Five new and notable disqualification opinions were issued in the last two weeks.  In order, they cover: (1) lawyers receiving and returning inadvertently disclosed confidential information (and then being disqualified notwithstanding the information’s return); (2) lawyers as qui tam relators; (3) lawyers representing third-party witnesses to limit the other side’s ability to interview those witnesses; (4) lawyers obtaining advance, but imprecise, waivers; and (5) federal defense lawyers representing capital defendants in state court and state agencies attempting to disqualify those lawyers for alleged misuse of federal funds.

(1) Inadvertent Disclosure.  The first case involves the receipt of privileged documents and presents an interesting issue as to the rights of the receiving law firm to defend itself against a later disqualification motion.  To keep a long story somewhat short, the opposing side inadvertently sent privileged documents (indeed, the full client file) to the law firm, the law firm reviewed the documents, and the firm eventually complied with the opposing side’s demands to return the inadvertently sent documents.  The firm’s compliance, however, weakened its ability to defend against the opposing side’s later motion to disqualify.  The opposing side claimed that the law firm’s receipt and review of the privileged documents within the file gave the firm an unfair tactical advantage and otherwise prejudiced the opposing side.  The firm desired to rebut this claim of prejudice, but because the firm had eventually complied with the opposing side’s demands to return the file, the firm no longer had access to the allegedly privileged documents to dispute the opposing side’s claims of prejudice.  The firm therefore argued that in bringing the disqualification motion, the opposing side had waived its privilege by putting the documents in issue.

The Arizona Court of Appeals refused to recognize a waiver (even a limited one).  The court was instead satisfied that the trial court itself had reviewed the documents in camera for possible prejudice.  The court also gave short shrift to the firm’s due process arguments because the firm had “submitted written briefs and participated in oral argument,” and although the firm “did not have access to the privileged documents at the time of oral argument, [the firm] had admittedly reviewed the entirety of the client file and had taken detailed notes.”  The court thus affirmed the trial court’s disqualification of the firm.  Policy-wise, the court’s ruling might mean that more firms in similar situations will “sequester” the information instead of complying with the opposing side’s requests for return and deletion of the information.[1]

Notwithstanding the potential unfairness to the defending law firm and policy implications noted above, the court did provide a roadmap for lawyers and courts facing similar disqualification issues in the future:

when faced with a motion to disqualify premised upon the abuse of privileged information disclosed inadvertently, the trial court must: (1) determine whether the documents at issue are in fact privileged; (2) determine whether the receiving party exercised an unfair advantage over the documents, such as reviewing, copying, or distributing them in violation of Rule [of Civil Procedure] 26.1(f)(2) [see also Fed. R. Civ. P. 26(b)(5)(B)] and [Arizona Rule of Professional Conduct] 4.4(b); and (3) review the privileged information objectively, in light of the context of the case, to determine whether the receiving party possibly gained an unfair tactical advantage over the moving party. In reviewing the information, the court may consider certain mitigating factors, such as whether the privileged information might have already been known by the receiving party, or whether the information may be insignificant to the issues before the court. And because disqualification motions are disfavored, the trial court should always consider alternative solutions that will adequately address the purported harm.

The full opinion is available here: Burch & Cracchiolo, P.A. v. Myers (Ariz. Ct. App. June 4, 2015) (citations omitted).

(2) Lawyers as Qui Tam Relators.  After representing an insurance company in an arbitration against Northrop Grumman and learning of Northrop’s allegedly troubling billing practices, a lawyer pursued Northrop as a qui tam relator under the False Claims Act.  According to the lawyer, Northrop received Navy funds dedicated to Hurricane Katrina relief and allegedly used the funds to pay for non-Katrina-related cost overruns.  In the arbitration matter, the lawyer had gained relevant information subject to a protective order. After the lawyer disclosed that information in support of his FCA claim, Northrop sought the lawyer’s disqualification as a qui tam relator.  The court first concluded that an attorney may serve as a qui tam relator, that the attorney is bound by the ethical rules, that a breach of the rules may be remedied by disqualification, and that federal law does not preempt the ethical rules:

Although attorneys may act as relators pro se, non-attorneys are prohibited from proceeding as relators pro se. A primary policy reason for this prohibition is that “[l]awyers are bound to ethical constraints to which non-lawyers may have no knowledge and no obligation[, and v]iolation of these fundamental canons may result in serious consequences to the errant attorney.” Furthermore, “[a]n attorney ‘has an obligation which he owes to the court[ . . . ], and he owes a public duty to aid in the administration of justice, to uphold the dignity of the court and respect its authority.’” These ethical obligations and the consequences of breaching them remain applicable to attorneys proceeding as relators pro se. Because Holmes is permitted to act as a relator pro se in this matter due to his status as an attorney, the Court will evaluate whether he should be disqualified from serving as a relator by reference to the rules of professional conduct governing Holmes as an attorney. . . .

Insofar as Holmes takes the position that the ethical nature of his conduct is not relevant because the FCA preempts the ethical rules governing his conduct, this argument is not persuasive. Courts addressing the issue of whether the FCA preempts state ethics rules have declined to find preemption.

The court then proceeded to denounce the lawyer’s conduct, disqualify him from serving as a qui tam relator, and dismiss the action: “When viewed in its entirety, Holmes’ conduct reveals multiple improprieties. . . . Holmes violated his duty of loyalty to Munich Re[, his insurance company client in the arbitration,] by simultaneously advocating a position for Munich Re that was completely contrary to the position he continues to advocate as relator in this case. Holmes violated his duty to retain confidential information by allowing his own interest in pursing this qui tam action to override his duties to Munich Re related to the confidentiality of documents he obtained on Munich Re’s behalf, which placed Munich Re in jeopardy of violating various confidentiality obligations to which Holmes knew his client was bound. In seeking to build support for his qui tam case, Holmes also knowingly violated the Stipulated Protective Order issued by the court in the [underlying arbitration matter]. All the while, Holmes violated his duty of candor by failing to apprise the court . . . of his motives for obtaining the confidential information.”

The full opinion is available here: United States ex rel. Holmes v. Northrop Grumman Corp. (S.D. Miss. June 3, 2015) (citations omitted).

(3) Representing Third-Party Witnesses.  The New York Supreme Court last week took issue with a plaintiff’s lawyer’s apparent attempt to represent witnesses to inhibit the other side from interviewing those witnesses and (at least according to the court’s speculation) to gain the ability to raise additional objections (e.g., privilege objections) at the witnesses’ eventual depositions.  The court concluded that the lawyer should be disqualified from representing the witnesses “[u]nder the circumstances of this case, which include the fact that: at least one of the witnesses was willing, at one point, to speak with defendants’ investigator; there was no written retainer agreement executed between the witnesses and plaintiff’s counsel; plaintiff’s counsel’s representation of these witnesses did not come about until attempts were made by defense counsel to informally question them, despite the fact that they were noticed as fact witnesses years prior; plaintiff’s counsel took statements from one of these witnesses prior to her having represented them, as admitted by her during oral argument before the court; plaintiff’s counsel essentially conceded during oral argument that she would have the benefit, at deposition of these witnesses, of acting as both counsel for plaintiff and counsel for the witnesses; and plaintiff’s counsel admitted that it is her common practice to represent witnesses noticed by her clients as part of the scope of representation of her clients.”  To the court, the “representation of these witnesses is no more than a pretext to permit plaintiff to gain a ‘tactical advantage’ by foreclosing the ‘laudable policy consideration of . . . promoting the importance of informal discovery practices in litigation, in particular, private interviews of fact witnesses,’ i.e., it was done solely to impede defendants’ rights to conduct informal discovery.”[2]  The court further suspected that “by virtue of her dual representation, counsel would obtain yet another tactical advantage which would permit her to make objections at the depositions for the non-party witnesses that she would not otherwise be entitled to make were she not also counsel for plaintiff.”

The full DQ order is available here: Grech v. HRC Corp., 2015 NY Slip Op 25192 (N.Y. Sup. Ct. June 10, 2015) (citations omitted).

(4) Advance Waivers.  This advance waiver dispute (which the law firm at issue, Kirkland & Ellis, had previously called “preposterous”) is interesting for a variety of reasons.  The movant, K&E’s concurrent client Mylan, brought breach of fiduciary claims and moved for a preliminary injunction barring K&E from helping another client, Teva, in a hostile takeover bid.  Citing the well-known Maritrans case, the magistrate judge agreed that K&E should be enjoined from participating in the hostile takeover of its client, Mylan.  K&E had defended the action on several bases, including (1) that the firm never represented Mylan’s parent company (which was technically the entity being acquired through the hostile takeover) and (2) that Mylan had agreed to an advance conflict waiver.  That waiver read as follows:

Accordingly, as an integral part of the Engagement, you agree that K&E LLP may, now or in the future, represent other entities or persons, including in litigation, arbitration or other dispute resolution procedure, adversely to you or any of your affiliates on matters that are not related to (i) the legal services that K&E LLP has rendered, is rendering or in the future will render to you under the Engagement and (ii) other legal services that K&E LLP has rendered, is rendering or in the future will render to you or any of your affiliates under a separate engagement (an “Allowed Adverse Representation”).

The court concluded that, despite the waiver above, K&E did not obtain informed consent from Mylan for its hostile takeover. The court found several problems with the waiver but to highlight three: (1) the waiver waives conflicts only as to matters “not related” to K&E’s representation (and the court spent a considerable portion of its lengthy report discussing how the takeover was not just related but “substantially related” to K&E’s work for Mylan); (2) although the waiver mentioned the possibility that K&E might take adverse action against Mylan “in litigation, arbitration or other dispute resolution procedure,” the waiver “makes no mention of acquisitions (hostile or otherwise);” and (3) to the court, the waiver’s mention of “you or any of your affiliates” actually supported Mylan’s argument that K&E had agreed not to take adverse action against Mylan’s affiliates in related matters. The court also gave relatively little weight to the prior course of conduct (i.e., that K&E was adverse to Mylan in other matters, including arguably related matters, and Mylan had not objected): “the Court is troubled by K&E’s argument as to one of these representations, in which it ‘easily could have been argued to implicate confidences learned’ through K&E’s representation of the Mylan Clients.’ This Court expressly repudiates any suggestion that prior ‘arguable’ ethical breaches may render a law firm exempt from its fiduciary duties. Even a client who accepts his lawyer’s toe across an ethical line need not later tolerate the lawyer’s foot.”

The magistrate judge’s full report recommending disqualification is available here: Mylan, Inc. v. Kirkland & Ellis (W.D. Pa. June 9, 2015) (and thanks to the listserv of the Association of Professional Responsibility Lawyers for noticing the report). According to the DealBook of the New York Times, Teva has already replaced K&E with Sullivan & Cromwell.

(5) Federal Preemption.  Perhaps the most impactful and unusual disqualification opinion last week involved the capital defense arena.  The Commonwealth of Pennsylvania filed motions to disqualify the Federal Community Defender (i.e., a Community Defender Organization under the federal Criminal Justice Act) from representing capital defendants in state court.  The Commonwealth accused the Defender of improperly using its federal funds to represent capital defendants in state post-conviction relief proceedings.  The disqualification motions were ultimately consolidated and removed to federal court.  In a lengthy opinion, the Third Circuit held that federal law preempted the Commonwealth’s disqualification motions.  The concurrence exposed the Commonwealth’s misguided arguments:

it is difficult not to wonder why the Commonwealth is attempting to bar concededly qualified defense attorneys from representing condemned indigent petitioners in state court. A victory by the Commonwealth in this suit would not resolve the legal claims of these capital habeas petitioners. Rather, it would merely mean that various cash-strapped communities would have to shoulder the cost of paying private defense counsel to represent these same petitioners, or that local pro bono attorneys would have to take on an additional burden. . . . As my colleagues in the Majority note, the genesis of these disqualification motions was a concurring opinion by then-Chief Justice Castille in Commonwealth v. Spotz, 18 A.3d 244 (Pa. 2011) (Castille, C.J., concurring). The opinion severely criticized the tactics, motives, integrity, and even the veracity of Federal Community Defender attorneys who had intervened in state court PCRA proceedings on behalf of a condemned prisoner. It is rife with harsh critiques of the Federal Community Defender. Chief Justice Castille lamented in his concurring opinion in Spotz that the Federal Community Defender’s “commitment of . . . manpower” in the PCRA proceedings was “something one would expect in major litigation involving large law firms.” However, I am not quite sure why the same kind of meticulous devotion of resources should not be available to someone who has been condemned to die by the state and who seeks to challenge the legality of that punishment. State post-conviction proceedings are a critical stage of litigation for those challenging their capital murder convictions or death sentences. Surely, these cases are not less important than the “high dollar” litigation to which large law firms so often devote substantial resources.

The full opinion is available here: In re Commonwealth’s Motion to Appoint Counsel Against or Directed to Defender Ass’n of Phila.) (3rd Cir. June 12, 2015) (citations omitted).

[1]           For disqualification defense purposes, the safest course obviously remains not to review the privileged documents in the first place. For example, under admittedly egregious facts, the California Court of Appeal recently disqualified an attorney who had reviewed and used the opposing side’s privileged documents in depositions and returned the documents only after the opposing side filed the motion to disqualify. See Martin v. Inland Empire Utilities Agency (Cal. Ct. App. March 19, 2015) (unpublished).

[2]           Cf. Model Rule 3.4(f) (“A lawyer shall not . . . request a person other than a client to refrain from voluntarily giving relevant information to another party unless: (1) the person is a relative or an employee or other agent of a client; and (2) the lawyer reasonably believes that the person’s interests will not be adversely affected by refraining from giving such information.”).