K&L Gates Under Fire from Texas Company in Malpractice Suit

K&L Gates LLP is facing a $100 million legal malpractice suit from a Texas semiconductor company, Quantum Materials Corp., over an alleged conflict of interest.

The law firm represented lenders in a legal action against the company while also representing Quantum, the company alleged in a petition filed Oct. 16 in District Court of Hays County, Texas, seeking punitive damages.

“It’s mind-blowing,” Michael Minns of Minns Law in Houston, who represents Quantum, told Bloomberg Law of the alleged conflict. “I’ve been practicing law 41 years and this is the first time I’ve run into anything this blatant.”

‘Against Their Own Client’

The company claims the law firm breached its fiduciary duty and engaged in deceptive trade practices.

Quantum retained K&L Gates in 2016 as corporate counsel, and although they stopped sending work to the firm, the representation was never ended, Quantum alleges.

In March 2017, Quantum borrowed money from, and issued promissory notes to, two lenders, SBI Investments, LLC, and L2 Capital LLC, according to the petition. The agreement with the lenders included transfer agent instructions drafted by the lenders to its stock transfer agent, Empire Stock Transfer Inc., authorizing Empire to “reserve a sufficient number of shares of common stock,” the petition said.

After payment-related disputes arose between Quantum and the two lenders, Quantum requested an injunction, spurring the trial court judge to issue a temporary restraining order on Oct. 2, 2017, prohibiting Empire from conveying any shares it held on behalf of the company to the two lenders.

On Oct. 10, the lenders – represented by K&L Gates attorneys Gregory Sapire and Quilici – intervened in the dispute, causing Minns to ask them “not to take up arms against their own client,” according to Minns and the petition.

In response, Sapire and Quilici denied that Quantum “had ever been or was currently a client of theirs,” according to the petition. K&L Gates, the attorneys said, also had an “infallible conflicts check system.”

K&L Gates has been a client of Quantum’s since 2016, the complaint said, and has never withdrawn, despite the fact that the company’s board later transferred most of its corporate work to another attorney.

Law firm spokesman Mike Rick declined comment on behalf of the firm, as did K&L Gates’ internal Deputy General Counsel Charles Tea III, who was mentioned in the petition as the attorney who tried to persuade the company’s CEO to pay the firm $300,000 in outstanding legal bills.

Sapire did not respond to emailed questions by press time. Quilici declined comment through a Supreme Court spokesperson.