CAFC rules on attorney conflict of interest in Dr. Falk Pharma case

The outcome was disqualification:



At issue are three motions to disqualify Katten Muchin
Rosenman LLP as counsel for Mylan Pharmaceuticals Inc.
(“Mylan”) in three appeals before this court. Valeant Pharmaceuticals
International, Inc. (“Valeant-CA”) and Salix
Pharmaceuticals, Inc. (“Salix”) move to disqualify in Valeant
Pharmaceuticals International, Inc. v. Mylan Pharmaceuticals Inc.,
No. 2018-2097 (“Valeant II”), Salix moves to
disqualify in Salix Pharmaceuticals, Inc. v. Mylan Pharmaceuticals Inc.,
Nos. 2017-2636, 2018-1320 (“Salix II”), and
Valeant-CA and Salix move to disqualify in Dr. Falk
Pharma GmbH v. GeneriCo, LLC, No. 2017-2312 (“Dr. Falk
II”). Because we find that Katten has an ongoing attorney client
relationship with Valeant-CA and its subsidiaries,
including Salix, we conclude that Katten’s representation
of Mylan in these appeals presents concurrent conflicts of
interest. Therefore, we grant the motions to disqualify.



Of the issue


Specifically, Salix—a movant in all three appeals—
is a wholly-owned subsidiary of Salix Pharmaceuticals,
Limited, which is a wholly-owned subsidiary of ValeantDE, which is an indirect,
wholly-owned subsidiary of Valeant-CA. Bausch & Lomb is also an indirect subsidiary of
Valeant-CA and an affiliate of the above-listed entities.
Valeant-CA contends that it has been a longstanding
client of Katten, both directly and through its subsidiaries.

(...)

Mukerjee and Soderstrom, then at Alston & Bird, represented Mylan
throughout the district court litigation. On
May 3, 2018, Mylan notified the district court that Mukerjee and Soderstrom
had left Alston & Bird to join Katten.
On May 25, 2018, Valeant-CA filed a motion to disqualify
Katten in the district court action. Mylan timely appealed
the district court’s summary judgment on June 22, 2018.
Valeant-CA then filed a motion to disqualify Katten in this
court on July 9, 2018, and the district court stayed a decision
on the motion to disqualify pending before it. We
stayed the parties’ briefing on the merits in this appeal
pending our decision on the motion. Valeant II, ECF No.
24.



Of applicable rules


In Valeant, the relevant regional circuit is the
Third Circuit, which applies the professional conduct rules
of the forum state. See United States v. Miller, 624 F.2d
1198, 1200 (3d Cir. 1980). The forum state, New Jersey,
has adopted the Model Rules of Professional Conduct. N.J.
Rule of Prof’l Conduct 1.7(a). In Salix, the relevant regional
circuit is the Fourth Circuit, which applies the rules
of professional conduct of the forum state. See Shaffer v.
Farm Fresh, Inc., 966 F.2d 142, 145 (4th Cir. 1992). The
forum state, West Virginia, has also adopted the Model
Rules. W. Va. Rule of Prof’l Conduct 1.7(a). Finally, in Dr.
Falk, the U.S. Patent and Trademark Office is the relevant
forum and it has also adopted the Model Rules. 37 C.F.R.
§ 11.107(a).
(...)
Indeed, Comment
34 to Rule 1.7, which addresses “organizational clients,”
states:
A lawyer who represents a corporation or other organization does not,
by virtue of that representation, necessarily represent any constituent or
affiliated organization, such as a parent or subsidiary. See Rule 1.13(a).
Thus, the lawyer for an organization is not barred from accepting
representation adverse to an affiliate in an unrelated matter, unless the circumstances are such
that the affiliate should also be considered a client
of the lawyer, there is an understanding between
the lawyer and the organizational client that the
lawyer will avoid representation adverse to the client’s affiliates, or the lawyer’s obligations to either
the organizational client or the new client are
likely to limit materially the lawyer’s representation of the other client.
Model Rules of Prof’l Conduct r. 1.7 cmt. 34 (Am. Bar Ass’n
2018) (emphasis added). Circumstances in which an affiliate is considered a client of a lawyer can arise by express
agreement or when affiliates are so interrelated that representation of one constitutes representation of all. GSI
Commerce Sols., Inc. v. BabyCenter, LLC, 618 F.3d 204,
210–12 (2d Cir. 2010)



Irrational!



We find this reading of the engagement letter to be irrational.
Section 1.2 does not indirectly authorize Katten
to represent parties adverse to Valeant-CA and Salix so
long as Katten remains a non-key firm. Rather, section 1.2
expects a heightened degree of loyalty from key firms,
requiring something more than mere adherence to the ethical
rules. It states that key firms should not represent “any
party” in “any matters” that would conflict with “any Valeant entity.”
Gorman Decl. Ex. A, at § 1.2. This reference
to “any matters” encompasses, as Valeant-CA stated at oral
argument, a “blunderbuss” limitation on key firms to avoid,
not only matters that give rise to ethical conflicts, but also
those that give rise to other types of conflicts. See Oral Arg.
at 9:36. Other types of conflicts could include, for example,
a matter involving the filing of an amicus brief that presents
no ethical conflict under the rules of professional conduct, but that espouses a legal position contrary to one
taken by a Valeant entity in another case. Thus, section
1.2 broadens the degree and type of loyalty expected from
key firms.