3M's Delay in Protesting Conflict Dooms DQ Motion

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By Samson Habte

Feb. 22 — Manufacturing giant 3M Co. waited too long and thus waived its otherwise plausible bid to keep the Covington & Burling law firm from representing the state of Minnesota in a high-stakes environmental lawsuit against 3M, which the firm has previously helped in a related matter, a Minnesota state trial court held Feb. 5.

The highly anticipated ruling—issued nearly two years after the Minnesota Supreme Court reversed and remanded an order disqualifying Covington—is the latest development in an acrimonious dispute that has captivated legal ethics experts around the country.

Points of View

The ruling by Judge John Q. McShane of the Hennepin County District Court is unlikely to end the controversy surrounding Covington's representation of the state of Minnesota in a natural resources damages (NRD) lawsuit that claims 3M released allegedly toxic perfluorochemicals (PFCs) into public waterways.

One of 3M's attorneys, William A. Brewer III of Brewer, Attorneys & Counselors in Dallas, told Bloomberg BNA that McShane's opinion “raises ongoing and significant ethical issues for Covington” in the NRD litigation.

He also said the judge's findings bolster 3M's claims in a parallel breach of fiduciary duty lawsuit the company has filed against Covington.

Ethics expert Michael Downey told Bloomberg BNA that McShane's ruling represents a win for Covington in “round one of a potentially much larger battle.”

Downey, of Downey Law Group LLC in St. Louis, has not been retained to advise either side in this dispute.

“This could literally become a three-ring circus,” said Downey, referencing the state's environmental litigation, 3M's breach of fiduciary duty lawsuit and a potential disciplinary grievance 3M has said it may lodge against Covington lawyers based on McShane's findings.

Impact on State's Lawsuit

McShane found that Covington breached its professional obligations to former client 3M because the NRD suit is “substantially related” to a matter the firm handled for 3M in the 1990s: appearances before the Food and Drug Administration in which Covington advocated 3M's position that PFCs were not hazardous.

But although McShane said Covington violated its duties to a former client under Minnesota Rule of Professional Conduct 1.9, he went on to conclude that 3M waived its right to seek the law firm's ouster by waiting 16 months after it became aware of the conflict before it moved for the law firm's disqualification. This followed the supreme court's 2014 decision in which it ruled that an ex-client's right to seek a law firm's ouster on conflict of interest grounds is subject to waiver. See 30 Law. Man. Prof. Conduct 278.

McShane's conclusion was based on e-mails in which 3M's in-house lawyers discussed Covington's potential conflict as early as January 2011. 3M didn't move to disqualify Covington until May 2012—at the end of a discovery process that generated several million pages of documents and more than 50 depositions.

According to the district court, “3M made a tactical decision” to wait 16 months before deciding to press for Covington's disqualification. That “extraordinary long delay” was inexcusable given the “amount of pretrial preparation and discovery that was done” and the “time that would be required by a new law firm to assimilate that information,” McShane wrote.

3M's Take

In a statement, 3M said McShane's finding that Covington acted unethically “enables 3M to protect its confidences shared with Covington from misuse.”

Brewer elaborated on that comment in a series of interviews, telling Bloomberg BNA that McShane's ruling “raises ongoing and significant ethical issues for Covington” as the environmental litigation goes forward with the law firm continuing to represent the state against 3M.

“It has been established that the information Covington and the State sought prior to the disqualification motion being filed remains confidential,” Brewer said. “The fact that 3M was held to have waived the right to bring the [disqualification] motion doesn't mean 3M waived its right to enforce the [ethics] rule.”

Brewer said 3M's delay in seeking Covington's disqualification doesn't operate as a waiver of the duty of confidentiality the law firm still owes 3M.

“Judge McShane's rulings permit 3M to obtain protection against Covington's misuse of 3M's confidential information,” Brewer said. “Rule 1.9 has not been re-written. Covington needed to obtain informed consent in writing from 3M and it never did.”

“We're confident that the court will not allow an ongoing breach of Covington's ethical obligation to taint the process going forward,” Brewer said.

Firm's Position

Covington, for its part, dismissed Brewer's characterization regarding the effect of McShane's ruling.

“Judge McShane's ruling does not suggest or imply that Covington lawyers who represented the State in the NRD case had been involved in, or used any of the information from, Covington's much earlier FDA representation of 3M,” Covington told Bloomberg BNA in a written statement.

“Indeed, the evidence adduced at the six-day evidentiary hearing confirms that there was no use of or improper access to any such information,” the firm said.

Pointing to McShane's finding that 3M's delay in seeking disqualification was a “tactical decision,” Covington told Bloomberg BNA: “At the time, 3M carefully considered the issues, and concluded that our prior work for 3M ‘was remote in time and only tangentially related' to the NRD case. Indeed, the Court noted that 3M decided not to ask the firm to ‘erect an ethical wall … because they didn't want to highlight the situation.'”

No ‘Catch-22' for Covington

Minnesota attorney Charles Lundberg, who practices in Lundberg Legal Ethics and is the immediate past president of the Association of Professional Responsibility Lawyers, said he understands how McShane's two-pronged ruling could be viewed as creating a “conundrum” for Covington as it proceeds with its representation of the state in the NRD litigation without using confidential information it obtained from 3M in the FDA matter.

But Lundberg told Bloomberg BNA he doesn't think “McShane intended to create a Catch-22” for Covington in which the firm could be accused of breaching 3M's confidences every time it asserts a position on behalf of the state.

Lundberg, who isn't representing any of the players in this dispute, said he believes the most significant part of McShane's opinion was the lengthy discussion of communications between 3M lawyers who analyzed Covington's potential conflict when the firm first made its appearance for the state.

Those communications, he said, came to light during the “extraordinary remand proceeding” in this case after the Minnesota Supreme Court reversed McShane's initial order disqualifying Covington.

In that ruling the high court held—for the first time—that a party can waive the right to seek opposing counsel's disqualification based on a violation of Rule 1.9, and it directed McShane to consider whether waiver occurred in this case.

The discovery that subsequently took place revealed that Covington's potential conflict was “analyzed to a fare-thee-well in-house at 3M,” Lundberg said.

The official comments accompanying Rule 1.0 (Terminology) indicate that the disclosures required to obtain informed consent to a conflict of interest may be reduced where the client or former client from whom such consent is sought is sophisticated and has been advised by other lawyers about waiving the conflict.

For example, Comment [6] states, in part:

In determining whether the information and explanation provided are reasonably adequate, relevant factors include whether the client or other person is experienced in legal matters generally and in making decisions of the type involved, and whether the client or other person is independently represented by other counsel in giving the consent.

That is significant, Lundberg said, because “3M is the dictionary definition of a ‘sophisticated client.'”

Will Firm Pull Punches?

Richard W. Painter, a University of Minnesota law professor and expert witness for 3M in this case, said in an interview with Bloomberg BNA that it is difficult to see how “Covington can zealously represent the state” going forward.

Painter said McShane's finding that Covington violated its ethics obligations to 3M, and the fact the company is suing the firm in a separate breach of fiduciary duty action, may hamper Covington's ability to prosecute the state's claims as vigorously as another law firm could do.

Covington's problems create an “ongoing conflict between the interests of [Covington] and the interests of Minnesota,” Painter said.

University of Arizona law professor Keith Swisher, a legal ethics expert not involved in this matter, said the fact that Covington is representing the state in the pollution lawsuit while “simultaneously defending itself in a breach of fiduciary duty action” should at the very least “warrant a round of disclosures” from Covington to the state.

It's possible Covington may have to “pull its punches” in the NRD litigation out of fear of expanding its exposure of liability to 3M in the breach of fiduciary duty action, Swisher said. If that creates a “material limitation” on Covington's representation the firm may have to disclose that to the state, Swisher said.

The law firm says there's no validity to such speculation.

In fighting disqualification, Covington argued to McShane that any information it has about 3M from when Covington attorney Peter Hutt appeared on behalf of the company during the FDA proceeding is no longer confidential. In a brief to the district court, Covington stated:

[T]he confidential factual information Mr. Hutt would have received given the nature and scope of Covington's engagement has been disclosed to regulatory authorities and the public. … 3M argues that it provided Covington with other confidential information that went beyond the issues in the FDA food additive petitions, but those matters were disclosed publicly as well. 3M asserts that it made available to Covington information about “what 3M knew and when 3M knew it regarding FCs.” Yet 3M has boasted it has “fully shared” its understanding regarding the biological implications of FCs, that it has publicly disclosed the studies and unpublished data regarding FCs, and that 3M “didn't hide the ball from anybody, on anything from anybody.”

Impact on 3M's Lawsuit

3M and Covington also disagree about the potential impact of McShane's ruling on 3M's breach of fiduciary duty lawsuit against Covington, which is pending in a different Minnesota county court.

Brewer told Bloomberg BNA he believes collateral estoppel will apply and that Covington will be precluded from relitigating the issue of whether it breached its legal and ethical obligations to 3M.

Covington's position is that collateral estoppel won't be available because the doctrine only applies to rulings against a party—and Covington is not a party in the state's NRD action against 3M.

Brewer countered that “mutuality of parties is not required for collateral estoppel.”

“What is required is privity—that [Covington's interests and the state's] were aligned,” Brewer said.

Several of those contacted by Bloomberg BNA predicted that collateral estoppel likely will not apply but that McShane's ruling will nevertheless be persuasive evidence in 3M's action against the law firm.

“It wouldn't be conclusive, but it would be evidence [3M] could show a jury of breach of fiduciary duty,” said Leonard Gross, a legal ethics expert and professor emeritus at Southern Illinois University's law school. Gross hasn't been retained in this dispute.

Company Wants a Refund

3M's complaint against Covington includes a demand for “disgorgement of the legal fees that 3M paid Covington beginning in 1992,” when the firm began representing the company in the FDA proceedings that McShane deemed substantially related to the current environmental litigation.

The lawsuit also seeks “forfeiture by Covington of all ill-gotten gains.” Covington, which is representing the state on a contingent fee basis, could recover significant fees if the NRD litigation succeeds.

The St. Paul Pioneer Press recently reported that the chemical company DuPont settled a similar NRD lawsuit in Ohio by agreeing to pay $300 million to clean up waters in that state and to monitor health effects on people in the area.

Gross told Bloomberg BNA he believes 3M's disgorgement demand is “a bit of a reach” because an agent found to have breached a fiduciary duty will typically be required to disgorge any fees that were earned “for the period of time in which there was a breach.”

It is unlikely that a court will force Covington to refund “fees that were legitimately earned [from 3M] before” the firm took on the NRD case, he said.

Brewer countered that courts have a lot of discretion and “are able to be creative in fashioning relief in an effort to dissuade fiduciaries from breaching their obligations to principals and clients.”

Stephen P. Anthony and Benjamin Razi of Covington & Burling, Washington, D.C., and Minnesota Solicitor General Alan I. Gilbert, St. Paul, Minn., represented the state.

Counsel for 3M were Michael T. Nilan of Nilan Johnson Lewis P.A., Minneapolis, and William A. Brewer III, James R. Renard and Jeremy Camp of Brewer, Attorneys & Counselors, Dallas.

To contact the reporter on this story: Samson Habte in Washington at shabte@bna.com

To contact the editor responsible for this story: Kirk Swanson at kswanson@bna.com

For More Information



Minnesota Rule of Professional Conduct 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 whose interests are materially adverse to that person and about whom the lawyer had acquired information protected by Rules 1.6 and 1.9(c) 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 a client.”

The ABA/BNA Lawyers’ Manual on Professional Conduct is a joint publication of the American Bar Association Center for Professional Responsibility and Bloomberg BNA.


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