First Interstate Bank of Arizona, N.A. v. Murphy, Weir & Butler

The issue before us is whether a law firm owes a duty to its client to disclose that it hired the law clerk of a judge before whom it was appearing in a pending matter.

*985 Murphy, Weir & Butler (Murphy) represented First Interstate Bank of Arizona and Talley Realty Finance Company (FIB/Talley) who were secured creditors in the Chapter 11 bankruptcy proceeding of Scottsdale Pinnacle Associates (SPA). The Honorable Leslie Tchaikovsky was the presiding bankruptcy judge. Although unknown to the Murphy partner assigned to this matter, the firm hired Judge Tchaikovsky’s law clerk for employment at the end of the clerkship. As it turned out, the “Chinese wall” was not impermeable as it should have been, for the law clerk continued to have some contact with the case. Judge Tchaikovsky ruled in favor of FIB/Talley, but later recused herself upon SPA’s motion after SPA found out about the clerk’s relationship with Murphy. 1 A new trial before a different judge resulted in a decision with which FIB/Talley was not as happy. As a result, it sued Murphy for malpractice.

The district court held it was not foreseeable that hiring the law clerk without disclosure would ultimately result in…