Zador Corp. v. Kwan

The Young family owned Zador Corporation (plaintiff) and used C.K. Kwan (defendant) as its agent when buying property from a partnership for $4.1 million. When the sellers sued over transaction, Zador cross-claimed that the sellers sold the property at a grossly inflated price to defraud Zador. The law firm Heller, Ehrman, White & McAuliffe (Heller) had represented the Young family for years and defended Zador. When Kwan requested indemnity, Heller agreed to defend Kwan only if he signed a detailed waiver and consent form that explained the potential for conflicts. The form said the attorney-client privilege would not protect communications between Kwan and Heller attorneys from disclosure to other jointly represented parties and that a dispute would risk disqualifying Heller from representing Kwan and Zador simultaneously. The form specified that Kwan consented to Heller continuing to represent Zador and its affiliates and would not assert conflict or try to disqualify Heller “notwithstanding any adversity that may develop.” Kwan signed the form after studying it for 20 minutes. When Heller discovered the sellers had paid Kwan, Heller told Kwan that posed a conflict and that he needed separate counsel. Kwan agreed and reaffirmed his consent to Heller representing Zador. Heller sent a follow-up letter confirming those discussions, reiterating that Heller would continue representing Zador. Kwan retained another law firm, which warned it would move to disqualify Heller if Zador sued Kwan. When Heller added claims alleging Kwan overvalued the property, Kwan moved to disqualify Heller. By that time, Kwan had been separately represented for three years. The trial court found a substantial relationship between Heller’s prior representation of Kwan and the current lawsuit and disqualified Heller. Zador appealed.