Large Real Estate Practice Leads to Conflict Questions

By AMANDA BRONSTAD
Staff Reporter

In representing Credit Suisse First Boston in the $300 million buyout of a majority interest in the 73-story Library Tower, Allen Matkins Leck Gamble & Mallory LLP reinforced its place as one of the city's premier real estate firms.

But less than a week later, the firm was dropped by the Los Angeles Unified School District because of a conflict of interest in a proposed contract bid.

So goes the roller-coaster business of Allen Matkins, a 200-attorney firm with a client list that reads like a Who's Who in L.A. real estate, including Douglas Emmett & Co., Equity Office Properties, Majestic Realty Co. and TrizecHahn Properties.

But an impressive client list gives rise to a greater number of potential conflicts.

"We are the largest real estate practice of any law firm in Southern California," said Brian Leck, managing partner of the 25-year-old firm. "We do run into situations on a regular basis where there are parties on both sides of the transaction we have represented at one time or the other in the past, and sometimes currently."

Earlier this month, the LAUSD postponed bidding on a property management contract after an internal investigation revealed that its facilities division and Allen Matkins failed to disclose a potential conflict of interest in the bidding process.

The dispute centers on what is increasingly a gray area among law firms, said Carl Peters, a law firm management consultant with Seattle-based Lawmanage.

As firms get larger by adding clients and practices, they often find themselves dealing with conflicts more frequently, he said. And with public entities or very large companies, conflicts of interest can be very political.

"Clients that have a well-formed political infrastructure and input from other people in the political process and the school district would be one these conflict waiver issues raise a target," Peters said.

Conflicts at Allen Matkins, which works primarily with private entities, arise infrequently, Leck said.

Still, because of its big-name client base and concentration on L.A. deals, Allen Matkins bumps into conflicts more often than other firms its size, Peters said.

"In general, a firm that size is going to be getting a lot of possible conflicts, but Allen Matkins probably gets more because of its unique niche and specialty of real estate work," Peters said. "I'll bet their new client approval process is filled with conflict checks and waiver letters."

To avoid those issues, the firm always discloses the conflict to the client, Leck said. Some clients don't go forward with the deal; some do. Sometimes the firm doesn't even try to represent a client if the partners know the conflict is too great to provide adequate representation, he said.

District dispute

The action by the LAUSD came after a request for proposals for property management services was sent to some of the real estate firms that bid on the contract to handle the district's leasing efforts last summer. Among the firms was developer Trammell Crow Co., the company that has been handling leasing since last fall and which is a client of Allen Matkins'.

While Allen Matkins does not represent Trammell Crow's leasing or property management functions, the school district claimed that the firm should have disclosed its representation in other areas when both sets of bids were solicited. As a result, LAUSD will remove Allen Matkins as counsel for the property management bid, now set for final selection June 1, said Hal Kwalwasser, general counsel at LAUSD.

"If they didn't have a conflict, I'd give it to them," Kwalwasser said. "It's not because of a lack of faith in Allen Matkins, nor to a perception of duel loyalty, but because the public has a right to be concerned about our conduct."

Kwalwasser said the district would likely replace Allen Matkins with Pillsbury Winthrop LLP, which is representing the district in the completion of the Belmont Learning Complex.

Leck said a waiver signed in September 2000 when the firm was hired by LAUSD to negotiate Trammell Crow's involvement in the district's search for a headquarters should have been enough of a conflict notice.

"This was going to be an amendment to the existing contract," Leck said. "There were no new facts to disclose on the conflict of interest, and it would not be our practice to have a new conflict letter signed between the same parties when what's really happening is just an amendment to the contract."

Partner Fred Allen said the LAUSD's decision to terminate its relationship with Allen Matkins on the property management bid is "regrettable" but of "no consequence."

"We're doing tons of work for the LAUSD," Allen said.

Allen Matkins Leck Gamble & Mallory LLP

Founded: 1977
Number of lawyers: 212
Clients: AEW Capital Management; Arden Realty Inc.; Douglas Emmett & Co.; Equity Office Properties; Kilroy Realty LP; Lincoln Property Co./Legacy Partners; Majestic Realty Co.; TrizecHahn Properties Inc.
Offices: Los Angeles, Irvine, San Diego, Century City, San Francisco

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