Conflicts of the Titans: State of Minnesota v. 3M Co. · Conflicts of the Titans: State of Minnesota v. 3M Co. By . ... Conflicts of the Titans: State of Minnesota v. 3M ... (refusing

Conflicts of the Titans: State of Minnesota v. 3M Co.

By Eric T. Cooperstein

Law Office of Eric T. Cooperstein, PLLC Ethics Consulting and Representation 2600 U.S. Bancorp Center 800 Nicollet Mall Minneapolis, MN 55402 612-436-2299 (w) 952-261-2843 (c) [email protected]

© 2014 Eric T. Cooperstein

mailto:[email protected]

Table of Contents

Page

I. Conflicts Between Current Clients .................................................. 1

II. Conflicts Waivers................................................................................. 5

III. Former Client Conflicts: Critical Concepts for Understanding State v. 3M ............................................................................................. 9

IV. State of Minnesota v. 3M Co. .................................................................. 15

Appendix

Minnesota Rules of Professional Conduct

Rule 1.7 ................................................................................................ 21

Rule 1.9 ................................................................................................ 21

Conflicts of the Titans: State of Minnesota v. 3M Page 1

I. Conflicts Between Current Clients.

A. Minnesota Rule 1.7: General Rule for Conflict of Interest Between Current Clients.

1. Prohibits representation of two clients whose interests will be directly adverse, unless

a) lawyer “reasonably believes” representation of one client will not affect the relationship or representation of another client; and

b) both clients give informed consent, confirmed in writing.

2. Consent required regardless of whether the matters for the two clients are related in any way.

a) Example: Big Law Firm (BLF) handles patent prosecution for Neurotic Neural Networks (3N), a large corporation. An associate in BLF’s family law division represents Wendy Ward in her divorce. During the divorce she is fired from her job and decides to sue her employer for wrongful termination and failure to provide her with access to the company’s health insurance plan under COBRA. Her employer is 3N. Can the associate represent Ward?

No. Lawyer has an imputed conflict under Rule 1.7(a)(1) and Rule 1.10(a) and must obtain consent from both clients before proceeding with either representation, even though the patent prosecution work is unrelated to the employment case. Regarding imputed conflicts, see discussion infra.

Could BLF have a conflict in continuing to represent Ward in her divorce? If Ward worked for the same managers or other 3N employees that BLF’s IP lawyers have frequent contact with, it is possible that BLF could have a conflict under Rule 1.7(a)(2), because BLF may gain confidential information on behalf of one client that could be detrimental to the other client. BLF could obtain consent from each client and implement a consensual screen to assure the clients that their interests will be protected.

b) But see Texas Disciplinary Rules of Prof. Conduct, Rule 1.06(b) (prohibiting representation of clients “materially or directly


adverse” to the interests of another client in a substantially related matter).

c) Some 1.7(a)(1) conflicts are harder to spot. For example:

(1) Client A wants Law Firm to write an amicus brief in an appellate court, supporting theory X. Law firm's Client B is a party to the appeal, although B is represented by a different law firm in the appeal. Client B is arguing “non-X” in the appeal. Conflict under Rule 1.7(a)? Yes, because the firm’s two clients are adverse to each other, even though the firm is not otherwise involved in the appeal. The conflict could be waived if both clients give informed consent.

(2) Lawyer represents a doctor as a general business client. Lawyer learns that the doctor will serve as the opposing party’s expert witness in a medical malpractice lawsuit in which the lawyer represents the plaintiff. The possibility that the lawyer will have to cross-examine his client creates direct adversity and a conflict of interest under the Rules, which would likely be waivable with informed consent. ABA Formal Opinion 92-367, “Lawyer Examining a Client as an Adverse Witness, or Conducting Third Party Discovery of the Client” (Oct. 16, 1992).

(3) Positional conflicts. It may be permissible to represent, with conflicts waivers in place, both an insurance company and an unrelated insured in different lawsuits in which the law firm will take opposite sides regarding environmental insurance coverage. See Phil. Bar Assoc. Ethics Op. 89-27 (Mar. 1990).

3. Some conflicts are not waivable. The most obvious is a law firm representing one client against another, regardless of whether different lawyers or law firm offices are involved. Examples:

a) Opposing Parties in transactions. Most authorities reject representing opposite sides in transactions, even when the parties cooperate with each other. It is nearly a per se violation of Rule 1.7 to represent:


(1) Buyer and seller in real estate transaction. Baldasarre v. Butler, 625 A.2d 458 (N.J. 1993);

(2) Both spouses in divorce. Walden v. Hoke, 429 S.E.2d 504 (W.Va. 1993). Compare Annotated Model Rules of Professional Conduct, at 282-83 (4th Ed. 1999) (discussing dangers of representing multiple parties in divorces and adoptions, despite existence of Rule 2.2).;

(3) Biological and adoptive parents in adoption. In re Michelman, 616 N.Y.S.2d 409 (App. Div. 1994); ABA Comm. on Ethics and Professional Responsibility, Informal Op. 87-1523 (1987) (prohibiting lawyer from representing adoptive and biological parents because “inherent conflicts” preclude lawyer from reasonably believing representation of one client would not adversely affect representation of the other).

(4) Contra: “[W]e note that we have never held, nor are we prepared to do so now, that an attorney should never represent both parties seeking an ante nuptial agreement.” McKee-Johnson v. Johnson, 444 N.W.2d 259, 266 (Minn. 1989) (dicta regarding alleged fraud allegations by aggrieved party to a prenuptial agreement).

b) Spouses in Personal Injury Actions: In most jurisdictions, a lawyer cannot simultaneously represent a husband and wife in a car accident where one spouse was the driver. See e.g. Jedwabny v. Philadelphia Transportation Co. 135 A.2d 252 (Pa. 1957); Weinberg v. Underwood, 244 A.2d 538 (N.J. 1968); In re Thornton, 421 A.2d 1 (D.C. 1980) (suspending lawyer for one year for undertaking representation of driver and passenger). But see Restatement Third, The Law Governing Lawyers § 128, cmt. d(i) (suggesting possibility of informed consent); Fla. Bar Ethics Opinion 02-3 (June 21, 2002) (permitting some driver-passenger representations where the driver has no liability and there is either sufficient insurance coverage by the tortfeasor or the parties can agree beforehand regarding how to apportion the available coverage); See also Oregon State Bar Formal Opinion 2000-158 (Jan. 2000) (permitting representation of passenger and driver in claims against driver’s personal injury protection (no-fault) benefits).


B. Direct Adversity: Conflicting Legal Opinions.

1. Direct adversity is not limited to litigation matters. Giving a legal opinion for one firm client that is against the interests of another current firm client could result in a conflict of interest. For example, in an IP case, providing a validity opinion to Client A about Client B’s patent, even if the firm did not prosecute Client B’s patent, may constitute “direct adversity” under Rule 1.7(a)(1). Andrew Corp, v. Beverly Mfg. Co., 415 F.Supp.2d 919 (N.D. Ill. 2006).

a) Law firm gave 3 opinions to Beverly against its client Andrew, both represented in the same office.

b) Firm did not recognize conflict until a year later, when both clients asked for representation in Andrew’s infringement suit against Beverly. At that time, firm declines both representations.

c) Court excludes all three opinions from evidence in the infringement action, in part because the conflict of interest rendered the firm “incompetent” as independent infringement counsel. Andrew Corp, 415 F.Supp.2d at 928.

d) “Beverly's apparent lack of knowledge of the existence of the conflict does not change the fact that the conflict, under which [the law firm] labored, existed. Beverly may seek recourse from [the law firm] elsewhere if it desires.” Andrew Corp, 415 F.Supp.2d at 928-29.

2. See also Virginia Legal Ethics Op. 1774, “Firm Writing Patents for One Client and Also Writing Patents for Competitor of the First Client” (Feb. 13, 2003). Note that the title is somewhat at odds with the substance of the opinion because the fact pattern does not discuss a true competitor conflict. Compare with Section II(D), infra.

Virginia held that the opining conflict was waivable, i.e. with consent from the clients the lawyer could do the work.

C. Defending your own work product.

1. Defending a lawyer’s own work product can result in another type of non-litigation conflict of interest. For example, when a client is sued for infringement after the lawyer provided the client with an opinion stating that the client’s product would not infringe, or when a lawyer is accused of inequitable conduct in a patent prosecution, a dual conflict


may arise for the lawyer and the law firm. First, there is the potential violation of the attorney-as-witness rule, MRPC Rule 3.7. This rule, by itself, is not of great concern because the rule allows a law firm to continue representing the client even when the individual lawyer who provided the opinion may be conflicted out. See Breckenridge Pharm., Inc. v. Metabolite Labs., Inc., 2007 U.S. Dist. LEXIS 7775 (S.D. Fla. Feb. 2, 2007) (refusing to disqualify law firm in infringement case despite possibility that individual lawyer would have to testify about alleged inequitable conduct in patent prosecution); Landmark Graphics Corp. v. Seismic Micro Tech., Inc., 2007 U.S. Dist. LEXIS 6897 (S.D. Tex. Jan. 31, 2007) (same).

a) But see Summagraphics Corp. v. Sanders Assoc. Inc., 19 U.S.P.Q.2d (BNA) 1859, 1861-62 (D. Conn. 1991), discussed in Landmark Graphics Corp. 2007 U.S. Dist. LEXIS 6897 at *24 (disqualifying lawyer who had prosecuted patent from defending client in subsequent infringement case because lawyer had given conflicting opinions on patent validity and likelihood that lawyer would testify contrary to his client’s interests).

2. The greater conflict is between the law firm’s duty to diligently represent the client and the law firm’s own interest in avoiding a malpractice claim down the road. This conflict could cause the law firm to avoid pursuing legal theories that might be favorable to the client but detrimental to the law firm. See Eurocom, S.A. v. Mahoney, Cohen & Co., 522 F.Supp 1179 (S.D.N.Y. 1981).

3. Privilege Protection. Aside from the law firm’s potential liability, a client who retains separate trial counsel may be better able to protect its attorney-client privilege with trial counsel, especially where the client is relying on an advice of counsel defense. See In re Seagate Technology, LLC, 487 F.3d 1360, 1372-73 (Fed. Cir. 2007).

II. Conflicts Waivers.

A. The Rules of Professional Conduct allow some conflicts to be waived and require that “each affected client gives informed consent, confirmed in writing.” This applies to all conflicts waivers under Rules 1.7 (conflicts between current clients), 1.8(g) (aggregate settlements), 1.9 (conflicts with former clients), 1.11 (former government employees’ conflicts), and 1.12 (former judge conflicts).


B. Elements of written conflicts waivers

1. “‘Confirmed in writing,’ when used in reference to the informed consent of a person, denotes informed consent that is given in writing by the person or a writing that a lawyer promptly transmits to the person confirming an oral informed consent. See paragraph (f) for the definition of “informed consent.” If it is not feasible to obtain or transmit the writing at the time the person gives informed consent, then the lawyer must obtain or transmit it within a reasonable time thereafter.” MRPC, Rule 1.0 (b).

2. “’Informed consent’ denotes the agreement by a person to a proposed course of conduct after the lawyer has communicated adequate information and explanation about the material risks of and reasonably available alternatives to the proposed course of conduct.” MRPC, Rule 1.0 (f).

3. Comment 20 notes that the “writing may consist of a document executed by the client or one that the lawyer promptly records and transmits to the client following an oral consent. . . . The requirement of a writing does not supplant the need in most cases for the lawyer to talk with the client, to explain the risks and advantages, if any, of representation burdened with a conflict of interest, as well as reasonably available alternatives, and to afford the client a reasonable opportunity to consider the risks and alternatives and to raise questions and concerns. Rather, the writing is required in order to impress upon clients the seriousness of the decision the client is being asked to make and to avoid disputes or ambiguities that might later occur in the absence of a writing.” (emphasis added).

a) Definition of writing includes electronic documents.

b) Confirmation in writing must occur within a reasonable time after disclosure of the conflict.

c) The rules do not contain an explicit prohibition of the writing being a part of the retainer or representation agreement.

C. Future conflicts waivers used to be discouraged as relying too heavily on client consent and inadequate disclosures. See ABA Formal Op. 93-372 (April 16, 1993), withdrawn by ABA Formal Op. 05-436 (May 11, 2005). The revised Rule 1.7 contains a new comment 22: “Consent to Future Conflict:”


[22] Whether a lawyer may properly request a client to waive conflicts that might arise in the future is subject to the test of paragraph (b). The effectiveness of such waivers is generally determined by the extent to which the client reasonably understands the material risks that the waiver entails. The more comprehensive the explanation of the types of future representations that might arise and the actual and reasonably foreseeable adverse consequences of those representations, the greater the likelihood that the client will have the requisite understanding. Thus, if the client agrees to consent to a particular type of conflict with which the client is already familiar, then the consent ordinarily will be effective with regard to that type of conflict. If the consent is general and open-ended, then the consent ordinarily will be ineffective, because it is not reasonably likely that the client will have understood the material risks involved. On the other hand, if the client is an experienced user of the legal services involved and is reasonably informed regarding the risk that a conflict may arise, such consent is more likely to be effective, particularly if, e.g., the client is independently represented by other counsel in giving consent and the consent is limited to future conflicts unrelated to the subject of the representation. In any case, advance consent cannot be effective if the circumstances that materialize in the future are such as would make the conflict nonconsentable under paragraph (b).

1. ABA Formal Op. 05-436, based on the adoption of the revised Model Rules in 2002, endorses waivers of future conflicts with the disclosures envisioned by “informed consent.” The Opinion provides three cautionary caveats:

a) Some conflicts are still not consentable, regardless of an informed consent;

b) A consent to a future conflict does not constitute the client’s consent to the disclosure or use of the client’s confidential information against the client; and

c) If the lawyer is later in the position of taking on a matter within the scope of a previous conflicts waiver, the lawyer must independently evaluate the conflict to see whether the representation may be impermissible for any other reason.

Accord Legal Ethics Comm. of the Dist. of Columbia Bar, Op. 309 (Sept. 20, 2001).

2. Future Waiver Upheld: Visa U.S.A., Inc. v. First Data Corp., 241 F. Supp. 2d 1100, 1102-03 (N.D. Cal. 2003). First Data hired Law Firm to defend a patent infringement action (brought by a party unrelated to


this litigation). At that time, First Data signed an engagement letter with the following language:

Our engagement by you is also understood as entailing your consent to our representation of our other present or future clients in "transactions," including litigation in which we have not been engaged to represent you and in which you have other counsel, and in which one of our other clients would be adverse to you in matters unrelated to those that we are handling for you. In this regard, we discussed [law firm’s] past and on-going representation of Visa U.S.A. and Visa International (the latter mainly with respect to trademarks) . . . in matters which are not currently adverse to First Data. Moreover, as we discussed, we are not aware of any current adversity between Visa and First Data. Given the nature of our relationship with Visa, however, we discussed the need for the firm to preserve its ability to represent Visa on matters which may arise in the future including matters adverse to First Data, provided that we would only undertake such representation of Visa under circumstances in which we do not possess confidential information of yours relating to the transaction, and we would staff such a project with one or more attorneys who are not engaged in your representation. In such circumstances, the attorneys in the two matters would be subject to an ethical wall, screening them from communicating from [sic] each other regarding their respective engagements. We understand that you do consent to our representation of Visa and our other clients under those circumstances.

Several months after signing the letter, Visa, represented by law firm, sued First Data. The Court denied First Data’s motion to disqualify Law Firm, relying on the waiver language.

3. Future Waiver Ignored: Celgene Corp. v. KV Pharmaceutical Co., 2008 U.S.Dist LEXIS 58735, *5 (N.J. 2008). Law Firm represented Celgene in one litigation matter for several years and in another litigation matter several years after the first. In each matter, Celgene signed an engagement agreement with the following language:

From time to time we may be asked to represent someone whose interests may differ from the interests of the Company. The Firm is accepting this engagement with the Company's understanding and express consent that our representation of the Company will not preclude us from accepting an engagement that is adverse to the Company or its interests, including litigation. However, the Firm will not accept an engagement that is directly adverse to the Company if


either: (1) it would be substantially related to the subject matter of our representation of the Company; or (2) would impair the confidentiality of proprietary, sensitive or otherwise confidential communications made to us by the Company.

About a year after signing the second letter, Celgene (through other counsel), brought the present infringement case. Law Firm appeared on behalf of the defendant. The court granted Celgene’s disqualification motion, holding that the waiver language was not sufficiently specific to avoid the conflict.

4. Elements of good written waivers

a) Describes detailed facts specific to the client’s situation;

b) Describes the reasonably foreseeable future conflicts;

c) Identifies the risks to the client of a conflict occurring (costs, time, withdrawal of lawyer, hiring of new lawyer);

d) Explains, in joint representations, that confidential information will be shared between the clients and that attorney client privilege will not apply between clients (see Rule 1.7, cmt. 30, 31.

e) Where appropriate, the firm may promise the client that an ethics screen will be implemented to protect the client’s confidential information. This is called a “consensual screen” because it is an element of the client’s consent to a potential conflict, but it does not fit any of the circumstances that give rise to an ethics screen within the Rules of Professional Conduct.

D. “Sophisticated” Clients: The comments to the Rules of Professional Conduct suggest that the extent to which a lawyer must explain a matter to a client to obtain the client’s “informed consent” may vary based on the “experience” of the client in legal matters. See Rule 1.0, cmt. 6; Rule 1.7, cmt. 22. For a biting commentary on the merits of such distinctions, see L. Fox, “The Gang of Thirty-Three: Taking a Wrecking Ball to Client Loyalty” 121 Yale L. J. Online 567 (2012).

III. Former Client Conflicts: Critical Concepts for Understanding State v. 3M

A. Rule 1.9(a): A lawyer who has represented a client in a matter may not represent a subsequent client if:

1. the new representation concerns the same or a substantially related matter; and


2. the new client’s interests are materially adverse to the former client, unless

3. the lawyer obtains the former client’s informed consent in writing after consultation. Rule 1.9(a), MRPC.

B. Rule 1.9(c): A lawyer is also prohibited from using information “relating to the representation” to the former client’s disadvantage. Rule 1.9(c), MRPC.

1. However, when the individual lawyer who represents a client leaves a law firm, the lawyer generally takes the conflict with him or her, as long as the firm does not retain the client’s confidential information. See Rule 1.10(c); see also Solow v. W. R. Grace & Co., 632 N.E.2d 437 (N.Y. 1994).

2. Law firm was not disqualified from representing plaintiffs in asbestos case against W.R. Grace where a former partner of the firm had previously defended W.R. Grace in litigation regarding asbestos contamination of a different and unrelated building. Id.

C. Substantial Relationship. This test is commonly understood to refer not just to the factual nexus between two matters but also to whether a former client’s confidential information may be used in the subsequent matter.

1. Comment 3 to Rule 1.9 sets forth several criteria to consider in evaluation whether there is a substantial relationship between two matters, including:

a) Whether the matters involve the same transaction or legal dispute.

b) Whether there is a substantial risk that confidential factual information as would normally have been obtained in the prior representation would materially advance the client’s position in the subsequent matter.

c) Whether otherwise confidential information has been disclosed to the public or to other parties adverse to the former client.

d) Whether the passage of time has rendered confidential information obsolete.


2. The Minnesota Supreme Court has not adopted the comments to the Minnesota Rules of Professional Conduct (MRPC) but they favorably cite them from time to time.

D. Waivers. Conflicts under Rule 1.9(a) may be waived. Although 1.9(a) requires a client’s informed consent, confirmed in writing. See discussion of waivers in section II, supra. State of Minnesota v. 3M suggests that there may be an implied waiver to a conflict of interest. See discussion in section 4, infra.

E. Passage of Time. Comment 3 suggests that the passage of time may render confidential information obsolete. The Minnesota Court of Appeals relied on this comment in part in reversing a district court’s disqualification of an attorney, representing an defendant-employer, against a plaintiff-employee that the attorney has represented in an unrelated employment discrimination lawsuit 25 years earlier. See Neimi v. Girl Scouts of Minn. and Wisc. Lakes and Pines, 768 N.W.2d 385, 391 (Minn. Ct. App. 2009).

1. The Court rejected the assertion that there was a substantial relationship because the employee had shared her “approach to litigation,” which sounds akin to a rejection of “playbook theory.” Id. at 389; see discussion of playbook theory, infra.

2. Rule 1.9(a) is not intended to impose a “lifetime ban on being adverse to a former client.” Id. at 390.

3. But see Healthnet, Inc. v. Health Net, Inc., 289 F.Supp.2d 755 (S.D. W.Va. 2003) (disqualifying counsel based on an opinion letter regarding a trademark that he had written 17 years earlier and while employed by another law firm).

F. Attacking Own Work Product: It would not likely be permissible to prosecute a patent for a client and then subsequently attack that patent on behalf of another client. Sun Studs v. Applied Theory Associates, Inc., 772 F.2d 1557, 1567 (Fed. Cir. 1985) (disqualifying law firm).

G. “Hot Potato” Conflicts: Although Rule 1.7(a)(1) prohibits representations adverse to current clients even in unrelated matters, Rule 1.9(a) allows representation against a former client in a matter that is not substantially related. If a lawyer was presented with a lucrative matter opposed to a current client, wouldn’t it be neat if the lawyer could withdraw from the current client’s matter and accept the new matter? Authorities generally agree that a lawyer may not “drop a client like a hot potato” just to accept an adverse representation. See e.g. El Camino Resources, Ltd. v. Huntington National Bank, 2007 U.S.Dist. LEXIS 67813 (W.D.Mich. 2007).


1. This does not include conflicts “thrust upon” lawyers by virtue of corporate mergers and acquisitions or other unforeseeable developments. See Rule 1.7, cmt. 5; In re Sandahl, 980 F.2d 1118 (7th Cir. 1992)

2. Cold Potatoes Acceptable? Where there has been a continuing attorney-client relationship over time involving various matters, but no current work being done for the client, it may be permissible for a lawyer terminate the on-going relationship for the purpose of representing a client adverse to the now-former client. Metaphorically, the dropped client is a “cold potato.” See W. Wernz, Minnesota Legal Ethics at 390 (MSBA Nov. 8, 2011 ed.).

H. “Playbook Conflicts”: In Superguide Corp. v. DirectTV Enterprises, Inc., 141 F.Supp.2d 616 (W.D. N.C. 2001), Lawyer Doran represented Gemstar (a 3rd-party defendant in the lawsuit) over a five-year period, during which time Superguide licensed patents to Gemstar. Doran was lead national trial counsel for Gemstar’s patent infringement litigation and, although he did not draft or negotiate the particular licensing agreement with Superguide, he “became thoroughly educated about Gemstar’s licensing agreements, patents, and internal operations.” Id. at 622. He also “developed litigation strategy, participated extensively in negotiations and settlement discussions and routinely advised Gemstar's in-house counsel on how to proceed in” patent infringement actions. Id. Gemstar fired Doran when he, ironically, refused to engage in conduct that he believed was unethical. Subsequently, Doran began representing Superguide against DirectTV, which did not initially involve Gemstar. Two years later, in the litigation with DirectTV, Gemstar moved to disqualify Doran as Superguide’s counsel.

1. The court disqualified Doran. Although the court came close to holding that the subject of the present litigation was substantially related to the work Doran had done for Gemstar, the court appears to have primarily found that Doran had significant confidential information of Gemstar that could be used against it. Id. at 623.

2. The court’s analysis could be interpreted as subscribing to the “playbook” theory of former client conflicts, i.e. that the confidential information held by an attorney relates not to a specific case but to the confidential strategies and practices of the client in general.

3. The confidentiality issue was not based on particular documents held by Doran, but on knowledge that he possessed.


I. Test for Disqualification. The criteria for disqualifying counsel for a former client conflict has been shifting in Minnesota. From 1983 to at least 2003, Minnesota courts used a three-part test:

1. Whether there is a “substantial, relevant relationship or overlap between the subject matters of the two representations,” which, if true, creates an irrebuttable presumption that the individual attorney received confidences from the former client;

2. Whether the attorney or law firm can rebut a second presumption, that confidences were “conveyed to the attorney’s affiliates;”

3. Whether the competing equities weigh in favor of disqualification. Jensen v. Touche Ross & Co., 335 N.W.2d 720 (Minn. 1983); See Buysse v. Baumann-Furrie & Co., 448 N.W.2d 865, 868-69 (Minn. 1989) (applying disqualification test after adoption of Rules of Professional Conduct in 1985). Examples of equities Minnesota courts considered in the past included:

a) Economic hardship to deny client its choice of counsel, Id.; Lennartson v. Anoka-Hennepin Ind. School Dist. No. 11, 638 N.W.2d at 498, reversed on other grounds by 662 N.W.2d 125 (Minn. 2003);

b) No prejudice to party moving for disqualification, Id.;

c) Length of representation of client whose counsel would be disqualified, Id (five years); In re Trust Created by Hill, 499 N.W.2d at 493 (“seven decades”);

d) No expectation of confidentiality by client moving for disqualification, In re Trust Created by Hill, 499 N.W.2d at 493;

e) Party moving for disqualification had other, independent counsel, Id.;

f) Failure of moving party to anticipate a potential conflict and “voice its objection informally” at an earlier time, Buysse, 448 N.W.2d at 869;

g) The delay that disqualification would cause in the litigation, Lennartson, 638 N.W.2d at 498 (Minn.Ct.App.), reversed on other grounds by 662 N.W.2d 125 (Minn. 2003);

h) The public’s perception that the adversary system works and that a lawyer who represents them will do so with complete devotion, Lennartson, 638 N.W.2d at 498 (Minn.Ct.App.), reversed on other grounds by 662 N.W.2d 125 (Minn. 2003).


i) Under the equities prong of the disqualification test, Minnesota appellate courts rarely disqualified counsel. This reflects the sentiment by other courts that “disqualification is a drastic measure which courts should hesitate to impose except when absolutely necessary.” Scheissle v. Stephens, 717 F.2d 417, 420 (7th Cir. 1983). But see Lennartson v. Anoka-Hennepin Ind. School Dist. No. 11, 662 N.W.2d 125 (Minn. 2003) (disqualifying law firm for imputed conflict created by hiring of associate who previously represented opposing party; rejecting future application of Jensen disqualification motions for imputed conflicts under Rule 1.10(b)); National Texture Corp. v. Hymes, 282 N.W.2d 890 (Minn. 1979) (disqualifying counsel under disqualification test pre-dating “competing equities” step).

4. The End of Equities? In Lennartson v. Anoka-Hennepin Ind. School Dist. No. 11, 662 N.W.2d 125 (Minn. 2003), the Minnesota Supreme Court applied MRPC Rule 1.10(b) strictly without regarding to equities, resulting in the disqualification of counsel. The case represented a sea-change, showing that the Court would rely heavily on the Rules of Professional Conduct to evaluate conflicts, without regard to equitable considerations. The Court upheld the screening mechanism in Minnesota Rule 1.10(b) but disqualified the law firm.

a) An associate took a single deposition and reviewed some files as part of her law firm’s representation of a plaintiff in a sexual harassment lawsuit against a school district. Law firm withdrew from representing Plaintiff. Subsequently, the law firm that represented the defendant school district hired Associate. The law firm identified the conflict upon hiring Associate, created an “ethical wall” to prevent Associate from discussing the case with the defense lawyers, and, one month later, notified the opposing party. Plaintiff sought to disqualify the law firm.

b) The law firm conceded that this concerned the same matter and that the information the Associate obtained while representing the Plaintiff was likely to be significant. Id. at 498, 499. Under the plain meaning of Rule 1.10(b), the matter was not eligible for screening and the firm had a conflict that was only waivable by the Plaintiff. Hence, the Minnesota Supreme Court disqualified the law firm, without regard to any equitable factors.

5. Resurrection of Equities? State of Minnesota v. 3M states both that it affirms Lennartson’s adherence to the application of the Rules of


Professional Conduct but also states that there may be an implied waiver of a conflict, a pseudo-equitable principle that contradicts the requirement in Rule 1.9(a) of “informed consent, confirmed in writing.”

IV. State of Minnesota v. 3M Co.

A. In 2014, the Minnesota Supreme Court issued its first opinion on the standards for disqualification of attorneys for conflicts of interest since Lennartson v. Anoka-Hennepin Independent School District No. 11, 662 N.W.2d 125, 132-35 (Minn. 2003). The recent case –State of Minnesota v. 3M Co., Nos. A12-1856 and A12-1867 (Minn. Apr. 30, 2014)– raises a variety of issues regarding the test for disqualification, the relationship of the Rules of Professional Conduct to disqualification, when the right to assert a conflict has been waived, and the standing of the challenged attorneys to contest disqualification.

B. Facts. For several decades, 3M manufactured a category of chemicals called perfluorochemicals (PFCs), which it used in some of its products. The Covington & Burling firm represented 3M in a variety of matters over many years. In particular, from 1992 to 2006, attorney Peter Hutt of Covington’s Washington D.C. office represented 3M in legal and regulatory matters related to 3M’s use of and decision to discontinue using PFCs. In particular, but not exclusively, Hutt advised 3M regarding FDA approval that 3M was seeking to use PFCs in food packaging. Hutt was part of a “virtual law firm” that 3M created to combine the talents of in-house counsel and attorneys at several law firms to provide advice on PFC-related issues. Slip op., at 4-5.

1. 3M stopped manufacturing PFCs in 2000. In 2007, 3M reached an agreement with the Minnesota Pollution Control Agency (MPCA) under which 3M agreed to take steps to abate PFC pollution and continue to study the chemical.

2. Covington did not represent 3M in any matters in the late 2000s. In May 2010, 3M hired a different Covington attorney for discrete advice on a retiree-benefits matter completely unrelated to PFC issues.

3. Covington completed the retiree-benefits work by September 27, 2010. The final invoice was paid in November 2010. At Covington's request, 3M sent an e-mail formally terminating the engagement on the retiree-benefits matter on December 22, 2010.

4. In November 19, 2010, the Minnesota Attorney General initiated discussions with 3M regarding claims the State of Minnesota was


contemplating bringing against 3M for violations of the Minnesota Environmental Response and Liability Act (MERLA), the Minnesota Water Pollution Control Act (MWPCA), and other causes of action. On December 30, 2010, the State signed a representation agreement (titled “Special Attorney Appointment”) with Covington and filed the current lawsuit in district court. Covington had also represented the State in various environmental-litigation matters since 1995.

5. Hence, Covington began representing the State of Minnesota against 3M less than two weeks after formally concluding its prior representation of 3M. Covington agreed to represent the State on a contingent-fee basis and to advance all costs in the lawsuit.

6. In an e-mail exchange in April 2011, 3M’s general counsel indicated to Covington attorneys that he was aware Covington had taken an environmental case against 3M on a contingency basis and that he understood that 3M had ceased sending a stream of work to Covington. Again in November 2011, the general counsel noted that 3M had failed to raise the conflict issue at the time the litigation began but noted that perhaps he should have.

7. 3M moved to disqualify Covington in April 2012. The district court granted the motion and the court of appeals affirmed. The Minnesota Supreme Court subsequently reversed.

C. Rule 1.9(a). The district court and court of appeals considered the motion primarily under Rule 1.9(a), which provides “A lawyer who has formerly represented a client in a matter shall not thereafter represent another person in the same or a substantially related matter in which that person's interests are materially adverse to the interests of the former client unless the former client gives informed consent, confirmed in writing.”

1. Comment 3, relied on by the Supreme Court, explains that matters are “substantially related” under the Rule “if they involve the same transaction or legal dispute or if there otherwise is a substantial risk that confidential factual information as would normally have been obtained in the prior representation would materially advance the client's position in the subsequent matter.” The comment goes on to state that the matters may not be substantially related if confidential information provided to the attorney in the prior representation subsequently has been disclosed to the public or if that information has been rendered obsolete by the passage of time.


2. Hutt was certainly in a position to obtain information about 3M’s handling of PFCs, which were the subject of his representation and the State’s subsequent lawsuit. The Court found, however, that the lower court did not “meaningfully assess” whether the confidential information that Hutt possessed had been made public or has become obsolete.

a) An essential part of a client’s right to assert confidentiality is that the client should not have to disclose the confidential information in question to prove that the attorney had the information or that it was used against the client. Hutt’s access to confidential information beyond what had been publicly disclosed could be presumed from the circumstances.

b) The standard of review for appeals of disqualification motions is abuse of discretion. Typically, the Court would defer to the lower court’s determination on factual issues such as the existence of confidential information.

c) The Court deemed instead that by not “meaningfully assessing” whether the confidential information had been disclosed and whether a subsequent lawsuit by 3M against Covington, see infra, waived the attorney-client privilege, the district court abused its discretion.

D. Waiver. Several brands of waiver arguments are considered in the Court’s decision.

1. Implied Waiver jurisprudence. The Court adopted waiver arguments offered by the State. Relying on a fifty-year old criminal case regarding the right to counsel, the Court stated that “Under our waiver jurisprudence, any legal right may be waived, except as limited by public policy.” Slip op., at 15, citing State ex rel Shelby v. Rigg, 96 N.W.2d 886, 893 (Minn. 1959)

a) Shelby v. Rigg, concerned whether a criminal defendant, in a 1931 plea hearing in a first-degree murder case, had knowingly and intentionally waived his Sixth Amendment right to counsel after having been asked two questions by the presiding judge about whether he wanted a lawyer. The Supreme Court affirmed.

b) The Court weighed decisions rejecting waiver because of the need to “uphold high ethical standards in the legal profession”


against the “recognition that parties have a substantial right to the counsel of their choice.”

c) The Court cited no cases for the proposition that a party may impliedly waive a conflict and did not address the requirement in 1.9(a) that a conflict waiver requires “informed consent, confirmed in writing.”

d) The Court concluded that the right to seek disqualification of opposing counsel can be waived. Slip op. at 16.

e) A finding of waiver by a district court will not preclude other remedies for violating Rule 1.9(a), such as disciplinary action or a separate lawsuit for breach of fiduciary duty. Slip op. at 17.

f) Mere inaction is not sufficient to show an intent to waive; the burden of establishing waiver is on the party asserting it. Factors indicating an intent to waive:

(1) Delay in bringing disqualification motion.

(2) Whether movant was represented by counsel during the delay.

(3) The reason for the delay.

g) The legally relevant point for determining the length of the delay is when the party learned of the conflict. “"[A] corporation is charged with constructive knowledge . . . of all material facts of which its officer or agent . . . acquires knowledge while acting in the course of employment within the scope of his or her authority.” Slip op. at 19 (citations omitted).

(1) Typically it is the lawyer’s responsibility, not the client’s, to identify, to disclose, and when necessary to obtain consents to conflicts of interest. The Court’s opinion suggests that the responsibility to identify a conflict lies with the client.

h) The Court remanded to the district court for the consideration of waiver.

2. Filing of a concurrent breach of fiduciary duty lawsuit. While the disqualification motion was pending, 3M filed a civil lawsuit against


Covington for breach of fiduciary duty. The Court indicated that 3M may have waived its attorney-client privilege by filing a lawsuit against its former lawyers.

E. Test for Disqualification. Despite its lengthy discussion of waiver, the Court otherwise reaffirmed the rule stated in Lennartson that if the district court determines that a conflict is present, then it must disqualify counsel without consideration of other equitable factors, as was the test prior to Lennartson.

1. It is not clear from the Court’s decision how waiver is not an equitable factor in analyzing disqualification, given that Rule 1.9(a) does not mention waiver (other than client consent).

2. If an implied waiver is possible, then clearly the Court is no longer following the language of Rule 1.9(a) that requires that conflicts can only be waived by “informed consent, confirmed in writing.”

F. Attorney’s Standing to Appeal Disqualification. Both the State and Covington separately appealed the disqualification order. The issue of whether the disqualified attorney or firm has standing to appeal on its own was one of first impression.

1. The Minnesota Supreme Court cited cases from around the country finding a right to appeal a decision that the attorney committed professional misconduct, even if there was no monetary sanction or other punishment imposed. Slip op., at 9.

2. “An attorney who is disqualified based on a finding that the attorney has committed professional misconduct likewise has a significant and distinct reputational interest at stake warranting defense and, therefore, should be permitted to appeal.” Slip op., at 10-11.

3. “Accordingly, an attorney has standing to appeal, independent of the attorney's client, when a district court finds that the attorney violated the rules of professional conduct and disqualifies the attorney from the representation.”

G. Cold Potatoes. Because the district court ruled on the motion solely on the basis of Rule 1.9(a), the issue of whether there was a current conflict of interest was not reached. The facts, however, raise interesting questions about attorneys switching sides in matters.

1. Rule 1.7(a)(1) prohibits lawyers from representing a client who is directly adverse to another client, even if it is not in the same or a


related matter, unless the client consents. This is a much broader standard than Rule 1.9(a).

2. Had Covington still been representing 3M in the small retiree-benefits matter at the time it initiated the lawsuit on behalf of the State, it would have had a conflict under 1.7(a)(1) because its clients were adverse to each other, albeit Covington was not representing both of them. Covington would have had to seek consent from 3M to represent the State in the much larger, more contentious, and more expensive natural resources litigation.

3. Covington never had to ask for consent because it received confirmation from 3M on December 22, 2010 that the retiree-benefits matter had concluded. How fortunate and coincidental the State of Minnesota contacted Covington about it’s new lawsuit against 3M and that Covington was able to decide to take on a mammoth contingent fee lawsuit all within the ten days between December 22 and 30, 2010, including the Christmas holiday!

4. Generally, a lawyer may not drop one current client for the purpose of representing another client against the first one. This is called a “hot potato” conflict and is prohibited in most jurisdictions. However, there are some matters in which the substantive work as been done but perhaps the billing has not been concluded or a formal closing letter has not been sent. It is not completely clear whether in these situations the lawyer may close out the first matter and take on the new adverse matter. William Wernz has coined the term “cold potato” to describe these situations. See W. Wernz, Minnesota Legal Ethics 678 (4th Ed. 2014). Wernz takes the position that such “cold potato” side-switching, as 3M may have done in this case, is permissible under the Rules.


MINNESOTA RULES OF PROFESSIONAL CONDUCT RULE 1.7: CONFLICT OF INTEREST: CURRENT CLIENTS

(a) Except as provided in paragraph (b), a lawyer shall not represent a client if the representation involves a concurrent conflict of interest. A concurrent conflict of interest exists if:

(1) the representation of one client will be directly adverse to another client, or:

(2) there is a significant risk that the representation of one or more clients will be materially limited by the lawyer's responsibilities to another client, a former client or a third person, or by a personal interest of the lawyer.

(b) Notwithstanding the existence of a concurrent conflict of interest under paragraph (a), a lawyer may represent a client if:

(1) the lawyer reasonably believes that the lawyer will be able to provide competent and diligent representation to each affected client;

(2) the representation is not prohibited by law;

(3) the representation does not involve the assertion of a claim by one client against another client represented by the lawyer in the same litigation or other proceeding before a tribunal; and

(4) each affected client gives informed consent, confirmed in writing.

RULE 1.9: DUTIES TO FORMER CLIENTS

(a) A lawyer who has formerly represented a client in a matter shall not thereafter represent another person in the same or a substantially related matter in which that person's interests are materially adverse to the interests of the former client unless the former client gives informed consent, confirmed in writing.

(b) A lawyer shall not knowingly represent a person in the same or a substantially related matter in which a firm with which the lawyer formerly was associated had previously represented a client

(1) whose interests are materially adverse to that person; and


(2) about whom the lawyer had acquired information protected by rules 1.6 and 1.9(c) that is material to the matter;

unless the former client gives informed consent, confirmed in writing.

(c) A lawyer who has formerly represented a client in a matter or whose present or former firm has formerly represented a client in a matter shall not thereafter:

(1) use information relating to the representation to the disadvantage of the former client except as these Rules would permit or require with respect to a client, or when the information has become generally known; or

(2) reveal information relating to the representation except as these Rules would permit or require with respect to the client.

Comment

[1] After termination of a client-lawyer relationship, a lawyer has certain continuing duties with respect to confidentiality and conflicts of interest and thus may not represent another client except in conformity with this rule. Under this rule, for example, a lawyer could not properly seek to rescind on behalf of a new client a contract drafted on behalf of the former client. So also a lawyer who has prosecuted an accused person could not properly represent the accused in a subsequent civil action against the government concerning the same transaction. Nor could a lawyer who has represented multiple clients in a matter represent one of the clients against the others in the same or a substantially related matter after a dispute arose among the clients in that matter, unless all affected clients give informed consent. See Comment [9]. Current and former government lawyers must comply with this rule to the extent required by Rule 1.11.

[2] The scope of a “matter” for purposes of this rule depends on the facts of a particular situation or transaction. The lawyer’s involvement in a matter can also be a question of degree. When a lawyer has been directly involved in a specific transaction, subsequent representation of other clients with materially adverse interests in that transaction clearly is prohibited. On the other hand, a lawyer who recurrently handled a type of problem for a former client is not precluded from later representing another client in a factually distinct problem of that type even though the subsequent representation involves a position adverse to the prior client. Similar considerations can apply to the reassignment of military lawyers between defense and prosecution functions within the same military jurisdictions. The underlying question is whether the lawyer was so involved in the matter that the subsequent representation can be justly regarded as a changing of sides in the matter in question.


[3] Matters are “substantially related” for purposes of this rule if they involve the same transaction or legal dispute or if there otherwise is a substantial risk that confidential factual information as would normally have been obtained in the prior representation would materially advance the client’s position in the subsequent matter. For example, a lawyer who has represented a businessperson and learned extensive private financial information about that person may not then represent that person’s spouse in seeking a divorce. Similarly, a lawyer who has previously represented a client in securing environmental permits to build a shopping center would be precluded from representing neighbors seeking to oppose rezoning of the property on the basis of environmental considerations; however, the lawyer would not be precluded, on the grounds of substantial relationship, from defending a tenant of the completed shopping center in resisting eviction for nonpayment of rent. Information that has been disclosed to the public or to other parties adverse to the former client ordinarily will not be disqualifying. Information acquired in a prior representation may have been rendered obsolete by the passage of time, a circumstance that may be relevant in determining whether two representations are substantially related. In the case of an organizational client, general knowledge of the client’s policies and practices ordinarily will not preclude a subsequent representation; on the other hand, knowledge of specific facts gained in a prior representation that are relevant to the matter in question ordinarily will preclude such a representation. A former client is not required to reveal the confidential information learned by the lawyer in order to establish a substantial risk that the lawyer has confidential information to use in the subsequent matter. A conclusion about the possession of such information may be based on the nature of the services the lawyer provided the former client and information that would in ordinary practice be learned by a lawyer providing such services.

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Documents

Conflicts of the Titans: State of Minnesota v. 3M Co. · Conflicts of the Titans: State of Minnesota v. 3M Co. By . ... Conflicts of the Titans: State of Minnesota v. 3M ... (refusing