STAR Park client Quantum Materials Inc. suing law firm; seeking damages to $100M

An innovative company headquartered at Texas State University’s STAR Park is suing a law firm and seeking damages up to $100 million.

Quantum Materials Inc.has filed suit against K&L Gates, a firm that carried out the primary duties of corporate counsel for Quantum at one point. Quantum is accusing K&L Gates of breach of fiduciary duty, deceptive trade practices and legal malpractice. The case was filed in district court in Hays County.

The suit claims that K&L Gates sat in on confidential board meetings and reviewed highly confidential corporate secrets in its role as counsel. Most of the corporate counsel work later reverted to an attorney named Steve Morse, who had done work for Quantum before, according to Quantum’s petition to the court. However, the petition states, K&L Gates never formally resigned from representing Quantum. When a dispute arose between Quantum and two of its lenders, attorneys from K&L Gates represented a firm intervening in the proceedings.

Thus, the petition states, K&L Gates was “in some capacity, simultaneously representing both sides of a dispute” and, when two K&L Gates lawyers appeared at the Hays County Government Center, “they were asked not to take up arms against their own client.” Quantum’s petition states the two attorneys denied that Quantum had ever been or was currently a client of theirs and then claimed that K&L Gates has an “infallible conflicts check system.”

A press release from Minns & Arnett, the law firm representing Quantum against K&L Gates, states that K&L Gates argued in court that they had recently stopped representing Quantum although there was no letter of resignation and they had not been fired. While making that argument, they still had all of Quantum’s files.

Quantum’s petition claims that some technical “defaults” had, in part, been created by legal malpractice or fiduciary violations that K&L Gates committed while working on behalf of Quantum.

“In essence, K&L Gates was suing Quantum while in possession of Quantum’s confidential legal files and presumably also holding the confidential legal files for the lenders who were suing Quantum,” the press release states.

Quantum’s petition states that K&L Gates has never withdrawn as Quantum’s legal counsel and has sent a demand for payment of $300,000.

“This suit constitutes final, official, unambiguous notice that K&L Gates is terminated from Quantum for cause,” the petition states.

Quantum is asking for a jury trial and several types of relief, including a prohibition against K&L Gates from disseminating confidential attorney/ client information regarding Quantum in order to satisfy shareholders that they will not have to compete with insider trading and the elimination of all K&L Gates’ claims to be paid “for their so called legal services rendered either for or against them as equitable relief.” Quantum is also seeking monetary damages of at least $100,000 for the defense against the claim and costs of court. If K&L Gates’ conduct is found to be unconscionable, Quantum Materials is seeking punitive damages of at least $300,000. If the law firm’s conduct is found to be criminal or in violation of insider trading laws, Quantum is asking for punitive damages of $100 million “or whatever sum the jury finds is adequate punishment to prevent this type of conduct in the future,” the petition states in part.