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Waiver of Conflict Provision of Joint Defense Agreement Waives Potential Conflict with Counsel for Former Codefendant

September 22, 2011

Decision icon Decision

Last Month at the Federal Circuit - October 2011

Judges: Newman (dissenting), Schall, Dyk (author)

[Appealed from: N.D. Cal., Judge Chesney]

In In re Shared Memory Graphics LLC, No. 11-M978 (Fed. Cir. Sept. 22, 2011), the Federal Circuit granted mandamus and directed the district court to vacate its order disqualifying the law firm of Floyd & Buss, LLP (“Floyd & Buss”) from representing plaintiff Shared Memory Graphics LLC (“SMG”) due to a conflict of interest because defendant Nintendo Co. of America (“Nintendo”) clearly and indisputably waived the conflict of interest.

During a prior patent infringement suit involving a complex memory chip composed of multiple components (“Hollywood chip”), Floyd & Buss partner Kent Cooper was then-Director of Patents and Licensing for Advanced Micro Devices (“AMD”). AMD and Nintendo, as codefendants in the earlier suit, executed a Joint Defense Agreement (“the Agreement”) under which they exchanged information concerning litigation tactics, settlement strategies, drafts of briefs, and other confidential information. While Cooper had access to confidential Nintendo information pursuant to the Agreement, it was unclear whether Cooper received any such information. Thereafter, Cooper left AMD to join Floyd & Buss. Upon his entry to the firm, however, he was not screened for potential conflicts. And when Floyd & Buss undertook to represent SMG in its infringement suit against Nintendo, the firm did not take any steps to exclude Cooper from the firm’s activities, such as erecting a “firewall.”

Nearly ten months into the litigation, Nintendo moved to disqualify Floyd & Buss from continued representation in this case. The district court granted Nintendo’s motion, concluding that the Agreement’s waiver of conflicts did not apply when former AMD or Nintendo attorneys accepted new employment. Conclusively presuming that Cooper had accessed confidential Nintendo information, the district court disqualified the entire firm from representing SMG against any of the defendants in the current action. SMG petitioned the Federal Circuit for a writ of mandamus to vacate the district court’s rulings and to reinstate Floyd & Buss as SMG’s counsel.

The Federal Circuit first explained that the remedy of mandamus is available in extraordinary situations “to correct a clear abuse of discretion or usurpation of judicial power” when the party seeking the writ establishes that it has no other means of obtaining the relief desired and the right to issuance of the writ is “clear and indisputable.” Slip op. at 5. In the context of disqualification of counsel, the Court concluded that SMG would not be able to obtain meaningful relief other than by seeking a writ of mandamus because, by the time an appeal could be taken, the trial would be over, and SMG would have gone through the litigation without the counsel of its choice. And the alternative of waiting for a direct appeal would require a showing of prejudice, which would be very difficult for SMG to demonstrate, short of misconduct on the part of the substitute counsel.

Turning to the merits of the petition, the Federal Circuit noted that the waiver-of-conflict provision provides that “[t]he parties expressly acknowledge and agree that nothing in this Agreement, nor compliance with the terms of this Agreement by either party, shall be used as a basis to seek to disqualify the respective counsel of such party in any future litigation.” Id. at 7 (citation omitted). The Court identified its task as giving effect to the plain language of the parties’ Agreement while looking to the Agreement as a whole to avoid rendering any part superfluous. In particular, the Court noted that Cooper was indisputably a “respective counsel” of AMD, and that the breadth and scope of the waiver were broad enough to include “any future litigation” between Nintendo and a party employing, or represented by, Cooper. Id. at 8.

The Federal Circuit found that its interpretation was bolstered by the consistent use of the term “respective counsel” throughout the particular paragraph of the Agreement. For example, the paragraph also provided that “[n]othing contained in this Agreement has the effect of . . . creating any . . . duties between a party or its respective counsel and the other party or its respective counsel, other than the obligation to comply with the express terms of this Agreement.” Id. at 8-9 (alterations in original). The interpretation adopted by the district court would produce an illogical result—the provision would apply to current counsel of AMD and Nintendo, but not former counsel, such as Cooper—that would mean Cooper was under no ongoing obligation of confidentiality. The Court found that such a result would be contrary to the parties’ clearly expressed intent and “contradict the very reason why any joint defense agreement is in effect in the first place.” Id. at 9. Thus, the Court concluded that the district court’s determination was incorrect as a matter of law and that SMG demonstrated its clear and indisputable right to issuance of the writ.

Accordingly, because Nintendo waived this potential conflict, the Federal Circuit directed the district court to vacate its order disqualifying Cooper and the Floyd & Buss law firm.

Judge Newman dissented, finding the majority opinion problematic for an increasingly mobile legal profession. In Judge Newman’s opinion, the issue was “the integrity of the system of legal representation in today’s world of mobile lawyers and large law firms with interacting clients.” Newman Dissent at 2. Thus, Judge Newman noted that the use of firewalls has been accepted for many situations, even though one was not implemented here.

Further, Judge Newman remarked that California law recognizes that disqualification is proper when “an attorney has received information in his role as an attorney, even if the source of the information is not a ‘client’ of the attorney.” Id. And the California courts have accepted the presumption—that an attorney in Cooper’s position received confidential information—to protect the holder of the information and the attorney. Unlike the majority, Judge Newman would not find that the waiver authorized future adverse representation. Judge Newman would not disturb the district court’s ruling, which in her view had “plausible support.” Id. at 5. Thus, Judge Newman believed that the majority “inappropriately intruded into the district court’s authority and responsibility, to the detriment of the integrity of legal practice.”
Id. at 6.

Summary authored by Mayssam H. Ali, Ph.D., Esq.