Inspirada Creditors Clash Over Law Firm

“Should I stay or should I go now?”

That’s the song Squire, Sanders & Dempsey is singing in the Chapter 11 case of Inspirada, a Las Vegas-area master-planned community. The law firm wants to withdraw from representing one of Inspirada’s home builders, but it needs the home builder’s permission to walk away. Trouble is, Squire Sanders says the builder won’t let it. So the law firm is turning to a higher power to unblock the stalemate: a bankruptcy court.

“Squire Sanders respectfully requests that the court provide the parties with direction in order to resolve this dispute,” the law firm said Tuesday in court papers. “Squire Sanders will abide by the direction of the court.”

In its request, Squire Sanders laid out the history of its relatively short but drama-filled engagement by builder Meritage Homes Corp. Hired Aug. 30, the firm ran into trouble last Thursday. It was then that an Inspirada lender—and Squire Sanders client—J.P. Morgan Chase & Co. asked Squire Sanders to withdraw from representing Meritage.

Why would the banking giant care? Well, it has a long history of fighting with Meritage over Inspirada, and it argues that the shared law firm represents a conflict of interest. This August, The Wall Street Journal reported that J.P. Morgan and Meritage traded multimillion-dollar lawsuits over the housing development. And now they’re on opposite sides in Inspirada’s bankruptcy—J.P. Morgan is among the proponents of the project’s restructuring plan, and Meritage is not only opposing that plan but is also criticizing the bank’s involvement with the plan.

Squire Sanders “represents J.P. Morgan in transaction matters and at least one litigation matter. It represents a client challenging confirmation of the joint plan making arguments as direct as an assertion that J.P. Morgan is not acting in good faith,” the bank said. “This is an actual conflict.”

The law firm agreed there was a conflict of interest, J.P. Morgan said, noting that it would withdraw from the case. But Squire Sanders said Meritage not only refused its consent to the withdrawal but said it would also tell J.P. Morgan to drop it.

But the bank didn’t drop it and on Tuesday filed its own motion seeking the court’s help. Specifically, it wants the court to disqualify the law firm from representing Meritage further in the Inspirada Chapter 11. The bank also wants the court to bar Meritage from using any of Squire Sanders’s “work product.”

The U.S. Bankruptcy Court in Las Vegas will weigh in at a hearing Friday morning.