GSI Commerce Solutions, Inc. v. BabyCenter, L.L.C.
U.S. Court of Appeals8/18/2010
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09-2790-cv
GSI Commerce Solutions v. BabyCenter
1 UNITED STATES COURT OF APPEALS
2 FOR THE SECOND CIRCUIT
3 AUGUST TERM, 2009
4 (Argued: December 3, 2009 Decided: August 18, 2010)
5 Docket No. 09-2790-cv
6 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
7 GSI COMMERCE SOLUTIONS, INC.,
8 Petitioner-Appellant,
9 v.
10 BABYCENTER, L.L.C.,
11 Respondent-Appellee.
12 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
13 B e f o r e: WINTER, RAGGI, and LIVINGSTON, Circuit Judges.
14 Appeal from a judgment of the United States District Court
15 for the Southern District of New York (Jed S. Rakoff, Judge)
16 granting a motion to disqualify petitioner’s counsel. We affirm.
17 Counsel currently represents respondent’s parent company, and
18 respondent and the parent company are so closely related that
19 they are essentially one client for disqualification purposes.
20 Counsel has thus engaged in concurrent representation, which it
21 may not do without the parent company’s consent. Counsel had not
22 obtained such consent. We therefore affirm.
23
24
1 REBECCA D. WARD (James T. Smith &
2 Leonard D. Steinman, Blank Rome,
3 LLP, Philadelphia, Pennsylvania;
4 Raymond L. Fitzgerald, Butler,
5 Fitzgerald, Fiveson & McCarthy,
6 P.C., New York, New York on the
7 brief), Blank Rome, LLP,
8 Philadelphia, Pennsylvania, for
9 Petitioner-Appellant.
10
11 JOHN D. WINTER (Claude S. Platton
12 on the brief) Patterson Belknap
13 Webb & Tyler, LLP, New York, New
14 York, for Respondent-Appellee.
15 WINTER, Circuit Judge:
16 GSI Commerce Solutions, Inc. (“GSI”) appeals from Judge
17 Rakoff’s order granting a motion by BabyCenter, LLC
18 (“BabyCenter”), a wholly-owned subsidiary of Johnson & Johnson,
19 Inc. (“J&J”), to disqualify Blank Rome, LLP, as GSI’s counsel.
20 The court concluded that the doctrine forbidding concurrent
21 representation without consent applies because the relationship
22 between BabyCenter and J&J, which Blank Rome represents in other
23 matters, is so close that the two are essentially one client for
24 disqualification purposes. The district court therefore
25 disqualified Blank Rome from representing GSI in the instant
26 matter because the law firm had not obtained consent from J&J.
27 We affirm.
28 BACKGROUND
29 a) Attorney-Client Relationship between Johnson & Johnson and
30 Blank Rome
2
1 J&J entered into an Engagement Agreement with Blank Rome in
2 2004. The agreement, contained in a letter to J&J (“2004
3 Letter”), describes the scope of Blank Rome’s representation as
4 limited to compliance matters involving J&J and J&J affiliates
5 “in connection with the European Union . . . Data Protection
6 Directive and potential certification to the U.S. Safe Harbor.”
7 The bulk of the agreement concerns two provisions purporting to
8 waive certain conflicts of interest. The first provision
9 addresses Blank Rome’s concurrent representation of Kimberly-
10 Clark in a specific patent matter “adverse to [J&J’s] corporate
11 affiliate, McNeil PPC, Inc.” Specifically, it sets out the Rules
12 of Professional Conduct applicable to attorneys representing an
13 enterprise with diverse operations and concludes that Blank Rome
14 is free to continue to represent Kimberly-Clark in that matter so
15 long as J&J agrees to waive the conflict.
16 The second provision in the 2004 Letter to J&J seeks a
17 prospective waiver of all conflicts arising out of Blank Rome’s
18 representation of Kimberly-Clark in patent matters adverse to J&J
19 and affiliates. The prospective waiver provision provides:
20 We believe that if, in the future, our
21 firm were requested by Kimberly-Clark to
22 represent it in patent matters related to
23 Johnson & Johnson or its affiliates or
24 subsidiaries, our representation of Johnson &
25 Johnson in the Data Protection Matters and in
26 other unrelated matters and our present and
27 future representation of Kimberly-Clark would
3
1 not adversely affect our relationship with
2 either client. . . .
3
4 Specifically, this letter seeks
5 confirmation that, should our representation
6 of Kimberly-Clark in connection with patent-
7 related proceedings involve Johnson &
8 Johnson, or any other entity related to
9 Johnson & Johnson, Johnson & Johnson
10 consents, and will not object, to our
11 continuing representation of Kimberly-Clark
12 in connection with these proceedings . . . .
13
14 A final part of the 2004 Letter summarizes the terms of the two
15 waivers and directly asks J&J to acknowledge that “you are aware
16 of the conflict of interests that results from our representation
17 of Kimberly-Clark and Johnson & Johnson but that notwithstanding
18 that conflict . . . you consent to our representation of Johnson
19 & Johnson and our simultaneous continued representation of
20 Kimberly-Clark.” Blank Rome also attached a standard Addendum,
21 which provides in relevant part:
22
23 Unless otherwise agreed to in writing or
24 we specifically undertake such additional
25 representation at your request, we represent
26 only the client named in the engagement
27 letter and not its affiliates, subsidiaries,
28 partners, joint venturers, employees,
29 directors, officers, shareholders, members,
30 owners, agencies, departments or divisions.
31 If our engagement is limited to a specific
32 matter or transaction, and we are not engaged
33 to represent you in other matters, our
34 attorney-client relationship will terminate
35 upon the completion of our services with
36 respect to such matter or transaction whether
37 or not we send you a letter to confirm the
38 termination of our representation.
39
4
1 In 2005, Blank Rome sent another letter to J&J (“2005
2 Letter”) seeking to amend the terms of the Engagement Agreement.
3 The 2005 Letter first explains that Blank Rome had increased its
4 representation of generic drug manufacturers in patent-related
5 matters. It specifically notes that the firm’s representation of
6 these new clients could lead to conflicts with its existing
7 clients, such as J&J, that are known as branded drug
8 manufactures. The 2005 Letter then states: “The Addendum to our
9 current engagement letter stipulates that we represent only
10 [J&J], and not its affiliates, subsidiaries, partners, divisions
11 and joint venturers.” However, the Letter goes on to request the
12 following waiver from J&J:
13 Specifically, this letter seeks
14 confirmation that, should our representation
15 of generic drug manufacturers in connection
16 with patent-related proceedings involve
17 Johnson & Johnson, or any other entity
18 related to Johnson & Johnson, Johnson &
19 Johnson consents, and will not object, to our
20 continuing representation of the generic drug
21 manufacturers in connection with these
22 proceedings, and should we determine that our
23 withdrawal as counsel is necessary for us
24 under the Rules of Professional Conduct to
25 continue to represent the generic drug
26 manufacturers, Johnson & Johnson consents,
27 and will not object, to our firm’s withdrawal
28 at such time.
29
30 A final part of the 2005 Letter specifically asks J&J to
31 acknowledge: “you [J&J] provide your prospective consent to our
32 [Blank Rome’s] representation of generic drug manufacturers in
5
1 patent-related proceedings involving Johnson & Johnson and its
2 affiliates and subsidiaries.”
3 Pursuant to this Engagement Agreement, Blank Rome advised
4 J&J on a variety of privacy matters, much of which was related to
5 J&J affiliates. In particular, Jennifer Daniels, a partner at
6 Blank Rome, provided affiliates with privacy-related services,
7 including the preparation of policies and procedures, guidance
8 documents, and training materials. In 2006, Ms. Daniels
9 represented BabyCenter in a privacy-related matter. Blank Rome
10 did not, however, advise J&J with regard to the E-Commerce
11 Services Agreement (“E-Commerce Agreement”) between BabyCenter
12 and GSI, which is the subject of the current litigation. It also
13 appears that Blank Rome received no confidential information
14 relevant to that agreement during its representation of J&J or,
15 separately, BabyCenter.
16 b) J&J’s Relationship with BabyCenter
17 BabyCenter is a wholly-owned subsidiary of J&J that operates
18 as an online media company. BabyCenter hosts a variety of
19 websites in the United States and abroad that focus on pregnancy
20 and early childhood development. Until January 2009, BabyCenter
21 also hosted an online retail store offering baby-care and related
22 products.
23 BabyCenter relies on J&J for a variety of business services,
24 including accounting, audit, cash management, employee benefits,
6
1 finance, human resources, information technology, insurance,
2 payroll, and travel services and systems. It also substantially
3 relies on J&J’s legal department either to provide legal services
4 or to secure outside counsel. Stuart Wilks, a member of the J&J
5 legal department, serves as “Board Attorney” to BabyCenter.
6 J&J’s legal department participated in the negotiation of the E-
7 Commerce Agreement between BabyCenter and GSI. J&J lawyers have
8 also been involved from the beginning in the dispute between
9 BabyCenter and GSI. Indeed, J&J’s legal department has dealt
10 directly with Blank Rome in attempting to resolve the present
11 dispute.
12 Finally, it appears that J&J exercises some management
13 control over BabyCenter’s business decisions, although the extent
14 of this control is not clear from the record. BabyCenter is a
15 limited liability company. Its sole member is BC Acquisition
16 group, which is itself a wholly-owned subsidiary of J&J. J&J
17 structures affiliates into groups of companies. BabyCenter
18 belongs to the Consumer Healthcare Group and its operations are
19 supervised by the Consumer Healthcare Group Operating Committee,
20 which is composed mainly of J&J employees.
21 c) BabyCenter & GSI Commerce Solutions
22 BabyCenter and GSI entered into the aforementioned E-
23 Commerce Agreement in August 2006, pursuant to which GSI agreed
24 to run the day-to-day operations of BabyCenter’s online store in
7
1 return for a percentage of sales revenue. Section 10.10 of the
2 E-Commerce Agreement provides that, if a dispute should arise,
3 the parties will first attempt to resolve it through mediation.
4 Should mediation fail, the agreement provides that the parties
5 will proceed to arbitration.
6 When BabyCenter closed its online store in 2009, GSI accused
7 it of wrongfully terminating the E-Commerce Agreement.
8 Specifically, it argued that the five-year term of service in the
9 agreement had not expired at the time the store closed. James
10 Smith, a Blank Rome partner, notified BabyCenter on December 1,
11 2008 of GSI’s demand for mediation on its claim. Daniels, the
12 Blank Rome partner who had worked with J&J and affiliates on
13 privacy matters, contacted J&J’s legal department the same day to
14 inform J&J of the dispute. In January 2009, the parties
15 attempted mediation. Blank Rome partners Smith and Rebecca Ward
16 appeared on behalf of GSI. Members of the J&J legal department,
17 as well as John Winter (no relation to the author of this
18 opinion) from the firm Patterson Belknap Webb & Tyler LLP,
19 appeared on behalf of BabyCenter at mediation.
20 Mediation efforts proved unsuccessful. On February 27,
21 2009, Winter informed GSI that BabyCenter would not continue to
22 arbitration so long as Blank Rome represented GSI. On the same
23 day, J&J informed Blank Rome of its opposition to Blank Rome’s
24 representation of GSI.
8
1 d) The District Court Proceedings
2 On April 6, 2009, in light of BabyCenter’s failure to
3 arbitrate, GSI filed a motion in the Southern District to compel
4 arbitration. BabyCenter responded with a cross-motion to
5 disqualify Blank Rome as counsel, arguing that its representation
6 of GSI presented a concurrent conflict to which J&J had not given
7 its consent.
8 The district court granted BabyCenter’s motion to disqualify
9 Blank Rome. GSI Commerce Solutions, Inc. v. BabyCenter, L.L.C.,
10 644 F. Supp. 2d 333 (S.D.N.Y. 2009). Although Blank Rome’s
11 separate representation of BabyCenter allegedly ended in 2006,
12 see id. at 336, the court concluded that BabyCenter still “must
13 be considered a current client of Blank Rome for purposes of
14 disqualification,” id. at 337, because “BabyCenter and J&J must
15 be considered essentially the same client for purposes of the
16 instant litigation.” Id. at 336. See also id. (“Although
17 technically BabyCenter is a wholly owned subsidiary of J&J, as a
18 practical matter it is part and parcel of J&J.”) (citation
19 omitted). In so ruling, the court focused on the evidence of
20 substantial operational commonality between BabyCenter and J&J,
21 but particularly on BabyCenter’s reliance on J&J to provide legal
22 services. See id. at 336-37. The court further found it
23 relevant that, “since BabyCenter is a wholly owned subsidiary,
24 its liabilities directly impact J&J’s.” Id. at 337.
9
1 The court found that the Engagement Agreement had not given
2 Blank Rome broad authority to accept representation adverse to
3 affiliates such as BabyCenter. See id. at 336. Instead, it
4 noted that the agreement “itself contains prospective waivers of
5 certain conflicts, thus indicating (at least implicitly) that
6 Blank Rome was aware of the potential conflict of interest that
7 would be posed by its representation of interests adverse to J&J
8 and its subsidiaries.” Id.
9 The district court proceeded to disqualify Blank Rome on the
10 ground that it had not obtained consent to the concurrent
11 representation. See id. at 338.
12 DISCUSSION
13 a) Standard of Review
14 We review a district court order disqualifying an attorney
15 for an abuse of discretion. See Glueck v. Jonathan Logan, Inc.,
16 653 F.2d 746, 750 (2d Cir. 1981). Matters of law are reviewed de
17 novo and factual findings are sustained unless clearly erroneous.
18 Zervos v. Verizon New York, Inc., 252 F.3d 163, 169 (2d Cir.
19 2001). We will affirm the court’s application of the law to the
20 facts unless the court’s findings "cannot be located within the
21 range of permissible decisions." Id. In addition, to the extent
22 we need to interpret the Engagement Agreement between J&J and
23 Blank Rome, its construction is a question of law unless the
24 agreement’s meaning is ambiguous. See JA Apparel Corp. v.
10
1 Abboud, 568 F.3d 390, 397 (2d Cir. 2009). An agreement is
2 ambiguous only if it is “capable of more than one meaning when
3 viewed objectively by a reasonably intelligent person who has
4 examined the context of the entire integrated agreement."
5 Walk-In Med. Ctrs., Inc. v. Breuer Capital Corp., 818 F.2d 260,
6 263 (2d Cir. 1987).
7 b) The Corporate Affiliate Conflict
8 In deciding whether to disqualify an attorney, a district
9 court must balance "a client's right freely to choose his
10 counsel" against "the need to maintain the highest standards of
11 the profession." Hempstead Video, Inc. v. Inc. Vill. of Valley
12 Stream, 409 F.3d 127, 132 (2d Cir. 2005). Although the American
13 Bar Association (“ABA”) and state disciplinary codes provide
14 valuable guidance, a violation of those rules may not warrant
15 disqualification. See id. Instead, disqualification is
16 warranted only if “an attorney's conduct tends to taint the
17 underlying trial." Bd. of Educ. v. Nyquist, 590 F.2d 1241, 1246
18 (2d Cir. 1979) (internal quotation marks and citations omitted).
19 One established ground for disqualification is concurrent
20 representation, an attorney’s simultaneous representation of one
21 existing client in a matter adverse to another existing client.
22 Cinema 5, Ltd. v. Cinerama, Inc., 528 F.2d 1384, 1387 (2d Cir.
23 1976). Because concurrent representation is “prima facie
24 improper,” it is incumbent upon the attorney to “show, at the
11
1 very least, that there will be no actual or apparent conflict in
2 loyalties or diminution in the vigor of his representation.” Id.
3 at 1387. We have noted that this is “a burden so heavy that it
4 will rarely be met.” Glueck, 653 F.2d at 749. In this respect,
5 it will not suffice to show that the two matters upon which an
6 attorney represents existing clients are unrelated. “The lawyer
7 who would sue his own client, asserting in justification the lack
8 of ‘substantial relationship’ between the litigation and the work
9 he has undertaken to perform for that client, is leaning on a
10 slender reed indeed.” Cinema 5, 528 F.2d at 1386.
11 We have not previously considered whether, and under what
12 circumstances, representation adverse to a client’s corporate
13 affiliate implicates the duty of loyalty owed to the client.
14 However, the issue has been addressed by the ABA and also has
15 been discussed extensively in other courts.
16 The ABA’s Model Rules of Professional Conduct provide that a
17 “lawyer who represents a corporation or other organization does
18 not, by virtue of that representation, necessarily represent any
19 constituent or affiliated organization, such as a parent or
20 subsidiary.” ABA Model Rule of Prof’l Conduct 1.7 cmt. 34
21 (2006). This statement embodies what is often termed the “entity
22 theory” of representation. See Charles W. Wolfram, Legal Ethics:
23 Corporate-Family Conflicts, 2 J. Inst. Study Legal Ethics 295,
24 307 (1999). However, an attorney may not accept representation
12
1 adverse to a client affiliate if “circumstances are such that the
2 affiliate should also be considered a client of the lawyer
3 . . . .” ABA Model Rule of Prof’l Conduct 1.7 cmt. 34 (2006).
4 The ABA discussed this subject further in a 1995 Opinion Letter,
5 concluding that “whether a lawyer represents a corporate
6 affiliate of his client . . . depends not upon any clearcut per
7 se rule but rather upon the particular circumstances.” Am. Bar
8 Ass’n Comm. on Prof’l. Ethics, Formal Opinion 95-390 (1995),
9 reprinted in ABA/BNA Lawyers Manual on Prof’l. Conduct Ethics
10 Opinions 1991-95, pp. 1001:262 (1996).
11 Many courts have reached the conclusion that the bar to
12 concurrent representation applies if a firm’s representation
13 adverse to a client’s corporate affiliate “reasonably diminishes
14 the level of confidence and trust in counsel held by [the
15 client].” Certain Underwriters at Lloyd’s, London v. Argonaut
16 Ins. Co., 264 F. Supp. 2d 914, 922 (N.D. Cal. 2003) (internal
17 quotation marks omitted); see also Discotrade Ltd. v.
18 Wyeth-Ayerst Int'l, Inc., 200 F. Supp. 2d 355, 358-59 (S.D.N.Y.
19 2002); Hartford Accident & Indem. Co. v. RJR Nabisco, Inc., 721
20 F. Supp. 534, 540-41 (S.D.N.Y. 1989); John Steele, Corporate-
21 Affiliate Conflicts: A Reasonable Expectations Test, 29 W. St.
22 U. L. Rev. 283, 311-13 (2002). Put another way, these courts
23 focus on the reasonableness of the client’s belief that counsel
24 cannot maintain the duty of undivided loyalty it owes a client in
13
1 one matter while simultaneously opposing that client’s corporate
2 affiliate in another. See, e.g., Certain Underwriters at
3 Lloyd’s, London, 264 F. Supp. 2d at 922; Discotrade Ltd., 200 F.
4 Supp. 2d at 358-59.
5 We agree that representation adverse to a client’s affiliate
6 can, in certain circumstances, conflict with the lawyer’s duty of
7 loyalty owed to a client, a situation that we shall refer to as
8 “a corporate affiliate conflict.”
9 The factors relevant to whether a corporate affiliate
10 conflict exists are of a general nature. Courts have generally
11 focused on: (i) the degree of operational commonality between
12 affiliated entities, and (ii) the extent to which one depends
13 financially on the other. As to operational commonality, courts
14 have considered the extent to which entities rely on a common
15 infrastructure. See, e.g., Discotrade Ltd., 200 F. Supp. 2d at
16 359 (corporate affiliates deemed single entity where each used
17 the same computer network, e-mail system, travel department, and
18 health benefit plan); Eastman Kodak Co. v. Sony Corp., Nos.
19 04-CV-6095, 04-CV-6098, 2004 WL 2984297, at 3-4 (W.D.N.Y. Dec.
20 27, 2004) (corporate affiliates deemed single entity based on,
21 inter alia, integration of technology systems). Courts have also
22 focused on the extent to which the affiliated entities rely on or
23 otherwise share common personnel such as managers, officers, and
24 directors. See, e.g., Certain Underwriters at Lloyd’s, London,
14
1 264 F. Supp. 2d at 923 (substantial overlap in management);
2 Eastman Kodak, 2004 WL 2984297, at *4 (shared directors, officers
3 and legal department); Discotrade Ltd., 200 F. Supp. 2d at 359
4 (same board, directors and President). In this respect, courts
5 have emphasized the extent to which affiliated entities share
6 responsibility for both the provision and management of legal
7 services. See Eastman Kodak, 2004 WL 2984297, at *4; Certain
8 Underwriters at Lloyd’s, London, 264 F. Supp. 2d at 923-24;
9 Discotrade Ltd., 200 F. Supp. 2d at 357; Hartford Accident and
10 Indem. Co., 721 F. Supp. at 540; Morrison Knudsen Corp. v.
11 Hancock, Rothert & Bunshoft, 69 Cal. App. 4th 223, 231 (Cal. App.
12 1st Dist. 1999). This focus on shared or dependent control over
13 legal and management issues reflects the view that neither
14 management nor in-house legal counsel should, without their
15 consent, have to place their trust in outside counsel in one
16 matter while opposing the same counsel in another.
17 As to financial interdependence, several courts have
18 considered the extent to which an adverse outcome in the matter
19 at issue would result in substantial and measurable loss to the
20 client or its affiliate. See Hartford Accident and Indem. Co.,
21 721 F. Supp. at 540; Wolfram, 2 J. Inst. Study Legal Ethics at
22 357-58. Courts have also inquired into the entities’ ownership
23 structure. See Discotrade Ltd., 200 F. Supp. 2d at 358-59. Some
24 have even suggested that an affiliate’s status as a wholly-owned
15
1 subsidiary of the client may suffice to establish a corporate
2 affiliate conflict. Carlyle Towers Condo. Ass’n, Inc. v.
3 Crossland Sav., FSB, 944 F. Supp. 341, 346 (D.N.J. 1996)
4 ("[T]here is sufficient case law which supports the proposition
5 that, for conflict purposes, representation of a subsidiary
6 corporation is equivalent to representation of its parent, and
7 vice-versa . . . ."); Stratagem Dev. Corp. v. Heron Int’l N.V.,
8 756 F. Supp. 789, 792 (S.D.N.Y. 1991) (treating the entities as
9 one client because “the liabilities of a [wholly-owned]
10 subsidiary corporation directly affect the bottom line of the
11 corporate parent”). However, we agree with the ABA that
12 affiliates should not be considered a single entity for conflicts
13 purposes based solely on the fact that one entity is a wholly-
14 owned subsidiary of the other, at least when the subsidiary is
15 not otherwise operationally integrated with the parent company.
16 See American Bar Ass’n Comm. on Prof’l. Ethics, Formal Opinion
17 95-390 at 1001:261-62.
18 However, the record here establishes such substantial
19 operational commonalty between BabyCenter and J&J that the
20 district court’s decision to treat the two entities as one client
21 was easily within its ample discretion. First, Babycenter
22 substantially relies on J&J for accounting, audit, cash
23 management, employee benefits, finance, human resources,
24 information technology, insurance, payroll, and travel services
16
1 and systems. Second, both entities rely on the same in-house
2 legal department to handle their legal affairs. The member of
3 J&J’s in-house legal department who serves as “board lawyer” for
4 BabyCenter helped to negotiate the E-Commerce Agreement between
5 BabyCenter and GSI that is the subject of the present dispute.
6 Moreover, J&J’s legal department has been involved in the dispute
7 between GSI and BabyCenter since it first arose, participating in
8 mediation efforts and securing outside counsel for BabyCenter.
9 Finally, BabyCenter is a wholly-owned subsidiary of J&J, and
10 there is at least some overlap in management control.
11 When considered together, these factors show that the
12 relationship between the two entities is exceedingly close. That
13 showing in turn substantiates the view that Blank Rome, by
14 representing GSI in this matter, “reasonably diminishes the level
15 of confidence and trust in counsel held by” J&J. Certain
16 Underwriters at Lloyd’s, London, 264 F. Supp. 2d at 922 (internal
17 quotation marks omitted).1
18 c) J&J Did Not Waive the Corporate Affiliate Conflict
1
These factors are not clearly outweighed by those that would support a
different conclusion. It is true that the dispute between GSI and BabyCenter
is unrelated to the matters upon which Blank Rome represents J&J. Also, J&J
and BabyCenter do not publicly present themselves as a single legal entity; in
fact, the E-Commerce Agreement at issue here expressly forbids GSI from
representing that J&J is one of its strategic partners. GSI also claims that
the court should have given more weight to the fact that J&J is not
financially dependent on BabyCenter. BabyCenter is only one of many J&J
affiliates and does not account for much of J&J’s revenue. But, given the
extent of J&J’s and BabyCenter’s operational commonality, the district court
did not abuse its discretion in giving these counter factors little weight.
17
1 GSI argues that, with the Engagement Letter, J&J and Blank
2 Rome dispositively waived the corporate affiliate conflict.
3 We agree that a law firm may ordinarily accept
4 representation involving a corporate affiliate conflict if the
5 client expressly consents. In the criminal context, we have said
6 that courts should generally respect a party’s decision to “waive
7 his right to conflict-free counsel in order to retain the
8 attorney of his choice.” United States v. Schwarz, 283 F.3d 76,
9 95 (2d Cir. 2002). That principle has even greater force in the
10 context of private litigation where the Sixth Amendment does not
11 apply. This view has also been embraced by courts and
12 commentators. See American Bar Ass’n Comm. on Prof. Ethics,
13 Formal Opinion 95-390 at 1001:262 ("The best solution to the
14 problems that may arise by reason of clients' corporate
15 affiliations is to have a clear understanding between lawyer and
16 client, at the very start of the representation, as to which
17 entity or entities in the corporate family are to be the lawyer’s
18 clients, or are to be so treated for conflicts purposes.”); Ass’n
19 of the Bar of the City of New York Comm. on Prof’l and Judicial
20 Ethics, Formal Opinion 2007-3 ("[C]orporate-family conflicts may
21 be averted by . . . an engagement letter . . . that delineates
22 which affiliates, if any, of a corporate client the law firm
23 represents . . . ."); Wolfram, 2 J. Inst. Study Legal Ethics at
18
1 364 (“[D]iscrete agreements between a lawyer and corporate-family
2 client can define the relationship in such a way as to limit
3 . . . the type of conflict obligations that the lawyer is and is
4 not undertaking.”).2
5 However, Blank Rome failed to obtain J&J’s consent to the
6 instant corporate affiliate conflict.3 Although certain
7 provisions of the Engagement Agreement may constitute a waiver by
8 J&J of certain corporate affiliate conflicts, they do not waive
9 the conflict at issue here. Specifically, the waiver is strictly
10 limited to matters involving patent litigation and, even then,
11 only to matters brought by either Kimberly-Clark or a generic
12 drug manufacturer. Thus, because these provisions acknowledge
13 Blank Rome’s continuing duty to avoid conflicts arising out of
14 its representation of J&J and third parties, and because the
15 instant matter does not fall into the narrow category of cases
2
We need not exclude the possibility that some corporate affiliate
conflicts pose such a threat to the integrity of the adversarial process that
a court could, in its sound discretion, determine that the conflict is not
waivable. But since neither party directs us to evidence suggesting that is
the case, we assume that J&J’s consent to such representation would have been
dispositive of the disqualification motion.
3
GSI argues that BabyCenter and J&J have forfeited any right to contest
Blank Rome’s representation. It focuses on the fact that J&J and BabyCenter
waited several months before objecting to Blank Rome as counsel. We reject
GSI’s argument because a party’s delay in raising a conflict-of-interest
objection does not prohibit a court from deciding whether a conflict of
interest exists. See, e.g., Emle Indus., Inc. v. Patentex, Inc., 478 F.2d
562, 574 (2d Cir. 1973) (“Since, as we have noted, disqualification is in the
public interest, the court cannot act contrary to that interest by permitting
a party's delay in moving for disqualification to justify the continuance of a
breach of the Code of Professional Responsibility.”).
19
1 waived by those provisions, Blank Rome did not contract around
2 the corporate affiliate conflict at issue here.
3 GSI argues that the waiver provisions simply do not address
4 Blank Rome’s authority to accept representation that might raise
5 a corporate affiliate conflict. Rather, it argues, the conflicts
6 addressed in the waivers arise only if a J&J affiliate is a Blank
7 Rome client in its own right at the time the law firm accepts
8 representation adverse to that affiliate. If the affiliate is
9 not separately a Blank Rome client at that time, GSI argues, the
10 waiver provisions imply no limitation on the firm’s ability to
11 accept the adverse representation.
12 GSI argues that the Engagement Agreement gives Blank Rome
13 carte blanche to accept representation adverse to J&J affiliates
14 that are not separately Blank Rome clients. This argument relies
15 entirely on the clause that states: “Unless otherwise agreed to
16 in writing or we specifically undertake such additional
17 representation at your request, we represent only the client
18 named in the engagement letter and not its affiliates,
19 subsidiaries, partners, joint venturers, employees, directors,
20 officers, shareholders, members, owners, agencies, departments,
21 or divisions.”
22 We are unpersuaded. The waiver provisions unambiguously
23 state that the contemplated conflicts arise out of Blank Rome’s
24 representation of J&J and third-parties in matters adverse to J&J
20
1 affiliates, and not out of some separate representation of those
2 affiliates. The 2004 Letter states: “you [J&J] are aware of the
3 conflict of interests that results from our representation of
4 Kimberly-Clark and Johnson & Johnson but that notwithstanding
5 that conflict of interest . . . you [J&J] consent to our
6 representation of Johnson & Johnson and our simultaneous
7 continued representation of Kimberly-Clark.” (emphasis added).
8 The 2005 Letter similarly provides: “[I]t is our belief that, if
9 a conflict did exist, we would be permitted, subject to the
10 consent being given via this letter, to represent Johnson &
11 Johnson, while remaining available to represent the generic drug
12 manufacturers in future patent-related proceedings involving
13 Johnson & Johnson or any of its affiliates, subsidiaries or
14 divisions.” (emphasis added). The plain language of the
15 Engagement Agreement thus contradicts GSI’s argument that the
16 waivers do not address corporate affiliate conflicts.
17 And because the waiver provisions do address corporate
18 affiliate conflicts, GSI’s construction of the Addendum also
19 fails. If the broadly-worded, standard language of the Addendum
20 actually waives all corporate affiliate conflicts, then there is
21 no possible purpose served by the nonstandard waiver provisions
22 waiving only certain corporate affiliate conflicts. Adopting
23 GSI’s construction of the Addendum as waiving all such conflicts
24 would render the more specific and more limited waiver provisions
21
1 meaningless. We cannot accept such a construction. “The rules
2 of contract construction require us to adopt an interpretation
3 which gives meaning to every provision of the contract."
4 Paneccasio v. Unisource Worldwide, Inc., 532 F.3d 101, 111 (2d
5 Cir. 2008). Also, “specific language in a contract will prevail
6 over general language where there is an inconsistency between two
7 provisions.” Id. Because GSI’s construction of the broadly-
8 worded, standard language of the Addendum would strip the
9 remainder of the Engagement Agreement of any meaning, it violates
10 basic canons of construction of contract law.
11 In any event, the relevant language in the Addendum states
12 that Blank Rome represents only the named client and not unnamed
13 “affiliates, subsidiaries, partners, joint venturers, employees,
14 directors, officers, shareholders, members, owners, agencies,
15 departments, or divisions.” Construed as a waiver of all
16 corporate affiliate conflicts involving the entities listed
17 therein, this clause would raise a serious ethical problem.
18 Specifically, Blank Rome cannot, consistent with its duty of
19 loyalty to J&J, sue unincorporated departments or divisions of
20 J&J. GSI conceded as much at oral argument but could not then
21 explain why that same language grants Blank Rome authority to
22 accept representation adverse to the other entities listed
23 therein, such as affiliates. This troublesome aspect of GSI’s
24 construction only illustrates how hard GSI is straining to work a
22
1 broad waiver into language that simply is not plain enough or
2 clear enough to support it. There is, therefore, no waiver of
3 the present corporate affiliate conflict.4
4 d) Blank Rome Has Not Shown an Absence of an Actual or Apparent
5 Conflict
6 Having concluded that Blank Rome’s representation of GSI
7 implicates the duty of loyalty owed to J&J, and having further
8 concluded that Blank Rome did not contract around that duty, the
9 question remains whether GSI can meet its heavy burden that
10 representation of GSI should nonetheless be allowed. As to this
11 question, we find that GSI has failed to adduce any evidence
12 showing that such representation will not result in an “actual or
13 apparent conflict in loyalties.” Cinema 5, 528 F.2d at 1387.
14 CONCLUSION
15 For the foregoing reasons, we affirm.
16
4
We of course need not and do not address issues that might arise with
regard to a blanket waiver, without specifying types of claims or parties, of
corporate affiliate conflicts.
23