Thursday, October 25, 2012

Update on Covington and Burling's disqualification in State of Minnesota v. 3M

Back in August I posted a story about the lawsuit filed by 3M Corporation against the law firm Covington & Burling (here) for an alleged violation of its fiduciary duties to 3M, and about two weeks ago I commented on the fact that Covington was disqualified in the underlying case that gave rise to the allegation.  In that case, Covington was representing the state of Minnesota against 3M who was a former client.  The court found that the current representation was substantially related to the former representation of 3M and granted the motion to disqualify.  See here.

Now comes news that Covington and the state of Minnesota have appealed the disqualification order. 

In its notice to appeal (available here), Covington (represented by different counsel) argues that the lower court erred because none of 3M's confidential information was "known to or used by" Covington lawyers representing the state of Minnesota and that the firm currently has a screen in place to prevent the attorneys who had represented 3M in the past from communicating with the lawyers who were currently representing Minnesota against 3M.

Covington may have a good argument in support of its position, but it is none of these.

In the order to disqualify, the court explained the analysis followed by courts in the state to decide these types of cases.  It is possible the judge was wrong about that, but since -to my knowledge - no one has made that argument I will assume that this is correct.  The Minnesota Supreme Court has established a three-part test to determine whether an attorney may represent a client in an action against the attorney's former client:  (1) first determine if the two representations are substantially related; (2) if so, it is presumed, irrebuttably, that the attorney received confidences from the former client and it is also presumed, but subject to rebuttal, that these confidences were conveyed to the attorney's affiliates; (3) once the presumptions are applied and a decision has been reached as to whether the conflict should result in disqualification, the court may consider other "competing equities" such as the effect of the disqualification on the party that loses its representation.

From what I have seen/read about the case at this point, it seems to me Covington is on the losing end of the first two parts of the analysis, but may have something to say on the last one.

For purposes of Rule 1.9, matters are “substantially related” if there is a “substantial risk that confidential factual information as would normally have been obtained in the prior representation would materially advance the client’s position in the subsequent matter.”  It is possible Covington may want to argue that the two representations were not substantially related, but the disqualification order makes a good case for its conclusion that they are.   And, more importantly, once the court has concluded that representations are substantially related, Covington cannot argue (as it is now trying to do) there there is no evidence that its lawyers have used or disclosed confidential information.  Covington wants to argue that the court "ignored critical elements of the rule" - meaning rule 1.9 about former client conflicts of interest - and that the court erred because it failed to address whether the firm used or disclosed confidential information. 

This argument is weak.  As stated above, once the court concludes the former representation and the current representation are substantially related, it is presumed (irrebuttably) that information was acquired and also - subject to rebuttal - that it was shared.  The firm would have to prove that the confidential information was not and could not have been shared in the past and that it will not be possible to share it in the future by proving the use of timely and effective "institutional mechanisms" (usually called "screens") created for that purpose.

In its notice to appeal, Covington claims the firm "currently" has a screen in place.  However, since the rules require that the screen has to be "timely", a screen that is allegedly in place now may not be sufficient to solve the problem "back then".

The problem is it is not clear when that screen was implemented, since in its order to disqualify the firm the judge concluded that there was no screen in place.  In fact, the judge stated that "Covington admits to not imposing screens or other protections to safeguard 3M’s information. Covington also admits to not taking any measures to prevent Covington lawyers from sharing confidential information with others in the firm." Given these conclusions, applying the two presumption analysis, the court correctly concluded that it must be presumed that Covington received and shared 3M’s confidential information.  If the judge is correct that Covington admitted not having a screen back then, the fact that it has one now is irrelevant.

For these reasons, it seems to me Covington will have a tough time arguing its case.

Covington's better argument, it seems to me, is based on the third part of the test mentioned before.
3M filed its motion to disqualify more than a year into the litigation of the case and claimed that it was not until then that it had noticed the conflict because of a change in its management.  The story is plausible, but not necessarily enough to defeat the argument that a disqualification that far into the litigation would cause an undue burden on the party that all of a sudden loses its representation.

So, bottom line, it seems to me the case will come down to this:  what is more important?,  the fact that Covington seems to have been operating under a conflict or the fact that eliminating the conflict now would cause an undue burden on the party that loses its lawyer.

If it is the former, the order should be affirmed and Covington would be disqualified; if it is the latter, the order should be reversed and Covington would be allowed to continue its representation of the state against its former client.

What will happen next, is anyone's guess.  Stay tuned....

No comments:

Post a Comment