Court Rules Morgan’s Lawyers Can’t Represent Firm in Surety Bond Case

January 31, 2002

The federal court judge in New York hearing the Enron surety bond case, brought by J.P. Morgan Chase & Co. against several insurance companies, has ruled that the law firm of Davis, Polk & Wardwell cannot represent Morgan in the litigation, as it is also legal counsel for Chubb Corp., whose subsidiary, Federal Insurance Co., is a defendant in the action.

Davis Polk filed the lawsuit on behalf of Morgan Chase, asking that a group of 11 insurers be required to cover surety bonds totaling $965 million that they wrote on contracts entered into by Enron prior to its bankruptcy filing. The companies have refused to make payments on the bonds, alleging that Enron misrepresented the nature of the contracts when it obtained the guarantees.

Federal, which wrote $183 million worth of Enron surety bonds, challenged Davis Polk’s representation of the plaintiff as being a conflict of interest because the firm also acts as attorneys for its parent Chubb Corp. Federal Judge Jed Rakoff agreed, holding that Federal was indivisible from its parent, and therefore the law firm couldn’t represent both sides.

Reuters News Agency quoted Rakoff as saying, “Even in an age of convenience, for a law firm to bring a multimillion-dollar claim on behalf of one corporate client against the primary subsidiary of another of that law firm’s corporate clients might be expected to raise some eyebrows. In this case, it also requires the law firm’s disqualification.”

He granted Morgan an additional two weeks to engage new counsel, or to appeal his decision.

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