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Firm’s Contacts With Tainted In-House Counsel Require Vicarious Disqualification From Case

Wednesday, January 16, 2013

By Samson Habte  

The Perkins Coie law firm must be disqualified as defense counsel in major patent infringement litigation because it presumably obtained confidential information about the plaintiff through its contacts with one defendant's “outside in-house counsel” who previously represented the plaintiff in matters involving three of the four patents at issue in the lawsuits, the U.S. District Court for the Central District of California ruled Dec. 19 (j2 Global Communications Inc. v. Captaris Inc., C.D. Cal., No. CV 09-04150 DDP (AJWx), 12/19/12).

Judge Dean D. Pregerson conceded that Perkins did nothing wrong and that the case did not involve a typical imputed disqualification scenario. But California law mandates Perkins's removal on these facts, he concluded.

Pregerson grounded his decision on what he called the “vicarious presumption rule,” under which a law firm can be disqualified from a representation based on the assumption that it possesses confidential information held by a tainted firm attorney. That rule should also apply to cases in which the tainted attorney is a client's in-house counsel, he found.


“Perkins' innocence … does not prevent its disqualification.”
Judge Dean D. Pregerson

Although Pregerson acknowledged a few recent federal cases suggesting that co-counsel should not be presumed to possess confidential information, he regarded those decisions as unpersuasive because they do not consider California law.

A better view, Pregerson said, was articulated in Pound v. DeMera DeMera Cameron, 36 Cal. Rptr.3d 922, 22 Law. Man. Prof. Conduct 5 (Cal. Ct. App. 2005), which found no logical or substantive reason to distinguish between a firm employing a tainted attorney and a firm serving as co-counsel with a tainted attorney.

Clean Hands Aren't Enough

The court decided that Perkins must be disqualified from defending OpenText Corp. and two companies it owns in three patent infringement suits filed by j2 Global Communications Inc.

Pregerson stressed that this decision was not attributable to any unethical behavior on the law firm's part. Instead, he pinned the problem on two entities: OpenText itself and Crowell & Moring, a law firm that counseled OpenText and allowed one of its attorneys to work as a temporary “outside in-house counsel” for the company despite that attorney's employment history, which included a stint on a patent litigation team with a firm that represented j2 in several similar disputes.

“Perkins [was] a victim of Crowell's inexplicable decision to approve the Attorney to work for Open Text,” Pregerson said.

However, “Perkins' innocence … does not prevent its disqualification,” he added. The firm's removal was required, the court explained, because there was an irrebuttable presumption that it obtained confidential information about j2 from conversations with OpenText's in-house counsel.

According to court documents, that in-house counsel was Clyde Findley, a Crowell attorney who was asked by his bosses to fill the OpenText vacancy in late 2011.

Before moving to Crowell, Findley worked for Kenyon & Kenyon, where he “began representing j2 as part of a team of attorneys in 2004,” and where he worked on cases “that involved three of the four patents at issue” in the current litigation.

Perkins, which began representing OpenText sometime in 2012, “knew nothing about [Findley's] prior involvement with j2,” Pregerson said, and j2 also was kept in the dark.

OpenText argued that there was nothing improper about allowing Findley to assume the job or failing to seek a conflict waiver from j2. The company said that its general counsel concluded that everything was aboveboard after he was told that Findley played a minor role on j2 cases while he was at Kenyon.

Crowell maintained that Findley cleared a conflicts check after he attested that “he did not recall having access to any confidential information” and that his representation of j2 while working for Kenyon “involved primarily the review of publicly available patent documents.”

'Junior Associate'

In determining whether Perkins's disqualification was required, the court addressed five issues:  

(1) Whether California law governs; (2) Whether the court should presume the Attorney learned confidential information about j2 that is relevant to the Three Current Cases; (3) Whether the court should presume that the Attorney shared j2's confidential information with Perkins; (4) Whether such a presumption is irrebutable; and (5) Whether disqualifying Perkins is required.  

 

 

 

The court answered “yes” to all five questions.

It rejected the argument that Findley's “junior associate” status at Kenyon militated against a presumption that he acquired any confidential information about j2.

In camera evidence, Pregerson said, showed that while at Kenyon Findley was assigned high-level tasks such as reviewing claim charts, performing infringement analyses, reviewing prior art, analyzing documents for a settlement conference, reviewing and commenting on draft pleadings, discussing discovery strategies, drafting discovery requests and responses, and drafting j2's opposition to a summary judgment motion.

Moreover, disqualification could be imposed even if Findley's role at Kenyon was as limited as OpenText claimed it was, the court said. “[A] de minimis level of involvement with a prior case is sufficient for presuming that an attorney acquired confidential information about that prior case,” Pregerson stated.

Pound held, he noted, that a one-hour phone call about a case three years earlier was sufficient to presume that an attorney acquired confidential information.

Vicarious Presumption Rule

The court also rejected OpenText's argument regarding the limited scope of the vicarious presumption rule.

“The general rule,” Pregerson explained, “is that presuming an attorney possesses confidential information requires presuming the same for his law firm.”

The court said it was unaware of any case analyzing whether the rule applies when the tainted attorney is an in-house corporate attorney who has collaborated with a company's outside counsel.

Some cases analyze whether the vicarious presumption rule should apply when the tainted attorney is co-counsel with another firm, Pregerson noted. Those cases split on the question, but the ones that apply the rule to co-counsel “have the better argument,” he concluded.

In surveying the contrary authority, Pregerson singled out two recent cases in the U.S. District Court for the Northern District of California: Canatella v. Krieg, Keller, Sloan, Reilley & Roman LLP, No. C 11-05535 WHA, 2012 BL 63944 (N.D. Cal. Mar. 13, 2012), and Oracle Am. Inc. v. Innovative Tech. Distrib. LLC, No. 5:11-cv-01043, 27 Law. Man. Prof. Conduct 490 (N.D. Cal. July 20, 2011).

In Canatella, he noted, the court made “no mention of a presumption” and instead “suggested that a multi-factor analysis is required to determine whether co-counsel has confidential information.” Similarly, the court in Oracle held that a corporate defendant's longtime outside counsel should not be disqualified from a case simply because a lawyer who previously worked on the underlying matters as in-house counsel for the plaintiff switched jobs and worked for the defendant.

Those rulings are not persuasive, Pregerson concluded, because they relied heavily on a three-decades-old case and did not consider more recent California decisions, including Pound, which go the other way and presume that co-counsel possessed the tainted attorney's confidential information.

“More importantly, the reasoning behind the Vicarious Presumption Rule indicates that it should also be applied against Perkins,” Pregerson said.

“Normally, an attorney's conflict is imputed to the law firm as a whole on the rationale that attorneys, working together and practicing law in a professional association, share each other's, and their clients', confidential information,” he said, quoting San Francisco v. Cobra Solutions Inc., 135 P.3d 20, 22 Law. Man. Prof. Conduct 273 (Cal. 2006).

The same reasoning suggests that disqualification was required here, Pregerson said, because “The importance of in-house counsel effectively cooperating, coordinating, and communicating with their company's attorneys is self-evident.”

Irrebuttable

Finally, the court ruled that the presumption that Perkins obtained confidential information about j2 through its interactions with Findley was irrebuttable, and that disqualification was thus mandatory.

Pregerson again acknowledged a split in authority. California state courts have developed a general rule that the presumption is not rebuttable, but the Ninth Circuit has suggested that the California Supreme Court may be inclined to allow law firms to erect ethics walls to avoid disqualification, he said, citing In re Los Angeles County, 223 F.3d 990, 16 Law. Man. Prof. Conduct 477 (9th Cir. 2000).

Moreover, although most cases have “doubt[ed] that ethical screening can prevent disqualification,” Pregerson said, “At least one California appellate court has decided that a law firm's ethical screening permitted it to attempt rebutting the presumption.” See Kirk v. First Am. Title Ins. Co., 108 Cal. Rptr.3d 620, 26 Law. Man. Prof. Conduct 239 (Cal. Ct. App. 2010).

The issue is moot anyway, Pregerson said, because Findley was not screened in a timely manner. An ethics wall should be erected before a firm hires a tainted individual, and Findley was not screened until approximately eight months after he took on the in-house role at OpenText, the court noted.

Lead counsel for j2 Global included Brian R. England, Edward E. Johnson, and Robert A. Sacks of Sullivan & Cromwell, Los Angeles.

Edith R. Matthai of Robie & Matthai, Los Angeles, represented Perkins Coie. Perkins Coie lawyers for OpenText included Gigi C. Hoang and Grant E. Kinsel, Los Angeles, and Steven M. Lubezny, Chicago.


Full text at http://op.bna.com/mopc.nsf/r?Open=kswn-93629f

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