ETHICS UPDATE FOR GENERAL COUNSEL William L. Greene Stinson Leonard Street LLP Minneapolis 2 ND ANNUAL CORPORATE COUNSEL FORUM Sponsored by ASSOCIATION

ETHICS UPDATE FOR GENERAL COUNSEL

William L. GreeneStinson Leonard Street LLPMinneapolis

2ND ANNUAL CORPORATE COUNSEL FORUMSponsored by ASSOCIATION OF CORPORATE COUNSEL – IOWA CHAPTER

Friday, October 30, 2015

2

Enforceability of General

Open-Ended Waivers

In Law Firm Engagement Letters

MYLAN, INC. V. KIRKLAND & ELLIS, LLPNo. 15-581 (W.D. Pa. June 9, 2015) (Report and Recommendation)

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GENERAL OPEN-ENDED WAIVERS

SCENARIO #1The General Counsel of pharmaceutical company PHARMA engages

attorneys at the law firm of Finch Gambini to represent it in connection

with FDA approval of new drugs that are projected to generate a

substantial portion of the company’s revenue over the next five years.

While that representation is ongoing, a group of former PHARMA truck

drivers, represented by a different Finch Gambini attorney, files a

lawsuit against PHARMA accusing PHARMA of wrongful termination

and age discrimination.

• Can PHARMA disqualify Finch Gambini from representing the former

employees in the employment lawsuit?

• Does the result depend on the whether the Finch Gambini

engagement letter executed by PHARMA’s general included a

general open-ended waiver?

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APPLICABLE RULES“[A] lawyer shall not represent a client if the representation involves a concurrent conflict of interest. A concurrent conflict of interest exists if . . . the representation of one client will be directly adverse to another client. . . .”Iowa R. Prof. Conduct, 32:1.7(a)

* * * * * * * *

“Notwithstanding the existence of a concurrent conflict of interest . . . a lawyer may represent a client if:….. (3) the representation does not involve the assertion of a claim by one client against another client represented by the lawyer in the same litigation or other proceeding before a tribunal; and (4) each affected client gives informed consent, confirmed in writing.”Iowa R. Prof. Conduct, 32:1.7(b)

* * * * * * * *

“Informed consent” defined as: “The agreement by a person to a proposed course of conduct after the lawyer has communicated adequate information and explanation about the material risks of and reasonably available alternatives to the proposed course of conduct.”Iowa R. Prof. Conduct 32:1.0(e)

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GALDERMA LABORATORIES, L.P. V. ACTAVIS MID ATLANTIC LLC 927 F.Supp.2d 390 (N.D. Tex. 2013)

• Galderma is a global dermatological products company with in-house legal department

• 2003-2012: Galderma retains Vinson & Elkins (V&E) for representation relating to employment matters

• 2012: V&E retained by Actavis Mid Atlantic in intellectual property litigation adverse to Galderma

• Galderma asks V&E to withdraw• Galderma moves to disqualify V&E

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WAIVER INCLUDED IN

ENGAGEMENT LETTER

EXECUTED BY GALDERMA“We understand and agree that this is not an exclusive agreement, and you are free to

retain any other counsel of your choosing. We recognize that we shall be disqualified

from representing any other client with interest materially and directly adverse to yours

(i) in any matter which is substantially related to our representation of you and (ii) with

respect to any matter where there is a reasonable probability that confidential

information you furnished to us could be used to your disadvantage. You understand

and agree that, with those exceptions, we are free to represent other clients,

including clients whose interests may conflict with yours in litigation, business

transactions or other legal matters. You agree that our representing you in this

matter will not prevent or disqualify us from representing clients adverse to you in

other matters and that you consent in advance to our undertaking such adverse

representations.”

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LEGAL ISSUE AS ARTICULATED IN GALDERMA

“Whether or not Galderma, a sophisticated client, represented by in-house counsel gave informed consent when it agreed to a general, open-ended waiver of future conflicts of interest in V&E’s 2003 engagement letter.”

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LEGAL ISSUE AS

ARTICULATED IN GALDERMA

“Consent using a general or open-ended waiver is not per se ineffective, but

considering the entire spectrum of clients, a general and open-ended waiver is

likely to be ineffective because the vast majority of clients are not in a position

to understand the material risks from the open-ended language of the waiver

itself.”

* * * * * * * * *

“The first question is whether the information disclosed is reasonably adequate

for a client to form informed consent. If the waiver does, the second question

is, whether or not the disclosure is reasonably adequate for the particular client

involved in this case. The focus of the first question is on what information is

being disclosed, and the focus of the second question is on circumstances

pertaining

to the client.”

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SIGNIFICANCE OF IN-HOUSE LEGAL DEPARTMENT

“A client represented by independent counsel needs less information and explanation than others for its consent to be informed.”

* * * * * * * * *

“Galderma has its own legal department. Galderma has a general counsel with over 20 years of experience practicing law . . . . Galderma relies on its general counsel . . . and the corporate legal department to give competent legal advice pertaining to complex legal matters.”

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WHEN GENERAL OPEN-ENDED WAIVERS ARE UNENFORCEABLE

MYLAN, INC. V. KIRKLAND & ELLIS, LLP• K&E had long represented Mylan, Inc., a global

pharmaceutical company, on regulatory and products liability matters.

• Teva retained K&E for hostile takeover to acquire Mylan’s parent company, Mylan, N.V.

• Mylan, Inc. accounted for 90% of the revenue of Mylan, N.V.

• Mylan, Inc. had signed an engagement letter containing a general open-ended waiver of any conflicts of interest.

• K&E built an ethical wall between lawyers representing Mylan and lawyers representing Teva.

• Mylan, Inc. moved to enjoin K&E from representing Tevain the hostile takeover.

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K&E WAIVER LANGUAGE

“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 . . . .”

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WAIVER INAPPLICABLE BECAUSE

HOSTILE TAKEOVER WAS “RELATED TO”

SERVICES K&E HAD BEEN PROVIDING TO MYLAN• K&E’s knowledge of Mylan’s confidential and proprietary information render

Teva’s hostile takeover of Mylan “ inherently and uncontrovertibly related

to the professional services undertaken by K&E.”

• K&E’s knowledge of Mylan’s current and future valuation provides potential

advantage to Teva.

• “[I]t would be hard to imagine a representation more opposed to a current

client’s interests, more in breach of a fiduciary duty toward those interests,

than one in which the client’s counsel sells his professional services to

advance the interests of a competitor in a hostile takeover attempt of the

clients’ entire corporate affiliate group.”

Mylan, No. 15-CV-00581 (quoting expert report submitted by Mylan)

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MYLAN COURT WOULD HAVE

REACHED SAME RESULT UNDER

GADERMA’S “INFORMED CONSENT”

FRAMEWORK

In a footnote pointing out the analysis was not necessary to its recommendation, Mylan Court concluded:

“[T]he general waiver was ineffective for lack of informed consent

where Defendant failed to meet its burden of showing that its

contemporaneous disclosure to the Mylan Clients was objectively

reasonably adequate to an understanding that the material risks

encompassed included Defendant’s adverse representation in a

hostile acquisition attempt.”

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ENFORCEABILITY OF GENERAL OPEN-ENDED WAIVERS

TAKEAWAYS• General open-ended waivers can be enforceable

• More likely to be enforced against client with in-house counsel

• Analysis is largely fact-driven

• Courts will distinguish between “technical” conflicts and conflicts presenting obvious risks to client

15

“Economic Interest” Conflicts

CELGARD, LLC V. LG CHEM, LTD.,2014 WL 7691765 (Fed. Cir. Dec. 10, 2014)

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"ECONOMIC INTEREST" CONFLICTS

SCENARIO #2Silicon Valley Batteries, a manufacturer of lithium batteries for computers,

sues Tech Batteries for patent infringement. In addition to seeking damages,

Silicon Valley moves for an injunction that would bar Tech from continuing to

sell its lithium batteries. Attorneys from the law firm of McDeere and

DeLaughter are representing Plaintiff Silicon Valley.

Acme Computer, another client of McDeere and DeLaughter in unrelated

matters, purchases its supply of lithium batteries from Tech Batteries and

stands to experience significant production delays, costing millions of dollars,

if the injunction sought by Silicon Valley is granted.

Can Acme Computer disqualify McDeere and DeLaughter from representing

Silicon Valley in the infringement action even though Acme is not a party to

that action?

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CELGARD FACTS

• Celgard sued LG Chem for infringing patents related to

manufacture of lithium batteries

• The Complaint named only LG, not its customers

• Celgard moved to preliminarily enjoin LG from infringing the patent

directly or by inducing others by continuing to sell its batteries to

customers

• LG had been providing custom lithium batteries to Apple Computer,

a client of the Jones Day law firm in unrelated matters

• Celgard sent Apple a copy of its motion and requested to work with

Apple to resolve the issues relating to the alleged infringement by

LG

• Jones Day appeared for Celgard in the in the infringement action

• Apple moved to disqualify Jones Day

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GUIDANCE FROM RULES OF PROFESSIONAL CONDUCT

“[S]imultaneous representation in unrelated matters of clients whose interests are only economically adverse, such as representation of competing economic enterprises in unrelated litigation, does not ordinarily constitute a conflict of interest and thus may not require consent of the respective clients.”

Comment 6 to Iowa R. Prof. Conduct 32:1.7

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CELGARD DECISION

• Court grants Apple’s motion to disqualify

• Holds that “Jones Day’s representation here is ‘directly

adverse’ to the interests and legal obligations of Apple, and

is not merely adverse in an ‘economic sense.’

• Court rejected notion that it was creating a new conflicts

rule that would apply “merely because the client is up or

down the supply chain”

• Highly controversial decision

• Likely significant that Celgard had initiated communication

with Apple, including sending Apple a copy of the motion,

characterized by the Court as “targeting” by Celgard

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Conflicts of Interest --Legal Representation ofCorporate EmployeesTestifying in Depositions

YANEZ V. PLUMMER, 164 CAL. RPTR. 3D 309 (CAL. CT. APP. 2013)

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LEGAL REPRESENTATION OF CORPORATE EMPLOYEES TESTIFYING IN DEPOSITIONS

SCENARIO #3You are in-house counsel for INSURER, which has been

sued for violating anti-discrimination statutes based on the rates it charges

for automobile insurance in different parts of the metro area. You have

assessed the case and believe it is without merit, and have engaged Kaffe,

Galloway and Weinberg to represent INSURER in the lawsuit. INSURER’s

most knowledgeable witness is Nancy Numbers, its lead actuary, who is

expected to explain how the rates are determined based solely on lawful

factors. Knowing that there are numerous documents to review, you ask

Numbers to meet with the KGW lawyers over two days to prepare for her

deposition. Numbers asks you:

• " Will these KGW lawyers be representing me at the deposition?”

• “Do I need my own lawyer?”

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YANEZ FACTS – PRE-DEPOSITION

• Union Pacific Railroad machinist Michael Yanez was the only witness to his coworker’s job site injury.

• Yanez made two written statements about the accident to Union Pacific, one stating that he saw the injury occur, and the other stating that he did not see injury occur.

• Yanez’s testimony was likely to be unfavorable to Union Pacific.

• Prior to his deposition, Yanez asked Plummer, a Union Pacific attorney, who would “protect” him at the deposition.

• Plummer responded that Yanez was a Union Pacific employee and Plummer was his attorney “for the deposition.” Plummer also told Janez that as long as Janez told the truth in the deposition, Yanez’s job would not be affected.

What were the red flags heading into the deposition?


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YANEZ FACTS –

AT THE DEPOSITION• Yanez testified adversely to Union Pacific regarding unsafe

working conditions.

• Plummer asked questions, for which Yanez was not prepared, intended to undermine Yanez’s credibility.

• After Yanez testified that he had not seen the accident, Plummer marked one of Yanez’s earlier statement in which Yanez had stated that he had seen the accident, which, according to his deposition testimony was not true.

• Plummer did not mark an earlier statement by Yanez that did not contain the contradiction and did not give Yanez a chance to explain the discrepancy.


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YANEZ FACTS -- AFTER THE DEPOSITION

• Union Pacific fired Yanez for violating company policy against dishonesty, based on the contradiction between his written statement and his deposition testimony.

• Yanez sued Plummer for legal malpractice, breach of fiduciary duty, and fraud.


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YANEZ HOLDING

• Reversing a lower court decision granting Plummer summary judgment, the California Court of Appeals determined that the case could go to trial:

“Plummer’s violation of his legal obligations to represent his client, Yanez, was calculated to portray in the worst possible light Yanez’s deposition testimony in order to benefit Plummer’s other client at the deposition, Union Pacific, which then relied on that worst possible light to fire Yanez.”


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Compensating Former Employee For Time Spent Preparing to Testify at a Deposition

Philadelphia Bar Ass’n Prof’l Guidance Comm. Opinion 2014-12

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COMPENSATING FORMER EMPLOYEE FOR TIME SPENT PREPARING TO TESTIFY AT A DEPOSITION

SCENARIO #4“A former employee (A), now retired, of [a corporation] is the individual with

the best knowledge of areas of inquiry sought by opposing counsel. A has

requested that he be compensated for the time he spends--first in

reviewing a significant volume of documents produced in discovery, and

needed to refresh his recollection, and second at deposition and or trial.

The [corporation] believes that A’s testimony, without having reviewed the

documents, will likely be far less complete and accurate than if he has

reviewed the documents. Without review, many of A’s responses to

opposing counsel’s questions would be ‘I don't remember.’”

Do the Rules of Professional Conduct prohibit or limit payment

of “reasonable compensation” to such a fact witness?

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SCENARIO #4

IOWA R. PROF. CONDUCT 32:3.4(b)

A lawyer shall not:

….

(b) falsify evidence, counsel or assist a witness to testify falsely, or offer an inducement to a witness that is prohibited by law;

Comment to Iowa R. Prof. Conduct 32:3.4(b)(emphasis added)

With regard to paragraph (b), it is not improper to pay a witness’s

expenses, including loss of time in attending or testifying, or to

compensate an expert witness on terms permitted by law. It is improper

to pay an occurrence witness any fee other than as authorized by law

for testifying and it is improper to pay an

expert witness a contingent fee.


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PHILADELPHIA BAR ASS’N PROF’L

GUIDANCE COMM. OPINION 2014-12• Citing slightly different Pennsylvania version of Rule 3.4, the Philadelphia Bar

Association Committee concluded “that the Rules permit transparent payment

of ‘reasonable compensation’ for the ‘loss of time’ by a fact witness, including

time spent in preparing to testify, in reviewing documents, in addition to time

spent testifying at trial or deposition.”

• Declined to read “attending or testifying” in Pennsylvania to rule to exclude

“preparing” for deposition.

• Cited to formal opinion previously issued by ABA Standing Committee on Ethics

and Professional Responsibility, Formal Opinion 96-402.

• ABA Opinion stresses importance of making it clear to the witness that “the

payment is not being made for the substance (or efficacy) of the witness’s

testimony or as an inducement to ‘tell the truth.’”


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Application of Labor LawsTo Contract Attorneys

Lola v. Skadden, Arps, Slate, Meager & Flom, LLP, 2015 WL 4476828 (2d. Cir. July 23, 2015)

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APPLICATION OF LABOR LAWS TO CONTRACT ATTORNEYS

SCENARIO #5Fast Review staffing company provides attorneys on a contract

basis to law firms and corporate law departments. Through a

placement with Fast Review, Rudy Baylor conducted document review for the

law department of Great Benefit Insurance Company. The assignment lasted

fifteen months. Baylor’s entire responsibility consisted of (a) looking at

documents to see what search terms, if any, appeared in the documents, (b)

marking those documents into the categories predetermined by Great Benefit,

and (c) at times drawing black boxes to redact portions of certain documents

based on specific protocols that Great Benefit provided. Baylor was paid $25

an hour for his work, and worked roughly forty-five to fifty-five hours a week. He

was paid at the same rate for any hours he worked in excess of forty hours per

week. Unless Baylor was exempt from the Federal Labor Standards Act, Great

Benefit was in violation of that statute for failure to pay overtime.

Is Baylor exempt from FSLA’s overtime rules on the grounds that he

was a licensed attorney engaged in the practice of law?

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OVERTIME EXEMPTION

FOR ATTORNEYS

Attorneys fall under 29 C.F.R. § 541.304, which

exempts from the FSLA’s overtime requirement:

Any employee who is the holder of a valid license or

certificate permitting the practice of law or medicine or any

of their branches and is actually engaged in the practice

thereof[.] Id. § 541.304(a)(1) (emphasis added).

The district court had concluded that engaging in document

“per se constitutes practicing law” so as to trigger the

exemption from the overtime requirement.


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LOLA V. SKADDEN ARPSNO AUTOMATIC EXEMPTION FOR DOCUMENT REVIEW

• Ethics opinion in controlling state (and other states) “strongly suggests that inherent in the definition of ‘practice of law’. . . is the exercise of at least a modicum of independent legal judgment.”

• “The gravamen of Lola’s complaint is that he performed document review under such tight constraints that he exercised no legal judgment whatsoever—he alleges that he used criteria developed by others to simply sort documents into different categories. Accepting those allegations as true, as we must on a motion to dismiss, we find that Lola adequately alleged in his complaint that he failed to exercise any legal judgment in performing his duties for Defendants. A fair reading of the complaint in the light most favorable to Lola is that he provided services that a machine could have provided. The parties themselves agreed at oral argument that an individual who, in the course of reviewing discovery documents, undertakes tasks that could otherwise be performed entirely by a machine cannot be said to engage in the practice of law.”

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ETHICS UPDATE FOR GENERAL COUNSEL William L. Greene Stinson Leonard Street LLP Minneapolis 2 ND ANNUAL CORPORATE COUNSEL FORUM Sponsored by ASSOCIATION