Recent story makes me wonder if this is an example of a violation of the hot potato doctrine

NPR has a long story that reminded me of the "hot potato doctrine."  In case you don't remember, this is the doctrine that says that it is misconduct to dump a current client ("like a hot potato") in order to "convert" that client into a former client to clear the way to accept the representation of a new client with an interest adverse to that of the (now) former client.

The story in a nutshell is that a big law firm had been representing, pro-bono, a non-profit organization for several months.  At one point during that representation, the non-profit sought help from the firm because a government agency was trying to eliminate its only source of funding.  In response to the agency's threat, lawyers from the firm met with the non-profit organization's board and president to discuss a potential lawsuit against a federal agency.  

Later, however, the firm decided they did not want to get involved in the case because “the case might be too political” and withdrew from representation.  

Ok, nothing wrong there, I suppose.  The firm has a right to decided whether it wants to represent a client.  

But then, eight weeks later, the firm agreed to represent the Agency threatening to take away the nonprofit's money for the year.  And all this without ever asking for consent or even informing the (now) former client.

The general counsel for the non-profit organization is quoted in the story as saying "I was speechless." . . . "I had no idea that they would ever turn around and represent our actual adversary in a lawsuit, after an attorney in their practice had spoken to our board about our strategy and asked me for internal documents to help frame up the theory of our case."

Once the firm undertook the new representation, the lawyer and several staffers who had been representing the non-profit organization left the firm.  The firm continued to represent the agency and, according to the story, made well over $2 million dollars over the next five months.

Does this sound like a violation of the hot potato doctrine to you?   

You can read the full story here.

The Ohio Board of Professional Conduct's recent advisory opinion on conflicts of interest

The Ohio Board of Professional Conduct has issued an advisory opinion which reiterates three basic and uncontroversial principles on conflicts of interest.  The opinion is Advisory Opinion 2019-01 and you can read it in full here. 

The opinion makes three points:

First, the opinion states that, absent informed consent, a lawyer may not undertake representation of an adverse party in an unrelated matter when the lawyer represents current clients with claims pending against the adverse party.  This conclusion should not be surprising.  It is just the basic principle against concurrent conflicts of interest expressed in Model Rule 1.7.

Second, the opinion states that a lawyer may not withdraw from the representation of a current client in order to undertake representation of an adverse party, even if the matters are unrelated.  This is another way of saying that the Board would apply the so-called "hot potato doctrine" which prevents a lawyer from trying to dump a client in order to "convert" the client from a current client into a former client before taking on a new client in a matter adverse to the interests of the converted former client.  I can't say how many jurisdictions have formally adopted the doctrine, but it is pretty well known so I am not surprised by the opinion's position on this.

Third, the opinion states that absent informed consent, a lawyer may not represent a former adverse party in a new matter against a former client if the new matter is the same or a substantially related matter in which that person’s interests are materially adverse to the interests of the former client.  Again, this is not news since it is simply stating the basic principle regarding successive conflicts of interests expressed in Model Rule 1.9. 

3M settles case filed by state of Minnesota

3M has agreed to pay $850 million to settle a long-standing lawsuit filed by Minnesota, over the company’s disposal of perfluorochemicals used in Scotchgard and other products, which the state says polluted drinking water sources.  Go here for more details.

Why is this relevant?  Because this was the case in which the law firm Covington & Burling was disqualified for allegedly violating the "hot potato doctrine."  Go here, here, here and here for my original posts on the case.  The disqualification order was later remanded for further proceedings.

Hot potato doctrine applied in Mississippi

The Law for Lawyers Today blog is reporting on a recent case applying the "hot potato doctrine" in Mississippi.  You can read the story here.  The case does not seem to add much to what we already know about the doctrine other than the fact that the case did not quite involve the typical scenario in which the doctrine applies.

Typically the hot potato doctrine applies when a lawyer drops a current client in order to take on a new client.  In the Mississippi case, the lawyer took on the new client and then dropped the current client.   Thus, in this case what the lawyer did was enter into a concurrent conflict for a short period of time and then tried to resolve it by dropping one of the two concurrent clients.  In other words, the doctrine is usually applied when a lawyer drops a client in order to avoid entering into a conflict, while here the lawyer dropped a client in order to remedy a conflict he was in already.

Minnesota Supreme Court has remanded the order disqualifying Covington & Burling in a case I have been writing about for almost 2 years

Back in August of 2012 I first reported on a complaint filed by 3M Corp. against the law firm Covington & Burling alleging that the firm had dropped 3M like a hot potato in order to represent the state of Minnesota in a case against 3M.  Covington argued that it was no longer representing 3M by the time it agreed to represent the state.  I posted my comments on that claim here. 

Meanwhile, aside from that lawsuit, 3M moved to disqualify Covington in the case in which it was representing the state against 3M.  I posted my comments on that here.  Although 3M claimed a violation of the hot potato doctrine as the basis for its motion, the court decided it on different grounds.  The court agreed with Covington that 3M was a past client, rather than a current one, thus making the hot potato doctrine irrelvant, but agreed with 3M that Covington should be disqualified for violating the rule against conflicts of interest as they relate to former clients (rule 1.9).   I commented on the disqualification order here.

Covington and its client then appealed the disqualification order and I wrote my thoughts on their arguments here.  I argued that once the court finds that the past representation of 3M and the current representation of the state against 3M are substantially related, Covington's arguments are relatively weak. 

In July 2013, the court of appeals affirmed the disqualification order, but Covington then appealed to the Minnesota Supreme Court.  For my post on this go here, which has a link to the opinion itself.

Now, almost two years after the affair began, the Minnesota Supreme Court has reversed and remanded the case holding that the lower court did not make enough findings to support its conclusion that the cases were substantially related.  This does not mean that Covington will not be disqualified; only that the court needs to make further findings to determine if it is justified to disqualify the firm.  However, the opinion suggests some of the factors it things should be considered and, in my opinion - for the reasons I argued in my post on the appeal to the appellate court - those factors will support Covington's position more than 3M's motion.

The Legal Profession blog has a note on the decision here.  Thanks to the Legal Ethics Forum, you can download the opinion here.

Covington and Burling disqualified in case against former client for conflict in violation of Rule 1.9

Back in August I posted a story about the lawsuit filed by 3M Corporation against the law firm Covington & Burling arguing that the law firm violated its duties to 3M when it allegedly dropped 3M in one matter to accept representation of another client (the state of Minnesota) against 3M.  Go here for that original post.

Meanwhile, 3M also filed a motion to disqualify Covington from representing the State of Minnesota in the underlying case and today the court has granted the motion to disqualify.  Interestingly, however, the basis for the ruling is not that Covington violated the "hot potato doctrine" (which penalizes a firm for dropping a client to clear the way to accept the representation of a new client) as argued by 3M.  The court simply held that Covington violated rule 1.9 on successive conflicts of interest.  Either way, 3M has scored a big win.

It remains to be seen what effect the disqualification order will have on the civil claim, but I am sure 3M will try to get some mileage out of the strong language by the judge who concluded that “Covington has exhibited a conscious disregard for its duties of confidentiality, candor, full disclosure, and loyalty to 3M..."

Interestingly, in disqualifying Covington, the judge goes into two different types of analysis used in cases of former client conflicts.

According to Rule 1.9, "[a] lawyer who has formerly represented a client in a matter shall not thereafter represent another person in the same or a substantially related matter in which that person’s interests are materially adverse to the interests of the former client unless the former client gives informed consent, confirmed in writing."

Thus, the big question is whether the previous representation of 3M was substantially related to the current representation of the state.  If so, Covington would be prevented from continuing to represent the state.  Following the generally accepted analysis in similar cases, the judge stated that 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.”

To address the issue, the judge examined the character and content of the previous representation of 3M and concluded that Covington had represented 3M in the past in matters that were substantially related to the case in which it was now representing the State of Minnesota against 3M.  The judge therefore concluded that "Covington has “switched sides” by representing a client who is now suing its former client" and that "[b]y representing the State, Covington will benefit by contradicting the very positions it had long advocated on 3M’s behalf."  The judge, thus, concluded that "[b]ecause a lawyer may not use any information “relating to” a prior representation to the detriment of a former client, disqualification is necessary where an attorney provided legal services to a former client relative to matters substantially related to the subject matter of the present suit."

Once this conclusion is reached, typically a court would have enough reason to justify disqualifying a firm, unless the firm (and its client) could convince that there are other reasons that show disqualification would be too onerous on the client at that point.  Covington may have an argument along those lines because 3M waited so long to protest its representation of the state. I expect Covington to argue that on appeal.

But the judge did not stop there because the case law in the state of Minnesota appears to be slightly different from that in other states.

It appears that the analysis used by courts in Minnesota combines the previously mentioned analysis related to whether the cases are substantially related with the analysis typically used for cases in which the conflict is created by a lawyer who moves from one firm to a new firm.  In a case like that, there is a presumption that the moving lawyer acquired confidential information about his or her former clients (left behind in the old firm) (the so-called "first presumption") and that he or she will share (or has shared) that information with the new firm (the "second presumption").  In support of its opposition to a motion to disqualify, the new firm can try to rebut either presumption.  If unable to do so, the firm would be disqualified from representing an interest adverse to those of a former client of the new attorney joining the firm.

Using this analysis, the judge also found that Covington should be disqualified. The judge found that the State (and Covington) simply could not rebut the presumption that Covington had received relevant confidential information from 3M nor the presumption that Covington shared that confidential information within the firm because Covington admitted to not imposing screens or other protections to safeguard 3M’s information.

I don't think this second part of the judge's analysis necessarily relevant to the facts of the case (because there was no lawyer moving from one firm to another), but it seems to be part of the analysis used in Minnesota and in the end the result is the same.

As expected, Covington has expressed it disagrees with the court's conclusions.  Timothy Hester, chair of Covington’s management committee stated: “The State of Minnesota has been a client of this firm on environmental matters since 1995.We respectfully disagree with the court’s ruling. We believe 3M failed to identify an actual conflict of interest and its attempt to disqualify the firm should in any event be barred because it came 15 months after the case was filed. 3M is a former firm client and the State of Minnesota’s current environmental case against 3M is not substantially related to a food packaging matter that we handled for 3M many years ago.  Our client, the State of Minnesota, will be weighing its options, including an immediate appeal.”

You can read the order in full by going here.  For more on the story go here and here.

Covington & Burling sued for allegedly violating the "hot potato doctrine"

A former client of Covington & Burling (3M Corp.) has filed a complaint against the firm arguing that the law firm violated its duties to the client when it allegedly dropped the client in one matter to accept representation of another client (the state of Minnesota) against 3M.  The client is claiming a violation of what is sometimes referred to as the "hot potato doctrine" which considers it a violation of fiduciary duties when a lawyer abandons a client with the express purpose to claim the client is a "former" client which would allow the lawyer to take on a certain representation the lawyer would have been unable to undertake if the client had still been a "current" client.  You can read the complaint here.

Covington has asserted, on the other hand, that it agreed to represent the state of Minnesota in its litigation against 3M after confirming that the firm had no active matters for 3M and that there was no conflict based on any prior representation of 3M.  Covington has also stated that 3M signed a waiver in which it specifically agreed that Covington could sue 3M in the future on unrelated matters.

Evidently, 3M is now saying that Covington was representing 3M in active matters - although unrelated - at the time Covington agreed to represent Minnesota against 3M.  Covington is saying it was not representing 3M at the time.  So this is a matter of fact that will need to be determined.  In other words, the court will have to determine if Covington was in fact representing 3M in any active matters at the time. Also, the court will have to examine the waiver signed by 3M and determine it is is valid and whether it applies to the facts of the case. 

Assuming the waiver is not dispositive, if it is true that the chronology of events was what 3M claims it to be (that the law firm was representing 3M in an active matter, then the state asked the law firm to take on a new case against 3M, then the law firm dropped 3M, then the law firm took on the representation of the state and sued 3M...), I have to say that sounds a lot like a hot potato case to me, but it will depend on the chronology of events.  If, as Covington argues it had completed the representation of 3M long before it agreed to represent the state of Minnesota, there is no basis for 3M's claim.

Another thing that is interesting here is that the hot potato doctrine is usually used in support of a motion to disqualify a firm in an ongoing case.  Here, 3M tried to get Covington disqualified in the case it filed on behalf of the state of Minnesota seventeen months after that case had started.  That long delay in filing the motion is problematic but the motion has not been decided. Obviously, it will be interesting to see what happens with that motion.   (After the motion was argued, 3M filed a motion to recuse the judge and apparently the case is now before a different judge).  But whatever the case may be, the interesting thing I was referring to is that in this instance 3M has filed a claim for damages, asking for compensatory damages and for a refund of fees paid to the firm over a period of years.
 
Covington & Burling has filed a motion to dismiss the case, in which the firm alleges that the lawsuit filed by 3M is an effort by 3M to deprive the State of Minnesota of its chosen counsel, and to obstruct the litigation of the underlying case.  However, the motion does not address the merits of the claim raised by 3M. It is based on an argument of lack of jurisdiction.  As to the merits of the claim Covington simply states that "[t]he claims against Covington are completely without merit, which Covington will demonstrate at the appropriate time."

For more information and other links on the case go to the ABA Journal and Professor Jonathan Turley's blog.  Also, here is an older article on the case from Reuters which has a lot more information and links (including a link to the waiver mentioned above). 

Hot potato case

Students of Professional Responsibility might remember Picker International v. Varian, the case where the court held a lawyer cannot drop a client "like a hot potato" in favor of a new - presumably more profitable - one. Proving that these things really do happen... here is a story from today's Law.com about a San Francisco Bluetooth headset maker (Aliph Inc) who has filed a motion to disqualify the firm for an opponent in a patent case arguing that the firm (Fish & Richardson) "played an unseemly game of hot potato by dropping it as a client and then turning around and suing for patent infringement the very next day." According to the story, Aliph hired the firm to do FCC regulatory work in May. In December, the the firm tried to get Aliph to consent to the firm's representation of an adverse party in litigation. Aliph refused to waive the conflict. A month later, the firm sent an e-mail to Aliph on saying, "Unfortunately, . . . we can no longer represent Aliph on regulatory matters without Aliph's consent to the firm being adverse on IP matters unrelated to our regulatory work. . . ." The next day, Fish filed the patent infringement suit for another client against Aliph in the Eastern District of Texas. The full story is available here.