Week 8 - “Screened” Workshop; Vicarious Disqualification; Imputation and Screening

Class Notes

Conflicts

• Loyalty: INdependence, Non-exploitation, Trust

• Types of Conflicts: Current client (cannot be directly adverse), Former Client (cannot be materially adverse on the same or substantially related matter), Material Limitation (materially limited by law firm’s loyalties)

Adverse to former client:

• Substantially related under 1.9 can meant totatlly different if R. 1.6 info common to both reps

• Analytica (executive comp; antitrust lawsuit

  • Control risk w/ engagement letter - client ID< scope, fee

    • BabyCenter too (firms reps J&J only, not affiliates, etc.)

• Absent scumbaggery, law firm can rep former client’s business competitors IF firm protects former client’s 1.6 info

  • See (very) generally Maritrans

    • Keeping up appearances? Hard facts, bad law?

      • Economic dversity v. direct/material adversity

    • Relationship between RPC violations and breach of fiduciary duty

      • But we knew that - P&S para. [20]

• Pick and choose between former joint clients - after dispute arises - No

Multi-rep lessons:

• Joint rep of co. and employees? Yes, with written disclosure and waiver

  • Merrill Lynch - prisoners’ dilemma

  • Zador (agent, not employee) - withdrawal from one permitted

  • General rule - cannot rely on wavier to use or disclose former client’s 1.6 info ag. eclient. (1.9 exceptions)

• Red Team v. Blue Team w/in one firm adverse to each other? No. Ohio ethop

• One lawyer “scirvener” for adverse parties (buyer, seller)? Maybe - need written dicl and waiver. Van Kirk

• Any conflicts in friendly deal? Yes

  • Adverse parties = adverse

  • Same side - who gets paid and when?

• Rep competitors in same patent space?

  • Maling: Yes.. if patents issue for each (economic v. direct adversity)

Multi-rep perils and solutions:

• Entity formation options include, e.g., $Bags, or entity-in-formation only

• Represented or under-represented parties

  • Disease: “I though you were my lawyer.” (Analytica, sort of.)

  • Cure: “I’m not your lawyer” letter

• Family and family business reps

  • Challenge: multiple/parallel representations

  • Cure; “intentional lawyering”

• Joint reps - “Would you like a piece of pie?”

  • Test: 1.7(b)(1) + (4); see cmts 29-33

  • Disclose pros and cons

Conflict Waivers - “informed consent, confirmed in writing”

• Quote RPC

• Clarity: Three audiences

• No dancing or ball-hiding

• Independent counsel

• Clients’ signatures?

Screened Workship

• Screened - isolating a lawyer through timely imposition of procedures reasonably adequate to protect information

• Upshots: Screens can remove imputation, Lawyers on both sides of screen should acknowledge, writing is helpful, electronic measures

Vicarious DQ

• Four presumptions (common law, created during time where firms were generally small)

  • Client shares confidential information with lawyer

  • Lawyer shares with other lawyer within law firm

  • Lawyer leaves for another firm, takes all client’s confidential information (firmwide)

  • Shares that confidential information with new firm

• Six Exceptions (allow for lawyer mobility)

  • Based on “personal interest” of DQ’d lawyer

    • Narrowly construed. Not required, but best to screen DQ’d lawyer

  • DQ’d lawyer at new firm can show s/he never got 1.6 info at old firm

  • DQ’d lawyer at new firm did learn 1.6 info about a now-former client at told firm, but such info is “generally known”

  • DQ’d lawyer leaves old law firm, taking the client and all cliewnt’s confiedential info with him/her

  • Screen: Nonconsensual or consensual

    • Cannot cure concurrent client conflict with screen

    • Rule 1.10a2 varies heavily state by state

  • Coming attraction: Rules 1.11, 1.12 address former government lawyers, judges, clerks

• How much confidential info is required to DQ?

  • A lot can be enough

    • Steel v. GM - court smell a rat? (Maritrans-esque?)

Steel

• Importance of hiring the correct expert

• Practical problems of maintaing a screen

• Extreme case

• If New Jersey conformed to 1.10, London gets to make this move

O’Donnell

• Three court considerations: 7.2 hour work, supervising attorney disclosed one single fact, attended a practice group meeting where strategy was discussed, worked on article with partner that discussed statute consistent with strat

• When in doubt, erect screen at hiring

• Even a little bit is enough to disqualify

• If firm done right, would not have been problem

Maritrans v. Pepper, Hamilton & Scheetz Background

Who Sued Whom Maritrans sued the Philadelphia firm Pepper, Hamilton & Scheetz and its partner J. Anthony Messina, who had been its lawyers for more than ten years. It asked for money and a court order because the firm began representing Maritrans' competitors in matters closely related to its earlier work for Maritrans.

The Long Relationship Between Firm and Client Maritrans is a Philadelphia shipping company that moves petroleum by tug and barge and competes with New York companies. Pepper handled its labor matters for more than a decade, as well as a public stock offering and other financings, and was paid about $1 million for the labor work and about $1 million for the corporate work.

What the Lawyers Learned Over those years, Pepper and Messina learned Maritrans' private financial projections, labor costs, and long-term plans. They also helped Maritrans study each competitor's strengths and weaknesses.

Switching to the Competitors With that knowledge, Pepper and Messina began representing several of Maritrans' New York competitors in their union negotiations. Those competitors wanted lower wage costs so they could win business away from Maritrans.

Maritrans Objects In September 1987, Maritrans learned from outside sources that the firm was representing four of its competitors, and it objected. The firm called this a "business conflict" rather than a legal one and said it owed Maritrans no duty to stop.

The "Chinese Wall" Deal The two sides agreed that Pepper would keep Maritrans as a client but take on no more than the four competitors, and that separate lawyers in the firm would handle each side and not talk to each other. Maritrans said it agreed only because this seemed the only way to keep the firm from representing more competitors, especially Bouchard, its largest rival.

The Firm Drops Maritrans After Maritrans shared its strike strategy with firm lawyers on November 5, 1987, the firm dropped Maritrans on December 2 and took on the New York competitors on December 28. Messina had meanwhile "parked" two other competitors, Bouchard and Eklof, with lawyer Vincent Pentima, who joined Pepper with those clients on January 4, 1988, and Maritrans sued that February.

Evidence Gathered Before Trial The competitors' own executives testified that the information the lawyers held was private, that they wanted it, and that labor costs can make or break a company. The Labor Department also confirmed that Maritrans' labor contracts were not public, which contradicted Messina's sworn testimony.

Procedural Posture

The Trial Court's Order On May 1, 1989, the trial court ordered Pepper and Messina to stop acting as labor lawyers for seven of Maritrans' New York competitors, except for one lawsuit about to start. The court found the old and new work were closely related, which created a conflict with the lawyers' duties to Maritrans.

The First Appeal Pepper and Messina appealed to the Superior Court. That court reversed the trial court and lifted the order.

The Trial Court Changes Its Mind The trial court first refused to issue the order but then reconsidered on its own. It decided it had wrongly treated the case as an ordinary business dispute rather than a matter of the special lawyer-client relationship.

Why the Trial Court Issued the Order The trial court said it had looked too narrowly at a single meeting instead of the whole long relationship, which was closely related to the new work for the competitors. It also found the firm broke its promise to keep Messina walled off, and that Maritrans deserved confidence its plans would not be used against it.

Why the First Appeals Court Reversed The Superior Court said the trial court relied on ethics rules without separately finding that the conduct gave Maritrans a right to sue. It held that this kind of conflict was not something a client could sue over in Pennsylvania.

Where the First Appeals Court Went Wrong The Supreme Court agreed that breaking an ethics rule does not by itself support a lawsuit or court order. But it said the lower court "stood this correct analysis on its head" by treating the ethics violation as if it ruled out a separate legal duty.

Legal Standard

Conduct Can Be Both Unethical and Unlawful The Court called it backward logic to say conduct stops being legally wrong just because it is also an ethics violation. Long before the ethics codes were written, ordinary law already barred lawyers from acting against former clients in closely related matters.

Losing Fees Courts across the country have made lawyers give back fees or lose unpaid fees when they broke their loyalty duties through conflicts. This shows that conflicts carry real consequences beyond professional discipline.

Paying Damages Courts have also let clients sue for money when their lawyers had conflicts. In one California case, a firm had to pay $350,000 after using a former client's private information to help undercut its business.

The Real Question in This Case Because courts readily punish lawyers who break their duties to clients, the question was whether a court order could prevent a possible conflict from harming Maritrans. The Court said basic fairness principles answer yes.

No Blanket Rule The Court said it was not creating a rule that a firm can never represent a former client's competitors. Each case depends on the facts, especially how deeply the lawyer was involved with the former client, and here that involvement was extensive.

Legal Reasoning

The Court's Main Holding in Maritrans The Pennsylvania Supreme Court agreed that breaking an ethics rule does not, on its own, give someone the right to sue. Even so, it found the lawyers had broken a basic duty of loyalty to their former client, so the trial court's order stopping them should have stood.

Why a Full Ban Was Needed Given the close link between the old and new work, the Court found it fair to bar the lawyers from representing the competitors at all. Simply ordering them not to reveal secrets would be too hard to enforce and too risky.

The Trial Court Acted Reasonably The Court found it reasonable to conclude that Maritrans' competitive position could suffer harm that could not be undone. A later lawsuit for money would be a poor remedy, because proving the harm would mean digging into the competitors' private dealings with their lawyers.

Existing Law Already Covered This Pennsylvania already had well-settled law barring anyone in a position of trust from having conflicts, with no exception for lawyers. So the trial court did not add anything new to the law.

Comparing Conflicts to Stealing Client Money Some ethics rules, like the duty of honesty to a court, may not support a lawsuit, but a lawyer who steals client money can clearly be sued. In the same way, a client harmed by a lawyer's improper conflict can sue and get a court order.

Dissent Factors for a Ethical Screen

The Chief Justice Disagrees Chief Justice Nix dissented from the majority's view that creating a risk of disclosure was itself a breach of duty. He said the majority ignored a large body of case law and an important fact that made its conclusion unreasonable.

How a "Chinese Wall" Works A "Chinese wall" separates a lawyer or team who handled one client's matter from other lawyers in the same firm who represent an opposing client. Its goal is to keep private information from passing between them.

When the Wall Comes Up To disqualify a lawyer, a former client must show the matters are closely related, which is called the "substantial relationship" test. Once that is shown, courts assume private information was shared, and the firm must use the wall to prove otherwise.

Factors for Judging a Wall Courts consider how close the lawyer-client relationship was, how much time has passed, and the firm's size. They also look at how many lawyers are walled off, what they did, and when the wall was put up.

Features of a Good Wall A good wall bans discussing sensitive matters and limits who can see documents and files. It is also backed by strict firm policies with penalties and, ideally, physical separation.

This Wall Was Weak, But the Client Agreed The dissent conceded the wall here was likely flawed, because it was set up late and the conflict sat with one lawyer, Messina, who tried to serve both sides. Still, Maritrans was told about the arrangement and agreed to it.

Agreement Means Waiver In the dissent's view, a client's informed agreement lets the lawyer continue, so Maritrans gave up its objection. Maritrans is bound by that agreement until an actual leak happens, and no leak had been shown.

Maling v. Finnegan, Henderson, Farabow, Garrett & Dunner, LLP Background

The Issue in Maling The Massachusetts high court considered whether a conflict arises when different offices of one firm secretly obtain patents for two competitors with similar inventions. The question was whether this breaks Rule 1.7 when the clients are not told and do not agree.

Maling's Patents In 2003, Maling hired Finnegan to get patents for his screwless eyeglass inventions, including a hinge design. Finnegan's Boston office got him four patents, working for him from about April 2003 to May 2009.

The Competing Client During the same period, Finnegan's Washington office represented Masunaga, a Japanese company seeking patents for similar eyeglass technology. When Maling found out, he sued over the alleged conflict.

Maling's Complaints About the Work Maling claimed Finnegan was slow, taking fourteen months to prepare his application while filing Masunaga's faster. He said he paid over $100,000 and invested millions, though he admits Finnegan did get his patents.

The Harm Maling Claimed Maling said that in 2008 Finnegan refused to give him a legal opinion comparing his patents with Masunaga's, so he could not get funding. He claimed this made his product hard to sell and lowered the value of his patents, causing him great financial hardship.

Procedural History

How the Court Reviews a Dismissal The court took Maling's factual claims as true and read them in his favor. But it looked past bare conclusions to ask whether the facts plausibly showed he deserved relief.

Legal Standard

Maling's Four Claims Maling sued for breach of loyalty duty, malpractice, unfair business practices, and misconduct before the Patent Office. Because all four depended on a hidden conflict, the court focused on whether a real conflict existed.

What Rule 1.7 Says Rule 1.7 bars representing a client when doing so is "directly adverse" to another client or when there is a significant risk the work will be "materially limited" by other duties. Its purpose is to protect client secrets and to safeguard loyalty.

"Subject Matter" Conflicts In patent law, representing competitors seeking patents in the same technology area is called a "subject matter conflict". The court rejected Maling's view that these are always violations, while noting they can create real problems.

What "Directly Adverse" Means A lawyer is directly adverse when acting as an advocate against a current client in another matter, even an unrelated one. For example, a firm defending client A in a lawsuit cannot also bring a suit against client A without both clients agreeing.

The Radio License Case In Curtis, a federal court found no conflict when a firm represented competitors seeking radio licenses. A conflict would arise only if the stations' signals interfered with each other, and no such interference was claimed.

When a Real Conflict Would Arise A real conflict could exist if the two applications were so alike that the Patent Office held an "interference proceeding" to decide who invented first. Then only one client could win, so the firm would have to disclose the conflict and get consent or withdraw.

The "Materially Limited" Test The court next asked whether Finnegan's work for Masunaga limited its work for Maling. The key question is whether a competing duty would interfere with the lawyer's independent judgment or block options the client should have.

Firms Must Check for Conflicts A conflict for one lawyer generally counts as a conflict for everyone in the firm. So firms must have procedures to spot and resolve conflicts.

Conflict Checks Are Hard With firm mergers, lawyers moving between firms, and firms spanning many states, deciding what counts as an adequate conflict check is complicated. Still, the court said nothing in its ruling excuses firms from having strong systems to catch conflicts.

Warning to Firms The court has set no minimum process, but firms face financial and reputational risks without a strong conflict system. Misusing client secrets or favoring one client over another with nearly identical interests is a serious ethical wrong.

Legal Reasoning

Conclusion of Maling Some situations in patent work can create real conflicts. On the facts Maling alleged, though, there was none, so the dismissal stood.Business Rivals Are Not Legal Opponents Maling and Masunaga were not on opposite sides of a lawsuit; each separately sought its own patents. The rules say clients who are only economic competitors are not usually in conflict, because direct adverseness requires a clash of legal rights.

Applying the Radio Case Like the firm in Curtis, Finnegan represented competitors who each sought, and won, their own rights from a government agency. The two clients were seeking different patents for similar devices, not the same patent.

Maling's Claims Undercut Themselves Maling's claim that the inventions were nearly identical clashed with his own admission that both sides got patents. He never claimed the patent claims were the same or so alike that one would block the other.

No Reason to Foresee a Clash Maling's facts did not show Finnegan should have expected an interference proceeding when it took his case. Calling the inventions "very similar" was just a conclusion, and he never claimed such a proceeding happened.

Only Speculation Maling claimed Finnegan "pulled its punches" and favored Masunaga, but he offered no supporting facts. He did not claim his patents were narrowed, his filing was delayed to help Masunaga, or his secrets were used.

Should Finnegan Have Refused at the Start? If the inventions were so similar that a conflict was foreseeable, Finnegan perhaps should have declined Maling's case from the beginning. Under the rule, the mere possibility of later harm does not require disclosure; what matters is how likely a real conflict is and how much it would interfere.

Too Few Facts Maling's complaint did not describe the scope of the work beyond filing and getting patents. With too few facts to show Finnegan should have foreseen a conflict, the court agreed the complaint fell short.

Conclusion of Maling Some situations in patent work can create real conflicts. On the facts Maling alleged, though, there was none, so the dismissal stood.

Brennan’s, Inc. v. Brennan’s Restaurants, Inc. Background

Introduction to Brennan's Brennan's shows the problems that arise when clients a lawyer represented together later fall out. Under a general evidence rule, jointly represented clients cannot claim privilege against each other, but there is less law on whether ethics rules work the same way.

One Lawyer for All Before 1974, all the family members owned and directed the related companies, which shared boards. From 1971 to 1973, Edward Wegmann served as general counsel for all the businesses, which split his fee.

The Family Splits A family dispute in 1973 was settled in November 1974 by splitting the companies between two family groups. Wegmann chose to stay with the defendants, and no one discussed who could use the trademarks.

The Lawsuit Both sides kept using the marks, talks failed, and the plaintiff sued on May 21, 1976. The defendants claimed the marks were registered in the plaintiff's name only for convenience and really belonged to all the family restaurants.

The Motion to Disqualify Wegmann brought in New York trademark lawyer Arnold Sprung, and the plaintiff moved to disqualify both. The trial court agreed, finding the case closely related to Wegmann's earlier work and that Sprung likely learned the plaintiff's secrets from him.

Legal Standard

The Defendants' Argument A former client usually needs to show only that the matters are closely related, because courts then assume secrets were shared. The defendants argued that assumption should not apply, since all the companies were represented together.

Legal Reasoning

Privilege Is Not the Same as Ethics The court said the defendants confused the evidence privilege with a lawyer's broader ethical duty to keep client confidences. That duty protects client trust, and a client would feel wronged if beaten by its own former lawyer in the same matter.

Wegmann Is Out Under the old rule against even the appearance of impropriety, the court weighed public trust against a party's right to choose its lawyer. The conflict was obvious, so the court affirmed Wegmann's disqualification.

Sprung Is Harder Sprung never represented the plaintiff and was disqualified only because of his link to Wegmann. Because it was unclear whether Wegmann represented the plaintiff alone on the trademarks, the court sent that part of the case back for more fact-finding.

If the Work Was Joint If Wegmann represented everyone together, there were no secrets between those clients unless one said otherwise. So Sprung could not have learned anything the defendants did not already have a right to know, and he should stay.

No Real Harm From Sprung Even if Sprung picked up information informally that he would otherwise have needed to get in discovery, the plaintiff suffered no real harm. The court rejected another court's rule of automatic disqualification in that situation as too rigid.

If the Work Was Not Joint Even if Wegmann represented only the plaintiff, Sprung would not automatically be out, because courts reject an all-or-nothing approach for co-counsel. Sprung should be disqualified only if he actually learned information the plaintiff meant to keep from the defendants.