David Boies’ firm resigned as Adelphia special counsel after it was learned that Boies’ family members owned a company that owned, through another company, a document management company Adelphia had hired on the Boies’ firm’s recommendation. Lest you think document management is small potatoes, Adelphia has paid $5-$10 million for its services.

A spokesman for Boies Schiller said it was an inadvertent error, adding, "we have not resigned because we have done anything unlawful or improper."

The conflict came to light, the WSJ reports, in a document filed in the case by a creditor:

According to documents filed in bankruptcy court in New York, several relatives of Mr. Boies indirectly own part of a document-management company called Amici LLC, which has stored and managed Adelphia's legal documents since 2002. Document-management services are critical to companies involved in complex litigation, since they consolidate legal documents into an electronic database. . . .

The issue first came to light in a hearing in July in U.S. Bankruptcy Court in the Southern District of New York. Kenneth Noble, a lawyer representing Bank of Montreal, mistakenly claimed that Amici had financial ties to Mr. Boies and said that the service was difficult to use. Bank of Montreal is one of Adelphia's creditors, as well as a previous agent to the company, and is involved in lawsuits both against and with Adelphia.

Mr. Noble, a lawyer with Mayer, Brown, Rowe & Maw, said in the hearing that Amici is "an entity as I understand it, that was founded by David Boies and some other folks and is affiliated with the Boies Schiller law firm." Mr. Noble couldn't be reached for comment. . . .

In an August affidavit, following Mr. Noble's comments, Mr. Korologos denied that Mr. Boies or the law firm has any financial stakes in Amici. He added, however, that that several of Mr. Boies's children own indirect stakes in Amici through a company called Legal & Scientific Systems LLC. Mr. Boies's son David III owns 16.75% of Legal & Scientific, son Christopher owns 14.25%, and son Jonathan and daughter Caryl each own 13%. Legal & Scientific owns half of a company called Datatmine LLC, which owns 51% of Amici, according to Mr. Korologos. He said the balance of the Legal & Scientific ownership is held by David Boies III's siblings, children, nieces and nephews, according to Mr. Korologos. Mr. Korologos said he wasn't aware of the financial ties until the hearing in July with Mr. Noble.

If you would like to read the Boies Schiller Disclosure filing, here [PDF] you go; and here [PDF] is a second disclosure in which the firm responded to questions from the judge regarding rates of payment. The next day, The Wall Street Journal had more, which Ribstein encapsulates:

This apparent conflict wasn’t disclosed when Adelphia approved use of the fim.

Now the W$J reports that several other Boies clients, including Qwest and Tyco, were in the same boat. The story also notes that a former Boies associate, Duker, who headed the firm was sentenced to 33 months in prison in 1997 for “falsely inflating legal bills to the federal government.”

Mr. Boies was not implicated in Mr. Duker's misconduct. The Wall Street Journal next adds these details:

Mr. Boies in an interview said yesterday he should have fully disclosed his children's' ownership interest in Amici. "I should have made certain that everyone knew about it," he said. He added that "a half dozen, or maybe eight Boies Schiller clients also use Amici."

Mr. Boies also confirmed that members of his family indirectly own stakes in a document-copying company called Echelon Group LLC. . . . There is, says Stanford University law school ethics expert Deborah Rhode, "an appearance of impropriety." It's really up to the client to select a document production firm, not the lawyers. . . . .

Four of Mr. Boies's children had indirect stakes in Amici through a company called Legal & Scientific Systems LLC totaling about 25.5% of the document company. The wife, mother and mother-in-law of Nick Gravante, a Boies Schiller partner, own indirect stakes.

Paul McGreal on the Corporate Compliance Prof blog tries to figure out what ethical rules might have been violated, and he lists Model Rule 1.7(a)(2), "which states that a conflict exists with a current client when 'there is a significant risk that the representation of one or more clients will be materially limited . . . by a personal interest of the lawyer.'” I don't personally see how that rule applies to these facts, but he's a lawyer and I'm not, so he is probably right. The part I don't see is how there was any limitation of representation.

New York State's Lawyer's Code of Professional Responsibility details an attorney's ethical obligations in that state. Here is NYS's Rule 1.7, on conflicts of interest. Again, I have no knowledge whether any of the rules apply to this fact pattern, but I'm making the links available so you can follow the story as it evolves.