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Lateral Associate’s Conflict of Interest Disqualifies Law Firm


By Karen L. Stevenson, Litigation News Associate Editor – September 22, 2010

Imputed disqualification continues to cast a shadow over lateral associate transfers, especially for intellectual property litigators moving between firms.


U.S. District Court Judge Robert E. Payne, of the Eastern District of Virginia, recently disqualified [PDF] a law firm from representing Sunbeam Products, Inc. [PDF] as a plaintiff in a patent dispute because a lateral associate’s conflict of interest was imputed to the entire firm. At his prior firm, the associate had been involved in patent prosecution work for a defendant in the Sunbeam litigation relating to one of the products that was now targeted by Sunbeam.


The district court concluded that disqualification was required because the associate’s work at his prior firm on certain patent applications and infringement litigation for his former client was substantially related to the patents and underlying legal issues in the Sunbeam litigation.


“Nationally, Judge Payne’s opinion provides persuasive authority that, as a general proposition, working on matters pertaining to patents covering a product are substantially related to future infringement actions targeting the very same product,” says Erick C. Howard, San Francisco, cochair of the ABA Section of Litigation’s Intellectual Property Litigation Committee.


Patent Work at Prior Law Firm Substantially Related to Sunbeam Litigation
In the case before Judge Payne, Sunbeam sued Homeland Housewares LLC and others for patent infringement, asserting that Homeland’s Magic Bullet® blender product infringed on Sunbeam’s patents-in-suit. During the litigation, Homeland learned that Sunbeam’s outside counsel employed an associate who was previously employed by Homeland’s outside counsel. At his prior firm, the associate’s work for Homeland involved the Magic Bullet product, including drafting a patent infringement complaint, conducting patent investigations, analyzing prior art, and preparing a patentability opinion.


Judge Payne ruled that the associate’s prior representation of Homeland was substantially related to the present Sunbeam litigation based on both the identity of the intellectual property in dispute and the underlying legal issues. The court analyzed the circumstances under Virginia Rules of Professional Conduct [PDF].


Virginia’s Rule 1.9(a) prohibits a lawyer who formerly represented a client from representing another person in the same or “substantially related matter” when the present and former client’s interests are materially adverse, unless both the present and former clients consent after consultation.


Virginia’s version of Rule 1.10 precludes any lawyer in a firm from representing a client when any other lawyer would be barred under Rule 1.9. Judge Payne emphasized that “[w]hen all the elements of a conflict of interest under [Rule] 1.9(a) are established as to a lawyer, [Virginia’s] Rule 1.10 mandates, without exception, imputation of that conflict to the entire firm.”


“The associate’s prior work for a former client, now a defendant, surely does seem to be closely related to the work now being done by his firm for Sunbeam, the plaintiff suing his former client,” observes John C. Martin, Chicago, cochair of the Section’s Ethics and Professionalism Committee. “Had the associate himself tried to represent both parties,” Martin says, “there plainly would be cause for alarm.”


Internal Conflict Screening Procedures
At his new law firm, however, the associate did not perform any work for Sunbeam. In fact, during a conflict check for the Sunbeam representation, the law firm identified the potential conflict, but concluded that the associate’s prior work was not the same or substantially related to the specific patents and issues involved in the Sunbeam litigation.


Sunbeam’s opposition to Homeland’s disqualification motion sought to distinguish the associate’s prior work by noting the associate’s junior status at the time and his limited access to any of Homeland’s confidential information. Nonetheless, the district court concluded: “[b]ased on the extensive, wide-ranging activities that [the associate] documented on his timesheets, [he] was in position to have significant inside information on a range of patent issues surrounding the allegedly infringing Magic Bullet product and its patentability.”


Court Rejects “Hair-splitting” Analysis of Successive Representation
The district court was also not persuaded by Sunbeam’s reliance on cases from Texas and New York where the courts refused to disqualify a party’s former counsel.


In Power Mosfet Techs., L.L.C. v. Siemens AG, 2002 U.S. Dist. LEXIS 27557 (E.D. Tex. Sept. 30, 2002), the Texas court held that while the prior and current representations involved the same category of devices, that category of devices was too broad to meet the standard of a substantial relationship warranting disqualification.


In Lemelson v. Synergistics Research Corp., 504 F. Supp. 1164 (S.D.N.Y. Jan. 9, 1981), a New York court ruled that an attorney’s prior representation of an inventor was related to the patent at issue in subsequent litigation where the attorney was now adverse to the inventor, but that there was not the substantial relationship of issues in dispute that would justify disqualification.


Judge Payne, however, noted that these decisions from outside the Fourth Circuit “have parsed the issues in the prior and current representations finely so as to distinguish the two representations and declare them not to be substantially related.” Judge Payne refused to engage in that type of “hair-splitting.”


Reactions to Sunbeam
“The Sunbeam decision is just the kind of case that prompted the ABA’s February 2009 modification to Model Rule 1.10, not yet adopted by Virginia, which approved ethical screening procedures as a way to avoid imputed conflicts from lateral hires,” Martin says.


The modified model rule “avoids the need for this kind of fine parsing,” says Martin, “by mandating strict procedures to advise the former client exactly what the firm is doing to wall off the conflicted lawyer.”


“In the Sunbeam case, it appears the firm devised its own screening procedure, but did not consult the party whose confidences were potentially at stake,” Martin says. “Under the rules, lawyers don’t get to make those calls on their own.”


The concern remains that decisions like this one will stifle the development of specialized practices. “The Sunbeam decision could have a greater adverse impact on lawyers looking for work in niche practices where there may be only a small number of local law firms with that particular practice concentration,” says David J. Tsai, San Francisco, cochair of the Section’s LGBT Litigator Committee.


Keywords:Litigation, lateral associates, patent litigation, intellectual property


 
 

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