semiconductor company, Quantum Materials Corp., claimed the law firm represented lenders in a legal action against Quantum while also representing Quantum.

Quantum retained K&L Gates in 2016 as corporate counsel—yet although they stopped sending work to the firm, the representation never formally ended, the company claims. In March 2017, Quantum borrowed money from, and issued promissory notes to, two lenders, according to the original petition.

Later that year, the lenders, represented by then-K&L Gates attorneys Greg Sapire and Jeff Quilici, intervened in the dispute. Despite the claim from Quantum that the law firm was now acting in opposition to its own client, Sapire and Quilici denied that the company “had ever been or was currently a client of theirs,” according to the petition.

That suit is set to go to trial if the firm declines to appeal its dismissal motion a second time. In a petition filed late in October of 2018, plaintiffs sought punitive damages of up to $100 million.

While the panel ruled that claims the firm breached its fiduciary duty and engaged in deceptive trade practices should go forward, the judges took a more restrained view about another Quantum claim, that the firm engaged in legal malpractice.

“It is unclear from this record whether an attorney-client relationship existed at the time of the complained-of conduct, as K&L Gates had not provided any service to Quantum Materials in at least nine months,” Justice Edward Smith wrote on behalf of the panel. “But even assuming an attorney-client relationship still existed, that relationship would not convert this grievance into a claim of malpractice.”

Instead, the panel found that the malpractice claim is “in substance” a claim of breach of fiduciary duty.

“We are happy. It’s a very strong, unanimous opinion,” said Michael Minns of Minns & Arnett in Houston, who represents Quantum.

A K&L Gates spokesman declined comment on the opinion and the case. Quilici, now a senior associate with Orrick Herrington & Sutcliffe, also declined comment. Sapire, who also has since left K&L Gates, couldn’t be reached.

To contact the reporter on this story: Sam Skolnik in Washington at sskolnik@bloomberglaw.com

To contact the editors responsible for this story: Jessie Kokrda Kamens at jkamens@bloomberglaw.com; Rebekah Mintzer at rmintzer@bloomberglaw.com

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