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Court Decides Major Conflicts Issues In Remanding Covington's Ouster From Suit

Thursday, May 8, 2014

By Samson Habte  

April 30 --The “substantial relationship” test that can get a law firm booted from a case against a former client depends on the age and availability of the confidential information about the former client the firm holds as well as how much factual and legal overlap there is between the current and former representations, the Minnesota Supreme Court declared April 30.

Applying this test, the court remanded a trial court's order that removed the Covington & Burling law firm from continuing to represent the state in a high-stakes environmental lawsuit against the firm's former client 3M Co. The state accuses 3M of leaching purportedly toxic perfluorochemicals (PFCs) into public waterways.

A trial judge and appellate panel disqualified Covington after determining that the firm previously represented 3M in a “substantially related” matter: appearances before the Food and Drug Administration in which the law firm advocated 3M's position that PFCs were not hazardous.


Firm's Standing to Challenge Disqualification

As a preliminary matter in State v. 3M Co., the Minnesota Supreme Court rejected an appellate panel's finding that Covington lacked standing to challenge its disqualification.

“Whether a disqualified attorney has standing--independent of the attorney's client--to appeal from a disqualification order is an issue of first impression,” Wright noted. “The court of appeals concluded that, because Covington is subject to discharge by the State at any time, Covington lacks a legally protected right that would give it standing to appeal.”

That holding was wrong, the supreme court said, because Covington demonstrated that it was an “aggrieved party.” Looking to outside authority, the court noted that a majority of courts “have concluded that an attorney may appeal a decision that the attorney committed professional misconduct, even if a monetary sanction or other punishment has not been imposed.”

That was the case here, Wright said, because the disqualification order was predicated on a finding that Covington violated Rule 1.9(a).

Courts that allow law firms to challenge their disqualification “have recognized that 'the importance of an attorney's professional reputation, and the imperative to defend it when necessary, obviates the need for a finding of monetary liability or other punishment as a requisite for the appeal of a court order finding professional misconduct,'” Wright said, quoting Walker v. City of Mesquite, 129 F.3d 831 (5th Cir. 1997).



Justice Wilhelmina M. Wright said for the supreme court that disqualification was premature because the trial court “fail[ed] to consider all legally relevant factors before concluding that the matters are substantially related” under Minnesota Rule of Professional Conduct 1.9(a).

“This inquiry requires an analysis of the extent to which the factual and legal issues in the two representations overlap,” Wright said, and the trial court properly weighed those considerations.

However, she added, the trial judge also must examine “other relevant circumstances, including whether confidential information provided to [Covington] in the prior representation subsequently has been disclosed to the public and whether that information has been rendered obsolete by the passage of time.”

Right to Object Can Be Lost

Addressing an issue of first impression, Wright said remand was also required for another reason: the lower courts wrongly concluded that a party cannot waive the right to seek disqualification of its former counsel based on a Rule 1.9(a) conflict.

Covington argued that 3M waived that right by strategically delaying its motion until the end of a discovery process that generated more than six million pages of documents and required more than 70 depositions.

The supreme court sided with what it characterized as the majority position in concluding that a former client may waive its right to seek disqualification under Rule 1.9(a).

“To be clear, our conclusion does not diminish an attorney's ethical obligations under Rule 1.9,” Wright said. “A district court's finding of waiver in the context of ongoing litigation will not preclude other remedies for violating Rule 1.9(a), including attorney disciplinary action or a separate lawsuit against the attorney for breach of fiduciary duty.”

The opinion notes that 3M has filed a separate lawsuit alleging that “Covington failed to protect client confidences, breached its duties of candor and full disclosure, and breached its duty of loyalty by taking a position materially adverse to 3M in [the] case.”

Equities Don't Matter

Although the court agreed with Covington that the right to seek disqualification can be waived, it rejected the firm's related contention that “even if 3M did not waive the right to seek disqualification and Covington violated Rule 1.9(a), the district court was not required to disqualify Covington because the equities weigh against disqualification.”

Wright pointed to Lennartson v. Anoka-Hennepin Indep. Sch. Dist. No. 11, 662 N.W.2d 125, 19 Law. Man. Prof. Conduct 337 (Minn. 2003), which held that Minnesota courts are not permitted to weigh equities when determining whether the disqualification of a conflicted attorney must be imputed to his entire firm.

“Although Lennartson addressed a different conflict-of-interest rule, the governing logic applies with equal force to Rule 1.9(a),” Wright said. “Rule 1.9(a) similarly is phrased in mandatory language, and the text of the rule contains a standard for determining whether an attorney is disqualified from representing a particular client.”

Accordingly, Wright said, “If the district court finds a violation of Rule 1.9(a), the offending attorney must be disqualified from the case, unless the moving party is otherwise barred--for example, by lack of standing, or by express or implied waiver--from seeking opposing counsel's disqualification.”

On Remand

Accordingly, the court remanded the case with several instructions.

First, it ordered the trial court to consider all the relevant factors it identified in assessing whether Covington's prior representation of 3M is “substantially related” to the present litigation. In addition to “the relationship between the factual and legal issues,” Wright said, the trial court must consider:

• whether confidential information that Covington acquired in the prior representation “was no longer confidential either because [it] had been disclosed to regulatory authorities and the public or because 3M waived the attorney-client privilege by initiating a separate, concurrent lawsuit against Covington”; and

• whether “there is a substantial risk that any remaining confidential information would materially advance [the state's] position” in the present case.

 

Next, Wright said, the trial court must consider whether 3M waived its right to seek Covington's disqualification.

“Several factors may be considered circumstantial evidence of an intent to waive the right to seek disqualification of opposing counsel,” the court stated, “including but not limited to (1) the length of the delay in bringing the motion to disqualify, (2) whether the movant was represented by counsel during the delay, and (3) the reason for the delay.”

Finally, the court said that if Covington did breach Rule 1.9(a), disqualification is mandatory. Equities cannot be weighed absent a finding that 3M waived its right to seek the firm's ouster, Wright said.

Solicitor General Alan I. Gilbert, St. Paul, Minn., argued for the state. Michael S. Sundermeyer of Williams & Connolly LLP, Washington, D.C., argued for Covington & Burling. Michael T. Nilan of Nilan Johnson Lewis P.A., Minneapolis, argued for 3M Co.

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


Full text at http://www.bloomberglaw.com/public/document/State_of_Minnesota_by_its_Attorney_General_Lori_Swanson_et_al_App/1.

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