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A general, open-ended advance waiver of future conflicts in a law firm's retainer agreement with a sophisticated client represented by in-house counsel makes it permissible for the firm to represent the client's opponent in unrelated litigation, the U.S. District Court for the Northern District of Texas concluded Feb. 22, denying a disqualification motion (Galderma Laboratories LP v. Actavis Mid Atlantic LLC, N.D. Tex., No. 3:12-cv-2038-K, 2/22/13).
Applying the national standards in the ABA Model Rules of Professional Conduct instead of local Texas ethics rules, Judge Ed Kinkeade found that where a sophisticated client is represented by in-house counsel, its consent to an advance waiver to adverse representation may be considered “informed” even if the waiver does not specify which particular opponents or types of cases are covered.
Three types of disclosure by the law firm support a finding that the broad waiver language in the engagement letter provided enough information to allow the client to provide informed consent, he ruled.
The court expressly disagreed with a contrary conclusion on similar facts in Celgene Corp. v. KV Pharm. Co., Civ. No. 07-4819 (SDW), 24 Law. Man. Prof. Conduct 427 (D.N.J. July 29, 2008).
The unhappy plaintiffs in the case are Galderma Laboratories LP and two Galderma affiliates. According to the court, Galderma is a worldwide leader in branded dermatological products.
When Galderma retained Vinson & Elkins in 2003 for legal advice on employment and benefit issues, the company's longtime in-house counsel signed an engagement letter that included the following advance waiver:
We understand and agree that this is not an exclusive agreement, and you are free to retain any other counsel of your choosing. We recognize that we shall be disqualified from representing any other client with interest materially and directly adverse to yours (i) in any matter which is substantially related to our representation of you and (ii) with respect to any matter where there is a reasonable probability that confidential information you furnished to us could be used to your disadvantage. You understand and agree that, with those exceptions, we are free to represent other clients, including clients whose interests may conflict with yours in litigation, business transactions, or other legal matters. You agree that our representing you in this matter will not prevent or disqualify us from representing clients adverse to you in other matters and that you consent in advance to our undertaking such adverse representations.
In 2012 Galderma, represented by two other firms, filed this patent infringement suit against Actavis Mid Atlantic LLC.
V&E, which had already been representing several Actavis entities in intellectual property matters for six years, began working on the case. When Galderma became aware of V&E's involvement, it asked the firm to withdraw from representing Actavis. Instead, V&E chose to terminate its attorney-client relationship with Galderma.
Accepting V&E's reliance on the advance waiver, the court denied Galderma's motion to disqualify the firm.
This case illustrates conflicts issues that can arise, the court noted, where a client that uses multiple law firms retains a firm for work that is important, but small in size compared to some unrelated large matters. Large firms would never be able to take on small, specialized matters for a client unless they could preserve their ability to practice in other areas where the client has chosen to retain different counsel, Kinkeade pointed out.
In analyzing the conflicts issue, Kinkeade chose to apply the national standards as embodied in the Model Rules, which prohibit lawyers from representing a current client's opponent even in unrelated matters except with the client's informed consent, rather than Texas's more permissive conflicts rules, which allow firms to oppose current clients in most unrelated matters without having to obtain the client's informed consent.
Applying the Texas rules instead of the Model Rules would ignore the cornerstone of the national standard, which is the requirement of informed consent, Kinkeade reasoned.
Reviewing the applicable Model Rules and commentary the ABA added to them in 2002, the court found that “The 2002 amendments, which support the validity of general, open-ended waivers, permit informed consent to a wider range of future conflicts than would have been possible prior to the amendments.”
As interpreted in ABA Formal Ethics Op. 93-372 (1993), informed consent to future conflicts under Rule 1.7 was limited to circumstances in which the lawyer identified the nature of the likely future matter and the potential party or class of parties that may be represented in the future matter.
But that opinion was withdrawn, Kinkeade pointed out, by ABA Formal Ethics Op. 05-436 (2005), which advised that open-ended, general informed consent is likely to be valid if the client is an experienced user of legal services. The 2005 opinion relied on Comment  to Rule 1.7, which was added as part of the 2002 amendments to the Model Rules, he explained.
Kinkeade separated the informed consent issue into two questions: (1) whether information the law firm disclosed is reasonably adequate for a client to give informed consent; and (2) if so, whether the disclosure is reasonably adequate for the particular client involved in the case.
On the first question, the court said the definition in Model Rule 1.0(e) identifies three characteristics of informed consent:
• agreement to a proposed course of conduct;
• after the lawyer has communicated adequate information and explanation about the material risks; and
• the lawyer has proposed reasonably available alternatives to the proposed course of conduct.
Kinkeade found that all three factors favored a finding of informed consent in this matter.
First, the court explained, the waiver in V&E's retainer agreement with Galderma identifies a course of conduct: that V&E has broad freedom to represent clients with whom it would otherwise have a conflict of interest, except in specifically identified situations.
Second, the court continued, the waiver language explains the risks faced by Galderma: that V&E will advocate for another client directly against Galderma.
Third, Kinkeade said, the waiver explains an alternative course of conduct: Galderma can choose other counsel rather than engaging V&E.
The waiver in V&E's engagement letter with Galderma is reasonably adequate to allow clients in some circumstances to understanding the material risks, Kinkeade found.
In the second part of his analysis, Kinkeade considered whether V&E's disclosure was adequate for Galderma, in particular, to give informed consent. The principal considerations in this step, he said, are the sophistication of the parties and whether the client was represented by counsel independent of the law firm seeking the waiver.
The 2002 changes to the Model Rules, including Comment  to Rule 1.0 and Comment  to Rule 1.7, make clear that these factors are relevant and important, Kinkeade found. He also cited the Restatement (Second) of the Law Governing Lawyers §122 cmt. c(i) (2000).
Kinkeade found that Galderma's high level of sophistication, both in legal matters generally and in making decisions to retain large, national law firms, weighed in favor of finding informed consent.
Moreover, the court pointed out, V&E's engagement letter containing the advance waiver was signed by Galderma's general counsel in its own legal department. For the purpose of determining informed consent, the effect is the same whether the client's independent lawyer is inside the client's organization or is outside counsel, it said.
Informed consent turns on an objective standard of reasonable disclosure and understanding, not whether the independent counsel actually intended to consent to the future conflicts that ultimately materialized, Kinkeade added.
Kinkeade distinguished Celgene as grounded on New Jersey's different, stricter standard of “full disclosure and consultation.” National conflicts standards do not require additional consultation when a client is already aware of sufficient information to make an informed decision, he said.
Moreover, the court disagreed with Celgene's view that lawyers seeking an advance waiver need to identify particular risks, such as potential classes of adversaries or disputes where they may represent conflicting interests. This type of language can help show informed consent but is not always necessary for a client's informed consent, given the 2002 amendments to the Model Rules, Kinkeade said.
The court also disputed Celgene's premise that a client's use of independent counsel is irrelevant to whether a client's consent is informed. Comment  to Rule 1.7, Comment  to Rule 1.0, ABA Formal Ethics Op. 05-436, and Section 122 of the Restatement all incorporate independent counsel as an important factor in determining informed consent, he said.
Agreeing with Celgene “would ignore the knowledge and advantage that clients gain by employing their own counsel to advise them, and the national ethical standards clearly compel the court to consider a client's use of independent counsel,” Kinkeade wrote.
Although Kinkeade noted that V&E's general, open-ended disclosure would likely not be adequate for informed consent in many cases and for many clients, he found that Galderma gave informed consent in this case. Accordingly, V&E's representation of Actavis does not violate ethics standards, Kinkeade concluded.
Galderma was represented by Michael C. Wilson and other attorneys in the Dallas office of Munck Wilson Mandala, along with lawyers from the Austin, Tex., Houston, and New York offices of DLA Piper.
Actavis was represented by Sean W. Kelly of the Dallas office of Vinson & Elkins along with lawyers from the Austin office of Vinson & Elkins.
Michael P. Lynn and other attorneys with Lynn Tillotson Pinker & Cox, Dallas, represented Vinson & Elkins.
Copyright 2013, the American Bar Association and The Bureau of National Affairs, Inc. All Rights Reserved.
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