Ethical Breaches Result in Firm Disqualification
By Ian S. Clement, Litigation News Associate Editor – July 27, 2015

After 20,000 billable hours and $12 million in fees, the U.S. District Court for the Central District of California disqualified mega-firm Squire Patton Boggs from a multi-million-dollar lawsuit because of conflicts resulting from the merger of Patton Boggs, LLP and Squire Sanders. In Western Sugar Coop. v. Archer-Daniels-Midland Co., the district court determined that the merger resulted in incurable simultaneous representation of adversaries and breaches of loyalty and confidentiality owed to a former client.

Sugar Wars
In the underlying lawsuit, sugar industry plaintiffs alleged that the corn syrup defendants engaged in false advertising by using the term “corn sugar.” The corn syrup defendants’ counterclaim alleged that the plaintiffs engaged in false advertising by asserting that high fructose corn syrup is unhealthy. The sugar industry was a long-standing client of Squire Sanders. Patton Boggs LLP had for many years represented the corn syrup refining industry, including Tate & Lyle, a company specializing in processing high fructose corn syrup, and Ingredion, which refines corn to produce high fructose corn syrup.

Faulty Premerger Due Diligence
On June 1, 2014, Squire Sanders and Patton Boggs merged to form Squire Patton Boggs. Somehow, both legacy firms missed the conflict created by the sugar lawsuit in their premerger due diligence. “It is possible Patton Boggs failed to have redundancies in their premerger due diligence, in particular involving their billing systems,” theorizes Nathanial Cade Jr., Milwaukee, WI, cochair of the ABA Section of Litigation's Ethics & Professionalism Committee. “Hopefully, the firm used a computerized system to do their due diligence and there was just an input error,” says Cade.

Tate & Lyle brought the conflict to the attention of a former Patton Boggs attorney, who explained that a paralegal had omitted Tate & Lyle from a conflicts list and asked Tate & Lyle for a waiver of the conflict. Tate & Lyle refused. Squire Patton Boggs withdrew from representing Tate & Lyle but continued to represent the sugar industry plaintiffs.

After Tate & Lyle raised the conflict, Squire Patton Boggs sent Ingredion’s counsel a letter stating that Squire Sanders would continue to represent the sugar plaintiffs post-merger. The letter also notified Ingredion that if it wanted Squire Patton Boggs to perform any work in the future, it would have to waive the conflict presented by the firm’s representation of the sugar plaintiffs.

Tate & Lyle and Ingredion both moved to disqualify Squire Patton Boggs from representing the sugar plaintiffs.

Simultaneous Representation of Adverse Clients
Squire Patton Boggs argued that Tate & Lyle consented to the firm’s concurrent representation of the sugar plaintiffs by agreeing to a general advance waiver in a Patton Boggs 1998 engagement letter. The court rejected this argument, finding that the advance waiver was not fully informed where it did not identify a potential adverse client, the types of potential conflicts, or the nature of the representative matters.

“Prospective waivers should be virtually unenforceable unless they identify with particularity the nature and kind of matter that the client is waiving,” says Lawrence J .Fox, Philadelphia, PA, past cochair of the Section of Litigation’s Ethics & Professionalism Committee. “Moreover, this conflict was ‘unwaivable’ contemporaneously under RPC 1.7(b)(1),” says Fox. Converting Tate & Lyle into a former client did nothing to obviate the automatic disqualification rule.

Representation of Former Client
Between May 2004 and September 2013, Patton Boggs represented Ingredion 56 times. Patton Boggs completed services for Ingredion in September 2013, and under the terms of its 2005 engagement letter, its attorney-client relationship with Ingredion ended. However, Squire Patton Boggs owed a duty of confidentiality to Ingredion. The court found that Squire Patton Boggs could not represent the sugar plaintiffs after representing Ingredion because the matters are substantially related and Squire Patton Boggs could not maintain its duty of confidentially to Ingredion.

Patton Boggs had represented Ingredion before the United States Food and Drug Administration in an enforcement action regarding whether high fructose corn syrup could be termed “natural.” Ingredion is relying on the results of that investigation to support its position in the sugar lawsuit that it is not a misrepresentation to claim that high fructose corn syrup is natural—the opposite position of the sugar plaintiffs. The court presumed that because of similarities of legal and factual issues of Patton Boggs’ prior representation of Ingredion, Squire Patton Boggs shared material confidential information to its attorneys representing the sugar plaintiffs. The court was not persuaded by declarations from the attorneys who worked on behalf of the sugar plaintiffs stating that they had never received any information regarding Tate & Lyle and/or Ingredion

No Alternative to Disqualification
“Once Tate & Lyle brought the conflict to light, there was nothing that Squire Patton Boggs could do to cure it,” says Cade. Squire Patton Boggs’ offer to reimburse Ingredion and Tate & Lyle for the fees incurred for the disqualification motion and transition expenses mitigated the firm’s errors, but did not cure its ethical breaches.

Squire Patton Boggs’ argument that a de facto ethical wall existed because Patton Boggs attorneys did not have access to Squire Sanders’ computer systems did not persuade the court either. The court found that Squire Patton Boggs did not timely impose any ethical screening. In fact, shortly after the merger, a Patton Boggs attorney who had signed the engagement letters for Tate & Lyle and Ingredion, consulted with the sugar plaintiffs’ expert witness. That fact led the court to also question whether Squire Patton Boggs breached its duty of confidentiality.

As a result, the court concluded that Squire Patton Boggs’ offer not to have any of its attorneys examine any Tate & Lyle or Ingredion witnesses or make any arguments or address any documents that came from Tate & Lyle or Ingredion, was ineffective. These steps could not restore Tate & Lyle’s breached expectation of loyalty. Likewise, the sugar plaintiffs’ factual stipulation regarding the corn syrup defendants manufacture of high fructose corn syrup did not mitigate Squire Patton Boggs’ breach of loyalty to Tate & Lyle.

Keywords: conflict of interest, duty of loyalty, duty of confidentiality, prospective waiver, simultaneous representation, past client, present client, disqualification, merger, due diligence, substantial relationship, ethical wall, ethical screening

 
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