Last week, during our blog break, visiting Judge John Frank Murphy of the Eastern District of Pennsylvania issued a fascinating disqualification decision in a patent action, Veeva Systems Inc. v. Tact.ai Technologies, Inc., Aktana, Inc., C.A. No. 23-1032 (D. Del. July 3, 2024).
In short, an attorney represented the current defendant, Veeva, against a trade secret and patent infringement suit back in 2013. That suit related to software called "Appoved Email." The attorney supervised the defense team and ultimately helped draft a settlement agreement that included a cross-license of some Veeva patent applications. Id. at 2-5.
Since then, the attorney switched firms, and the Veeva patent applications turned into Veeva patents covering technology in the Approved Email software. Veeva then decided to sue a different company on those patents, and the same attorney now seeks to defend the new company against the patent infringement suit by her former client.
The Court's analysis of this issue broke it down in a very simple and clear way (which pretty quickly leads to the conclusion that the attorney's effort is doomed):
Turning to the basis for disqualification here, Model Rule of Professional Conduct 1.9 requires that:
["]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.["] . . .
Turning to the facts, it is undisputed that: [the attorney] had an attorney-client relationship with Veeva; [the new defendant] Aktana’s interests are materially adverse to the interests of Veeva; and Veeva has not consented to [the attorney's] representation of Aktana. Aktana challenges only one part of Veeva’s assertion that [her] representation in this matter violates Model Rule 1.9: whether or not [the prior case] Prolifiq is substantially related to this case. We find that it is.
Id. at 9-11.
Given that the prior case involved the same software covered by the patents, and a license that will be at issue to those patents, it was pretty easy for the Court to conclude that the matters were "substantially related" (the opinion nonetheless includes several interesting paragraphs describing these connections). But there were several interesting points worth noting along the way:
The Defendant Could Not Moot the Disqualification Motion by Promising to Change Counsel (After Oral Argument)
The new defendant tried to "moot" the motion by switching counsel after oral argument (for what it says were unrelated reasons), but the Court didn't go for that:
Twelve days after oral argument, defense counsel filed a letter stating that “for reasons unrelated to the pending motion, Aktana has decided to substitute counsel for Cooley. Aktana will submit the requisite filing to accomplish the substitution, but wished to advise the Court promptly as it renders the pending motion moot.” DI 82. We disagree. Cooley has not yet withdrawn; there is no indication that Ms. Anderson or Cooley will not be assisting Aktana in this dispute more generally; and there is no indication of Veeva’s position in this withdrawal. Furthermore, while we unhesitatingly accept counsel’s representation that the reasons are “unrelated to the pending motion,” here the countervailing interests of the ethical rules — which serve all lawyers, clients, and the public, not just the parties in this case — counsel against simply forgetting this ever happened.
. . .
Aktana’s argument that Ms. Anderson retained no files and remembers nothing of use is beside the point. The rule is “prophylactic” and serves as a bulwark of client confidence in attorney loyalty and “public confidence in the integrity of the bar.” . . .
Id. at 2 n.2.
Disqualification Is Required Even If the Attorney Has Forgotten the Prior Action or Had No Confidential Information
This one seems obvious from the way the Court framed the rule, but I'll note it regardless: none of the attorney's defenses that she didn't remember anything or had no access to confidential information held water. The Court easily rejected each of them as irrelevant under the rule:
[T]he Third Circuit instructs us to focus on the potential harms of violating the rule rather than demanding a showing of an actual breach of the duties of confidentiality or loyalty. . . . Aktana dedicates a section of its brief to arguing that Veeva failed to “establish that Ms. Anderson obtained any privileged and confidential information that could be used to Veeva’s detriment.” . . . Obviously, an actual breach of confidences would be damning. But the point of the rule is to avoid that result or even the appearance. As with many ethical standards, the focus is on enforcing clear lines to protect the attorney-client relationship and integrity of the bar. For the same reason, we simply cannot abide by Aktana’s argument that Veeva had to show that Ms. Anderson had access to Veeva information in Prolifiq that she would not be getting to see anyway during the course of discovery in this litigation. . . . That proposal, if adopted, would be a remarkable and unwarranted derogation from Model Rule 1.9.
Id. at 11.
No Waiver After Five-Month Delay
The best defense to disqualification here seemed to be waiver. The plaintiff went three months before it first objected to the attorney's involvement, and then another two months before it raised the issue with the Court.
The Court found no waiver, holding that the three-month delay was likely related to efforts to settle the action:
The prospect of settlement discussions [during the three-month delay] presents a quandary. On one hand, much like the letter-writing campaign, we are hard-pressed to discourage settling a case. On the other hand, we again reject Veeva’s suggestion that somehow [the attorney's] conflict was less problematic during settlement negotiations than it is now, and did not even become ripe until the motion to dismiss. Just as easily as active litigation, settlement negotiations could allow [her] and Aktana to rely on Veeva’s failure to object — especially since [the attorney] was talking directly to her former client contact. The record is murky on exactly who remembered about Prolifiq and when. The safest conclusion is consistent with common sense: [the attorney] and Veeva obviously remembered each other, but whatever they remembered about Prolifiq, they both chose to set concerns aside and try to settle the case. If we knew more, there might be reasons to find that one side or the other tactically bit its tongue. But we do not. “[T]he prudent course of action would have been for [the attorney], upon identifying [Veeva] as a ‘potentially adverse party,’ to provide notice to [Veeva] of the potential conflict and request a waiver.” Talecris, 491 F. Supp. 2d at 515 n.3. And so the most reasonable inference we can draw from [her] failure to do so is that both sides were content to stay quiet and try to get the case settled. On this record, we could not find waiver without unduly discouraging otherwise healthy settlement discussions.
Id. at 20. Likewise, the two-month delay involved repeated letters seeking that the attorney be ethically screened from the case, and her firm's refusal to do so.
Defendant's Refusal to Ethically Screen the Attorney Results in Its Disqualification—It Gets No Second Chance to Screen Her
The firm refused to screen the attorney. I'm not sure whether the defendant changed its position after argument or not, but the Court certainly does not think it should be permitted to do back out:
As described earlier, Veeva repeatedly asked Aktana to screen [the attorney] from the case. But Aktana refused, and even in opposition to the motion to disqualify, elected to go all-or-nothing. Therefore, we have no choice but to extend our conclusion that [she] must be disqualified to [the firm].
Id. at 21.
"[Model Rule 1.9] Is Not a Black Hole Inhaling Anyone Nearing the Event Horizon"
The Court's opinion as a whole is a great read. I liked the black hole imagery in particular:
Fairly universal principles of legal ethics tell us that a lawyer cannot defend her client in a lawsuit and then turn against that client in the same or a substantially related matter. But this rule is not a black hole inhaling anyone nearing the event horizon. A new client’s choice of counsel is entitled to respect. Former clients may give informed consent. And there’s nothing strange about lawyers working on many matters of a similar kind — that is the nature of specialization, which is a boon for clients. Many matters that seem somewhat similar do not really have the kind of relations that run counter to the recognized purposes of the ethical rules. Nor are the ethical rules weapons for deployment at a whim.
Id. at 1. If you are at all interested and want more detail, go read it!
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